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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
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SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF
THE SECURITIES EXCHANGE ACT OF 1934
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Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
HEXCEL CORPORATION
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(Name of Registrant as Specified In Its Charter)
Payment of Filing Fee (Check the appropriate box):
/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1) or 14a-6(i)(2).
/ / $500 per each party to the controversy pursuant to Exchange Act rule
14a-6(i)(3)
Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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[LOGO]
HEXCEL CORPORATION
TWO STAMFORD PLAZA
281 TRESSER BOULEVARD
STAMFORD, CONNECTICUT 06901-3238
---------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 21, 1998
---------------------
To the Stockholders of Hexcel Corporation:
NOTICE IS HEREBY GIVEN that an Annual Meeting of Stockholders (the "Annual
Meeting") of Hexcel Corporation, a Delaware corporation ("Hexcel"), will be held
at the Marriott Hotel, Two Stamford Forum, Stamford, Connecticut, on May 21,
1998, at 10:30 a.m., local time, for the following purposes:
1. To elect nine individuals (John M.D. Cheesmond, Marshall S. Geller,
John J. Lee, Stanley Sherman, Martin L. Solomon, George S. Springer, Joseph
T. Sullivan, Hermann Vodicka and Franklin S. Wimer) to Hexcel's Board of
Directors to serve as directors until the next annual meeting of
stockholders and until their successors are duly elected and qualified;
2. To approve and adopt Hexcel's Management Incentive Compensation Plan
as amended and restated as of March 26, 1998; and
3. To transact such other business as may properly come before the
Annual Meeting and any adjournment or postponement thereof.
Hexcel's Board of Directors (the "Board of Directors") has fixed the close
of business on March 23, 1998 as the record date (the "Record Date") for the
determination of the stockholders entitled to notice of and to vote at the
Annual Meeting. Accordingly, only holders of record of Hexcel common stock at
the close of business on the Record Date shall be entitled to vote at the Annual
Meeting, either by proxy or in person. A list of such stockholders will be
available for inspection at the offices of Hexcel at least 10 days prior to the
Annual Meeting and will also be available for inspection at the Annual Meeting.
Each share of Hexcel common stock is entitled to one vote on each matter to be
acted upon or which may properly come before the Annual Meeting.
The enclosed proxy is solicited by the Board of Directors. Reference is made
to the attached Proxy Statement for further information with respect to the
business to be transacted at the Annual Meeting.
Whether or not you plan to attend the Annual Meeting, please complete, sign
and date the enclosed proxy card and return it promptly using the enclosed
pre-addressed, postage-paid, return envelope. If you attend the Annual Meeting,
you may vote in person if you wish, even if you have previously returned your
proxy card. Your prompt attention is appreciated.
By order of the Board of Directors
Ira J. Krakower
Secretary
Dated: April 20, 1998
<PAGE>
YOUR VOTE IS IMPORTANT. PLEASE SIGN, DATE AND COMPLETE THE
ENCLOSED PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED
PRE-ADDRESSED, POSTAGE-PAID RETURN ENVELOPE.
<PAGE>
HEXCEL CORPORATION
TWO STAMFORD PLAZA
281 TRESSER BOULEVARD
STAMFORD, CONNECTICUT 06901-3238
------------------------
PROXY STATEMENT
------------------------
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 21, 1998
------------------------
This Proxy Statement is being furnished to the stockholders of Hexcel
Corporation, a Delaware corporation ("Hexcel"), in connection with the
solicitation of proxies by Hexcel's Board of Directors (the "Board of
Directors") for use at the Annual Meeting of Stockholders of Hexcel to be held
at the Marriott Hotel, Two Stamford Forum, Stamford, Connecticut, on May 21,
1998, at 10:30 a.m., local time, and at any adjournment or postponement thereof
(the "Annual Meeting"). At the Annual Meeting, stockholders will be asked to
consider and vote on (i) the election of nine individuals (John M.D. Cheesmond,
Marshall S. Geller, John J. Lee, Stanley Sherman, Martin L. Solomon, George S.
Springer, Joseph T. Sullivan, Hermann Vodicka and Franklin S. Wimer) to the
Board of Directors; (ii) the approval and adoption of Hexcel's Management
Incentive Compensation Plan as amended and restated as of March 26, 1998 (as so
amended, the "Management Incentive Compensation Plan"); and (iii) such other
matters as may properly come before the Annual Meeting.
The Board of Directors does not intend to bring any matter before the Annual
Meeting except as specifically indicated in the attached notice, nor does the
Board of Directors know of any matters which anyone else proposes to present for
action at the Annual Meeting. The persons named in the enclosed proxy card, or
their duly constituted substitutes acting at the Annual Meeting, will be
authorized to vote or otherwise act thereon at their discretion and in
accordance with their judgment on such matters.
This Proxy Statement and the accompanying proxy card are first being mailed
to stockholders of Hexcel on or about April 20, 1998. The date of this Proxy
Statement is April 20, 1998.
No person has been authorized to give any information or to make any
representation other than those contained in this Proxy Statement in connection
with the solicitation of proxies made hereby and, if given or made, such
information or representation must not be relied upon as having been authorized
by Hexcel or any other person. The delivery of this Proxy Statement shall not
under any circumstances create an implication that there has been no change in
the affairs of Hexcel since the date hereof or that the information herein is
correct as of any time subsequent to the date hereof.
<PAGE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
THE MEETING................................................................................................ 3
General.................................................................................................. 3
Matters to be Considered at the Meeting.................................................................. 3
Record Date; Voting Rights............................................................................... 3
Proxies.................................................................................................. 4
Recommendations of the Board of Directors................................................................ 4
ELECTION OF DIRECTORS...................................................................................... 4
Information Regarding the Directors and Director Nominees................................................ 5
Meetings and Standing Committees of the Board of Directors............................................... 8
EXECUTIVE OFFICERS......................................................................................... 9
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT............................................. 11
Stock Beneficially Owned by Principal Stockholders....................................................... 11
Stock Beneficially Owned by Directors and Officers....................................................... 12
EXECUTIVE COMPENSATION..................................................................................... 13
Summary Compensation Table............................................................................... 13
Options and Restricted Stock............................................................................. 16
Deferred Compensation.................................................................................... 18
Employment and Other Agreements.......................................................................... 19
Compensation Committee Report on Executive Compensation.................................................. 20
Compensation Committee Interlocks and Insider Participation.............................................. 23
Compensation of Directors................................................................................ 23
PERFORMANCE GRAPH.......................................................................................... 24
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS............................................................. 24
THE MANAGEMENT INCENTIVE COMPENSATION PLAN................................................................. 31
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE.................................................... 33
OTHER MATTERS.............................................................................................. 33
STOCKHOLDER PROPOSALS...................................................................................... 33
INDEPENDENT AUDITORS....................................................................................... 33
ANNUAL REPORT.............................................................................................. 33
ANNEX A--MANAGEMENT INCENTIVE COMPENSATION PLAN............................................................ A-1
</TABLE>
2
<PAGE>
THE MEETING
GENERAL
This Proxy Statement is being furnished to stockholders of Hexcel in
connection with the solicitation of proxies by the Board of Directors of Hexcel
for use at the Annual Meeting to be held at the Marriott Hotel, Two Stamford
Forum, Stamford, Connecticut, on May 21, 1998, at 10:30 a.m., local time, and at
any adjournment or postponement thereof. Each copy of this Proxy Statement is
accompanied by a proxy card for use at the Annual Meeting.
MATTERS TO BE CONSIDERED AT THE MEETING
At the Annual Meeting, holders of Hexcel's common stock, par value $0.01 per
share ("Hexcel Common") will vote upon (i) the election of nine individuals to
the Board of Directors; (ii) the approval and adoption of the Management
Incentive Compensation Plan; and (iii) such other matters as may properly be
brought before the Annual Meeting and any adjournment or postponement thereof.
RECORD DATE; VOTING RIGHTS
The Board of Directors of Hexcel has fixed the close of business on March
23, 1998 as the record date for the determination of stockholders entitled to
notice of and to vote at the Annual Meeting (the "Record Date"). This Proxy
Statement and the enclosed proxy card are being mailed on or about April 20,
1998 to holders of record of Hexcel Common on the Record Date. On the Record
Date, there were 36,853,071 shares of Hexcel Common outstanding held by 2,293
stockholders of record.
The presence, either in person or by proxy, of the holders of a majority of
the outstanding shares of the Hexcel Common entitled to vote at the Annual
Meeting is necessary to constitute a quorum at the Annual Meeting.
The election of directors requires a plurality of the votes cast in person
or by proxy at the Annual Meeting. Approval and adoption of the Management
Incentive Compensation Plan requires the affirmative vote of a majority of the
votes cast in person or by proxy at the Annual Meeting. See "THE MANAGEMENT
INCENTIVE COMPENSATION PLAN".
Under the rules of the New York Stock Exchange brokers who hold shares in
"street name" have the authority to vote on certain matters when they do not
receive instructions from beneficial owners. Brokers that do not receive
instructions are entitled to vote on the election of directors. With respect to
the proposal to approve and adopt the Management Incentive Compensation Plan,
brokers may not vote shares held for customers without specific instructions
from such customers. In determining whether the proposal to approve and adopt
the Management Incentive Compensation Plan has received the requisite number of
affirmative votes, abstentions will be counted and will have the same effect as
a vote against the proposal; broker non-votes will be disregarded and will have
no effect on the outcome of the vote. Under applicable Delaware law, in
determining whether the proposal to elect directors has received the requisite
vote, abstentions and broker non-votes will be disregarded and will have no
effect on the outcome of the vote.
Under the terms of a Governance Agreement dated as of February 29, 1996,
between Hexcel and Ciba-Geigy Limited ("CGL"), as amended in accordance with the
Hexcel Consent Letter (as defined below) (the "Governance Agreement"), Ciba
Specialty Chemicals Holding Inc. ("Ciba"), which currently beneficially holds
48.9% of the issued and outstanding Hexcel Common, is subject to certain voting
restrictions with respect to the shares of Hexcel Common held by it. See
"CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS." In accordance with the terms
of the Governance Agreement, Ciba has indicated that it will vote its shares of
Hexcel Common in favor of each of the nominees for election to the Board of
Directors and for the approval and adoption of the Management Incentive
Compensation Plan.
3
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PROXIES
All shares of Hexcel Common which are entitled to vote and are represented
at the Annual Meeting by properly executed proxies received prior to or at the
Annual Meeting, and not revoked, will be voted at such Annual Meeting in
accordance with the instructions indicated on such proxies. If no instructions
are indicated, such proxies will be voted as follows:
FOR the election of each of the nominees to Hexcel's Board of Directors; and
FOR the approval and adoption of the Management Incentive Compensation Plan.
If any other matters are properly presented for consideration at the Annual
Meeting, the persons named in the enclosed proxy card and acting thereunder, or
their duly constituted substitutes acting at the Annual Meeting, will have
discretion to vote on such matters in accordance with their judgment.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked by (i) filing
with the Secretary of Hexcel at or before the taking of the vote at the Annual
Meeting a written notice of revocation bearing a later date than the proxy, (ii)
duly executing a later dated proxy relating to the same shares and delivering it
to the Secretary of Hexcel before the taking of the vote at the Annual Meeting
or (iii) attending the Annual Meeting and voting in person. Notice of revocation
or subsequent proxy should be sent so as to be delivered to Hexcel Corporation,
Two Stamford Plaza, 281 Tresser Boulevard, Stamford, Connecticut 06901--3238,
Attention: Secretary, or hand delivered to the Secretary of Hexcel, at or before
the taking of the vote at the Annual Meeting.
The cost of solicitation of proxies will be paid by Hexcel. Hexcel has
retained Georgeson & Company Inc. to aid in the solicitation of proxies at a fee
of $3,000 plus expenses. In addition to solicitation by use of the mails,
proxies may be solicited by directors, officers and employees of Hexcel in
person or by telephone, telegram or other means of communication. Such
directors, officers and employees will not be additionally compensated, but may
be reimbursed for reasonable out-of-pocket expenses in connection with such
solicitation. Arrangements will also be made with custodians, nominees and
fiduciaries for the forwarding of proxy solicitation materials to beneficial
owners of shares held of record by such custodians, nominees and fiduciaries,
and Hexcel will reimburse such custodians, nominees and fiduciaries for
reasonable expenses incurred in connection therewith.
RECOMMENDATIONS OF THE BOARD OF DIRECTORS
The Board of Directors unanimously recommends a vote FOR the election of
each of the nominees to the Board of Directors and a vote FOR the approval and
adoption of the Management Incentive Compensation Plan. See "ELECTION OF
DIRECTORS" and "THE MANAGEMENT INCENTIVE COMPENSATION PLAN".
ELECTION OF DIRECTORS
On February 29, 1996, the Board of Directors was reconstituted in accordance
with the terms of the Governance Agreement and a Strategic Alliance Agreement,
dated as of September 29, 1995 (the "Strategic Alliance Agreement") among
Hexcel, CGL and Ciba-Geigy Corporation ("CGC" and together with CGL,
"Ciba-Geigy"). In accordance with a consent letter dated February 21, 1997 (the
"Hexcel Consent Letter"), Hexcel consented to the assignment by Ciba-Geigy of
all of their respective rights under such agreements to Ciba and to the
assumption by Ciba of all obligations thereunder. As amended in accordance with
the Hexcel Consent Letter, the Governance Agreement provides that the Board of
Directors shall consist of ten directors, including four directors designated by
Ciba (the "Ciba Directors") (currently John M.D. Cheesmond, Stanley Sherman,
Joseph T. Sullivan and Hermann Vodicka), the Chairman of the Board of Hexcel and
the President of Hexcel (both positions currently held by John J. Lee) and four
additional directors who are independent of Ciba (the "Independent Directors")
(currently Marshall S. Geller, Martin L. Solomon, George S. Springer and
Franklin S. Wimer). A vacancy has existed on the Board of Directors since the
resignation of Mr. Juergen Habermeier as a director on December 31, 1997. Mr.
Lee has assumed the position of President formerly held by Mr. Habermeier and is
expected to
4
<PAGE>
continue as President until a replacement President is appointed. Unless the
Governance Agreement is amended to eliminate the requirement that the President
also be a director, any individual selected to be replacement President will
also be appointed to fill the vacancy on the Board of Directors.
Pursuant to the Governance Agreement, the composition of any slate of
nominees to be presented to stockholders of Hexcel for election to the Board of
Directors is generally determined as follows: (i) if Ciba beneficially owns
voting securities representing 30% or more of the total voting power of Hexcel,
the slate of nominees will consist of four individuals designated by Ciba (the
"Ciba Nominees"), the Chairman of the Board of Hexcel, the President of Hexcel
and four additional individuals, each of whom (x) is not a Ciba Director, (y) is
not and has not been an officer, employee or director of Ciba or any affiliate
or associate of Ciba and (z) has no affiliation or relationship with Ciba or its
affiliates such that a reasonable person would regard such person as likely to
be influenced by Ciba or its affiliates (the "Independent Nominees"); (ii) if
Ciba beneficially owns voting securities representing less than 30% but at least
20% of the total voting power of Hexcel, the slate of nominees will consist of
three Ciba Nominees, the Chairman, the President and five additional Independent
Nominees; (iii) if Ciba beneficially owns voting securities representing less
than 20% but at least 15% of the total voting power of Hexcel, the slate of
nominees will consist of two Ciba Nominees, the Chairman, the President and six
additional Independent Nominees; and (iv) if Ciba beneficially owns voting
securities representing less than 15% but at least 10% of the total voting power
of Hexcel, the slate of nominees will consist of one Ciba Nominee, the Chairman,
the President and seven additional Independent Nominees. In accordance with the
Governance Agreement, Independent Nominees are designated by the Independent
Directors (including the Chairman and the President if he or she is an
Independent Director).
Ciba currently beneficially owns approximately 48.9% of the total voting
power of Hexcel. In accordance with the Governance Agreement, the following
individuals have been nominated for election to the Board of Directors: (i) John
J. Lee (the Chairman and President); (ii) John M.D. Cheesmond, Stanley Sherman,
Joseph T. Sullivan and Hermann Vodicka (the Ciba Nominees); and (iii) Marshall
S. Geller, Martin L. Solomon, George S. Springer and Franklin S. Wimer (the
Independent Nominees). All of the nominees for election to the Board of
Directors are currently serving as directors of Hexcel.
Unless otherwise instructed on the enclosed proxy card, the persons named
therein will vote such proxy (if properly executed and returned) for the
election of each of the director nominees. In case any nominee becomes
unavailable for election or declines to serve for any reason, an event Hexcel
does not anticipate, the shares of Hexcel Common represented by a properly
executed and returned proxy will be voted for an alternative or alternatives
designated in accordance with the Governance Agreement.
INFORMATION REGARDING THE DIRECTORS AND DIRECTOR NOMINEES
Set forth below is certain information concerning the current directors of
Hexcel as of April 8, 1998. All current directors have been nominated for
reelection to the Board of Directors. There are no family relationships among
any Hexcel executive officer, director, or director nominee
<TABLE>
<CAPTION>
DIRECTOR
NAME AGE SINCE POSITION(S) WITH HEXCEL
- ------------------------------------------------ --- ----------- ------------------------------------------------
<S> <C> <C> <C>
John J. Lee..................................... 61 1993 Chairman of the Board; Chief Executive Officer;
President; Director
John M.D. Cheesmond............................. 48 1996 Director
Marshall S. Geller.............................. 59 1994 Director
Stanley Sherman................................. 59 1996 Director
Martin L. Solomon............................... 61 1996 Director
George S. Springer.............................. 64 1993 Director
Joseph T. Sullivan.............................. 58 1996 Director
Hermann Vodicka................................. 55 1996 Director
Franklin S. Wimer............................... 62 1996 Director
</TABLE>
5
<PAGE>
JOHN J. LEE, age 61, has served as Chairman of the Board of Directors of
Hexcel since February 1996, Chief Executive Officer since January 1994,
President since May 1997, Chairman and Chief Executive Officer from January 1994
to February 1995, Chairman and Co-Chief Executive Officer from July 1993 to
December 1993 and a director of Hexcel since May 1993. Mr. Lee also serves as
Chairman of the Nominating Committee and a member of the Finance Committee of
Hexcel. In addition, Mr. Lee has served as Chairman of the Operating Committee
of Hexcel since May 1997 (the Operating Committee is a committee comprised of
certain members of senior management of Hexcel which provides oversight of, and
establishes policies in connection with, Hexcel's worldwide business
operations). Mr. Lee is also a director of Aviva Petroleum Corporation, an oil
and gas exploration company and of Hvide Marine Incorporated, a marine support
and transportation services company, and has served as Chairman of the Board,
President and Chief Executive Officer of Lee Development Corporation, a merchant
banking company, since 1987. Mr. Lee is a Trustee of Yale University and has
been an adviser to the Clipper Group, a private investment partnership from 1993
to December 1997. Mr. Lee served as a director of XTRA Corporation, a
transportation equipment leasing company, from 1990 to January 1996. From July
1989 through April 1993, Mr. Lee served as Chairman of the Board and Chief
Executive Officer of Seminole Corporation, a manufacturer and distributor of
fertilizer. From April 1988 through April 1993, Mr. Lee served as a director of
Tosco Corporation, a national refiner and marketer of petroleum products and as
President and Chief Operating Officer of Tosco Corporation from 1990 through
1993. Mr. Lee is also a director of various privately-held corporations.
JOHN M.D. CHEESMOND, age 48, has been a director of Hexcel since February
1996. Mr. Cheesmond also serves as Chairman of the Executive Compensation
Committee and a member of the Finance Committee of Hexcel. Mr. Cheesmond is
Executive Vice President and Head of Corporate Strategy, and a member of the
Executive Committee of Ciba, a leading global specialty chemical company and
successor to Ciba-Geigy's industrial chemicals business. Mr. Cheesmond also
serves as a member of Beirat of TFL, a European headquatered joint venture in
leather chemicals. Mr. Cheesmond served as Senior Vice President and Head of
Regional Finance and Control of CGL from 1994 to 1996. From 1991 to 1993, Mr.
Cheesmond served as Group Vice President, Planning, Information and Control at
Ciba Vision Corporation.
MARSHALL S. GELLER, age 59, has been a director of Hexcel since August 1994.
Mr. Geller also serves as a member of the Audit, Executive Compensation and
Nominating Committees of Hexcel. Mr. Geller is currently Chairman of the Board,
Chief Executive Officer and founding partner at Geller & Friend Capital
Partners, Inc., a merchant banking firm, since November 1995. From 1991 to 1995,
Mr. Geller was Senior Managing Director of Golenberg & Geller, Inc., a merchant
banking firm. From 1988 to 1990, he was Vice Chairman of Gruntal & Company, an
investment banking firm. From 1967 to 1988, he was a Senior Managing Director of
Bear, Stearns & Co. Inc., an investment banking firm. Mr. Geller is currently a
director of Ballantyne of Omaha, iMALL, Inc., Datalink Systems Corp., Players
International, Value Vision International, Inc., Cabletel Communications Corp.
and various privately-held corporations and charitable organizations. Mr. Geller
currently serves as Chairman of the Investment Committee for both Players
International, and Value Vision International, Inc.
STANLEY SHERMAN, age 59, has been a director of Hexcel since February 1996.
Mr. Sherman also serves as a member of the Executive Compensation and Finance
Committees of Hexcel. Mr. Sherman is President and Chief Executive Officer of
Ciba Specialty Chemicals Corporation (North America) and Chairman of the Board
of Ciba Specialty Chemicals Canada, Inc., both of which are members of the Ciba
group. Mr. Sherman served as a director and Vice President and Chief Financial
Officer of CGC from 1991 to 1996, serving on the Finance Committee and the
Corporate Management Committee of CGC's Board of Directors. From 1986 to 1991,
Mr. Sherman served as Vice President-Corporate Planning of CGC. Mr. Sherman also
serves on the Board of the Westchester Educational Coalition and the Chemical
Manufacturers Association.
MARTIN L. SOLOMON, age 61, has been a director of Hexcel since May 1996. Mr.
Solomon also serves as Chairman of the Finance Committee and as a member of the
Audit and Executive Compensation Committees of Hexcel. Since June 1997, Mr.
Solomon has been the Chairman and Chief Executive Officer
6
<PAGE>
of American Country Holdings, Inc., an insurance company holding company. Since
1990, Mr. Solomon has been a private investor. From 1988 to 1990, he was
Managing Director and general partner of Value Equity Associates, I, L.P., an
investment partnership. From 1985 to 1987, Mr. Solomon was an investment analyst
and portfolio manager with Steinhardt Partners, an investment partnership. From
1985 to 1996, Mr. Solomon was a Director and Vice-Chairman of the Board of Great
Dane Holdings, Inc., a company engaged in the manufacture of transportation
equipment, automobile stamping, the lease of taxis and insurance. Since 1995,
Mr. Solomon has been a Director of DLB Oil and Gas, Inc., a company engaged in
oil exploration and production. Since 1990, Mr. Solomon has been a Director of
XTRA Corporation, a lessor of truck trailers, marine containers, and intermodal
equipment, and since June 1997, Mr. Solomon has been a Director of Telephone and
Data Systems, Inc., a diversified telecommunications service company with
established wireless and wireline operations. Mr. Solomon is also a director of
various privately held corporations and civic organizations.
GEORGE S. SPRINGER, age 64, has been a director of Hexcel since January
1993. Mr. Springer also serves as Chairman of the Technology Committee of
Hexcel. Mr. Springer is the Paul Pigott Professor and Chairman of the Department
of Aeronautics and Astronautics, and by courtesy, Professor of Mechanical
Engineering and Professor of Civil Engineering at Stanford University. Mr.
Springer joined Stanford University's faculty in 1983.
JOSEPH T. SULLIVAN, age 58, has been a director of Hexcel since February
1996. Mr. Sullivan also serves as a member of the Nominating and Technology
Committees of Hexcel. Mr. Sullivan is the Joseph H. Colic Professor of Chemical
Engineering at Virginia Polytechnic Institute and State University in
Blacksburg, VA. Mr. Sullivan served as a director and Senior Vice President of
CGC from 1986 to 1996.
HERMANN VODICKA, age 55, has been a director of Hexcel since February 1996.
Mr. Vodicka also serves as a member of the Nominating and Technology Committees
of Hexcel. From 1996, Mr. Vodicka has served as the Chief Executive Officer and
as a director of Ciba. Mr. Vodicka served as President of the Polymers Division
and a member of the Executive Committee of CGL from 1993 to 1996. Mr. Vodicka
was the Chairman of the Board of Mettler-Toledo, a leading worldwide
manufacturer of scales and balances and a wholly owned subsidiary of CGL, until
its sale in 1996. From 1988 to 1993, Mr. Vodicka was President and Chief
Executive Officer of Mettler-Toledo.
FRANKLIN S. WIMER, age 62, was a director of Hexcel from February 1995 to
February 1996 and was reelected in May 1996. Mr. Wimer is Chairman of the Audit
Committee and also serves on the Technology Committee of Hexcel. Mr. Wimer is
President and Principal of UniRock Management Corporation ("UniRock"), a private
merchant banking firm based in Denver, Colorado. Mr. Wimer has been with UniRock
since 1987. UniRock acted as strategic planning consultant to Hexcel from
December 1993 through April 1996. Mr. Wimer is currently Chairman of the Board
of Vista Restaurants, Inc., Chairman of the Board of Colorado Gaming &
Entertainment Co. and is a director of the Denver Paralegal Institute and
Foresight Products, Inc.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ELECTION OF THE NOMINEES FOR
DIRECTOR
7
<PAGE>
MEETINGS AND STANDING COMMITTEES OF THE BOARD OF DIRECTORS
During 1997, there were 8 meetings of the Board of Directors and 22 meetings
in the aggregate of the five standing committees of the Board. Overall
attendance at the Board and committee meetings was approximately 94% in 1997.
Each of the incumbent directors, except Mr. Vodicka, attended or participated in
at least 75% of the aggregate number of Board of Directors meetings and
applicable committee meetings held during 1997.
The Board of Directors has established the following standing committees:
Audit Committee; Executive Compensation Committee; Finance Committee; Nominating
Committee; and Technology Committee. The Board of Directors may establish other
special or standing committees from time to time. Members of committees serve at
the discretion of the Board of Directors. In accordance with the Governance
Agreement and subject to applicable law, rules and regulations (including those
of applicable self-regulatory organizations), for so long as Ciba beneficially
owns voting securities representing at least 40% of the total voting power of
Hexcel, each committee of the Board of Directors will consist of an equal number
of Ciba Directors and Independent Directors. At all other times each committee
will be comprised such that Ciba's representation on each committee is at least
proportionate to its representation on the Board of Directors unless the
committee is comprised of three members or less, in which case at least one Ciba
Director will serve on such committee.
On behalf of the Board of Directors, the Audit Committee reviews, with
management and the independent auditors as deemed necessary, the financial
statements, the results of the annual audit and internal accounting and control
matters. It also recommends to the Board of Directors the selection of auditors.
While the Audit Committee is concerned with the accuracy and completeness of
Hexcel's financial statements and matters relating thereto, it is not in a
position to, nor does it in any sense professionally evaluate the quality of the
independent audit. It is believed that the Audit Committee's activities serve a
useful function in providing ongoing review on behalf of the Board of Directors
but they in no way alter the traditional roles and responsibilities of Hexcel's
management and independent auditors with respect to the accounting and control
functions and financial statements. The current members of the Audit Committee
are Messrs. Wimer (Chairman), Geller and Solomon. During 1997, the Audit
Committee held five meetings.
The Executive Compensation Committee makes recommendations to the Board of
Directors on matters pertaining to the compensation of, and certain related
matters affecting, Hexcel's executive officers. The Executive Compensation
Committee also administers Hexcel's incentive plans and makes grants of stock
options and/or awards of restricted stock units or other equity based
compensation to executive officers and certain non-officer key employees of
Hexcel. The current members of the Executive Compensation Committee are Messrs.
Cheesmond (Chairman), Geller, Sherman and Solomon. During 1997, the Executive
Compensation Committee held four meetings.
The Finance Committee oversees certain financial affairs of Hexcel and makes
recommendations to the Board of Directors with respect thereto The current
members of the Finance Committee are Messrs. Solomon (Chairman), Cheesmond, Lee
and Sherman. During 1997, the Finance Committee held nine meetings.
The Nominating Committee recommends nominees for the Board of Directors. The
Nominating Committee does not solicit stockholder recommendations for
nomination. Under the Governance Agreement, the Nominating Committee is required
to nominate the Chairman, the President, the Ciba Nominees and the Independent
Nominees. See "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS-The Governance
Agreement." The current members of the Nominating Committee are Messrs. Lee
(Chairman), Geller, Sullivan and Vodicka. During 1997, the Nominating Committee
held one meeting.
The Technology Committee oversees Hexcel's technological processes and
research and development activities and makes recommendations to the Board of
Directors with respect thereto. The current members of the Technology Committee
are Messrs. Springer (Chairman), Sullivan, Vodicka and Wimer. During 1997, the
Technology Committee held three meetings.
8
<PAGE>
EXECUTIVE OFFICERS
Set forth below is certain information concerning the executive officers of
Hexcel and all persons chosen to become executive officers of Hexcel as of April
8, 1998. For additional information concerning Mr. Lee, see "ELECTION OF
DIRECTORS--Information Regarding the Directors and Director Nominees."
<TABLE>
<CAPTION>
EXECUTIVE
OFFICER
NAME AGE SINCE POSITION(S) WITH HEXCEL
- ------------------------------------ --- ----------- ----------------------------------------------------------
<S> <C> <C> <C>
John J. Lee......................... 61 1993 Chairman of the Board; Chief Executive Officer; President;
; Director
Stephen C. Forsyth.................. 42 1994 Senior Vice President of Finance and Administration; Chief
Financial Officer
Ira J. Krakower..................... 57 1996 Senior Vice President; General Counsel; Secretary
Bruce D. Herman..................... 42 1996 Treasurer
William Hunt........................ 55 1996 President, EuroMaterials Business Unit
Linn Matthews....................... 60 1997 Vice President of Corporate Sales and Marketing
William P. Meehan................... 62 1993 Vice President; Deputy Director of Operations
Wayne C. Pensky..................... 42 1993 Corporate Controller; Chief Accounting Officer
Gary L. Sandercock.................. 57 1989 Vice President of Manufacturing
Joseph H. Shaulson.................. 32 1996 Vice President of Corporate Development
David M. Wong....................... 53 1996 Vice President of Corporate Affairs
</TABLE>
STEPHEN C. FORSYTH, age 42, has served as Chief Financial Officer of Hexcel
since November 1996, Senior Vice President of Finance and Administration of
Hexcel since February 1996 and as a member of the Operating Committee since May
1997. Mr. Forsyth served as Vice President of International Operations of Hexcel
from October 1994 to February 1996 and General Manager of Hexcel's Resins
Business and Export Marketing from 1989 to 1994 and held other general
management positions with Hexcel from 1980 to 1989. Mr. Forsyth joined Hexcel in
1980.
IRA J. KRAKOWER, age 57, has served as Senior Vice President, General
Counsel and Secretary since September 1996. Prior to joining Hexcel, Mr.
Krakower served as Vice President, General Counsel and Secretary of Uniroyal
Chemical Corporation from 1986 to August 1996 and as Vice President, General
Counsel and Secretary, and a Director of Uniroyal Chemical Company, Inc. from
1989 to 1996.
BRUCE D. HERMAN, age 42, has served as Treasurer of Hexcel since April 1996.
Prior to joining Hexcel, Mr. Herman served as Vice President of Finance in the
Transportation and Industrial Financing Division of USL Capital Corp. (formerly
U.S. Leasing Inc.) ("USL") from 1993 to 1996, Vice President of Finance in the
Equipment Financing Group of USL from 1991 to 1993 and as Vice President of
Corporate Analysis from 1988 to 1991.
WILLIAM HUNT, age 55, has served as the President of Hexcel's EuroMaterials
business unit since February 1996, and as a member of the Operating Committee
since October 1997. Mr. Hunt served as the President of the EuroMaterials unit
of the Ciba Composites Business from 1991 to February 1996 and as the Managing
Director of Ciba-Geigy Plastics ("CGP") from 1990 to 1991. Prior to joining CGP
in 1990, Mr. Hunt held various other technical and managerial positions,
including the position of Managing Director of Illford Limited (Photographic)
Co.
LINN MATTHEWS, age 60, has served as Vice President of Corporate Sales and
Marketing and as a member of the Operating Committee since December 1997. Prior
to joining Hexcel, Mr. Matthews served as Vice President of Venture Operations
for Amoco Chemical Asia Pacific, located in Hong Kong, from 1994 to 1997. From
1993 to 1994, Mr. Matthews was Vice President of Marketing and Sales for Amoco
Performance Products. Prior to 1993, he has served in other management positions
in Amoco and Union Carbide Corporation.
9
<PAGE>
WILLIAM P. MEEHAN, age 62, has served as Vice President; Deputy Director of
Operations of Hexcel since November 1996 and as a member of the Operating
Committee since May, 1997. He also served as Vice President of Finance and Chief
Financial Officer from September 1993 to November 1996 and as Treasurer of
Hexcel from April 1994 to April 1996. Prior to joining Hexcel in 1993, Mr.
Meehan served as President and Chief Executive Officer of Thousand Trails and
NACO, a membership campground and resort business, from 1990 to 1992. From 1986
to 1989, Mr. Meehan served as Vice President of Finance and Chief Financial
Officer of Hadco Corporation.
WAYNE C. PENSKY, age 42, has served as Corporate Controller and Chief
Accounting Officer of Hexcel since July 1993. Prior to joining Hexcel in 1993,
Mr. Pensky was a partner at Arthur Andersen & Co., an accounting firm where he
was employed from 1979 to 1993.
GARY L. SANDERCOCK, age 57, has served as Vice President of Manufacturing of
Hexcel since October 1996 and as a member of the Operating Committee since
October, 1997. From February 1996 through October 1996, he served as President
of Hexcel's Special Process business unit. Mr. Sandercock served as Vice
President of Manufacturing of Hexcel from April 1993 to February 1996, Vice
President of Reinforcement Fabrics of Hexcel from 1989 to 1993 and General
Manager of the Trevarno Division of Hexcel from 1985 to 1989 and held other
manufacturing and general management positions from 1967 to 1985. Mr. Sandercock
joined Hexcel in 1967.
JOSEPH H. SHAULSON, age 32, has served as Vice President of Corporate
Development of Hexcel since April 1996. In addition, Mr. Shaulson served as
Acting General Counsel and Acting Secretary of Hexcel from April 1996 to
September 1996. Prior to joining Hexcel, Mr. Shaulson was an associate in the
law firm of Skadden, Arps, Slate, Meagher & Flom, where he was employed from
1991 to 1996.
DAVID M. WONG, age 53, has served as Vice President of Corporate Affairs of
Hexcel since February 1996. Mr. Wong served as Hexcel's Director of Special
Projects from July 1993 to February 1996 and Corporate Controller and Chief
Accounting Officer of Hexcel from 1983 to 1993 and held other general management
positions from 1979 to 1983. Mr. Wong joined Hexcel in 1979.
10
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
STOCK BENEFICIALLY OWNED BY PRINCIPAL STOCKHOLDERS
The following table sets forth certain information as of March 23, 1998 with
respect to the beneficial ownership of Hexcel Common by any person (including
any "group" as that term is used in Section 13(d)(3) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act")) who is known to Hexcel to be the
beneficial owner of more than five percent of the issued and outstanding shares
of Hexcel Common.
<TABLE>
<CAPTION>
NUMBER OF PERCENT
SHARES OF OF
NAME AND ADDRESS HEXCEL COMMON CLASS
- ----------------------------------------------------------------------------------------- -------------- -----------
<S> <C> <C>
Ciba Specialty Chemicals Holding Inc.(1)................................................. 18,021,748 48.9
Klybeckstrasse 141
CH 4002
Basle, Switzerland
Franklin Resources, Inc.(2).............................................................. 3,924,275 10.6
Franklin Mutual Advisers, Inc.
51 John F. Kennedy Parkway
Short Hills, NJ 07078
</TABLE>
- ------------------------
(1) Based on information contained in a Statement on Schedule 13D filed with the
Securities and Exchange Commission (the "Commission") on March 18, 1997 on
behalf of Ciba and its wholly owned affiliates, Ciba Specialty Chemicals
Corporation ("SCC") and Ciba Specialty Chemicals Inc. ("SCI"). SCI has sole
voting and investment power with respect to 9,204,503 shares of Hexcel
Common and SCC has sole voting and investment power with respect to
8,817,245 shares of Hexcel Common. The shares of Hexcel Common beneficially
owned by Ciba are subject to the terms of the Governance Agreement. See
"ELECTION OF DIRECTORS" and "CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS."
(2) Based on information contained in a Statement on Schedule 13G filed with the
Commission on February 4, 1998 on behalf of Franklin Resources, Inc.,
Franklin Mutual Advisers, Inc., Rupert H. Johnson, Jr. and Charles B.
Johnson. Such parties have sole voting and investment power with respect to
all the shares of Hexcel Common held by them.
11
<PAGE>
STOCK BENEFICIALLY OWNED BY DIRECTORS AND OFFICERS
Based on information supplied by those persons, beneficial ownership of
shares of Hexcel Common by the individually named directors and executive
officers, and by all directors and executive officers as a group, as of March
23, 1998, is as follows:
<TABLE>
<CAPTION>
SHARES OF HEXCEL PERCENT
NAME COMMON OWNED (4) OF CLASS
- -------------------------------------------------------------- ------------------ -------------
<S> <C> <C>
John J. Lee (2)............................................... 1,010,467 2.7%
John M. D. Cheesmond (3)...................................... 44,250 (1)
Marshall S. Geller............................................ 74,167 (1)
Stanley Sherman (3)........................................... 44,167 (1)
Martin L. Solomon............................................. 60,250 (1)
George S. Springer............................................ 44,250 (1)
Joseph T. Sullivan (3)........................................ 46,167 (1)
Hermann Vodicka (3)........................................... 44,167 (1)
Franklin S. Wimer............................................. 44,250 (1)
Juergen Habermeier (5)........................................ 74,280 (1)
Stephen C. Forsyth............................................ 66,997 (1)
Ira J. Krakower............................................... 33,567 (1)
Gary L. Sandercock............................................ 43,746 (1)
All Executive Officers and Directors as a group (20
persons).................................................... 1,748,536 4.6%
</TABLE>
- ------------------------
(1) Less than 1%.
(2) Mr. Lee has joint investment authority over 23,400 shares of Hexcel Common
owned by Walnut Investors Ltd., an S corporation owned by members of Mr.
Lee's immediate family. Mr. Lee disclaims beneficial ownership of such
shares.
(3) Messrs. Cheesmond, Sherman, Sullivan and Vodicka serve on the Board of
Directors at the request of Ciba pursuant to the Governance Agreement. Based
on information provided in a Statement on Schedule 13D filed with the
Commission on March 18, 1997 on behalf of Ciba and its wholly owned
affiliates SCC and SCI, Ciba beneficially owns an aggregate of 18,021,748
shares of Hexcel Common. See "Stock Beneficially Owned by Principal
Stockholders."
(4) Includes shares issuable upon the exercise of options that are currently
exercisable or that will become exercisable within 60 days. Such shares are
held as follows: Mr. Lee--618,879; Mr. Cheesmond-- 44,250; Mr.
Geller--44,167; Mr. Sherman-44,167; Mr. Solomon--42,250; Mr.
Springer-44,250; Mr. Sullivan--44,167; Mr. Vodicka--44,167; Mr.
Wimer--44,250; Mr. Habermeier--32,133; Mr. Forsyth-58,620; Mr.
Krakower--14,367; Mr. Sandercock--15,903 and all other executive officers as
a group--91,525. Shares issuable upon the exercise of options that are
currently exercisable or that will become exercisable within 60 days are
treated as outstanding for purposes of computing the percentage of
outstanding shares. All directors and executive officers of Hexcel have sole
voting and investment power with respect to the shares of Hexcel Common held
by them.
(5) Mr. Habermeier resigned from the Board of Directors on December 31, 1997 and
ceased to be employed by Hexcel on January 31, 1998.
12
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth the total annual compensation paid or accrued
by Hexcel to or for the account of each of the Chief Executive Officer and the
four most highly compensated executive officers of Hexcel (the "Named Executive
Officers") whose total cash compensation for the fiscal year ended December 31,
1997 exceeded $100,000.
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
AWARDS
ANNUAL COMPENSATION(1) -------------------------
----------------------------------- SECURITIES
OTHER RESTRICTED UNDERLYING
ANNUAL STOCK OPTIONS/ ALL OTHER
SALARY BONUSES COMPENSATION AWARD(S) SARS COMPENSATION
NAME & PRINCIPAL POSITION YEAR ($) ($)(4) ($)(5) ($)(6) (#)(7) ($)(8)(9)(10)
- ----------------------------------- --------- --------- --------- ------------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
John J. Lee........................ 1997 500,000 562,500 -- 411,763 587,500 517,197
Chairman; Chief Executive 1996 400,000 450,000 -- 2,757,500 580,379 485,359
Officer; and President 1995 400,000 500,000 -- -- 40,000 408,736
Juergen Habermeier(2).............. 1997 300,000 216,000 -- 124,800 168,800 17,302
Vice Chairman 1996 229,167 240,900 47,534 118,750 70,700 33,681
1995 -- -- -- -- -- --
Stephen C. Forsyth................. 1997 230,000 172,500 -- 107,391 211,300 13,460
Senior Vice President of Finance 1996 191,667 150,000 88,284 68,750 25,000 24,202
and Administration and Chief 1995 149,375 100,000 -- -- 33,000 10,947
Financial Officer
Ira J. Krakower (3)................ 1997 225,000 168,750 -- 105,134 183,400 13,167
Senior Vice President, General 1996 66,667 50,000 -- 147,275 58,100 1,592
Counsel and Secretary 1995 -- -- -- -- -- --
Gary L. Sandercock................. 1997 175,000 105,000 -- 54,375 98,800 9,442
Vice President of Manufacturing 1996 150,000 88,800 -- 37,500 10,000 17,612
1995 145,386 50,000 -- -- 33,000 10,021
</TABLE>
- ------------------------
(1) Annual Compensation includes amounts earned in the fiscal year, whether or
not deferred.
(2) Mr. Habermeier was President and Chief Operating Officer until May, 1997, at
which time he became Vice Chairman. Mr. Habermeier resigned from the Board
on December 31, 1997 and ceased to be employed by Hexcel on January 31,
1998. See "Employment and Other Agreements--Separation and Release
Agreement" with Mr. Habermeier.
(3) Mr. Krakower's employment with Hexcel commenced on September 3, 1996.
(4) Amounts shown in 1997 include deferred amounts used to purchase restricted
stock units ("RSUs") pursuant to the Management Stock Purchase Plan
("MSPP"); see footnote 6 below. Bonuses shown for fiscal years 1996 and 1997
were earned in fiscal years 1996 and 1997, respectively, and paid in 1997
and 1998, respectively.
(5) In 1995 and 1997, no Named Executive Officer received any perquisites or
other personal benefits from Hexcel with an aggregate value exceeding the
disclosure threshold established by the Commission of the lesser of $50,000
or 10% of cash compensation. Other Annual Compensation for fiscal year 1996
consists of allowances for relocation costs and automobile expenses.
Relocation allowances were $37,534 and $76,284 for Messrs. Habermeier and
Forsyth, respectively, in fiscal year 1996. In 1996 no other Named Executive
Officer received any perquisites or other personal benefits from Hexcel with
an aggregate value exceeding the disclosure threshold established by the
Commission of the lesser of $50,000 or 10% of cash compensation.
13
<PAGE>
(6) This column includes the value of (i) Performance Accelerated Restricted
Stock Units granted under Hexcel's Incentive Stock Plan ( "PARS" ) and (ii)
RSUs purchased under the MSPP (net of purchase price paid), in each case
determined at the closing market price of Hexcel Common on the date of
grant.
(A) PARS. Subject to certain employment conditions, PARS vest after a period
of years following the grant date, but if Hexcel's performance equals or
exceeds certain performance target levels, or upon termination of
employment in certain circumstances, the PARS will vest and be converted
into an equivalent number of shares of Hexcel Common earlier than the
fixed vesting date. For PARS granted in 1996, the performance target
levels were achieved in 1997. As a result, 200,000 of Mr. Lee's PARS
granted in 1996 have vested, but conversion of a certain number of PARS
and distribution of shares to Mr. Lee is restricted at the option of
Hexcel to the extent that its deductions for income tax are limited by
Section 162(m) of the Internal Revenue Code. The remainder of the PARS
granted in 1996 to each of the Named Executive Officers generally will
vest only if the employee remains employed by Hexcel or a subsidiary
thereof until December 31, 1998. PARS granted in 1997 will vest and be
converted into an equivalent number of shares of Hexcel Common on January
1, 2004; however, if Hexcel meets or exceeds certain performance target
levels and if the grantee is an employee of Hexcel or a subsidiary
thereof on December 31, 1999, part or all of the PARS will vest and be
converted into shares of Hexcel Common at the later of (i) the date such
performance targets are met or (ii) January 1, 2000. PARS granted in 1996
were originally reported as of the date of grant as Long-Term Incentive
Plan Award; Hexcel has determined that PARS are more appropriately
reported as of the date of grant as Long Term Compensation in the Summary
Compensation Table and both the 1996 and 1997 grants are so reported.
(B) RSUS. RSUs are granted pursuant to the MSPP to the extent the employee
elects to purchase RSUs for up to 50% of his or her bonus payable for
1997. RSUs are granted at 80% of the average closing price of Hexcel
Common for the five trading days preceding the grant date. Subject to
certain employment conditions, RSUs vest in equal increments on each of
the first three anniversaries of the grant and, at the expiration of a
three year restricted period from the date of grant, are converted into
an equivalent number of shares of Hexcel Common. The RSUs were granted on
February 4, 1998 at a purchase price of $19.47 per RSU.
(C) AGGREGATE RESTRICTED STOCK INFORMATION. The aggregate number of PARS
owned and RSUs elected for purchase by each Named Executive Officer at
the end of 1997 and the aggregate value of such PARS and RSUs (net of
purchase price paid) at the closing price of Hexcel Common on December
31, 1997 ($24 15/16) are as follows: Mr. Lee--254,546 and $6,066,491; Mr.
Habermeier-- 17,300 and $431,419; Mr. Forsyth--14,730 and $281,079; Mr.
Krakower--17,634 and $375,373; Mr. Sandercock--8,768 and $187,152.
Included for Mr. Sandercock are 1,450 shares of restricted stock awarded
in 1990 under Hexcel's 1998 Management Stock Plan, all of which became
fully vested in January, 1998. No dividends are payable on any PARS or
RSUs until the shares represented by the PARS or RSUs are delivered to
the employee provided that, if dividends are paid on Hexcel Common
subsequent to vesting of PARS, but while conversion to Hexcel Common is
restricted by Hexcel because of the application of Section 162(m) of the
Internal Revenue Code, the grantee will be granted additional PARS (as if
each such PAR were a share of Hexcel Common) equal in value to the
dividends which would have been payable if such vested PARS were
converted into Hexcel Common.
(7) This column includes Reload Options which were granted in 1996 and 1997 as a
result of exercises of certain Short-Term Options ("STOPs") which were also
granted in 1996 and 1997 and either expired or were exercised in that same
year. The STOPs were exercisable at the fair market value of Hexcel Common
on the date of exercise and are not included in this column. Each Named
Executive Officer was granted the following number of STOPs in 1996 and
1997, respectively: Mr. Lee--100,000 and 12,500; Mr. Habermeier--20,000 and
6,900; Mr. Forsyth--10,000 and 4,200; Mr. Krakower--15,000
14
<PAGE>
and 4,200; and Mr. Sandercock--7,500 and 2,500 See "Compensation Committee
Report on Executive Compensation--Equity-based Incentives."
(8) All Other Compensation for fiscal years 1995, 1996 and 1997 consists of (i)
contributions by Hexcel to Hexcel's 401(k) Retirement Savings Plan as
follows: Mr. Lee--$4,500, $10,500 and $4,750; Mr. Habermeier--$0, $9,613 and
$4,750; Mr. Forsyth--$3,740, $10,500 and $4,750; Mr. Krakower-- $0, $0 and
$4,750; and Mr. Sandercock--$4,500, $10,500 and $4,750; (ii) contributions
by Hexcel to Hexcel's 401(k) Restoration Plan as follows: Mr. Lee--$0,
$49,000 and $27,075; Mr. Habermeier--$0, $22,405 and $10,680; Mr.
Forsyth--$0, $13,417 and $7,275, Mr. Krakower--$0, $1,389 and $7,013; and
Mr. Sandercock--$0, $6,216 and $3,600; and (iii) premiums for life insurance
(exceeding $50,000 per Named Executive Officer) as follows: Mr. Lee--$3,089,
$4,790 and $3,120; Mr. Habermeier--$0, $1,663 and $1,872; Mr. Forsyth--$207,
$285 and $1,435; Mr. Krakower--$0, $203 and $1,404; and Mr.
Sandercock--$619, $896 and $1,092. For Mr. Lee, the amount also includes
deferred compensation in an amount equal to $366,147, $421,069 and $482,252
in accordance with the terms of Mr. Lee's employment agreement with Hexcel.
See "Employment and Other Agreements-Employment Agreement with Mr. Lee." For
Mr. Sandercock, the 1995 amount also includes $1,482 of reimbursement for
taxes attributable to personal use of an automobile leased by Hexcel.
(9) Certain contributions by Hexcel to Hexcel's 401(k) Restoration Plan with
regard to the bonuses earned in 1997 but paid in 1998 cannot be estimated at
this time. These contributions will be determined at the end of 1998 and
will be included as adjustments in Hexcel's next annual Proxy Statement.
(10) 1995 and 1996 amounts were increased to reflect contributions by Hexcel to
Hexcel's 401(k) Restoration Plan with regard to the bonuses paid in 1996 for
1995 and the bonuses paid in 1997 for 1996. These 1995 and 1996 adjustments
are as follows: Mr. Lee--$35,000 and $31,500; Mr. Habermeier--$0 and
$16,863; Mr. Forsyth--$7,000 and $10,500; Mr. Krakower--$0 and $3,500; and
Mr. Sandercock--$3,500 and $6,216.
15
<PAGE>
OPTIONS AND RESTRICTED STOCK
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------------------------------- POTENTIAL REALIZABLE VALUE
NUMBER OF % OF TOTAL AT ASSUMED ANNUAL RATES
SECURITIES OPTIONS/SARS MARKET OF STOCK PRICE APPRECIA-
UNDERLYING GRANTED TO EXERCISE OR PRICE ON TION FOR OPTION TERM (3)
OPTIONS/SARS EMPLOYEES IN BASE PRICE GRANT EXPIRATION -----------------------------------
NAME GRANTED (#) FISCAL YEAR ($/SH) DATE DATE 0% ($) 5% ($) 10% ($)
- ------------------- ------------- --------------- ----------- ----------- ----------- --------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
John J. Lee........ 62,500 2.03 16.00 16.00 1/2/07 0 628,895 1,593,742
480,000(1) 15.57 18.50 18.125 2/3/07 0 5,471,383 13,865,559
20,000(1) 0.65 18.50 26.00 2/3/07 150,000 327,025 828,746
25,000(2) 0.81 18.00 18.00 2/6/07 0 283,004 717,183
Juergen
Habermeier....... 25,000 0.81 16.00 16.00 1/2/07 0 251,568 637,497
130,000(1) 4.22 18.50 18.125 2/3/07 0 1,512,492 3,832,951
13,800(2) 0.45 19.75 19.75 3/6/07 0 171,405 434,375
Stephen C.
Forsyth.......... 15,300 0.50 16.00 16.00 1/2/07 0 153,953 390,148
160,000(1) 5.19 18.50 18.185 2/3/07 0 1,823,794 4,621,853
30,000(1) 0.97 18.50 26.00 2/3/07 225,000 490,538 1,243,119
6,000(2) 0.19 18.00 18.00 2/12/07 0 67,921 172,124
Ira J. Krakower.... 15,000 0.49 16.00 16.00 1/2/07 0 150,935 382,498
160,000(1) 5.19 18.50 18.125 2/3/07 0 1,861,529 4,717,478
8,400(2) 0.27 18.00 18.00 2/12/07 0 95,089 240,974
Gary L.
Sandercock....... 8,800 0.29 16.00 16.00 1/2/07 0 88,548 224,399
90,000(1) 2.92 18.50 18.125 2/3/07 0 1,047,110 2,653,581
</TABLE>
- ------------------------
(1) The amount shown in these rows reflect performance accelerated stock options
("PASOs"). Subject to certain conditions of employment, PASOs vest and
become exercisable over nine years or earlier upon "normal retirement" or
the occurrence of a "change of control" as defined in the PASO. If the
closing price of Hexcel Common equals or exceeds $35 per share for ten or
more consecutive trading days within three years following the date of
grant, the PASOs will vest and become exercisable immediately. See
"Compensation Committee Report on Executive Compensation--Equity-Based
Incentives".
(2) The amounts shown in these rows reflect Reload Options granted as a result
of exercises of STOPs (which were exercisable at the fair market value of
Hexcel Common on the date of exercise). See "Compensation Committee Report
on Executive Compensation--Equity-based Incentives."
(3) The amounts shown in these columns are the potential realizable value of
options granted at assumed rates of stock price appreciation (0%, 5% and
10%) set by the executive compensation disclosure provisions of the proxy
rules of the Commission and have not been discounted to reflect the present
values of such amounts. The assumed rates of stock price appreciation are
not intended to forecast the future stock price appreciation of the Hexcel
Common.
16
<PAGE>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION/SAR VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
IN THE MONEY
NUMBER OF SECURITIES OPTIONS/SARS AT
SHARES UNDERLYING UNEXERCISED FISCAL YEAR END
ACQUIRED VALUE OPTIONS/SARS AT FISCAL ($)(3)
ON REALIZED YEAR END (#)(2) EXERCISABLE/
NAME EXERCISE (#) ($)(1) EXERCISABLE/UNEXERCISABLE UNEXERCISABLE
- ---------------------------------------- ------------- --------- ----------------------- ---------------------
<S> <C> <C> <C> <C>
John J. Lee............................. 12,500 0 566,264/641,615 8,222,477/4,694,546
Juergen Habermeier...................... 6,900 0 10,234/229,266 127,282/1,920,320
Stephen C. Forsyth...................... 3,900 3,996 47,525/230,300 791,371/1,638,271
Ira J. Krakower......................... 4,200 0 9,366/232,134 73,135/1,605,439
Gary L. Sandercock...................... 21,975 211,487 9,640/105,466 150,772/ 740,986
</TABLE>
- ------------------------
(1) No value was realized upon the exercise of certain options because they were
STOPs exercisable at the fair market value of Hexcel Common on the date of
exercise. See "Summary Compensation Table-- Note 7" and "OPTION/SAR GRANTS
IN LAST FISCAL YEAR--Note 2."
(2) Includes (i) options granted pursuant to Hexcel's Incentive Stock Plan as
follows: Mr. Lee--1,207,879; Mr. Habermeier--239,500; Mr. Forsyth--269,300;
Mr. Krakower--241,500; and Mr. Sandercock-- 113,800; and (ii) options
granted pursuant to Hexcel's 1988 Management Stock Plan as follows: Mr.
Forsyth--8,525; and Mr. Sandercock--1,306.
(3) Based on the closing price of $24 15/16 per share of Hexcel Common as
reported on the New York Stock Exchange Composite Tape on December 31, 1997.
17
<PAGE>
DEFERRED COMPENSATION
PENSION PLAN TABLE (1)
<TABLE>
<CAPTION>
YEARS OF PARTICIPATION
----------------------------------------------------------------------
REMUNERATION 10 15 20 25 30 35
- ------------ ---------- ---------- ---------- ---------- ---------- ----------
<C> <S> <C> <C> <C> <C> <C> <C>
$125,000 ...................................... $ 31,250 $ 46,875 $ 62,500 $ 78,125 $ 93,750 $ 109,375
150,000 ...................................... 37,500 56,250 75,000 93,750 112,500 131,250
175,000 ...................................... 42,250 63,375 84,500 105,625 126,750 147,875
200,000 ...................................... 46,000 69,000 92,000 115,000 138,000 161,000
225,000 ...................................... 49,750 74,625 99,500 124,375 149,250 174,125
250,000 ...................................... 53,500 80,250 107,000 133,750 160,500 187,250
300,000 ...................................... 61,000 91,500 122,000 152,500 183,000 213,500
350,000 ...................................... 68,500 102,750 137,000 171,250 205,500 239,750
400,000 ...................................... 76,000 114,000 152,000 190,000 228,000 266,000
450,000 ...................................... 83,500 125,250 167,000 208,750 250,500 292,250
500,000 ...................................... 91,000 136,500 182,000 227,500 273,000 318,500
550,000 ...................................... 98,500 147,750 197,000 246,250 295,500 344,750
600,000 ...................................... 106,000 159,000 212,000 265,000 318,000 371,000
650,000 ...................................... 113,500 170,250 227,000 283,750 340,500 397,250
700,000 ...................................... 121,000 181,500 242,000 302,500 363,000 423,500
750,000 ...................................... 128,500 192,750 257,000 321,250 385,500 449,750
800,000 ...................................... 136,000 204,000 272,000 340,000 408,000 476,000
850,000 ...................................... 143,500 215,250 287,000 358,750 430,500 502,250
900,000 ...................................... 151,000 226,500 302,000 377,500 453,000 528,500
950,000 ...................................... 158,500 237,750 317,000 396,250 475,500 554,750
1,000,000 ...................................... 166,000 249,000 332,000 415,000 498,000 581,000
1,050,000 ...................................... 173,500 260,250 347,000 433,750 520,500 607,250
1,100,000 ...................................... 181,000 271,500 181,000 452,500 543,000 633,500
1,150,000 ...................................... 188,500 282,750 377,000 471,250 565,500 659,750
1,200,000 ...................................... 196,000 294,000 392,000 490,000 588,000 686,000
</TABLE>
- ------------------------
(1) The Pension Plan Table shows the combined estimated annual benefits payable
upon retirement under the Hexcel Corporation Pension Plan (the "Pension
Plan") and under each Named Executive Officer's Executive Deferred
Compensation and Consulting Agreement (the "Retirement Agreement").
PENSION PLAN. The Named Executive Officers began to participate in the
Pension Plan in 1996. Subject to tax-qualification limitations, the covered
compensation under the Pension Plan generally includes all cash and property
received for services (except for certain stock-related awards) and either
included in gross income or deferred under a tax-qualified plan, but the
covered compensation for 1997 is limited by tax-qualification requirements
to $160,000 for each Named Executive Officer. The annual benefit is
calculated as 1% of the executive's covered compensation for each year of
participation in the Pension Plan. As of the end of the 1997 fiscal year,
each Named Executive Officer had two credited years of service for accrued
benefits except Mr. Krakower has 1 1/3 years of service. Benefits are
normally payable monthly, as a life annuity, commencing upon the later of
the executive's attainment of age 65 or retirement. The benefits are not
offset by Social Security or any other amounts.
RETIREMENT AGREEMENTS. The Named Executive Officer's current covered
compensation under his Retirement Agreement is the sum of the respective
officer's salary and incentive cash bonuses set forth in the Summary
Compensation Table. The annual benefit is calculated as 1.5% of the
executive's covered compensation for each year of employment following the
effective date of the executive's Retirement Agreement. As of the end of the
1997 fiscal year, estimated credited years of service under the Retirement
Agreements were as follows: Mr. Lee--3 1/3 years; Mr. Habermeier--1 5/6
year;
18
<PAGE>
Mr. Forsyth--3 1/6 years; Mr. Krakower--1 1/3 years; and Mr.
Sandercock--8 1/6 years. Benefits are normally payable monthly, as a life
annuity (with a minimum of 120 monthly payments), commencing upon the later
of the executive's attainment of age 65 or retirement. The benefits are not
offset by Social Security or any other amounts. Each Retirement Agreement
also requires Hexcel to continue to cover the executive under Hexcel's group
medical and dental insurance plans and to provide life insurance for so long
as the executive continues to receive monthly payments under the Retirement
Agreement and has not attained the age of 75.
EMPLOYMENT AND OTHER AGREEMENTS
EMPLOYMENT AGREEMENT WITH MR. LEE
Hexcel entered into a five-year employment agreement with Mr. Lee (the "Lee
Agreement") effective February 29, 1996. The Lee Agreement provides for (i) an
annual base salary of $400,000, subject to annual review by the Executive
Compensation Committee, and a bonus of $500,000 in respect of services rendered
in 1995, (ii) a deferred compensation arrangement intended to provide Mr. Lee an
annual retirement benefit which when added to his other Hexcel retirement
benefits, will be equal to approximately 50% of the average annual cash
compensation paid to him during the term of his employment with Hexcel and (iii)
Mr. Lee's participation, where appropriate, in all other components of senior
executive compensation, including a grant of 100,000 STOPs under Hexcel's
Short-Term Option Program (and, upon exercise of such STOPs, grants of 200,000
related Reload Options) and 200,000 performance accelerated restricted stock
units ("PARS") under Hexcel's PARS program. See "Compensation Committee Report
on Executive Compensation--Equity-based Incentives."
The Lee Agreement also provides for the grant to Mr. Lee on February 29,
1996 of options to purchase 200,000 shares of Hexcel Common under the Incentive
Stock Plan, which options (i) have an exercise price per share equal to the fair
market value of the Hexcel Common on February 29, 1996 ($12.50 per share), (ii)
have a term of 10 years and (iii) become exercisable with respect to one-third
of the shares of Hexcel Common covered thereby on each of the first, second and
third anniversaries of the date of the grant, subject to earlier vesting upon
the attainment of certain performance goals.
All of the foregoing stock-based incentives granted under the Lee Agreement
have vested due to the attainment of such goals in 1997. In subsequent fiscal
years, Mr. Lee will be entitled to participate in Hexcel's incentive plans at a
level appropriate in comparison to other senior executive officers of Hexcel.
Finally, the Lee Agreement preserves the economic benefits to Mr. Lee of
certain compensatory arrangements provided for in the First Amended Plan of
Reorganization which was confirmed by the Bankruptcy Court in connection with
Hexcel's bankruptcy reorganization (the "Plan of Reorganization"). In this
regard, the Lee Agreement provides Mr. Lee with certain benefits that would have
been granted to him under the Plan of Reorganization, including the grant to Mr.
Lee of an option with a three year term to purchase 113,379 shares of Hexcel
Common with an exercise price of $5.05 per share and vesting in equal monthly
installments over the two-year period ending February 28, 1998.
SEVERANCE AGREEMENTS WITH MESSRS. FORSYTH, SANDERCOCK AND KRAKOWER
In October 1994, January 1995 and September 1996, Hexcel entered into
severance agreements with Messrs. Forsyth, Sandercock and Krakower,
respectively, providing each of them with severance benefits upon certain
terminations of their employment with Hexcel. Such agreements provide for a
severance benefit of one year of annual base salary (as in effect on the date of
termination) and, in certain cases, include a bonus equal to the target bonus
for the year or the amount of any bonus paid in the prior year and may also
include continuation of medical, dental, disability and life insurance plans for
one year.
19
<PAGE>
SEPARATION AND RELEASE AGREEMENT WITH MR. HABERMEIER
Mr. Habermeier resigned his employment with the Company as of January 31,
1998 pursuant to a Separation and Release Agreement entered into as of January
29, 1998. The Separation and Release Agreement provides for severance benefits
in material part as follows: (i) Hexcel will pay Mr. Habermeier a cash severance
payment equal to one year's base salary of $300,000 payable over one year; (ii)
accelerated vesting of 10,234 outstanding stock options that would have vested
on March 1, 1998, and of 17,300 PARS; (iii) group health benefits for one year;
and (iv) a payment of $21,072 in cancellation of his Retirement Agreement.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
Hexcel's Executive Compensation Committee (the "Committee") is made up of
four individuals each of whom is a nonemployee member of the Board of Directors.
The Committee is accountable to the Board of Directors for developing,
monitoring, and managing the executive compensation programs at Hexcel.
Specifically, the Committee reviews and authorizes the salaries, cash
incentives, and equity incentives for the executive officers of Hexcel,
including all of the Named Executive Officers. The Committee administers
Hexcel's incentive stock plans, which provide for grants of stock options,
restricted stock units, and other forms of equity and equity-based compensation.
In making its decisions, the Committee considers prevailing compensation
practices among a group of companies (the "Comparator Group"). The Comparator
Group includes some of the same organizations whose Total Shareholder Return is
disclosed in the Performance Graph, plus others that help ensure that the
Committee's benchmarks for compensation decisions reasonably reflect Hexcel's
executive labor market and principal operating competitors.
Hexcel's compensation programs have been aligned with the Committee's
beliefs that:
1. Base salaries should be at or below median practices for similar
positions in the Comparator Group;
2. Annual cash incentive opportunities at target performance goals
should represent a significant portion of total cash compensation for
executives, and provide meaningful risk and opportunity for variations in
performance from targets; and
3. The present value of long term incentives, when granted, can be
above the Comparator Group average in order to encourage executive share
ownership, link executives' rewards directly with stockholders' risk and
opportunities, and focus executive attention on creating long-term
stockholder value.
The Committee believes that establishing a compensation program reflecting
these principles will position Hexcel to attract and retain top quality
executives, align management and stockholder interests, and enhance the
financial returns to Hexcel's stockholders. During 1997, the Committee reviewed
the total compensation provided to executives to ensure that it is consistent
with Hexcel's performance-based principles and reflective of the practices
within the Comparator Group. The Committee was guided in its review by the
advice of an outside consultant. Each component of executive compensation is
described more fully below.
BASE SALARY
Base salaries for executives are determined by the Committee based on
Comparator Group salary practices for positions of similar responsibilities, and
on individual and business unit performance. While there are no preset weights
on performance criteria, the Committee assesses executives' contributions to
Hexcel's overall and divisional financial objectives such as: return to
stockholders, return on net assets, implementation of capital investments, cost
effectiveness, margin improvements, quality, labor relations, execution of
acquisitions and divestitures and revenue growth.
It is the Committee's objective and practice to set base salaries that, in
the aggregate, are at or below the median (50th percentile) of comparable
positions in the Comparator Group. Effective January 1998,
20
<PAGE>
the Committee approved salary increases for the Named Executive Officers, other
than the CEO, that ranged from 0% to 13.0% and averaged 4.6%, to reflect a
successful 1997 and make progress toward an aggregate median competitive
posture. The Committee's outside consultants have reported that Named Executive
Officers' salaries, in the aggregate, remain at the Comparator Group median
after the 1998 salary increases.
ANNUAL CASH INCENTIVES
In 1997, the Management Incentive Compensation Plan provided median cash
incentive compensation opportunities, compared to the Comparator Group, for
achievement of Hexcel's performance goals with respect to earnings before taxes
("EBT"), return on net assets ("RONA") and for achievement of personal
objectives. Incentive target awards for the Named Executive Officers, other than
the CEO, ranged from 25% to 60% of base salary, depending on the nature of the
position and Comparator Group practices. Actual awards could have ranged between
0% and 150% of the incentive target based on achievement relative to Hexcel's
goals. Personal contribution also affected individual award determinations,
except that the CEO's incentive award was based solely on the level of Hexcel's
achievement of EBT and RONA goals.
To promote executive ownership of Hexcel's stock, the Committee and Board
approved, effective for incentives earned for 1997, a Management Stock Purchase
Plan (the "Management Stock Purchase Plan"). Under this program, an executive
may elect to purchase restricted stock units ("Restricted Stock Units") with up
to 50% of his/her pre-tax cash incentive award. A Restricted Stock Unit becomes
an unrestricted share of Hexcel Common upon the expiration of the applicable
Restricted Period (as such term is defined in the Management Stock Purchase
Plan). The purchase price of a Restricted Stock Unit is 80% of the fair market
value (as defined in the Management Stock Purchase Plan) of a share of Hexcel
Common on the purchase date. One-third of the Restricted Stock Units purchased
will vest on each of the first three anniversaries of the date of purchase. On
average, the Named Executive Officers, other than the CEO, elected to apply 39%
of their cash incentive awards to purchase Restricted Stock Units.
EQUITY-BASED INCENTIVES
The Hexcel Corporation Incentive Stock Plan ("Plan") authorizes the issuance
of stock-based awards including nonqualified stock options ("NQSOs) and
performance accelerated restricted stock units ("PARS"). The Committee has the
authority to determine the terms and conditions of the awards, such as exercise
price of options, vesting schedules, terms related to termination of employment
and duration of an award (up to ten years from the date of grant).
Grants of NQSOs and PARS to the Named Executive Officers other than the CEO
are based on the Committee's assessment of competitive practices,
recommendations from the CEO based on individual performance, and executives'
past awards.
Short-Term Options ("STOPs") are granted periodically, vest immediately for
an exercise period of 90 days, and are exercisable at a price per share equal to
the fair market value of a share of Hexcel Common stock on the date of exercise.
Reload options ("Reload Options") are granted upon the exercise of STOPs in the
ratio of two Reload Options for each STOP exercised. Reload Options vest (but
are not exercisable) one-third on each of the first three anniversaries of the
grant of the Reload Option, and become exercisable on the fourth anniversary of
the grant date. The sale or other transfer of any shares acquired through the
exercise of a STOP prior to the earlier of termination of employment or fourth
anniversary of the grant, results in forfeiture of the associated Reload
Options. This arrangement represents an additional means of promoting ownership
of Hexcel Common by executives.
During 1997 the Committee approved an aggregate grant of 69,700 NQSOs,
21,600 PARS, 19,900 STOPs (of which 14,100 were exercised and the balance
expired), and 28,200 Reload Options to the Named Executive Officers, not
including the CEO.
The Plan permits the Committee to design awards with features that it
believes will provide great incentive for Hexcel's executives and key employees
to maximize stockholder value. Consistent with this goal, the Committee
authorized in 1997 the issuance of Performance Accelerated Stock Options
21
<PAGE>
("PASOs"). Subject to certain conditions of employment, PASOs vest and become
exercisable over nine years or earlier upon "normal retirement" or the
occurrence of a "change of control" as defined in the PASO. If the closing price
of Hexcel Common equals or exceeds $35 per share for ten or more consecutive
trading days within the first three years following the date of grant, vesting
will accelerate and the PASOs will become exercisable immediately. During 1997
the Committee approved an aggregate grant of 2,489,000 PASOs to 47 employees and
directors.
CEO COMPENSATION
In determining Mr. Lee's compensation the Committee considers Hexcel's
financial and non-financial performance, as well as an analysis of Mr. Lee's
total compensation in relation to CEOs in the Comparator Group. The Committee
notes that in 1997 Hexcel generated a return to stockholders in excess of 53%.
Hexcel's strategic activities during the fiscal year included the acquisition of
Fiberite's space satellite business and certain worldwide rights to structural
prepreg technology and the sales of Hexcel interests in its Hexcel-Fyfe and
Knytex joint ventures. Additionally, during 1997 Hexcel executed much of the
groundwork and negotiation for planned joint ventures in China with The Boeing
Company and Aviation Industries of China, and Malaysia with Boeing, Sime Darby
Berhad and Malaysia Helicopter Services. These joint ventures were announced in
early 1998. During this year of rapid revenue and net income growth (before
acquisition and consolidation expenses), Hexcel significantly improved its gross
margin and other financial performance results.
Mr. Lee's base salary for 1997 was $500,000, which was below the median
salary level for CEOs in the Comparator Group. In light of this salary
relationship, Hexcel's strategic, operational and financial results for 1997 and
Mr. Lee's leadership in positioning Hexcel for growth and profitability in 1998
and beyond, the Committee granted him a salary increase of 10% effective January
1998, raising his annual salary to $550,000. Compensation data provided to the
Committee shows this salary remains below the industry median pay practice.
Mr. Lee's target under the Management Incentive Compensation Plan is 75% of
base salary and his incentive award can range, based on the level of achievement
against goals, between 0% and 112.5% of base salary. Based upon Hexcel's
achievement of EBT and RONA performance goals, Mr. Lee's actual 1997 bonus under
the terms of the Management Incentive Compensation Plan was $562,500, which is
150% of target and equal to his maximum bonus. In 1997, Mr. Lee's bonus was
based solely on Hexcel's financial performance, with no component for personal
objectives. Mr. Lee voluntarily elected to purchase Restricted Stock Units with
50% of his 1997 bonus under the terms of the Management Stock Purchase Plan.
In 1997, Mr. Lee received grants of stock options for 62,500 NQSOs, 19,500
PARS, 12,500 STOPs, and 25,000 reload Options upon exercise of STOPs. In
addition, 500,000 PASOs with an exercise price of $18.50 were granted to Mr. Lee
during 1997.
STOCK OWNERSHIP GUIDELINES
Effective 1997 the Committee and Board approved the implementation of stock
ownership guidelines for the Named Executive Officers, other members of senior
management and directors. The guideline is five times base salary for the CEO,
three times salary for the other Named Executive Officers and three times annual
retainer fees for directors. All persons covered by the guidelines are expected
to increase ownership towards the guideline amounts progressively over three
years. All stock accumulated through the Management Stock Purchase Plan,
purchased and retained through stock option exercise, acquired on the open
market, and retained through the PARS program are considered in measuring
compliance with the guideline. Unexercised stock options are not included in
computing ownership levels. The Committee believes that investments in Hexcel
Common at these guideline levels will benefit stockholders by further aligning
executives' personal financial interests with those of Hexcel's investors
thereby promoting decision making that maximizes value creation.
22
<PAGE>
TAX DEDUCTIBILITY OF COMPENSATION
It is the Committee's general policy to consider whether particular payments
and awards are deductible to Hexcel for federal income tax purposes, along with
other factors which may be relevant in setting executive compensation practices.
Consistent with this policy and in response to the Treasury regulations
regarding the deductibility of executive compensation under Section 162(m) of
the Internal Revenue Code, the Committee takes appropriate steps to optimize
deductibility except where the best interests of Hexcel call for a different
compensation design.
John M.D. Cheesmond
Marshall S. Geller
Stanley Sherman
Martin L. Solomon
The Members of the Committee
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The following current directors were members of the Committee during 1997:
John M.D. Cheesmond (Chairman), Marshall S. Geller, Stanley Sherman and Martin
L. Solomon
Mr. Cheesmond and Mr. Sherman each served as an executive officer of Ciba or
its subsidiaries (or its predecessors CGL or CGC) during 1997. During 1997,
pursuant to certain manufacturing and supply agreements between Hexcel and Ciba
and its predecessor CGL, sales to Ciba and its predecessor CGL from Hexcel were
approximately $5.6 million and sales to Hexcel by Ciba and its predecessor CGL
were approximately $34.3 million. See "CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS." Any direct or indirect interest of Mr. Cheesmond or Mr. Sherman
in these transactions cannot be determined.
COMPENSATION OF DIRECTORS
Nonemployee directors are compensated for services as directors in the
amount of $30,000 per year payable quarterly. Nonemployee directors are also
paid $1,200 for each Board of Directors meeting and $600 for each committee
meeting they attend. Committee chairmen are paid an additional $3,000 per year.
By reason of his management position, Mr. Lee does not receive any compensation
as a member of the Board of Directors.
In lieu of a portion (between 25% and 100%) of a director's 1998 annual
retainer (including any retainer paid to committee chairmen), a director was
entitled to elect to receive that number of NQSOs determined by dividing the
dollar amount of such portion by the exercise price of the NQSO. The exercise
price of each NQSO is 50% of the fair market value of a share of Hexcel Common
on the grant date. Vesting of the options occurs proportionately over the first
year of the option and the option expires five years from the date of grant. For
1998, each of the nonemployee directors elected to defer his entire retainer,
and, on January 2, 1998, the nonemployee directors were granted NQOs at an
exercise price of $12.00 per share in the following amounts: Messrs. Cheesmond,
Solomon, Springer and Wimer--2,750 shares; and Messrs. Geller, Sherman, Sullivan
and Vodicka--2,500 shares.
Pursuant to Hexcel's Incentive Stock Plan, each person who becomes a
director after January 1, 1997, and who is not also a full-time employee of
Hexcel, will be granted, upon his election or appointment as a director, an
option to purchase 10,000 shares of Hexcel Common with an exercise price equal
to the fair market value of Hexcel Common on the date of grant. The Incentive
Stock Plan further provides that immediately after each annual meeting of
stockholders held after January 1, 1997, and prior to February 7, 2005, each
director who is not also a full-time employee of Hexcel on such date will be
granted an option to purchase an additional 2,000 shares of Hexcel Common with
an exercise price equal to the fair market value of Hexcel Common on the date of
grant. In addition, each nonemployee director was granted 38,000 PASOs with an
exercise price of $18.50 during 1997.
23
<PAGE>
PERFORMANCE GRAPH
The following graph indicates Hexcel's total return to its stockholders
during the past five years, as compared to the total returns of the Standard &
Poor's 500 Composite Stock Price Index and Media General Financial Services'
("Media General") Aerospace Components Stock Price Index.
Hexcel Corporation
Total Shareholder Return Analysis
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
HEXCEL CORP. S&P 500 MEDIA GENERAL AEROSPACE COMPARATOR GROUP
<S> <C> <C> <C> <C>
Dec-92 $100.00 $100.00 $100.00 $100.00
Dec-93 43.24 110.03 125 113.98
Dec-94 48.65 111.53 123.19 125.05
Dec-95 142.83 153.3 171.06 165.73
Dec-96 206.31 188.4 192.81 209.27
Dec-97 316.61 251.17 231.42 240.93
</TABLE>
<TABLE>
<CAPTION>
MEDIA
HEXCEL GENERAL COMPARATOR
DATE CORP. S&P 500 AEROSPACE* GROUP
- ------------------------------------------------------------------ --------- --------- ----------- -----------
<S> <C> <C> <C> <C>
December 1992..................................................... $ 100.00 $ 100.00 $ 100.00 $ 100.00
December 1993..................................................... 43.24 110.03 125.00 113.98
December 1994..................................................... 48.65 111.53 123.19 125.05
December 1995..................................................... 142.83 153.30 171.06 165.73
December 1996..................................................... 206.31 188.40 192.81 209.27
December 1997..................................................... 316.61 251.17 231.42 240.93
</TABLE>
Assumes quarterly reinvestment of dividends.
- ------------------------
* Data provided by Media General Financial Services
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On February 29, 1996, Hexcel consummated certain transactions with
Ciba-Geigy Limited ("CGL") and Ciba-Geigy Corporation ("CGC") whereby Hexcel
acquired the Ciba Composites Business (the "Acquisition") pursuant to the terms
and conditions of the Strategic Alliance Agreement, the Governance Agreement, a
Registration Rights Agreement, a Distribution Agreement and other agreements
(collectively, the "Agreements").
On December 20, 1996, CGL and Sandoz Limited effected a business
combination, forming Novartis Inc., a Swiss corporation. Prior to the business
combination, CGL formed a new subsidiary, Ciba Specialty Chemicals Holding Inc.
("Ciba"). On March 13, 1997, all direct and indirect interests in Hexcel
previously held by CGL were transferred to Ciba, including without limitation,
all of its direct or indirect interest in Hexcel Common, the Senior Subordinated
Debt (as defined below) and all of its rights and obligations
24
<PAGE>
under the Agreements. In the Hexcel Consent Letter, Hexcel acknowledged Ciba as
the direct and indirect successor to the rights and obligations of CGL and CGC
under the Agreements.
THE STRATEGIC ALLIANCE AGREEMENT
Under the Strategic Alliance Agreement, Hexcel acquired the assets
(including the capital stock of certain non-U.S. subsidiaries) and assumed the
liabilities of the Ciba Composites Business, other than certain excluded assets
and liabilities, in exchange for (i) 18.0 million newly issued shares of Hexcel
Common, (ii) $25.0 million in cash, (iii) senior subordinated notes in an
aggregate principal amount of approximately $34.9 million, subject to certain
adjustments (the "Senior Subordinated Debt"); and (iv) senior demand notes in an
aggregate principal amount of $5.3 million. The aggregate purchase price for the
net assets acquired in 1996 was $206.4 million. Furthermore, in exchange for
various remaining assets of CGL's worldwide composites division acquired between
January 1, 1997 and February 28, 1997, Hexcel has subsequently undertaken to
deliver additional senior subordinated notes in an aggregate principal amount of
approximately $2.4 million.
THE GOVERNANCE AGREEMENT
Pursuant to the Governance Agreement, Hexcel's Board of Directors was
reconstituted as described under "ELECTION OF DIRECTORS." In addition, certain
key employees of the Ciba Composites Business became executive officers of
Hexcel effective as of the closing of the Acquisition (the "Closing").
CORPORATE GOVERNANCE
Pursuant to the Governance Agreement, Hexcel has agreed to exercise all
authority under applicable law to cause any slate of nominees presented to
stockholders for election to the Board of Directors to consist of certain
specified numbers of Ciba Nominees and Independent Nominees, in addition to the
Chairman and the President. The precise number of Ciba Nominees and Independent
Nominees to be included in any slate of nominees varies based on Ciba's
percentage ownership of the voting securities of Hexcel. See "ELECTION OF
DIRECTORS." The Governance Agreement further provides that (i) for so long as
Ciba beneficially owns voting securities representing 40% or more of the total
voting power of Hexcel, each committee of the Board of Directors shall consist
of an equal number of Ciba Directors and Independent Directors and (ii) at all
other times, each committee shall be comprised such that Ciba's representation
is at least proportionate to its representation on the Board of Directors,
unless the committee is comprised of three members or less, in which case at
least one Ciba Director shall serve. See "ELECTION OF DIRECTORS--Meetings and
Standing Committees of the Board of Directors."
Pursuant to the Governance Agreement, new directors chosen to fill vacancies
on the Board of Directors shall be selected as follows: (i) if the new director
is to be a Ciba Director, then Ciba shall designate the new director; (ii) if
the former director was the Chairman or President, the replacement Chairman or
President, respectively, shall be the replacement director; and (iii) if the new
director is to be an Independent Director (other than the Chairman or the
President), the remaining Independent Directors (including the Chairman and the
President if he or she is an Independent Director) shall designate the new
director.
If at any time the percentage of the total voting power of Hexcel
beneficially owned by Ciba decreases to a point at which the number of Ciba
Directors would decrease, the Governance Agreement generally requires Ciba to
cause a sufficient number of Ciba Directors to resign from the Board of
Directors so that the number of Ciba Directors on the Board of Directors after
such resignation(s) equals the number of Ciba Nominees that Ciba would have been
entitled to designate had an election of directors taken place at such time. Any
vacancies created by such resignations would be filled by Independent Directors.
CERTAIN APPROVALS
Under the Governance Agreement, so long as Ciba beneficially owns voting
securities representing 40% or more of the total voting power of Hexcel, neither
the Board of Directors nor any committee
25
<PAGE>
thereof shall take any action, including the approval, authorization or
ratification of any action or inaction by officers, agents or employees of
Hexcel, without the affirmative vote of at least one Ciba Director and one
Independent Director. In addition, the Governance Agreement generally provides
that for so long as Ciba beneficially owns voting securities representing at
least 33% of the total voting power of Hexcel, the Board of Directors shall not
authorize, approve or ratify any of the following actions without the approval
of a majority of the Ciba Directors: (i) any merger, consolidation, acquisition
or other business combination involving Hexcel or any subsidiary of Hexcel if
the value of the consideration paid or received by Hexcel in such individual
transaction or the aggregate consideration paid or received by Hexcel in all
such transactions approved by the Board of Directors during the prior 12 months
exceeds the greater of $75 million or 11% of Hexcel's total consolidated assets;
(ii) any sale, transfer, conveyance, lease or other disposition or series of
related dispositions of assets, business or operations of Hexcel or any of its
subsidiaries, if the value of the assets, business or operations so disposed
exceeds the greater of $75 million or 11% of Hexcel's total consolidated assets;
(iii) any issuance by Hexcel or any significant subsidiary of Hexcel of equity
securities (other than pursuant to customary employee or director stock option
or incentive compensation or similar plans and other than transactions solely
among Hexcel and its subsidiaries) or any other bonds, debentures, notes or
securities convertible into, exchangeable for or exercisable for equity
securities if the aggregate net proceeds to Hexcel of such issuance or of such
issuance when added to the aggregate net proceeds to Hexcel of all such
issuances approved by the Board of Directors during the prior 12 months exceeds
the greater of $75 million or 11% of Hexcel's total consolidated assets; and
(iv) any new capital expenditure program or any capital expenditure that is not
part of a capital expenditure program previously approved by the Board of
Directors, if the amount or anticipated amount of such program or expenditure or
of such program or expenditure when added to the aggregate amount of capital
expenditures not so approved by the Board of Directors during the prior 12
months exceeds the greater of $50 million or 7% of Hexcel's total consolidated
assets.
Under the terms of the Governance Agreement, Ciba has agreed that, until the
percentage of the total voting power of Hexcel beneficially owned by Ciba falls
below either (i) 15% if and so long as there is on file with the Commission any
statement showing beneficial ownership by any person other than Ciba of 10% or
more of the total voting power of Hexcel or (ii) 10% in all other cases, in any
election of directors or any meeting of stockholders of Hexcel called expressly
for the removal of directors, so long as the Board of Directors includes (and
will include after any such removal) the requisite number of Ciba Directors,
each of Ciba and any subsidiary of Ciba that holds voting securities of Hexcel
(each, a "Ciba Entity") will be present for purposes of establishing a quorum
and will vote all of its voting securities of Hexcel (x) in favor of any nominee
or director selected in accordance with the terms of the Governance Agreement
and (y) otherwise against the removal of any director designated in accordance
with the terms of the Governance Agreement. In any other matter submitted to a
vote of the stockholders of Hexcel, Ciba and each Ciba Entity will be present
for purposes of establishing a quorum and will vote all of its voting securities
of Hexcel either, at the discretion of Ciba, (i) as recommended by the Board of
Directors or (ii) in proportion to the votes cast with respect to the voting
securities of Hexcel not beneficially owned by Ciba or the Ciba Entities, except
that Ciba and each Ciba Entity will be free to vote all of its voting securities
entitled to vote in its sole discretion on the following matters submitted to
stockholders so long as such matters were not submitted to stockholders at the
request of Ciba or any of its affiliates (other than Hexcel): (A) any amendment
to the Certificate of Incorporation of Hexcel; (B) any merger, consolidation,
acquisition or other business combination involving Hexcel or any of its
subsidiaries; (C) any sale, lease, transfer or other disposition of the business
operations or assets of Hexcel; (D) any recapitalization, restructuring or
similar transaction or series of transactions involving Hexcel or any
significant subsidiary of Hexcel; (E) any dissolution or complete or partial
liquidation or similar arrangement of Hexcel or any significant subsidiary of
Hexcel, subject to certain exceptions; (F) certain issuances of equity
securities or securities convertible into or exchangeable or exercisable for
equity securities; and (G) entering into any material joint venture,
collaboration or partnership by Hexcel or any of its subsidiaries.
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STANDSTILL
Under the terms of the Governance Agreement, Ciba has agreed, subject to
certain specified exceptions, that it will not, directly or indirectly, (i)
purchase or otherwise acquire any beneficial ownership of voting securities of
Hexcel; (ii) enter into, propose to enter into, solicit or support any merger or
business combination or similar transaction involving Hexcel or any of its
subsidiaries or purchase, acquire, propose to purchase or acquire or solicit or
support the purchase or acquisition of any portion of the business or assets of
Hexcel or any significant subsidiary of Hexcel (except in the ordinary course of
business or in nonmaterial amounts); (iii) initiate or propose any security
holder proposal without the approval of the Board of Directors or make, or in
any way participate in, any "solicitation" of "proxies" (as such terms are used
in the proxy rules of the Commission) to vote or seek to advise or influence any
person or entity with respect to the voting of any voting securities of Hexcel
or request or take any action to obtain any list of security holders for such
purposes with respect to any matter other than those with respect to which Ciba
or the Ciba Entities may vote in their sole discretion under the Governance
Agreement (or, as to such matters, solicit any person in a manner that would
require the filing of a proxy statement under Regulation 14A of the Exchange
Act); (iv) form, join or otherwise participate in a group formed for the purpose
of acquiring, holding, voting, disposing of or taking any action with respect to
Hexcel's voting securities that would be required under Section 13(d) of the
Exchange Act to file a statement on Schedule 13D with the Commission; (v)
deposit any voting securities of Hexcel in a voting trust or enter into any
voting agreement with respect thereto (other than the Governance Agreement);
(vi) seek representation on the Board of Directors, remove a director or seek a
change in the size or composition of the Board of Directors; (vii) make any
request to amend or waive the provisions of the Governance Agreement referred to
in this paragraph that would require public disclosure; (viii) disclose any
intent, purpose, plan, arrangement or proposal inconsistent with the foregoing
(including any such intent, purpose, plan, arrangement or proposal that is
conditioned on or would require the waiver, amendment, nullification or
invalidation of any of the foregoing) or take any action that would require
public disclosure of any such intent, purpose, plan, arrangement or proposal;
(ix) take any action challenging the validity or enforceability of the
foregoing; or (x) assist, advise, encourage or negotiate with respect to or seek
to do any of the foregoing.
The Governance Agreement permits Ciba to purchase or otherwise acquire
beneficial ownership of Hexcel's voting securities in open market purchases so
long as after giving effect to such purchases or acquisitions the percentage of
the total voting power of Hexcel beneficially owned by Ciba does not exceed the
greater of (i) 49.9% until the third anniversary of the Closing or 57.5%
thereafter and (ii) the highest percentage of the total voting power of Hexcel
beneficially owned by Ciba immediately following any action by Hexcel that
increases the percentage of the total voting power of Hexcel beneficially owned
by Ciba due to a reduction in the amount of voting securities of Hexcel
outstanding as a result of such action.
BUYOUT TRANSACTIONS
The Governance Agreement provides that, notwithstanding the standstill
provisions described above, at any time after the fifth anniversary of the
Closing, Ciba may propose, participate in, support or cause the consummation of
a tender offer, merger or sale of substantially all of Hexcel's assets or
similar transaction (a "Buyout Transaction"), including a Buyout Transaction
with Ciba or any of its affiliates, if each stockholder other than Ciba and the
Ciba Entities (the "Other Holders") is entitled to received upon consummation of
such Buyout Transaction consideration that is (i) approved by (x) a majority of
the Independent Directors acting solely in the interests of the Other Holders
after the receipt of an opinion of an independent nationally recognized
investment banking firm retained by them or (y) a majority in interest of the
Other Holders by means of a stockholder vote solicited pursuant to a proxy
statement containing the information required by Schedule 14A under the Exchange
Act (it being understood that the Independent Directors will, consistent with
their fiduciary duties, be free to include in such proxy statement, if
applicable, the reasons underlying any failure by them to approve a Buyout
Transaction by the requisite vote, including whether a fairness opinion was
sought by the Independent Directors and any opinions or recommendations
expressed in connection therewith) and (ii) fair from a financial point of
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view to the Other Holders in the opinion of an independent nationally recognized
investment banking firm (including such a firm retained by Ciba).
ISSUANCE OF ADDITIONAL SECURITIES
If, at any time after the Closing for so long as Ciba is entitled to
designate one or more nominees for election to the Board of Directors, Hexcel
issues any additional voting securities for cash (other than issuances of voting
securities in connection with employee or director stock option or incentive
compensation or similar plans), Ciba will, pursuant to the Governance Agreement,
have the option to purchase, for the same consideration and otherwise on the
same terms as are applicable to such issuance by Hexcel, an amount of such
voting securities that would allow Ciba to beneficially own the same percentage
of the total voting power of Hexcel after such issuance as Ciba beneficially
owned immediately prior to such issuance.
THIRD PARTY OFFERS
In the event that Hexcel becomes the subject of a bona fide offer to enter
into a Buyout Transaction by a person other than Ciba or any of its affiliates
or any other person acting on behalf of Ciba or any of its affiliates (a "Third
Party Offer") that is made after the third anniversary of the Closing and that
is approved by two-thirds of the Independent Directors, Ciba will, within ten
days after receipt of notice of such event, either (i) offer to acquire the
voting securities of Hexcel held by the Other Holders (the "Other Shares") on
terms at least as favorable to the Other Holders as those contemplated by such
Third Party Offer or (ii) support such Third Party Offer (or an alternative
Third Party Offer providing greater value to the Other Holders) by voting and
causing each Ciba Entity to vote all its voting securities of Hexcel eligible to
vote thereon in favor of such Third Party Offer or, if applicable, tendering or
selling and causing each Ciba Entity to tender or sell all its voting securities
of Hexcel to the person making such Third Party Offer. In the event that Hexcel
becomes the subject of a Third Party Offer, neither Ciba nor any of the Ciba
Entities may support or vote in favor of such Third Party Offer or tender or
sell its voting securities of Hexcel to the person making such Third Party Offer
unless such Third Party Offer is approved by (i) a majority of the Independent
Directors acting solely in the interests of the Other Holders or (ii) a majority
in interest of the Other Holders in a stockholder vote solicited pursuant to a
proxy statement containing the information required by Schedule 14A under the
Exchange Act (it being understood that the Independent Directors will,
consistent with their fiduciary duties, be free to include in such proxy
statement, if applicable, the reasons underlying any failure by them to approve
a Buyout Transaction by the requisite vote, including whether a fairness opinion
was sought by the Independent Directors and any opinions or recommendations
expressed in connection therewith).
TRANSFER RESTRICTIONS
Except in connection with a Third Party Offer that has been approved by the
Independent Directors or the Other Holders in accordance with the Governance
Agreement, Ciba and the Ciba Entities are not permitted to sell, transfer or
otherwise dispose of any voting securities of Hexcel except (i) transfers solely
among Ciba and its wholly owned subsidiaries, (ii) in accordance with the volume
and manner-of-sale limitations of Rule 144 under the Securities Act of 1933, as
amended (the "Securities Act"), and otherwise subject to compliance with the
Securities Act or (iii) in a registered public offering or a non-registered
offering subject to an applicable exemption from the registration requirements
of the Securities Act, and in the case of clauses (ii) and (iii), in a manner
calculated to achieve a Broad Distribution (as defined in the Governance
Agreement).
In addition, the Governance Agreement provides that Ciba will not (i) permit
any subsidiary of Ciba that is not wholly owned to become a Ciba Entity or (ii)
dispose of any of the capital stock of any Ciba Entity except to another direct
or indirect wholly owned subsidiary of Ciba. This provision does not, however,
prohibit Ciba from effecting (i) a pro rata distribution to Ciba's stockholders
or (ii) a sale in a manner calculated to achieve a Broad Distribution of up to
20%, in each case, of the equity securities of a Ciba Entity if (x) such
distribution or sale has a bona fide business purpose (other than the sale or
distribution of such voting securities), (y) the voting securities of Hexcel
beneficially owned by such Ciba
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Entity do not constitute a material portion of the total assets of such Ciba
Entity and (z) in the case of a pro rata distribution to Ciba's stockholders,
such Ciba Entity agrees in writing to be bound by the terms and provisions of
the Governance Agreement to the same extent that Ciba would be if it
beneficially owned the voting securities of Hexcel beneficially owned by such
Ciba Entity.
TERMINATION; EXTENSION
On the tenth anniversary of the Closing, or at the end of any subsequent
renewal period, if the percentage of the total voting power of Hexcel
beneficially owned by Ciba is greater than 10% but less than 100%, Ciba will
have the option to (i) extend the Governance Agreement for an additional
two-year period, in which case so long as Ciba beneficially owns voting
securities of Hexcel representing 25% or more of the total voting power of
Hexcel, on one occasion during such two-year period Ciba may require Hexcel to
solicit in good faith a Buyout Transaction in which Ciba, the Ciba Entities and
the Other Holders receive the same consideration per voting security of Hexcel
(in which event the provisions of the Governance Agreement will continue in full
force and effect until the consummation of such Buyout Transaction) or (ii)
undertake to sell a sufficient number of voting securities of Hexcel so that the
percentage of total voting power of Hexcel beneficially owned by Ciba falls
below 10% during the subsequent 18 months pursuant to one or more registered or
non-registered offerings calculated to achieve a Broad Distribution (in which
event the provisions of the Governance Agreement will continue in full force and
effect until Ciba's percentage ownership of the total voting power of Hexcel
falls below 10%). If Ciba exercises its option to require Hexcel to solicit a
Buyout Transaction as described above, Ciba and the Ciba Entities may vote in
favor of or tender or sell their voting securities pursuant to any Third Party
Offer made as a result of or during such solicitation so long as the Third Party
Offer offers the same consideration to the Other Holders. Unless Hexcel has
accepted another Third Party Offer providing at least equivalent value to all
Hexcel stockholders, Hexcel will not take any action to interfere with Ciba's
right to vote in favor of or tender into such a Third Party Offer, provided,
however, that Hexcel will remain free to pursue alternative Third Party Offers
that provide for at least equivalent currently realizable value to all Hexcel
stockholders (including Ciba and the Ciba Entities) as such previously proposed
Third Party Offer.
The Governance Agreement will automatically terminate at any time that Ciba
beneficially owns voting securities of Hexcel representing either 100% or less
than 10% of the total voting power of Hexcel.
THE DISTRIBUTION AGREEMENT
In accordance with the terms of the Strategic Alliance Agreement, Hexcel and
CGL entered into the Distribution Agreement, which was assigned to Ciba in
accordance with the Hexcel Consent Letter (as so assigned, the "Distribution
Agreement"). Pursuant to the Strategic Alliance Agreement and the Distribution
Agreement, certain subsidiaries of CGL continued to act as distributors for
Hexcel for one year following the Closing through February 28, 1997. In
accordance with these agreements, Hexcel acquired certain assets (primarily
inventory and certain fixed assets) of these distributors from time to time
during the year following the Closing for an aggregate purchase price of
approximately $2.3 million, to be paid in senior subordinated notes. Pursuant to
the Distribution Agreement, sales to CGL subsidiaries were approximately $5.6
million in 1997.
THE REGISTRATION RIGHTS AGREEMENT
In connection with the Acquisition, Hexcel and CGL entered into a
registration rights agreement, which was assigned to Ciba in accordance with the
Hexcel Consent Letter (as so assigned, the "Registration Rights Agreement"). The
Registration Rights Agreement provides that Hexcel will prepare and file with
the Commission a "shelf" registration statement covering the shares of Hexcel
Common beneficially owned by Ciba and the Ciba Entities. If Hexcel is not
eligible to use a short form registration statement, Ciba will have the right to
demand that Hexcel effect the registration under the Securities Act of the
shares of Hexcel Common that are then eligible for sale under the Registration
Rights Agreement. Ciba's shares of Hexcel Common will generally become eligible
for sale under the Registration Rights Agreement in
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four equal annual installments commencing on March 1, 1998. The shares eligible
for sale under the Registration Rights Agreement in any year that are not sold
in such year will continue to be eligible for sale under the Registration Rights
Agreement in subsequent years. Under the Registration Rights Agreement, Ciba
also has the right, subject to certain restrictions, to include its shares of
Hexcel Common eligible for sale under the Registration Rights Agreement in
certain equity offerings of Hexcel. The Registration Rights Agreement also
contains certain provisions relating to blackout periods (during which Ciba
would not be permitted to sell shares of Hexcel Common otherwise eligible for
sale under the Registration Rights Agreement), payment of expenses, selection of
underwriters and indemnification.
THE SUPPLY AND MANUFACTURING AGREEMENTS
Hexcel and CGL have entered into various agreements and purchase orders,
some of which were entered into in connection with the Acquisition, pursuant to
which Hexcel and CGL have purchased certain products from each other; Ciba has
assumed these obligations. Sales to CGL and Ciba under such agreements were
approximately $5.6 million on a worldwide basis in 1997. Sales to Hexcel under
such agreements were approximately $34.3 million on a worldwide basis in 1997.
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THE MANAGEMENT INCENTIVE COMPENSATION PLAN
GENERAL
On December 5, 1996, the Board of Directors of Hexcel approved the
Management Incentive Compensation Plan (the "Unamended Plan"). On March 26,
1998, the Board of Directors approved certain amendments thereto, subject to
stockholder approval, and upon such stockholder approval the Management
Incentive Compensation Plan, as so amended (the "Management Incentive
Compensation Plan") will replace the Unamended Plan for awards made in respect
of calendar year 1998 and thereafter.
The Management Incentive Compensation Plan is being submitted to
stockholders to meet the stockholder approval requirement of Section 162(m) of
the Internal Revenue Code, as amended (the "Code"), for qualified
performance-based compensation programs.
The following description of the Management Incentive Compensation Plan is
not intended to be complete and is qualified in its entirety by the complete
text of the Management Incentive Compensation Plan, a copy of which is included
as Annex A to this Proxy Statement.
DESCRIPTION OF THE PRINCIPAL FEATURES OF THE PLAN
PURPOSES
The purposes of the Management Incentive Compensation Plan are (i) to
attract and retain highly qualified senior managers and (ii) to encourage senior
managers to purchase Hexcel Common using a portion of their annual cash
incentive compensation so that their interests will be more closely aligned with
stockholder long-term interests. The Management Incentive Compensation Plan is
also designed to preserve Hexcel's tax deduction for annual incentive
compensation paid to the Chief Executive Officer by addressing certain possible
limitations on the deductibility of executive compensation under Section 162(m)
of the Code. Section 162(m) limits the deductibility of certain compensation in
excess of $1 million per year paid by a publicly traded corporation to the chief
executive officer and the four other executive officers named in the summary
compensation table of the corporation's proxy statement. However, compensation
which qualifies as "performance-based" compensation is exempt from the $1
million deductibility limitation. The Management Incentive Compensation Plan
contemplates that only the Chief Executive Officer's compensation would likely
exceed the $1 million limitation. In order for compensation granted to the Chief
Executive Officer pursuant to the Management Incentive Compensation Plan to
qualify for this exemption, the material terms under which such compensation is
to be paid must be disclosed to and approved by stockholders in a separate vote
prior to payment, and such compensation must be paid solely on account of the
attainment of preestablished, objective performance goals and must be computed
by a preestablished, objective formula or standard.
ADMINISTRATION
The Management Incentive Compensation Plan will be administered by the
Executive Compensation Committee of the Board of Directors or such other
committee of the Board of Directors as may be designated from time to time (the
"Committee"). The Committee has the authority to make determinations with
respect to the participation of employees and to establish target incentive
awards, performance goals and all other material terms and conditions of awards
for each participant. The Committee also has the authority to interpret and
construe the provisions of the Management Incentive Compensation Plan.
ELIGIBILITY
Any employee or officer of Hexcel or its subsidiaries selected by the
Committee is eligible to receive an award under the Management Incentive
Compensation Plan.
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AWARDS
The Management Incentive Compensation Plan provides for cash incentive
awards as a percentage (which may exceed one hundred percent) of a target
incentive award established for a participant, derived from the degree of
achievement of the applicable performance goals. Performance goals applicable to
the Chief Executive Officer shall be based upon the extent of attainment of a
level of EBIT, EBITDA, EBT, EPS (basic), EPS (diluted), ROE, Revenue, RONA,
Stock Price or SVA (as such terms are defined in the Management Incentive
Compensation Plan) relating to Hexcel, a subsidiary or business unit.
Performance goals applicable to any participant other than the Chief Executive
Officer may be any performance measurement relating to Hexcel, a subsidiary or
business unit which the Committee deems appropriate as well as the extent of
attainment by a participant of individual performance objectives.
The Committee has the discretion to increase the amount of any award
otherwise payable to a participant (other than the Chief Executive Officer), or
decrease or eliminate the amount payable to a participant (including the Chief
Executive Officer), in each case to reflect such participant's individual
performance or such other factors as the Committee deems relevant. The amount of
an award payable to the Chief Executive Officer for any plan year shall not
exceed $1,500,000.
Generally an award is payable in cash as soon as practicable after the close
of the plan year and certification by the Committee of the degree of achievement
of the relevant performance goals; however, a participant who also participates
in Hexcel's Management Stock Purchase Plan may elect to receive up to fifty
percent of the award for any plan year in the form of restricted stock units
issuable pursuant to the Management Stock Purchase Plan.
AMENDMENT AND TERMINATION
The Executive Compensation Committee has the authority to amend, suspend or
terminate the Management Incentive Compensation Plan. No amendment to the
Management Incentive Compensation Plan which requires stockholder approval under
applicable law, rule or regulation, shall become effective without the approval
of Hexcel's stockholders. In addition, no amendment, suspension or termination
of the Management Incentive Compensation Plan may adversely affect the rights of
a participant with respect to a plan year ending prior to such action, or the
payment of an award payable upon the occurrence of a "change in control" of
Hexcel (as defined in the Management Incentive Compensation Plan), without the
consent of such participant.
PLAN BENEFITS
Awards under the Management Incentive Compensation Plan will be granted at
the discretion of the Committee and performance criteria may vary from year to
year and from participant to participant. Therefore, benefits under the
Management Incentive Compensation Plan are not determinable. Compensation paid
and other benefits granted to certain executive officers of Hexcel for the 1997
fiscal year are set forth above in the section entitled "EXECUTIVE
COMPENSATION".
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Participants will recognize income upon receipt of a cash award. Generally,
no income will be recognized at the time of receipt of an award received in the
form of restricted stock units under the Management Stock Purchase Plan until
the restricted stock units are converted into shares of Hexcel Common.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL AND ADOPTION OF THE
MANAGEMENT INCENTIVE COMPENSATION PLAN.
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SECTION 16(A) BENEFICIAL
OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires Hexcel's directors and executive
officers, and persons who own more than ten percent of a registered class of
Hexcel's equity securities, to file with the Commission initial reports of
ownership and reports of changes in ownership of Hexcel Common and other equity
securities of Hexcel. Executive officers, directors, and greater than ten
percent stockholders are required by Commission regulations to furnish Hexcel
with copies of all Section 16(a) forms they file. To Hexcel's knowledge, based
solely on a review of the copies of such reports furnished to Hexcel and written
representations that no other reports were required, for the fiscal year ended
December 31, 1997, all Section 16(a) filing requirements applicable to its
executive officers, directors and greater than ten percent stockholders were
complied with, except (i) for one inadvertent late filing of a Form 5 by each of
the following directors relating to the 2,000 share annual option grant in 1996:
Messrs. Cheesmond, Sherman, Vodicka, Sullivan, Springer and Wimer; (ii) one
inadvertent late filing of a Form 5 by Mr. Lee, relating to 19,300 shares of
Hexcel Common purchased on December 16, 1997, by Walnut Investors Ltd., an S
corporation owned by members of Mr. Lee's immediate family and with respect to
which Mr. Lee has joint investment authority and disclaims beneficial ownership;
and (iii) one inadvertent late filing of a Form 5 by Mr. Springer relating to
the grant of a 40,000 share non-qualified stock option on April 5, 1995, subject
to shareholder approval received on February 21, 1996.
OTHER MATTERS
As of the date of this Proxy Statement, the Board of Directors does not know
of any other matters to be presented for action by the stockholders at the
Annual Meeting. However, if any other matters not known are properly brought
before the Annual Meeting, proxies will be voted at the discretion of the proxy
holders and in accordance with their judgment on such matters.
STOCKHOLDER PROPOSALS
Any proposal that a Hexcel stockholder intends to present at the 1999 Annual
Meeting of Stockholders of Hexcel must be submitted to the Secretary of Hexcel
at its offices, Two Stamford Plaza, 281 Tresser Boulevard, Stamford, Connecticut
06901-3238, no later than December 21, 1998 in order to be considered for
inclusion in the Proxy Statement relating to that meeting.
INDEPENDENT AUDITORS
A representative of Price Waterhouse LLP, Hexcel's independent auditors, is
expected to be present at the Annual Meeting. The representative will have an
opportunity to make a statement if he desires to do so and will be available to
answer appropriate questions from stockholders.
ANNUAL REPORT
Hexcel's Annual Report to Stockholders containing audited financial
statements for the year ended December 31, 1997, is being mailed herewith to all
stockholders of record. Additional copies are available without charge on
request. Requests should be addressed to the Secretary, Hexcel Corporation, Two
Stamford Plaza, 281 Tresser Boulevard, Stamford Connecticut, 06901-3238.
HEXCEL CORPORATION
Stamford, Connecticut
April 20, 1998
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ANNEX A
HEXCEL CORPORATION
MANAGEMENT INCENTIVE COMPENSATION PLAN
I. PURPOSE
The purpose of the Hexcel Corporation Management Incentive Compensation Plan
(the "Plan") is to advance the interests of Hexcel Corporation (the "Company")
by providing an incentive for those key employees who have a direct, measurable
opportunity to advance the Company's goals and promote the growth and long-range
interests of the Company. In addition, it is intended that the Plan create
linkage between performance and compensation, align management's interests with
the interests of stockholders and encourage team management and corporate
success. A further purpose of the Plan is to serve as a qualified
performance-based compensation program under Section 162 (m) of the Code (as
defined below) in order to preserve the Company's tax deduction for compensation
paid under the Plan to the Chief Executive Officer of the Company.
II. DEFINITIONS
(a). "Award" shall mean the amount (if any) payable to a Participant in
respect of a Plan Year pursuant to the Plan.
(b). "Beneficial Owner" (and variants thereof) shall have the meaning given
in Rule 13d-3 promulgated under the Exchange Act.
(c). "Board" shall mean the Board of Directors of the Company.
(d). "Cause" shall mean (i) the willful and continued failure by the
Participant to substantially perform the Participant's duties with the Company
(other than any such failure resulting from the Participant's incapacity due to
physical or mental illness) after a written demand for substantial performance
is delivered to the Participant by the Company, which demand specifically
identifies the manner in which the Company believes that the Participant has not
substantially performed the Participant's duties, or (ii) the willful engaging
by the Participant in conduct which is demonstrably and materially injurious to
the Company or its Subsidiaries, monetarily or otherwise. For purposes of
clauses (i) and (ii) of this definition, no act, or failure to act, on the
Participant's part shall be deemed "willful" unless done, or omitted to be done,
by the Participant not in good faith and without reasonable belief that the
Participant's act, or failure to act, was in the best interest of the Company.
(e). "CEO" shall mean the Chief Executive Officer of the Company.
(f). "Change in Control" shall have the meaning given in Article XV hereof.
(g). "Ciba" shall mean Ciba Specialty Chemicals Holding Inc., a Swiss
corporation, together with its affiliates holding Company voting securities
pursuant to Section 4.01(b) of the Governance Agreement.
(h). "Code" shall mean the Internal Revenue Code, as amended.
(i). "Committee" shall mean the Executive Compensation Committee of the
Board or such other committee of the Board as may be designated from time to
time to administer the Plan.
(j). "Company" shall mean Hexcel Corporation, a Delaware corporation.
(k). "Disability" shall mean that, as a result of the Participant's
incapacity due to physical or mental illness or injury, the Participant shall
not have performed all or substantially all of the Participant's usual duties as
an employee for a period of more than one-hundred-fifty (150) days in any period
of one-hundred-eighty (180) consecutive days.
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(l). "EBIT" shall mean the consolidated earnings before interest and taxes
of the Company and its Subsidiaries.
(m). "EBITDA" shall mean the consolidated earnings before interest, taxes,
depreciation and amortization of the Company and its Subsidiaries.
(n). "EBT" shall mean the consolidated earnings before taxes of the Company
and its Subsidiaries.
(o). "EPS (basic)" shall mean the consolidated net earnings of the Company
and its Subsidiaries per share of issued and outstanding Stock.
(p). "EPS (diluted)" shall mean the consolidated net earnings of the Company
and its Subsidiaries per share of Stock on a fully diluted basis.
(q). "Eligible Employee" shall mean any officer or employee of the Company
or a Subsidiary.
(r). "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
(s). "Governance Agreement" shall have the meaning given in the Strategic
Alliance Agreement.
(t). "Management Stock Purchase Plan" shall mean the Hexcel Corporation
Management Stock Purchase Plan, as amended from time to time.
(u). "Participant" shall mean any Eligible Employee who is approved by the
Committee, in its sole discretion, for participation in the Plan in any Plan
Year.
(v). "Performance Goals" shall mean any one or more criteria and objectives
established by the Committee which must be met during the Plan Year as a
condition of the Participant's receipt of an Award in respect of such Plan Year.
Performance Goals applicable to the CEO shall be based upon the extent of
attainment of a level of EBIT, EBITDA, EBT, EPS (basic), EPS (diluted), ROE,
Revenue, RONA, Stock Price or SVA relating to the Company, a Subsidiary or
business unit. Performance Goals applicable to any Participant other than the
CEO may be any performance measurement relating to the Company, a Subsidiary or
business unit which the Committee deems appropriate as well as the extent of
attainment by a Participant of individual performance objectives.
(w). "Person", as used in Article XV hereof, shall have the meaning given in
Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and
14(d) of the Exchange Act, but excluding Ciba for so long as Ciba is subject to
the restrictions imposed by the Governance Agreement.
(x). "Plan" shall mean this Hexcel Corporation Management Incentive
Compensation Plan, as amended from time to time.
(y). "Plan Year" shall mean each calendar year during which the Plan is in
effect.
(z). "Restricted Stock Units" shall mean the units in which an Award is
partially or wholly payable pursuant to Article VI hereof and which are issuable
pursuant to the Management Stock Purchase Plan.
(aa). "ROE" shall mean return on the equity of the Company and its
Subsidiaries on a consolidated basis.
(bb). "Revenue" shall mean the consolidated net sales of the Company and its
Subsidiaries.
(cc). "RONA" shall mean return on the consolidated net assets of the Company
and its Subsidiaries.
(dd). "Stock" shall mean shares of common stock of the Company, par value
$.01 per share.
(ee). "Stock Price" shall mean the price of the Company's Stock as reported
on the New York Stock Exchange Consolidated Transactions Tape.
(ff). "Strategic Alliance Agreement" shall mean the Strategic Alliance
Agreement among Hexcel Corporation, Ciba-Geigy Limited and Ciba-Geigy
Corporation, dated as of September 29, 1995, as amended, and any of their
respective permitted successors or assigns thereunder.
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(gg). "Subsidiary" shall mean any subsidiary corporation of the Company
consolidated with the Company for financial reporting purposes.
(hh). "SVA" shall mean return on the weighted average cost of capital of the
Company.
(ii). "Target Incentive Award" shall have the meaning given in Section V(A)
hereof.
III. ADMINISTRATION
Administration of the Plan shall be by the Committee, which shall, in
applying and interpreting the provisions of the Plan, have full power and
authority to construe, interpret and carry out the provisions of the Plan. All
decisions, interpretations and actions of the Committee under the Plan shall be
at the Committee's sole and absolute discretion and shall be final, conclusive
and binding upon all parties. No member of the Board or the Committee shall be
liable for any action taken or determination made in good faith with respect to
the Plan or any Award granted hereunder.
IV. ELIGIBILITY FOR PARTICIPATION
The Committee shall have full and complete discretion in determining which
Eligible Employees may be Participants in the Plan in any Plan Year.
Participation in the Plan in any Plan Year shall not confer any right on any
Participant to participate in any subsequent Plan Year.
V. DETERMINATION OF AWARDS
A. ESTABLISHMENT OF TARGET INCENTIVE AWARDS AND PERFORMANCE GOALS. No
later than ninety (90) days after the beginning of a Plan Year the Committee
shall establish for each Participant (i) a Target Incentive Award for such Plan
Year and the applicable Performance Goals in respect of such Plan Year and (ii)
the amount of Award payable under the Plan as a percentage (which may exceed one
hundred (100%) percent) of the Target Incentive Award, derived from the degree
of achievement of the applicable Performance Goals. The Performance Goals
established by the Committee may be (but need not be) different each Plan Year
and different goals may be applicable to different Participants. As soon as
practicable after the establishment of the Target Incentive Award and
Performance Goals, each Participant shall be notified in writing of such Target
Incentive Award and the corresponding Performance Goals.
B. AMOUNT OF AWARD PAYABLE NORMALLY. The Committee shall determine the
Award payable to each Participant from the degree of achievement of the
applicable Performance Goals. The Committee may, in its sole discretion, (a)
increase the amount of any Award otherwise payable to any Participant (other
than the CEO) or (b) decrease or eliminate the amount payable to a Participant
(including the CEO), in each case to reflect such Participant's individual
performance or such other factors as the Committee deems relevant, or in
recognition of changed or special circumstances. The amount of the Award payable
to the CEO for any Plan Year shall not exceed $1,500,000.
C. AMOUNT OF AWARD WITH CHANGE OF EMPLOYMENT STATUS. In the event of a
change in employment status of a Participant (other than the CEO) during the
Plan Year, the Committee may, in its sole discretion, adjust the Award
determinants for the Participant based upon the Participant's new status.
D. AMOUNT OF AWARD WITH TERMINATION OF EMPLOYMENT OR CHANGE IN
CONTROL. Except as otherwise provided in this paragraph, payment of an Award to
a Participant for a particular Plan Year shall be made only if the Participant
is employed by the Company or one of its Subsidiaries on the last day of the
Plan Year. Notwithstanding any other provision of the Plan, in the case of a
Participant's voluntary termination of employment with the Company or a
Subsidiary or upon termination of employment with the Company or a Subsidiary
for Cause during a Plan Year, the Committee may, in its sole discretion,
authorize the full or partial payment of an Award for such Plan Year, if the
Participant was actively employed for at least six months during the Plan Year.
In the case of a Participant's separation from service due to Disability or
death or, in the case of a Participant's (other than the CEO) involuntary
termination of employment by the Company or a Subsidiary other than for Cause, a
Participant shall be entitled to receive an Award, prorated for the period of
active employment with the Company or a Subsidiary during the Plan Year,
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payable in accordance with Article VI below. In the case of a Change in Control
of the Company during a Plan Year, a Participant shall be entitled to receive an
Award, prorated for the period of active employment with the Company or a
Subsidiary during such Plan Year and prior to the Change in Control, computed as
if applicable Performance Goals had been attained at the one hundred (100%)
percent level and payable in cash no later than the fifth (5th) day following
the Change in Control.
VI. PAYMENT OF AWARDS
A. TIMING OF PAYMENT. Except as provided in the last sentence of Section
V(D) hereof, an Award which becomes payable to a Participant pursuant to Article
V hereof shall be paid to the Participant (or the Participant's estate in the
event of the Participant's death) as soon as practicable after the close of the
Plan Year and certification by the Committee of the degree of achievement of the
relevant Performance Goals. No Participant shall have the unconditional right to
an Award hereunder until the Plan Year has concluded and the exact amount of the
Award (if any) has been determined and certified by the Committee.
B. PAYMENT IN CASH AND/OR RESTRICTED STOCK UNITS. At the election of each
Participant who has been designated by the Committee as a participant in the
Management Stock Purchase Plan, up to fifty (50%) percent of the Participant's
Award for any Plan Year shall be paid in Restricted Stock Units pursuant to, and
subject to the terms and conditions of, the Management Stock Purchase Plan;
provided, however, that the Participant's Award for any Plan Year in which a
Change in Control occurs shall be paid totally in cash. The Committee, in its
discretion, may permit a Participant in the Management Stock Purchase Plan who
first becomes employed by the Company or a Subsidiary during a given Plan Year
to elect to have up to one-hundred (100%) percent of the Participant's Award for
such Plan Year paid in such Restricted Stock Units. The number of Restricted
Stock Units to be paid to a Participant shall be calculated in accordance with
the Management Stock Purchase Plan. Payment of the balance of the Participant's
Award for such Plan Year (or all thereof if no election of Restricted Stock
Units is made by the Participant) shall be made in cash. Payments of portions of
any Awards made in Restricted Stock Units pursuant to the Management Stock
Purchase Plan may be referred to therein as "purchases" of such Restricted Stock
Units.
VII. DEFERRAL ELECTIONS
The Committee may, at its option, establish written procedures pursuant to
which Participants are permitted to defer the receipt of Awards payable under
the Plan.
VIII. ACCOUNTING DETERMINATIONS
The Committee reserves sole discretion in adopting and changing, from time
to time, the accounting principles and practices reflected in audited financial
statements of the Company and, in its sole and absolute judgment, to make such
other adjustments in Company financial results and/or Performance Goals as may
be deemed reasonable, including, without limitation, changes to reflect
acquisitions, divestitures, other corporate capital reorganizations,
recapitalization or extraordinary events.
IX. AMENDMENT AND TERMINATION OF PLAN
The Executive Compensation Committee of the Board reserves the right, at any
time including during a Plan Year, to amend, suspend or terminate the Plan, in
whole or in part, in any manner, and for any reason, and without the consent of
any Participant, or other person; provided, that no such amendment, suspension
or termination shall adversely affect the payment of any Award for a Plan Year
ending prior to the action amending, suspending or terminating the Plan or the
payment of any Award payable pursuant to the last sentence of Section V(D)
hereof or the rights of a Participant pursuant to any agreement with the Company
or any Subsidiary.
X. GOVERNING LAW
The provisions of the Plan shall be governed and construed in accordance
with the laws of the State of Delaware without giving effect to the choice of
law principles thereof.
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XI. MISCELLANEOUS PROVISIONS
Nothing contained in the Plan shall give any employee the right to be
retained in the employment of the Company or a Subsidiary or affect the right of
the Company or a Subsidiary to dismiss any employee. The Plan shall not
constitute a contract between the Company or a Subsidiary and any employee.
Unless approved by the Committee in respect of a particular Plan Year, no
Participant shall have any right to be granted an Award hereunder. Nothing
contained in the Plan shall restrict the Committee's power to grant any employee
an award or bonus outside the scope of this Plan.
XII. NO ALIENATION OF BENEFITS
Except insofar as may otherwise be required by law, no amount payable at any
time under the Plan shall be subject in any manner to alienation by
anticipation, sale, transfer, assignment, bankruptcy, pledge, attachment, charge
or encumbrance of any kind, nor in any manner be subject to the debts or
liabilities of a Participant, and any attempt to so alienate or subject any such
amount, whether presently or thereafter payable, shall be void.
XIII. NO RIGHT, TITLE OR INTEREST IN COMPANY'S ASSETS
Nothing contained in the Plan, and no action taken pursuant to its
provisions, shall create, or be construed to create, a trust of any kind, or
fiduciary relationship between the Company or a Subsidiary and any Participant
or any other person. To the extent that any person acquires a right to receive
payments from the Company under the Plan, such rights shall be no greater than
the right of an unsecured general creditor of the Company. All payments to be
made hereunder shall be paid from the general funds of the Company, and no
special or separate funds shall be established, and no segregation of assets
shall be made, to assure payment thereof.
XIV. NO STOCK SUBJECT TO THE PLAN
No shares of Stock shall be reserved for, or issued under, the Plan. To the
extent that Awards are paid in Restricted Stock Units, each Restricted Stock
Unit shall be issued under, and subject to the terms and conditions of, the
Management Stock Purchase Plan.
XV. CHANGE IN CONTROL
For purposes of the Plan, the term "Change in Control" shall mean any of the
following events:
(a)(i) any Person is or becomes the Beneficial Owner of 20% or more of
either (x) the then outstanding common stock of the Company (the "Outstanding
Common Stock") or (y) the combined voting power of the then outstanding
securities entitled to vote generally in the election of directors of the
Company (the "Total Voting Power"), excluding, however, the following: (1) any
acquisition by the Company or any of its affiliates or (2) any acquisition by
any employee benefit plan (or related trust) sponsored or maintained by the
Company or any of its affiliates; and (ii) Ciba Beneficially Owns, in the
aggregate, a lesser percentage of the Total Voting Power than such Person
Beneficially Owns; or
(b) a change in the composition of the Board such that the individuals who,
as of the date of the adoption of the Plan by the Board, constitute the Board
(such individuals shall be hereinafter referred to as the "Incumbent Directors")
cease for any reason to constitute at least a majority of the Board; provided,
however, for purposes of this definition, that any individual who becomes a
director subsequent to such date, whose election, or nomination for election by
the Company's stockholders, was made or approved pursuant to the Governance
Agreement or by a vote of at least a majority of the Incumbent Directors (or
directors whose election or nomination for election was previously so approved)
shall be considered a member of the Incumbent Board; but, provided, further,
that any such individual whose initial assumption of office occurs as a result
of either an actual or threatened election contest (as such terms are used in
Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) or other
actual or threatened
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solicitation of proxies or consents by or on behalf of a person or legal entity
other than the Board shall not be considered a member of the Incumbent Board; or
(c) the approval by the stockholders of the Company of a reorganization,
merger or consolidation or sale or other disposition of all or substantially all
of the assets of the Company ("Corporate Transaction"); excluding, however, such
a Corporate Transaction (i) pursuant to which all or substantially all of the
individuals and entities who are the Beneficial Owners, respectively, of the
Outstanding Common Stock and Total Voting Power immediately prior to such
Corporate Transaction will Beneficially Own, directly or indirectly, more than
50%, respectively, of the outstanding common stock and the combined voting power
of the then outstanding securities entitled to vote generally in the election of
directors of the company resulting from such Corporate Transaction (including,
without limitation, a corporation which as a result of such transaction owns the
Company or all or substantially all of the Company's assets either directly or
through one or more subsidiaries) in substantially the same proportions as their
ownership immediately prior to such Corporate Transaction of the Outstanding
Common Stock and Total Voting Power, as the case may be, or (ii) after which no
Person Beneficially Owns a greater percentage of the combined voting power of
the then outstanding securities entitled to vote generally in the election of
directors of such corporation than does Ciba; or
(d) Ciba shall become the Beneficial Owner of more than 57.5% of the Total
Voting Power; or
(e) the approval by the stockholders of the Company of a complete
liquidation or dissolution of the Company.
XVI. INTERPRETATION
The Plan is designed and intended to comply with Section 162 (m) of the Code
to the extent applicable to the CEO as a "covered person" as defined therein,
and the Plan shall be construed in a manner to so comply.
XVII. EFFECTIVE DATE AND TERM
The Board of Directors approved the Management Incentive Compensation Plan
on December 5, 1996 (the "Unamended Plan"). On March 26, 1998, the Board of
Directors adopted this amended and restated Plan subject to the approval of the
stockholders of the Company. Upon such stockholder approval, this Plan will
replace the Unamended Plan for Awards made in respect of Plan Year 1998 and
thereafter. In the event such stockholder approval is not obtained, the
Unamended Plan shall continue in effect as though this amended and restated Plan
had not been adopted by the Board of Directors.
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