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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
------------------------
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
- - --------------------------------------------------------------------------------
(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):
(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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<PAGE>
[LOGO]
HEXCEL CORPORATION
TWO STAMFORD PLAZA
281 TRESSER BOULEVARD
STAMFORD, CONNECTICUT 06901-3238
---------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 20, 1999
---------------------
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 20,
1999 at 10:30 a.m., local time, for the following purposes:
1. To elect ten individuals (John M.D. Cheesmond, Marshall S. Geller,
Harold E. Kinne, John J. Lee, John J. McGraw, Martin Riediker, Stanley
Sherman, Martin L. Solomon, George S. Springer 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; and
2. 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 22, 1999 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
/s/ Ira J. Krakower
Ira J. Krakower
Secretary
Dated: April 12, 1999
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 20, 1999
------------------------
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 20,
1999 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 ten individuals (John M.D. Cheesmond,
Marshall S. Geller, Harold E. Kinne, John J. Lee, John J. McGraw, Martin
Riediker, Stanley Sherman, Martin L. Solomon, George S. Springer and Franklin S.
Wimer) to the Board of Directors; and (ii) 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 12, 1999. The date of this Proxy
Statement is April 12, 1999.
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.
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<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.................................................................................................. 3
Recommendations of the Board of Directors................................................................ 4
ELECTION OF DIRECTORS...................................................................................... 4
Information Regarding the Directors...................................................................... 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
Stock Options............................................................................................ 16
Deferred Compensation.................................................................................... 18
Employment and Other Agreements.......................................................................... 19
Compensation Committee Report on Executive Compensation.................................................. 22
Compensation Committee Interlocks and Insider Participation.............................................. 25
Compensation of Directors................................................................................ 25
PERFORMANCE GRAPH.......................................................................................... 26
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS............................................................. 27
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE.................................................... 33
OTHER MATTERS.............................................................................................. 33
STOCKHOLDER PROPOSALS...................................................................................... 33
INDEPENDENT AUDITORS....................................................................................... 33
ANNUAL REPORT.............................................................................................. 33
</TABLE>
2
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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 20, 1999 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 ten individuals to
the Board of Directors; and (ii) 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
22, 1999 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 12,
1999 to holders of record of Hexcel Common on the Record Date. On the Record
Date, there were 36,408,885 shares of Hexcel Common outstanding held by 1,779
stockholders of record.
The presence, either in person or by proxy, of the holders of a majority of
the outstanding shares of 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. 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. 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
49.6% 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.
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.
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
3
<PAGE>
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. In addition to
solicitation by use of the mail, 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. See "ELECTION OF DIRECTORS".
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 its 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, John J. McGraw, Martin Riediker and
Stanley Sherman), the Chairman of the Board of Hexcel (John J. Lee), the
President of Hexcel (Harold E. Kinne) 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).
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 is required to vote its shares of Hexcel Common in
favor of the slate of nominees determined in accordance with the Governance
Agreement.
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Ciba currently beneficially owns approximately 49.6% 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 and Harold E. Kinne (the Chairman and President, respectively); (ii) John
M.D. Cheesmond, John J. McGraw, Martin Riediker and Stanley Sherman (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
Set forth below is certain information concerning the current directors of
Hexcel as of February 28, 1999. All current directors have been nominated for
reelection to the Board of Directors. There are no family relationships among
any Hexcel executive officer or director.
<TABLE>
<CAPTION>
DIRECTOR
NAME AGE SINCE POSITION(S) WITH HEXCEL
- - ------------------------------------------------ --- ----------- ------------------------------------------------
<S> <C> <C> <C>
John J. Lee..................................... 62 1993 Chairman of the Board; Chief Executive
Officer; Director
Harold E. Kinne................................. 59 1998 President; Chief Operating
Officer; Director
John M.D. Cheesmond............................. 49 1996 Director
Marshall S. Geller.............................. 60 1994 Director
John J. McGraw.................................. 58 1999 Director
Martin Riediker................................. 47 1999 Director
Stanley Sherman................................. 60 1996 Director
Martin L. Solomon............................... 62 1996 Director
George S. Springer.............................. 65 1993 Director
Franklin S. Wimer............................... 62 1995 Director
</TABLE>
JOHN J. LEE, age 62, has served as Chairman of the Board of Directors of
Hexcel since February 1996, Chief Executive Officer since January 1994,
President from May 1997 to July 1998; 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 since May 1993. He also serves as Chairman
of the Nominating Committee and is a member of the Finance Committee of Hexcel.
Mr. Lee is a director of Hvide Marine Incorporated, a marine support and
transportation services company. He has served as Chairman of the Board,
President and Chief Executive Officer of Lee Development Corporation, a merchant
banking company, since 1987. He is also trustee of Yale University. Mr. Lee was
a director of Aviva Petroleum Corporation, an oil and gas exploration company,
from 1993 to 1998, a director of XTRA Corporation, a transportation equipment
leasing company, from 1990 to 1996 and Chairman of the Board and Chief Executive
Officer of Seminole Corporation, a manufacturer and distributor of fertilizer,
from 1989 to 1993. He served as an adviser to the Clipper Group, a private
investment partnership, from 1993 to 1998. Mr. Lee also served as a director of
Tosco Corporation, a national refiner and marketer of petroleum products, from
1988 to 1993 and as President and Chief Operating Officer of Tosco Corporation
from 1990 through 1993.
HAROLD E. KINNE, age 59, has served as President, Chief Operating Officer
and a member of the Board of Directors of Hexcel since July 1998. Prior to
joining Hexcel, he was President of the Additives Division, Corporate Vice
President, a member of the Corporate Management Committee and a director of Ciba
Specialty Chemicals Corporation from 1996 to June 1998. Mr. Kinne also held the
same positions in
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CGC from 1988 through 1996. Prior to that, Mr. Kinne served as Vice President,
Pigments, for the Plastics & Additives Division of CGC from 1986 to 1988. Mr.
Kinne has held various other technical and managerial positions with CGC from
1965 to 1986.
JOHN M.D. CHEESMOND, age 49, has been a director of Hexcel since February
1996. Mr. Cheesmond is Chairman of the Executive Compensation Committee and a
member of the Finance Committee of Hexcel. Mr. Cheesmond is Executive Vice
President of Ciba Specialty Chemicals, Inc. Mr. Cheesmond was 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 60, served as Co-Chairman of the Board of Directors
of Hexcel from February 1995 to February 1996 and 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 has served as
Chairman of the Board, Chief Executive Officer and founding partner at Geller &
Friend Capital Partners, Inc., a merchant banking firm, since 1995. Mr. Geller
was Senior Managing Director of Golenberg & Geller, Inc., a merchant banking
firm, from 1991 to 1995; Vice Chairman of Gruntal & Company, an investment
banking firm, from 1988 to 1990; and a Senior Managing Director of Bear, Stearns
& Co., Inc., an investment banking firm, from 1967 to 1988. Mr. Geller is
currently a director of Ballantyne of Omaha, Inc., Players International, Value
Vision International, Inc., iMall Inc., Cabletel Communications Corp., Stroud's,
Inc. and various other privately-held corporations and charitable organizations.
JOHN J. McGRAW, age 58, has been a director of Hexcel since February 1999.
Mr. McGraw is Vice President, General Counsel, Secretary and a member of the
Board of Directors of Ciba Specialty Chemicals Corporation. Mr. McGraw served as
Vice President, General Counsel and Secretary of CGC from 1986 to 1996, and was
a member of the Board of Directors and of the Finance Committee of CGC from 1989
to 1996. Mr. McGraw also serves on the Board of Directors of the Westchester
Legal Aid Society.
MARTIN RIEDIKER, age 47, has been a director of Hexcel since February 1999.
Mr. Riediker is Global President of Ciba's Consumer Care Division and a member
of Ciba's Executive Committee and as such is also responsible for Ciba's
Performance Polymers Division. Mr. Riediker was appointed Head of CGL's Ciba
Chemicals Division in 1995. From 1994 to 1995 he served as head of CGC's US
Polymers Division and as a Management Committee member of CGC in the United
States.
STANLEY SHERMAN, age 60, 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, Chief Executive Officer and
Chairman of the Board of Ciba Specialty Chemicals Corporation and Chairman of
the Board of Ciba Specialty Chemicals (Canada). Mr. Sherman served as a director
and Vice President and Chief Financial Officer of CGC from 1991 to 1996, and was
a member of 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
Directors of the Chemical Manufacturers Association and of the Westchester
Educational Coalition.
MARTIN L. SOLOMON, age 62, has been a director of Hexcel since May 1996. Mr.
Solomon serves as Chairman of the Finance Committee and is a member of the Audit
and Executive Compensation Committees of Hexcel. Mr. Solomon has been Chairman
and Chief Executive Officer of American County Holdings, Inc., an insurance
holding company, since 1997 and a self-employed investor since 1990. Mr. Solomon
was a director and Vice Chairman of the Board of Directors of Great Dane
Holdings, Inc., which is engaged in the manufacture of transportation equipment,
automobile stamping, the leasing of taxis and insurance, from 1985 to 1996, was
Managing Partner of Value Equity Associates I, L.R., an investment partnership,
from 1988 to 1990, and was an investment analyst and portfolio manager of
Steinhardt Partners, an investment partnership, from 1985 to 1987. Mr. Solomon
has been a director of
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XTRA Corporation since 1990 and a director of Telephone and Data Systems Inc., a
diversified telecommunications service company, since 1997. Mr. Solomon is also
a director of various privately-held corporations and civic organizations.
GEORGE S. SPRINGER, age 65, 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.
FRANKLIN S. WIMER, age 62, was a director of Hexcel from February 1995 to
February 1996 and was reelected in May 1996. Mr. Wimer also serves as Chairman
of the Audit Committee and is a member of 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
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MEETINGS AND STANDING COMMITTEES OF THE BOARD OF DIRECTORS
During 1998, there were 12 meetings of the Board of Directors and 23
meetings in the aggregate of the five standing committees of the Board. Overall
attendance at the Board and committee meetings was approximately 94% in 1998.
Each of the incumbent directors who served on the Board and its committees
during 1998 attended or participated in at least 75% of the aggregate number of
Board of Directors meetings and applicable committee meetings held during 1998.
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 1998, the Audit
Committee held 6 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 1998, the Executive
Compensation Committee held 7 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 1998, the Finance Committee held 8 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, McGraw and Riediker. During 1998, the Nominating Committee
held 1 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), Wimer, McGraw and Riediker. During 1998, the
Technology Committee held 1 meeting.
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.
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 March
1, 1999. For additional information concerning Messrs. Lee and Kinne, see
"ELECTION OF DIRECTORS--Information Regarding the Directors."
<TABLE>
<CAPTION>
EXECUTIVE
OFFICER
NAME AGE SINCE POSITION(S) WITH HEXCEL
- - ------------------------------------ --- ----------- ----------------------------------------------------------
<S> <C> <C> <C>
John J. Lee......................... 62 1993 Chairman of the Board; Chief Executive Officer; Director
Harold E. Kinne..................... 59 1998 President; Chief Operating Officer; Director
Stephen C. Forsyth.................. 43 1994 Executive Vice President; Chief Financial Officer
Ira J. Krakower..................... 58 1996 Senior Vice President; General Counsel; Secretary
Lynn L. Brown....................... 49 1999 Vice President of Human Resources
Wayne C. Pensky..................... 43 1993 Vice President; Corporate Controller; Chief Accounting
Officer
Robert A. Petrisko.................. 44 1993 Vice President of Corporate Research and Technology
Gary L. Sandercock.................. 58 1989 Vice President of Corporate Manufacturing and Employee
Health and Safety
Joseph H. Shaulson.................. 33 1996 Vice President of Planning and Integration
David M. Wong....................... 54 1996 Vice President of Corporate Affairs
Bruce D. Herman..................... 43 1996 Treasurer
William Hunt........................ 56 1996 President of the Composite Materials business unit
William D. Bennison................. 54 1998 President of the Hexcel Schwebel business unit
Justin P. S. Taylor................. 45 1996 President of the Structures and Interiors business unit
James N. Burns...................... 59 1996 President of the Fibers business unit
</TABLE>
STEPHEN C. FORSYTH, age 43, has served as Executive Vice President of Hexcel
since June 1998, Chief Financial Officer since November 1996 and Senior Vice
President of Finance and Administration between February 1996 and June 1998. Mr.
Forsyth served as Vice President of International Operations of Hexcel from
October 1994 to February 1996, General Manager of Hexcel's Resins Business and
Export Marketing from 1989 to 1994 and has held other general management
positions with Hexcel from 1980 to 1989. Mr. Forsyth joined Hexcel in 1980.
IRA J. KRAKOWER, age 58, has served as Senior Vice President, General
Counsel and Secretary of Hexcel since September 1996. Prior to joining Hexcel,
Mr. Krakower served as Vice President and General Counsel to Uniroyal Chemical
Corporation from 1986 to August 1996 and served on the Board of Directors of and
as Secretary of Uniroyal Chemical Company, Inc. from 1989 to 1996.
LYNN L. BROWN, age 49, has served as Vice President of Human Resources of
Hexcel since March 1999. Prior to joining Hexcel, Ms. Brown served as Vice
President of Human Resources at MKE-Quantum Components, LLC from 1998 to
February 1999, as Vice President of Organizational Development and International
Human Resources at Burger King Corporation from 1996 to 1998, and as Director of
Human Resources at several business units of AlliedSignal, Inc. from 1993 to
1996.
WAYNE C. PENSKY, age 43, has served as Vice President of Hexcel since
December 1998 and 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.
ROBERT A. PETRISKO, age 44, has served as Vice President of Corporate
Research and Technology of Hexcel since September 1993. Mr. Petrisko served at
Hexcel's Chandler facility as Manager of the Signature Technology Group from
1989 to April 1993 and as Director of Aerospace Technology from
9
<PAGE>
April 1993 to September 1993. Mr. Petrisko joined Hexcel in 1989 after serving
as a Research Specialist with Dow Corning Corporation from 1985 to 1989.
GARY L. SANDERCOCK, age 58, has served as Vice President of Manufacturing of
Hexcel since October 1996. From February 1996 to 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 the Reinforcement Fabrics business unit of Hexcel from 1989 to
1993, General Manager of the Trevarno Division of Hexcel from 1985 to 1989 and
has held other manufacturing and general management positions from 1967 to 1985.
Mr. Sandercock joined Hexcel in 1967.
JOSEPH H. SHAULSON, age 33, has served as Vice President of Planning and
Integration of Hexcel since November 1998. Mr. Shaulson served as Vice President
of Corporate Development of Hexcel from April 1996 to October 1998. 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 LLP, where he
was employed from 1991 to 1996.
DAVID M. WONG, age 54, 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, Corporate Controller and Chief
Accounting Officer of Hexcel from 1983 to 1993 and has held other general
management positions from 1979 to 1983. Mr. Wong joined Hexcel in 1979.
BRUCE D. HERMAN, age 43, 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. Mr. Herman also served as Vice
President of Finance in the Equipment Financing Group of USL from 1991 to 1993.
WILLIAM HUNT, age 56, has served as President of Hexcel's Composite
Materials business unit since November 1998 and as President of the former
Hexcel EuroMaterials business unit from February 1996 to November 1998. Mr. Hunt
served as President of the EuroMaterials unit of the Ciba Composites Business
from 1991 to February 1996 and as 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.
WILLIAM D. BENNISON, age 54, has served as President of the Hexcel Schwebel
business unit since November 1998. Mr. Bennison also serves as President of
Clark-Schwebel Tech-Fab Company and as a director of CS-Interglas AG and
Asahi-Schwebel Co. Ltd. Prior to joining Hexcel, Mr. Bennison was President of
Clark-Schwebel, Inc from 1991 to September 1998.
JUSTIN P. S. TAYLOR, age 45, has served as President of Hexcel's Structures
and Interiors business unit since April 1996. From July 1995 to April 1996, Mr.
Taylor served as a member of CGL's strategic planning unit. Prior to July 1995,
Mr. Taylor held various management positions in the Heath Tecna Division of CGC.
JAMES N. BURNS, age 59, has served as President of Hexcel's Fibers business
unit since July 1996. Prior to his employment with Hexcel, Mr. Burns served in a
number of management positions with the Composite Products Division of Hercules
Incorporated, including Business Director from March 1995 to June 1996, Business
Unit Director of Advanced Composite Materials from June 1992 to March 1995 and
Vice President of Marketing from June 1986 to June 1992.
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 February 28, 1999
with respect to the ownership 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")) 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
SHARES OF PERCENT
COMMON OF
NAME AND ADDRESS STOCK CLASS
- - ----------------------------------------------------------------------------------------- -------------- -----------
<S> <C> <C>
Ciba Specialty Chemicals Holding Inc. (1)................................................ 18,028,414 49.6%
Klybeckstrasse 141
CH 4002
Basle, Switzerland
Franklin Resources, Inc. (2)............................................................. 3,627,773 10.0%
Franklin Mutual Advisors, 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 and SCC has
sole voting and investment power with respect to 8,817,245 shares of Hexcel
Common. Ciba Directors Messrs. McGraw and Riediker each hold 10,000 options
to purchase Hexcel Common granted on February 4, 1999, 3,333 of which for
each are vested. Based on information provided to Hexcel, the options
granted to Messrs. McGraw and Riediker are held for the benefit of Ciba and,
accordingly, to the extent vested are included in the shares owned by Ciba
above. The shares of Hexcel Common beneficially owned by Ciba are subject to
the terms of the Governance Agreement. See "CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS".
(2) Based on information contained in a Statement on Schedule 13G filed with the
Commission on January 29, 1999 on behalf of Franklin Resources, Inc.,
Franklin Mutual Advisors, Inc., Rupert H. Johnson, Jr. and Charles B.
Johnson, which parties have sole voting and investment power with respect to
all the shares of Hexcel Common held by it.
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 February
28, 1999 is as follows:
<TABLE>
<CAPTION>
SHARES OF HEXCEL PERCENT
NAME COMMON OWNED (3) OF CLASS
- - -------------------------------------------------------------- ------------------ -------------
<S> <C> <C>
John J. Lee................................................... 1,072,738 2.9%
Harold E. Kinne............................................... 10,000 (1)
John M. D. Cheesmond (2)...................................... 49,377 (1)
Marshall S. Geller............................................ 78,888 (1)
John J. McGraw (2)............................................ 0 (1)
Martin Riediker (2)........................................... 0 (1)
Stanley Sherman (2)........................................... 48,888 (1)
Martin L. Solomon............................................. 98,377 (1)
George S. Springer............................................ 49,377 (1)
Franklin S. Wimer............................................. 49,377 (1)
Stephen C. Forsyth............................................ 89,351 (1)
Ira J. Krakower............................................... 61,844 (1)
William Hunt.................................................. 15,438 (1)
Gary L. Sandercock............................................ 39,581 (1)
All executive officers and directors as a group
(22 persons)(4)............................................. 1,905,169 5.1%
</TABLE>
- - ------------------------
(1) Less than 1%.
(2) Messrs. Cheesmond, Sherman, McGraw and Riediker serve on the Board of
Directors at the request of Ciba pursuant to the Governance Agreement. Based
on information provided to Hexcel, Messrs. McGraw and Riediker each hold
10,000 options granted to them on February 4, 1999 as nominees for the
benefit of Ciba. Messrs. McGraw and Riediker disclaim beneficial ownership
of any shares represented by such options and none of the shares represented
by such options are included above.
(3) Includes shares issuable upon the exercise of options that are currently
exercisable or that will become exercisable within 60 days and shares
issuable within 60 days upon the satisfaction of certain conditions of units
of restricted stock. Such shares are held as follows: Mr. Lee--591,082; Mr.
Kinne--0; Mr. Cheesmond--29,377; Mr. Geller--8,888; Mr. Sherman--48,888; Mr.
Solomon-- 47,377; Mr. Springer--49,377; Mr. Wimer--49,377; Mr. McGraw--0;
Mr. Riediker--0; Mr. Forsyth-- 80,974; Mr. Krakower--42,644; Mr.
Hunt--10,438; Mr. Sandercock--28,015; and all other executive officers as a
group--199,768. Included in the shares held by Mr. Lee are 220,600 shares
which are currently issuable pursuant to certain Performance Accelerated
Restricted Stock Units ("PARS"); to date, conversion of those PARS and
distribution of shares to Mr. Lee are 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. Shares issuable upon the exercise of options
that are currently exercisable or that will become exercisable within 60
days and shares which are issuable within 60 days upon the satisfaction of
certain conditions of units of restricted stock are treated as outstanding
for purposes of computing the percentage of outstanding shares.
(4) Lynn L. Brown's employment with Hexcel as Vice President of Human Resources
commenced on March 1, 1999 and she is not included in the above table.
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,
1998 exceeded $100,000.
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
AWARDS
ANNUAL COMPENSATION(1)(2) -------------------------
----------------------------------- SECURITIES
OTHER RESTRICTED UNDERLYING
ANNUAL STOCK OPTIONS/ ALL OTHER
SALARY BONUSES COMPENSATION AWARD(S) SARS COMPENSATION
NAME & PRINCIPAL POSITION YEAR ($) ($)(4) ($)(5) ($)(6) (#)(7) ($)(8)(9)
- - ----------------------------------- --------- --------- --------- ------------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
John J. Lee........................ 1998 550,000 291,600 -- 803,198 567,600 608,692
Chairman; Chief Executive Officer 1997 500,000 562,500 -- 411,763 587,500 551,884
1996 400,000 450,000 -- 2,757,500 580,379 489,819
Stephen C. Forsyth................. 1998 260,000 119,400 -- 207,990 194,200 23,605
Executive Vice President and 1997 230,000 172,500 -- 107,391 211,300 28,599
Chief Financial Officer 1996 191,667 150,000 88,284 68,750 25,000 25,156
Ira J. Krakower (3)................ 1998 235,000 111,400 -- 188,860 166,200 22,925
Senior Vice President, General 1997 225,000 168,750 -- 105,134 183,400 21,238
Counsel and Secretary 1996 66,667 50,000 -- 147,275 58,100 1,900
William Hunt....................... 1998 194,948 70,298 -- 55,075 83,700 18,538
President, Global Composites 1997 183,794 79,334 -- 28,477 94,300 18,001
Materials Business Unit 1996 163,495 77,458 -- 17,500 14,600 13,059
Gary L. Sandercock................. 1998 185,000 36,100 -- 106,843 94,600 15,938
Vice President of Manufacturing 1997 175,000 105,000 -- 54,375 98,800 20,008
1996 150,000 88,800 -- 37,500 10,000 18,566
</TABLE>
- - ------------------------
(1) Annual Compensation includes amounts earned in the fiscal year, whether or
not deferred.
(2) Harold E. Kinne's employment with Hexcel as President and Chief Operating
Officer commenced on July 15, 1998; as a result of this partial year of
employment, his compensation for 1998 did not place him among the Named
Executive Officers.
(3) Mr. Krakower's employment with Hexcel commenced on September 3, 1996.
(4) Amounts shown in 1997 and 1998 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,
1997 and 1998 were earned in fiscal years 1996, 1997 and 1998, respectively,
and paid in 1997, 1998 and 1999, respectively.
(5) In 1997 and 1998, 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 Mr. Forsyth for
fiscal year 1996 consists of allowances for relocation costs of $76,284 and
automobile expenses. 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.
(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
13
<PAGE>
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 seven 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. As a result of Hexcel's achieving
performance target levels under certain outstanding PARS, 220,600 of Mr.
Lee's PARS have vested, but conversion of those PARS and distribution of
shares to Mr. Lee are 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 PARS granted in 1996 to each of the other
Named Executive Officers were converted into shares of Hexcel Common on
March 1, 1999. PARS granted in 1997 and 1998 will vest and be converted
into an equivalent number of shares of Hexcel Common on January 1, 2004
and January 1, 2005, respectively; 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 and December 31,
2000, respectively, 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 or January 1, 2001,
respectively. PARS granted in 1996 were originally reported as of the
date of grant as Long-Term Incentive Plan Awards; 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 the 1996, 1997
and 1998 grants are so reported.
(B) RSUS. For bonuses payable for 1997 and 1998, 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. 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 with respect to the deferral of the bonus for 1997 were granted on
February 4, 1998 at a purchase price of $19.47 per RSU. The RSUs with
respect to the deferral of the bonus for 1998 were granted on February 3,
1999 at a purchase price of $7.35 per RSU.
(C) AGGREGATE RESTRICTED STOCK INFORMATION. The aggregate number of PARS
held and RSUs elected for purchase by each Named Executive Officer at the
end of 1998 and the aggregate value of such PARS and RSUs (net of
purchase price paid) at the closing price of Hexcel Common on December
31, 1998 ($8 3/8) are as follows: Mr. Lee--330,383 and $2,341,560; Mr.
Forsyth--37,003 and $164,135; Mr. Krakower--38,013 and $178,474; Mr. Hunt
7,810 and $43,849; and Mr. Sandercock--16,833 and $95,121. Included for
Mr. Sandercock in 1996 and 1997 are 1,450 shares of restricted stock
awarded in 1990 under Hexcel's 1988 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 of such PARS 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 the grant of performance accelerated stock options
("PASOs") granted in 1997 and 1998. The PASOs granted in 1997 were cancelled
in exchange for the 1998 PASOs; however, the 1997 PASOs continue to be
reported in this column (see "EXECUTIVE COMPENSATION--Ten Year Option/SAR
Repricing" and "--Compensation Committee Report on Executive
Compensation--EQUITY-BASED INCENTIVES."). This column also 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
14
<PAGE>
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. Forsyth--10,000 and 4,200; Mr. Krakower--
15,000 and 4,200; Mr. Hunt--8,286 and 2,000; and Mr. Sandercock--7,500 and
2,500.
(8) All Other Compensation for fiscal years 1996, 1997 and 1998 consists of (i)
contributions by Hexcel to Hexcel's 401(k) Retirement Savings Plan as
follows: Mr. Lee--$10,500, $11,150 and $7,680; Mr. Forsyth--$10,500, $11,150
and $7,680; Mr. Krakower--$0, $11,150 and $7,680; and Mr.
Sandercock--$10,500, $11,150 and $7,680; (ii) contributions by Hexcel to
Hexcel's 401(k) Restoration Plan as follows: Mr. Lee--$52,506, $54,408 and
$46,443; Mr. Forsyth--$13,417, $15,060 and $13,505; Mr. Krakower--$1,389,
$7,730 and $12,981; and Mr. Sandercock--$6,216, $6,812 and $6,306; (iii)
premiums for life insurance (exceeding $50,000 per Named Executive Officer)
as follows: Mr. Lee--$4,790, $3,120 and $3,276; Mr. Forsyth--$285, $1,435
and $1,466; Mr. Krakower--$203, $1,404 and $1,310; and Mr. Sandercock--$896,
$1,092 and $998; and (iv) premiums for long-term disability insurance of
$954, $954 and $954 for each of Messrs. Lee, Forsyth and Sandercock and
$308, $954 and $954 for Mr. Krakower. Mr. Hunt does not participate in those
three Plans. For Mr. Hunt, All Other Compensation for fiscal years 1996,
1997 and 1998 consists of: (i) life insurance premiums of $6,228, $6,700,
$7,100 and (ii) disability insurance premiums of $6,833, $11,301 and
$11,438. For Mr. Lee, the amount also includes deferred compensation in an
amount equal to $421,069, $482,252 and $550,339 in accordance with the terms
of Mr. Lee's employment agreement with Hexcel; this deferred compensation
reduces the benefit payable under Mr. Lee's Supplemental Executive
Retirement Agreement. See "EXECUTIVE COMPENSATION--Employment and Other
Agreements-- SUPPLEMENTAL RETIREMENT AGREEMENT WITH MR. LEE."
(9) Certain contributions by Hexcel to Hexcel's 401(k) Restoration Plan with
regard to the bonuses earned in 1998 but paid in 1999 cannot be estimated at
this time. These contributions will be determined at the end of 1999 and
will be included in Hexcel's next annual Proxy Statement.
15
<PAGE>
STOCK OPTIONS
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT
INDIVIDUAL GRANTS ASSUMED ANNUAL RATES
----------------------------------------------------------------------- OF
NUMBER OF % OF TOTAL STOCK PRICE
SECURITIES OPTIONS/SARS MARKET APPRECIATION
UNDERLYING GRANTED TO EXERCISE OR PRICE ON FOR OPTION TERM (3)
OPTIONS/SARS EMPLOYEES IN BASE PRICE GRANT EXPIRATION ----------------------
NAME GRANTED (#) FISCAL YEAR ($/SH) DATE DATE 5% ($) 10% ($)
- - ------------------------------ ------------- --------------- ------------- ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
John J. Lee................... 51,000 1.65 24.00 24.00 01/02/08 769,767 1,950,741
116,600(1) 3.78 8.75 8.75 10/13/08 641,630 1,626,016
400,000(2) 12.96 12.00 10.94 10/30/08 2,752,043 6,974,217
Stephen C. Forsyth............ 12,800 0.41 24.00 24.00 01/02/08 193,196 489,598
29,400(1) 0.95 8.75 8.75 10/13/08 161,783 409,990
152,000(2) 4.92 12.00 10.94 10/30/08 1,045,776 2,650,202
Ira J. Krakower............... 11,600 0.38 24.00 24.00 01/02/08 175,084 443,698
26,600(1) 0.86 8.75 8.75 10/13/08 146,375 370,944
128,000(2) 4.15 12.00 10.94 10/30/08 880,654 2,231,749
William Hunt.................. 3,600 0.12 24.00 24.00 01/02/08 54,336 137,699
8,100(1) 0.26 8.75 8.75 10/13/08 44,573 112,956
72,000(2) 2.33 12.00 10.94 10/30/08 495,368 1,255,359
Gary L. Sandercock............ 6,900 0.22 24.00 24.00 01/02/08 104,145 263,924
15,700(1) 0.51 8.75 8.75 10/13/08 86,394 218,940
72,000(2) 2.33 12.00 10.94 10/30/08 495,368 1,255,359
</TABLE>
- - ------------------------
(1) The amount shown in these rows reflect the grant of non-qualified stock
options in October 1998. These options represent an early grant of options
that normally would have occurred in 1999. See "EXECUTIVE
COMPENSATION--Compensation Committee Report on Executive
Compensation--EQUITY-BASED INCENTIVES".
(2) The amount shown in these rows reflect performance accelerated stock options
("PASOs"). These PASOs were issued in exchange for PASOs granted in 1997;
see "EXECUTIVE COMPENSATION-- Ten Year Option/SAR Repricings" and
"--Compensation Committee Report on Executive Compensation--EQUITY-BASED
INCENTIVES" for information regarding the exchange. 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 in control
as defined in the PASO agreement. If the closing price of Hexcel Common
equals or exceeds $24 per share for ten or more consecutive trading days on
or before October 30, 2001 or upon a change in control of the Company, the
PASOs will vest and become exercisable immediately.
(3) The amounts shown in these columns are the potential realizable value of
options granted at assumed rates of stock price appreciation (5% and 10%)
set by the executive compensation disclosure provisions of the proxy rules
of the Commission and have not been discounted to reflect the present values
of such amounts. The assumed rates of stock price appreciation are not
intended to forecast the future stock price appreciation of Hexcel Common.
16
<PAGE>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES UNDERLYING UNEXERCISED IN THE MONEY
ACQUIRED VALUE OPTIONS/SARS AT OPTIONS/SARS AT
ON REALIZED FISCAL YEAR END (#)(1) FISCAL YEAR END ($)(2)
NAME EXERCISE (#) ($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- - -------------------------------------- ------------ --------- ----------------------- -----------------------
<S> <C> <C> <C> <C>
John J. Lee........................... 113,379 617,916 365,667/796,433 145,200/0
Stephen C. Forsyth.................... -- -- 73,997/208,028 66,165/0
Ira J. Krakower....................... -- -- 32,600/215,100 0/0
William Hunt.......................... -- -- 8,668/93,932 0/0
Gary L. Sandercock.................... -- -- 24,476/95,230 10,025/0
</TABLE>
- - ------------------------
(1) Includes (i) options granted pursuant to Hexcel's Incentive Stock Plan as
follows: Mr. Lee--1,162,100; Mr. Forsyth--273,500; Mr. Krakower--247,700;
Mr. Hunt--102,600; and Mr. Sandercock--118,400; and (ii) options granted
pursuant to Hexcel's 1988 Management Stock Plan as follows: Mr. Forsyth--
8,525; and Mr. Sandercock--1,306.
(2) Based on the closing price of $8 3/8 per share of Hexcel Common as reported
on the New York Stock Exchange Composite Tape on December 31, 1998.
TEN YEAR OPTION/SAR REPRICINGS(1)
<TABLE>
<CAPTION>
NUMBER OF MARKET PRICE EXERCISE
SECURITIES OF STOCK AT PRICE AT TIME
UNDERLYING NUMBER OF TIME OF OF REPRICING
OPTIONS/SARS SECURITIES REPRICING OR OR NEW
DATE OF REPRICED OR EXCHANGED AMENDMENT AMENDMENT EXERCISE
NAME REPRICING AMENDED (#) (#) ($) ($) PRICE ($)
- - --------------------------- ---------------- ------------- ----------- ------------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
John J. Lee................ 10/30/98(2) 400,000 500,000 10.94 18.50 12.00
Stephen C. Forsyth......... 10/30/98(2) 152,000 190,000 10.94 18.50 12.00
01/22/91(4) 525 1,050 10.44 29.38 10.44
01/22/91(4) 350 700 10.44 32.06 10.44
Ira J. Krakower............ 10/30/98(2) 128,000 160,000 10.94 18.50 12.00
William Hunt............... 10/30/98(2) 72,000 90,000 10.94 18.50 12.00
Gary L. Sandercock......... 10/30/98(2) 72,000 90,000 10.94 18.50 12.00
03/20/90(3) 975 1,950 16.25 28.88 16.25
01/22/91(4) 1,050 2,100 10.44 29.38 10.44
01/22/91(4) 850 1,700 10.44 32.06 10.44
<CAPTION>
LENGTH OF
ORIGINAL OPTION
TERM
REMAINING AT
DATE OF
REPRICING OR
NAME AMENDMENT
- - --------------------------- ---------------
<S> <C>
John J. Lee................ 8.25 yrs
Stephen C. Forsyth......... 8.25 yrs
7.25 yrs
8 yrs
Ira J. Krakower............ 8.25 yrs
William Hunt............... 8.25 yrs
Gary L. Sandercock......... 8.25 yrs
2 yrs
7.25 yrs
8 yrs
</TABLE>
- - ------------------------
(1) This table reports any "repricing" of stock options and SARs within the past
ten years. Repricing includes any adjustment of the exercise price of stock
options or SARs previously awarded, whether through amendment, cancellation
or replacement grants. Hexcel has only repriced options through a grant of a
new option in exchange for options previously granted.
(2) On October 30, 1998, each of the Named Executive Officers exchanged PASOs
granted on February 3, 1997 for new 1998 PASOs; see "EXECUTIVE
COMPENSATION--Compensation Committee Report on Executive
Compensation--EQUITY-BASED INCENTIVES" for information regarding the
exchange. The number of new 1998 PASOs granted was 80% of the number of 1997
PASOs
17
<PAGE>
exchanged. The exercise price of the 1998 PASOs was determined based on 110%
of the closing price of a share of Hexcel Common on October 30, 1998. See
Option/SAR Grants In Last Fiscal Year Table. The new 1998 PASOs are also
reported in the Summary Compensation Table and Option/SAR Grants In Last
Fiscal Year Table as grants in 1998. The 1997 PASOs, even though cancelled,
are also reported in the Summary Compensation Table as grants in 1997.
(3) On March 20, 1990, Mr. Sandercock exchanged stock options issued under the
1988 Management Stock Plan for options previously granted in 1987. The
number of new stock options granted was 50% of the stock options exchanged.
The exercise price of the new stock options was the market price on the
grant date.
(4) On January 22, 1991, Messrs. Forsyth and Sandercock exchanged stock options
issued under the 1988 Management Stock Plan for options previously granted
in 1988 and 1989. The number of new stock options granted was 50% of the
stock options exchanged. The exercise price of the new stock options was the
market price on the grant date.
DEFERRED COMPENSATION
PENSION PLAN TABLE
U.S. EMPLOYEES (1)
<TABLE>
<CAPTION>
YEARS OF PARTICIPATION
----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
COVERED COMPENSATION 5 10 15 20 25 30
- - ------------------------------------------------------- --------- --------- --------- --------- --------- ---------
$140,000............................................... $ 7,000 $ 14,000 $ 21,000 $ 28,000 $ 35,000 $ 42,000
150,000............................................... 7,500 15,000 22,500 30,000 37,500 45,000
160,000............................................... 8,000 16,000 24,000 32,000 40,000 48,000
170,000............................................... 8,500 17,000 25,500 34,000 42,500 51,000
180,000............................................... 9,000 18,000 27,000 36,000 45,000 54,000
190,000............................................... 9,500 19,000 28,500 38,000 47,500 57,000
200,000............................................... 10,000 20,000 30,000 40,000 50,000 60,000
</TABLE>
- - ------------------------
(1) Messrs. Lee, Forsyth and Sandercock began to participate in the Hexcel
Corporation Pension Plan (the "Pension Plan") in 1996. Mr. Krakower began to
participate in the Pension Plan in 1997. 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
is limited by tax-qualification requirements (currently $160,000) for each
participating 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. The benefit vests in its entirety after five years of
employment. As of the end of the 1998 fiscal year, (1) Messrs. Lee, Forsyth
and Sandercock had three credited years of service for accrued benefits and
Mr. Krakower had 2 credited years of service, (2) the covered compensation
for the participating Named Executive Officers under the Pension Plan for
determination of benefits was as follows: Messrs. Lee, Forsyth and
Sandercock--$156,667; and Mr. Krakower--$158,594. The percentage of benefit
vested for each of the participating Named Executive Officers was as
follows: Messrs. Lee, Forsyth and Sandercock--100%; Mr. Krakower--0%.
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. Mr. Lee's
benefits under the pension plan are credited against his Supplemental
Executive Retirement Plan Agreement benefit; see "EXECUTIVE
COMPENSATION--Employment and Other Agreements--SUPPLEMENTAL RETIREMENT
AGREEMENT WITH MR. LEE". Mr. Hunt does not participate in this Pension Plan
but is a participant in the Hexcel Composites Limited Pension Scheme as
described in "EXECUTIVE COMPENSATION-- Employment and Other
Agreements--ADDITIONAL PENSION AGREEMENT WITH MR. HUNT."
18
<PAGE>
EXECUTIVE DEFERRED COMPENSATION
AND CONSULTING AGREEMENT (1)
<TABLE>
<CAPTION>
YEARS OF PARTICIPATION
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
REMUNERATION 5 10 15 20 25 30
- - -------------------------------------------- --------- --------- --------- ---------- ---------- ----------
$150,000.................................... $ 11,250 $ 22,500 $ 33,750 $ 45,000 $ 56,250 $ 67,500
200,000.................................... 15,000 30,000 45,000 60,000 75,000 90,000
250,000.................................... 18,750 37,500 56,250 75,000 93,750 112,500
300,000.................................... 22,500 45,000 67,500 90,000 112,500 135,000
350,000.................................... 26,250 52,500 78,750 105,000 131,250 157,500
400,000.................................... 30,000 60,000 90,000 120,000 150,000 180,000
</TABLE>
- - ------------------------
(1) The current covered compensation under the Executive Deferred Compensation
and Consulting Agreement ("Retirement Agreement") of each of Messrs.
Forsyth, Krakower and Sandercock 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. The benefit vests proportionally over the
first 67 months following the effective date. As of the end of the 1998
fiscal year, (1) the estimated credited years of service and percentage of
benefit vested under the Retirement Agreements were as follows: Mr.
Forsyth--4 1/4 years and 76%; Mr. Krakower--2 1/3 years and 42%; and Mr.
Sandercock--9 1/6 years and 100%; and (2) the covered compensation for the
executives for determination of benefits under the Retirement Agreements was
as follows: Mr. Forsyth--$313,686; Mr. Krakower--$320,883; and Mr.
Sandercock--$183,943. 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, dental and vision 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
"Employment Agreement") effective February 29, 1996. The Employment 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. Those PARS have
vested, but conversion of those PARS and distribution of shares to Mr. Lee are
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. See "EXECUTIVE
COMPENSATION--Compensation Committee Report on Executive
Compensation--EQUITY-BASED INCENTIVES."
The Employment 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
19
<PAGE>
of the grant, subject to earlier vesting upon the attainment of certain
performance goals. The foregoing stock-based incentives granted under the
Employment Agreement vested due to the attainment of such goals in 1997. In
subsequent fiscal years, Mr. Lee is entitled to participate in Hexcel's
incentive plans at a level appropriate in comparison to other senior executive
officers of Hexcel.
The Employment Agreement additionally 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 Employment 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. Mr. Lee
exercised all of these options on September 5, 1998.
SUPPLEMENTAL RETIREMENT AGREEMENT WITH MR. LEE
In May 1998, Hexcel agreed to provide Mr. Lee with a benefit intended to
supplement his retirement income from Hexcel's other retirement programs and
social security (as amended, the "SERP Agreement"). The Normal Retirement
Benefit under the SERP Agreement for retirement at age 65 is a monthly payment
equal to the difference between (1) 50% of the Vesting Percentage times Mr.
Lee's Final Average Pay and (2) the Qualified Pension Benefits. Final Average
Pay is Mr. Lee's monthly compensation (salary and bonus without reduction for
amounts deferred) for the highest paid 24 consecutive months of Mr. Lee's final
60 months of employment. The Vesting Percentage is the number of completed
months of continuous service with Hexcel from September 1, 1994 to the date of
termination, divided by 60. Qualified Pension Benefits are the actuarially
determined monthly value of the vested benefits under the Pension Plan, the
401(k) Retirement Savings Plan, the 401(k) Restoration Plan, Social Security,
and the deferred compensation component of his Employment Agreement. The SERP
Agreement was amended in January 1999 to reduce the monthly benefit by $5,000 to
offset certain costs incurred by Hexcel in providing Mr. Lee the Split Dollar
Insurance Arrangement described below.
Unless otherwise provided in the SERP Agreement, if Mr. Lee's employment
terminates Hexcel will pay the Normal Retirement Benefit to Mr. Lee or his
surviving spouse or estate, but in no event for less than ten years. Upon
certain terminations after a "change in control" (as defined), termination by
Hexcel without "cause" (as defined) and termination by Mr. Lee for "good reason"
(as defined), Mr. Lee will be paid a lump sum equal to the actuarially
determined present value of the Normal Retirement Benefit determined at the date
of termination as if he were 100% vested. If Mr. Lee's employment terminates due
to a disability, he will receive the Normal Retirement Benefit determined at the
date of termination as if he were 100% vested. No benefits are payable under the
SERP Agreement if Mr. Lee is terminated for cause. In addition, (i) if Mr. Lee
dies after payment of his benefits has started, his spouse will receive during
her lifetime one-half of his benefit payment, or, if Mr. Lee so elects before
payments to him commence, his spouse will receive 100% of the benefit Mr. Lee
was receiving prior to his death, but the benefit payable to him would be
reduced to reflect actuarial equivalence of the election, and (ii) if Mr. Lee
dies before payments of his benefits has started, his spouse will receive his
Normal Retirement Benefit as a monthly benefit or as a lump sum equal to the
actuarially determined present value of his full benefits for 10 years.
If Mr. Lee had retired at December 31, 1998, his Normal Retirement Benefit
under the SERP Agreement would equal $18,250 per month or $219,000 per year.
The SERP Agreement also provides Mr. Lee with certain life insurance
benefits and continuation of group medical, dental and vision care coverage at
levels not materially less favorable than at the time of his termination.
SPLIT-DOLLAR ARRANGEMENT WITH MR. LEE
In January 1999, Hexcel entered into a split dollar insurance agreement with
an irrevocable trust created by Mr. Lee. The trust has purchased a
Survivorship/Last to Die insurance policy on Mr. Lee and
20
<PAGE>
his spouse. Hexcel pays the annual premium on the policy for five years, at
which time the policy is expected to be fully paid; the trust also pays a
designated portion of the premium. Upon the earlier of the 15(th) anniversary of
the date of the policy and the death of the later to die of Mr. Lee or his
spouse, or if the policy is cancelled or surrendered, Hexcel is reimbursed from
the proceeds of the policy for the cumulative premiums it has paid, and the
trust receives the balance under the policy. The policy is assigned to Hexcel to
secure the premium repayment.
SEVERANCE AGREEMENTS WITH MESSRS. LEE, FORSYTH, KRAKOWER AND SANDERCOCK
In February 1999, Hexcel entered into severance agreements with Messrs. Lee,
Forsyth and Krakower ("Severance Agreements"). In general terms, the Severance
Agreements provide that Hexcel will make specified termination payments to the
executive, and continue his participation in Hexcel's benefit plans for a
limited period of time, upon termination of employment under certain
circumstances. The amounts payable to the executive vary depending upon the
circumstances of termination of employment: (i) for termination by Hexcel other
than for "disability" (as defined) and other than for "cause" (as defined), or
by the executive for "good reason" (as defined), the executive receives a
payment equal to one year's salary plus average bonus over the last three years;
(ii) for termination by Hexcel other than for disability and other than for
cause, or by the executive for good reason, during a period of a "potential
change in control" (as defined), or within two years after a "change in control"
(as defined), the executive receives three times the payment described under
clause (i); and (iii) Hexcel will continue the executive's participation in its
benefit plans for up to three years depending on the circumstances of
termination. For a termination by Hexcel for cause or by the executive without
good reason, the executive only receives unpaid amounts owed to the executive
through the date of termination. In the event payments to the executive would
result in the imposition of any excise tax on so-called "excess parachute
payments," the payments and benefits to which the executive is otherwise
entitled may be reduced to the extent necessary to maximize the after-tax amount
received by the executive. The executive agrees not to compete with Hexcel for
one year or three years after termination of employment depending on whether
termination occurs under circumstances described in clause (i) or clause (ii)
above, respectively. In the case of Mr. Lee, payments made under the Severance
Agreement will be reduced by any amounts received under his Employment Agreement
for similar severance payments. For Messrs. Forsyth and Krakower, the Severance
Agreement supercedes and terminates their prior severance arrangements with
Hexcel.
In January 1995, Hexcel entered into a severance agreement with Mr.
Sandercock providing for a payment of one year's salary plus an amount equal to
the bonus paid in the immediately preceding year, and continuation of certain
benefits for a one-year period following termination of employment in certain
circumstances.
ADDITIONAL PENSION AGREEMENT WITH MR. HUNT
Mr. Hunt is a participant in the Hexcel Composites Limited Pension Scheme
(the "HCL Pension Scheme") sponsored by Hexcel Composites Limited, a
wholly-owned United Kingdom subsidiary of Hexcel ("HCL"), for the benefit of its
employees. The HCL Pension Scheme includes certain legal limitations on the
amount of earnings which can be included for determination of a pension. HCL has
agreed to provide Mr. Hunt with an additional pension which is designed to
provide, when combined with the HCL Pension Scheme and certain other benefits, a
pension equal to the pension the HCL Pension Scheme would provide Mr. Hunt if it
were not limited by the legal earnings limitation. The amount of Mr. Hunt's
pension is equal to two-thirds of 104% of his basic salary for the year prior to
retirement ("Pensionable Salary") at any time after age 60. If he leaves service
prior to age 60, he receives a pension equal to his Pensionable Salary
multiplied by the number of months from the date he joined the pension scheme of
HCL's predecessor pension scheme prior to such termination (up to 480) divided
by 720. As of December 31, 1998, the number of months since Mr. Hunt joined such
pension scheme is 431. If Mr. Hunt leaves the service of HCL prior to age 60,
his pension is deferred to age 65, but he may receive a reduced pension if he
chooses early payment. Mr. Hunt may also choose to receive all or part of his
benefit in a lump sum. Pension payments increase annually at the lesser of 5%
and the Retail Prices Index. If Mr. Hunt
21
<PAGE>
continued to be employed by Hexcel at his current basic salary until age 65, Mr.
Hunt would receive an annual benefit of $135,164. If Mr. Hunt's basic salary
during the year prior to his retirement at age 65 increased to 120% of his
current basic salary, he would receive an annual benefit of $162,197.
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 provides for grants of stock options,
restricted stock units, and other forms of 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 a peer group of companies plus others that help ensure that the
Committee's benchmarks for compensation decisions reasonably reflect Hexcel's
executive labor market and principal operating competitors. The Comparator Group
is the same group of companies identified as the Comparator Group whose Total
Shareholder Return is disclosed in the Performance Graph.
Hexcel's compensation programs are aligned with the Committee's beliefs
that:
1. Base salaries in the aggregate should approximate the median
practices for similar positions in the Comparator Group;
2. Annual cash incentive opportunities at target performance 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 median in order to encourage executive share
ownership, link executives' rewards directly with stockholders' risks 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 1998, the Committee reviewed
the total compensation provided to executives to ensure that it is consistent
with Hexcel's performance-based principles and reflective of practices within
the Comparator Group. The Committee was guided in its review by outside
consultants. Each component of executive compensation is described more fully
below.
BASE SALARY
Base salaries for executives are determined by the Committee considering
Comparator Group salary practices for positions of similar responsibilities and
individual and business unit performance. While there are no preset weights on
performance criteria, the Committee assesses the contributions of Hexcel's
executives to corporate and business unit 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, leadership, development, strategic impact, divestitures and
revenue growth.
It is the Committee's objective and practice to establish base salaries
that, in the aggregate, approximate the median (50th percentile) of comparable
positions in the Comparator Group. Effective January 1999 the Committee approved
salary increases for the Named Executive Officers, other than the Chief
Executive Officer, that averaged 7.8%, to reflect individual contributions and
to make progress toward an aggregate median competitive posture. The Committee's
outside consultants have reported that the
22
<PAGE>
salaries of the Named Executive Officers, in the aggregate, remain below the
Comparator Group median after the 1999 salary increases.
ANNUAL INCENTIVES
In 1998, the Management Incentive Compensation Plan provided below median
cash incentive compensation, compared to the Comparator Group, based on the
level of attainment of Hexcel's performance goals for earnings before taxes
("EBT") and return on net assets ("RONA"), and on the degree of achievement of
individual objectives. For the Named Executive Officers, other than the Chief
Executive Officer, cash incentive opportunities at target ranged from 30% to 50%
of base salary, depending on the nature of the position. Actual awards could
have ranged between 0% and 150% of the incentive target based on achievement
relative to Hexcel's goals and, other than for the Chief Executive Officer, the
attainment of individual objectives.
In 1997, Hexcel adopted the Management Stock Purchase Plan to promote
executive ownership of Hexcel's stock. Under this plan, an executive may elect
to purchase restricted stock units ("RSUs") with up to 50% of his/her pre-tax
cash incentive award. An RSU becomes an unrestricted share of Hexcel Common upon
the expiration of the applicable Restricted Period (as such term is defined in
the plan). The purchase price of an RSU is 80% of the average of the closing
prices of Hexcel Common for the five trading days immediately preceding the date
on which the cash incentive awards are payable. One-third of the RSUs purchased
will vest on each of the first three anniversaries of the date of purchase. On
average, the Named Executive Officers, other than the Chief Executive Officer,
elected to apply 35% of their cash incentive awards to purchase RSUs in 1998.
EQUITY-BASED INCENTIVES
The Hexcel Corporation Incentive Stock Plan authorizes the issuance of
stock-based awards, including nonqualified stock options 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 stock options and PARS to the Named Executive Officers other than
the Chief Executive Officer are based on the Committee's assessment of
competitive practices, recommendations from the Chief Executive Officer based on
individual performance, and past awards. In the first quarter of 1998, the
Committee approved the grant of 34,900 stock options and 10,500 PARS to the
Named Executive Officers, not including the Chief Executive Officer.
Because 1998 was a turbulent year for the price of Hexcel Common, which
ranged from a high of $31 1/16 to a low of $7 1/16, the Committee reviewed the
impact of these dramatic swings on the incentive and retention value of prior
awards made under Hexcel's equity-based incentive programs. The Committee
decided to accelerate the granting of stock options and PARS that normally would
have been awarded in 1999 to the Named Executive Officers and other key
employees. Accordingly, in October 1998, a total of 79,800 stock options and
28,000 PARS were awarded to the Named Executive Officers, not including the
Chief Executive Officer. It is not anticipated that significant additional
awards will be made in 1999.
The Committee further determined that the incentive and retention value of
the Performance Accelerated Stock Options granted in 1997 to the Named Executive
Officers and other key employees had diminished dramatically ("1997 PASOs").
Accordingly the Committee approved a program in which employees could elect to
exchange all (but not less than all) of their 1997 PASOs for a number of new
PASOs equal to 80% of the number of 1997 PASOs surrendered. All employees
eligible to exchange PASOs under the program elected to do so. On October 30,
1998, 2,259,000 1997 PASOs were cancelled and 1,807,200 new PASOs were issued,
of which 424,000 were awarded to the Named Executive Officers, except the Chief
Executive Officer, in exchange for 530,000 1997 PASOs. The exercise price of
each new PASO was set at $12.00 (110% of the fair market value of a share of
Hexcel Common on the date of the grant). Subject to certain conditions of
employment, PASOs vest and become exercisable over nine years or
23
<PAGE>
earlier upon normal retirement or the occurrence of a change in control as
defined in the PASO agreement. If the closing price of Hexcel Common equals or
exceeds $24.00 per share for ten or more consecutive trading days within the
first three years following the date of grant, the PASOs will vest and become
exercisable immediately.
CHIEF EXECUTIVE OFFICER COMPENSATION
In determining Mr. Lee's compensation, the Committee considers Hexcel's
financial and nonfinancial performance, as well as an analysis of Mr. Lee's
total compensation in relation to Chief Executive Officers in the Comparator
Group.
Mr. Lee's base salary for 1998 was $550,000, which was below the median
salary level for Chief Executive Officers in the Comparator Group. In light of
this salary relationship, and Mr. Lee's leadership in positioning Hexcel for
growth and profitability in 1999 and beyond, the Committee increased his salary
to $625,000 effective January 1999. Compensation data provided to the Committee
shows this salary remains below the competitive median pay practice.
Mr. Lee's target under the Management Incentive Compensation Plan is 75% of
base salary and his bonus can range, based on actual performance against goals,
between 0% and 112.5% of base salary. Based upon Hexcel's financial performance
against EBT and RONA goals established for 1998, Mr. Lee's actual 1998 bonus was
$291,600 which was 70.7% of target. Mr. Lee's bonus was based solely on Hexcel's
financial performance with no component for personal objectives. Mr. Lee elected
to apply 50% of his 1998 bonus to purchase RSUs under the Management Stock
Purchase Plan.
In the first quarter of 1998, Mr. Lee received 51,000 stock options and
15,300 PARS. In October 1998, Mr. Lee was granted an additional 116,600 stock
options and 40,700 PARS as an early grant of awards that normally would have
been made in 1999. In addition, Mr. Lee exchanged 500,000 1997 PASOs for 400,000
new PASOs on the terms described above.
STOCK OWNERSHIP GUIDELINES
Effective January 1, 1998 the Committee and Board approved the
implementation of stock ownership guidelines for members of senior management
and directors. The guideline is five times base salary for the Chief Executive
Officer, three times salary for certain members of senior management, one time
salary for other members of senior management, 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, or 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 shareholders by further aligning the personal
financial interests of executives and directors with those of Hexcel's
investors, thereby promoting decision-making that maximizes shareholder value.
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 that 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
24
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The following current directors were members of the Committee during 1998:
John M.D. Cheesmond, 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 during 1998. During 1998, pursuant to certain manufacturing and
supply agreements between Hexcel and Ciba, sales to Hexcel by Ciba were
approximately $37.7 million; Hexcel sold no products to Ciba during 1998. 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 with an
annual retainer of $30,000 payable quarterly. Nonemployee directors are also
paid $1,200 for each Board of Directors meeting and $600 for each committee
meeting attended. Committee chairmen are paid an additional $3,000 per year.
Messrs. Lee and Kinne do not receive any compensation as members of the Board of
Directors.
In 1998, the Board of Directors offered each nonemployee director the
opportunity to receive his retainer compensation in the form of discounted stock
options. In lieu of a portion (between 25% and 100%) of a director's annual
retainer (including any retainer paid to committee chairmen), a director could
elect to receive that number of stock options determined by dividing the dollar
amount of such portion by the exercise price of the stock option. The exercise
price of each stock option is 50% of the fair market value of a share of Hexcel
Common on the grant date. The options vest proportionately with the lapse of
time over the first year after grant and expire five years from the date of
grant. In December 1998 certain nonemployee directors elected to defer 100% of
their retainers for 1999, and were granted the following number of stock options
at an exercise price of $4.1875 per share: Messrs. Cheesmond, Solomon, Springer
and Wimer-7,880; and Messrs. Geller and Sherman-7,164.
Pursuant to Hexcel's Incentive Stock Plan, each person who becomes a
director after January 1, 1998, and who is not also a full-time employee of
Hexcel, will be granted, upon 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, 1998, 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.
On October 30, 1998, each nonemployee director in office at that time
exchanged 38,000 1997 PASOs for 30,400 new PASOs on terms described above.
Based on information provided to Hexcel, following the 1999 Annual Meeting
of Stockholders, Ciba will be the beneficial owner of all future cash
compensation and grants of equity-based compensation received by the Ciba
directors. In addition, Ciba is the beneficial owner of the 10,000 stock options
granted upon the appointments of each of Messrs. McGraw and Riediker.
25
<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 ("S&P Index"), Media General Financial
Services' Aerospace Components Stock Price Index ("Media General Aerospace
Index") and a Comparator Group consisting of companies chosen by the Executive
Compensation Committee.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL STOCKHOLDER RETURN
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
HEXEL CORP. S&P 500 MEDIA GENERAL AEROSPACE COMPARTOR GROUP
<S> <C> <C> <C> <C>
Dec-93 $100.00 $100.00 $100.00 $100.00
Dec-94 $112.50 $101.36 $100.17 $109.91
Dec-95 $330.30 $139.32 $127.43 $144.41
Dec-96 $477.10 $171.23 $155.73 $179.53
Dec-97 $732.15 $228.27 $225.25 $208.08
Dec-98 $245.89 $293.38 $214.09 $211.82
</TABLE>
<TABLE>
<CAPTION>
MEDIA
GENERAL
HEXCEL AEROSPACE COMPARATOR
DATE CORPORATION S&P INDEX INDEX(1) GROUP(2)
- - --------------------------------------------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
December 1993.................................................. 100.00 100.00 100.00 100.00
December 1994.................................................. 112.50 101.36 100.17 109.91
December 1995.................................................. 330.30 139.32 127.43 144.41
December 1996.................................................. 477.10 171.23 155.73 179.53
December 1997.................................................. 732.15 228.27 225.25 208.08
December 1998.................................................. 245.89 293.38 214.09 211.82
</TABLE>
Assumes quarterly reinvestment of dividends.
- - ------------------------
(1) Data provided by Media General Financial Services
(2) Comparator Group consists of Cordant Technologies Inc.; Dexter Corp.; Fuller
(H.B.) Co.; Coltec Industries; Gencorp Inc.; Cabot Corp.; Kerr-McGee Corp.;
Sunstrand Corp.; Raychem Corp.; Crompton & Knowles Corp.; Hercules Inc.;
Olin Corp.; Engelhard Corp.; General Dynamics Corp.; Owens Corning; Union
Carbide Corp.; PPG Industries Inc.; AlliedSignal Inc.; Minnesota Mining &
Mfg. Co.; Dow Chemical; Lockheed Martin Corp.; Amoco Corp.; and DuPont (EI)
de Nemours. The return is determined by (i) assuming dividends are
reinvested quarterly; (ii) adjusting for spin-offs or other special
dividends; and (iii) weighing the issuers for stock market capitalization on
a quarterly basis.
26
<PAGE>
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 "Ciba 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 "Ciba 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 Ciba Subordinated
Debt (as defined below) and all of its rights and obligations 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
Ciba Agreements. Ciba subsequently transferred its shares of Hexcel Common to
its wholly-owned affiliates, Ciba Specialty Chemicals Corporation and Ciba
Specialty Chemicals, Inc.
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 (currently representing beneficial ownership of approximately 49.6% of
Hexcel Common), (ii) $25.0 million in cash, (iii) increasing rate senior
subordinated notes in an aggregate principal amount of approximately $37.5
million, subject to certain adjustments (the "Ciba 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 $208.7 million.
Hexcel redeemed $12.5 million in aggregate principal amount of Ciba Subordinated
Debt on February 17, 1999.
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 Ciba Acquisition (the "Ciba 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."
27
<PAGE>
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 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
28
<PAGE>
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.
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.
29
<PAGE>
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 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).
30
<PAGE>
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 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.
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<PAGE>
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 $2.5 million, which amount was paid by the issuance on September
2, 1998 of a senior subordinated note.
THE REGISTRATION RIGHTS AGREEMENT
In connection with the Ciba 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 and amended, the "Registration Rights
Agreement"). The Registration Rights Agreement provides that Hexcel will prepare
and, not later than 60 days after a request from Ciba, file with the Commission
a "shelf" registration statement covering the shares of Hexcel Common
beneficially owned by Ciba and the Ciba Entities. Ciba's shares of Hexcel Common
will generally become eligible for sale under the Registration Rights Agreement
in 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
equity offerings of Hexcel. The Registration Rights Agreement also contain
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 Ciba Acquisition,
pursuant to which Hexcel and CGL have purchased certain products from each
other; Ciba has assumed these obligations. Sales to Hexcel under such agreements
were approximately $37.7 million on a worldwide basis in 1998. Hexcel sold no
products to Ciba in 1998. Hexcel believes that the terms of the supply and
manufacturing agreements between Hexcel and Ciba are as fair to Hexcel as terms
that may have been obtained from unaffiliated third parties.
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<PAGE>
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, 1998, all Section 16(a) filing requirements applicable to its
executive officers, directors and greater than ten percent stockholders were
complied with, except as follows: (1) one inadvertent late filing in October
1998 by James N. Burns of a Form 4 due in September 1998 relating to a purchase
of 1,000 shares of Hexcel Common; and (2) one inadvertent late filing in
December 1998 by Linn H. Matthews (a former Hexcel executive) of a Form 4 due in
March 1998 relating to a grant of 3,000 PARS in January 1998.
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 2000 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 14, 1999 in order to be considered for
inclusion in the Proxy Statement relating to that meeting.
INDEPENDENT AUDITORS
A representative of PricewaterhouseCoopers 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, 1998, 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 12, 1999
33
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MAY 20, 1999
PLEASE DETACH AND MAIL IN THE ENVELOPE PROVIDED
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PLEASE MARK YOUR
A |X| VOTES AS IN THIS
EXAMPLE.
FOR all nominees WITHHOLD
listed at right AUTHORITY to vote
(except as written to the for all nominees
contrary below) listed at right
1. Election of
directors (check |_| |_|
one box only)
INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL
NOMINEE, WRITE THE NAME(S) OF THE NOMINEE(S) BELOW:
_________________________________________________________________
NOMINEES: John M.D. Cheesmond
Marshall S. Geller
Harold E. Kinne
John J. Lee
John J. McGraw
Martin Riediker
Stanley Sherman
Martin L. Solomon
George S. Springer
Franklin S. Wimer
2. To transact such other business as may properly come before the Annual
Meeting and any adjournment or postponement thereof.
SHARES REPRESENTED BY ALL PROPERLY EXECUTED PROXIES WILL BE VOTED IN ACCORDANCE
WITH THE INSTRUCTIONS APPEARING ON THE PROXY AND IN THE DISCRETION OF THE PROXY
HOLDERS AS TO ANY OTHER MATTERS THAT MAY PROPERLY COME BEFORE THE ANNUAL
MEETING. IN THE ABSENCE OF INSTRUCTIONS, PROXIES WILL BE VOTED AS DIRECTED OR,
IF NO CONTRARY DIRECTION IS INDICATED, WILL BE VOTED FOR EACH OF THE NOMINEES
SET FORTH IN ITEM 1 AND IN THE DISCRETION OF THE PROXY HOLDERS AS TO ANY OTHER
MATTERS THAT MAY PROPERLY COME BEFORE THE ANNUAL MEETING.
Signature(s)_________________________________________________ Dated:______, 1999
Note: Please sign exactly as name(s) appear on this proxy, and date this proxy.
If a joint account, each joint owner must sign. If signing for a
corporation, partnership or as agent, attorney or fiduciary, please
indicate the capacity in which you are signing.
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<PAGE>
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HEXCEL CORPORATION
TWO STAMFORD PLAZA
281 TRESSER BOULEVARD
STAMFORD, CONNECTICUT 06901-3238
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF HEXCEL CORPORATION
The undersigned stockholder of Hexcel Corporation ("Hexcel") hereby
appoints John J. Lee, John M.D. Cheesmond and Marshall S. Geller and each of
them, the lawful attorneys proxies of the undersigned, each with powers of
substitution, to vote all shares of Common Stock of Hexcel held of record by the
undersigned on March 22, 1999 at the Annual Meeting of Stockholders (the "Annual
Meeting") to be held at the Marriott Hotel, Two Stamford Forum, Stamford,
Connecticut, on May 20, 1999 at 10:30 a.m., local time, and at any and all
adjournments or postponements thereof, with all the powers the undersigned would
possess if personally present upon all matters set forth in the Notice of Annual
Meeting of Stockholders and Proxy Statement dated April 12, 1999, receipt of
which is hereby acknowledged.
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SEE REVERSE
(CONTINUED AND TO BE SIGNED ON THE REVERSE SIDE) SIDE
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