<PAGE>
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended March 31, 1999
or
Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from to
Commission File Number 1-8472
----------------------
HEXCEL CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware 94-1109521
(STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
Two Stamford Plaza
281 Tresser Boulevard
Stamford, Connecticut 06901-3238
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES AND ZIP CODE)
Registrant's telephone number, including area code: (203) 969-0666
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
-
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a
plan of reorganization confirmed by a US Bankruptcy Court.
Yes X No
-
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
CLASS OUTSTANDING AT MAY 12, 1999
----- ---------------------------
<S> <C>
COMMON STOCK 36,447,730
</TABLE>
================================================================================
<PAGE>
HEXCEL CORPORATION AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PAGE
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets --
March 31, 1999 and December 31, 1998 2
Condensed Consolidated Statements of
Operations -- The Quarters Ended
March 31, 1999 and 1998 3
Condensed Consolidated Statements of
Cash Flows -- The Quarters Ended
March 31, 1999 and 1998 4
Notes to Condensed Consolidated
Financial Statements 5
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk 26
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K 27
SIGNATURE 28
</TABLE>
1
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
HEXCEL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
UNAUDITED
------------------------------------
MARCH 31, DECEMBER 31,
(IN THOUSANDS, EXCEPT PER SHARE DATA) 1999 1998
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,458 $ 7,504
Accounts receivable 199,884 188,368
Inventories 204,748 213,199
Prepaid expenses and other assets 7,469 10,111
Deferred tax asset 21,249 19,844
- -----------------------------------------------------------------------------------------------------------------
Total current assets 435,808 439,026
Property, plant and equipment 623,245 628,533
Less accumulated depreciation (202,052) (195,960)
- -----------------------------------------------------------------------------------------------------------------
Net property, plant and equipment 421,193 432,573
Goodwill and other purchased intangibles, net of accumulated
amortization of $14,963 in 1999 and $11,742 in 1998 421,422 425,405
Investment in affiliated companies and other assets 118,564 107,157
- -----------------------------------------------------------------------------------------------------------------
Total assets $ 1,396,987 $ 1,404,161
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and current maturities of capital lease obligations $ 22,381 $ 26,867
Accounts payable 82,703 81,869
Accrued liabilities 111,094 110,708
- -----------------------------------------------------------------------------------------------------------------
Total current liabilities 216,178 219,444
Long-term notes payable and capital lease obligations 812,869 802,376
Indebtedness to a related party 23,849 35,675
Other non-current liabilities 42,969 44,267
- -----------------------------------------------------------------------------------------------------------------
Total liabilities 1,095,865 1,101,762
Stockholders' equity:
Preferred stock, no par value, 20,000 shares authorized,
no shares issued or outstanding in 1999 and 1998 - -
Common stock, $0.01 par value, 100,000 shares authorized, shares
issued and outstanding of 37,264 in 1999 and 37,176 in 1998 373 372
Additional paid-in capital 271,991 271,469
Retained earnings 40,103 34,898
Accumulated other comprehensive income (loss) (692) 6,313
- -----------------------------------------------------------------------------------------------------------------
311,775 313,052
Less - treasury stock, at cost, 847 shares in 1999 and 1998 (10,653) (10,653)
- -----------------------------------------------------------------------------------------------------------------
Total stockholders' equity 301,122 302,399
- -----------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 1,396,987 $ 1,404,161
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
2
<PAGE>
HEXCEL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
UNAUDITED
----------------------------------
QUARTER ENDED MARCH 31,
(IN THOUSANDS, EXCEPT PER SHARE DATA) 1999 1998
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net sales $ 316,170 $ 256,741
Cost of sales 245,399 190,645
- -----------------------------------------------------------------------------------------------------------------
Gross margin 70,771 66,096
Selling, general and administrative expenses 34,338 27,177
Research and technology expenses 6,455 5,183
Business acquisition and consolidation expenses 2,809 -
- -----------------------------------------------------------------------------------------------------------------
Operating income 27,169 33,736
Interest expense 19,106 6,967
- -----------------------------------------------------------------------------------------------------------------
Income before income taxes 8,063 26,769
Provision for income taxes 2,839 9,699
Equity in losses of affiliated companies 16 -
- -----------------------------------------------------------------------------------------------------------------
Net income $ 5,208 $ 17,070
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
Net income per share:
Basic $ 0.14 $ 0.46
Diluted 0.14 0.40
Weighted average shares:
Basic 36,365 36,845
Diluted 36,460 46,346
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
3
<PAGE>
HEXCEL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
UNAUDITED
-------------------------------------
QUARTER ENDED MARCH 31,
(IN THOUSANDS) 1999 1998
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 5,208 $ 17,070
Reconciliation to net cash provided (used) by operations:
Depreciation and amortization 15,660 10,008
Deferred income taxes (1,189) (3,720)
Accrued business acquisition and consolidation expenses 2,809 -
Business acquisition and consolidation payments (2,242) (1,783)
Equity in losses of affiliated companies 16 -
Working capital changes and other (2,921) (26,676)
- ----------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by operating activities 17,341 (5,101)
- ----------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (9,429) (11,546)
Advances to affiliated companies - (750)
- ----------------------------------------------------------------------------------------------------------------------
Net cash used by investing activities (9,429) (12,296)
- ----------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from (repayments of) the senior and revolving credit facilities, net (229,392) 10,114
Proceeds from (repayments of) long-term debt and capital lease obligations, net 225,719 (505)
Debt issuance costs (8,990) -
Activity under stock plans 249 1,375
- ----------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by financing activities (12,414) 10,984
- ----------------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash and cash equivalents (544) 553
- ----------------------------------------------------------------------------------------------------------------------
Net decrease in cash and cash equivalents (5,046) (5,860)
Cash and cash equivalents at beginning of year 7,504 9,033
- ----------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 2,458 $ 3,173
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
4
<PAGE>
HEXCEL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 1 -- BASIS OF ACCOUNTING
The accompanying condensed consolidated financial statements have been
prepared from the unaudited records of Hexcel Corporation and subsidiaries
("Hexcel" or the "Company") in accordance with generally accepted accounting
principles, and, in the opinion of management, include all adjustments
necessary to present fairly the balance sheet of the Company as of March 31,
1999, and the results of operations and cash flows for the quarters ended
March 31, 1999 and 1998. The condensed consolidated balance sheet of the
Company as of December 31, 1998 was derived from the audited 1998
consolidated balance sheet. Certain information and footnote disclosures
normally included in financial statements have been omitted pursuant to rules
and regulations of the Securities and Exchange Commission. Certain prior
quarter amounts in the condensed consolidated financial statements have been
reclassified to conform to the 1999 presentation. These condensed
consolidated financial statements should be read in conjunction with the
consolidated financial statements and notes thereto included in the Company's
1998 Annual Report on Form 10-K.
As discussed in Note 2, Hexcel acquired from Clark-Schwebel, Inc. and
its subsidiaries ("C-S") certain assets and assumed certain operating
liabilities of its industrial fabrics business (the "Acquired Clark-Schwebel
Business") on September 15, 1998. Accordingly, the condensed consolidated
balance sheets, statements of operations and cash flows include the financial
position, results of operations and cash flows of the Acquired Clark-Schwebel
Business as of such date and for such periods that the business was owned by
the Company.
NOTE 2 -- BUSINESS ACQUISITION
On September 15, 1998, the Company acquired certain assets and assumed
certain operating liabilities from C-S. The Acquired Clark-Schwebel Business
is engaged in the manufacture and sale of high-quality fiberglass fabrics,
which are used to make printed circuit boards for electronic equipment such
as computers, cellular telephones, televisions and automobiles. The Acquired
Clark-Schwebel Business also produces high performance specialty products for
use in insulation, filtration, wall and facade claddings, soft body armor and
reinforcements for composite materials. At the date of acquisition, the
Acquired Clark-Schwebel Business operated four manufacturing facilities in
the southeastern U.S. and had approximately 1,300 full time employees.
As part of this acquisition, Hexcel also acquired C-S's equity ownership
interests in the following three joint ventures:
- - a 43.6% share in CS-Interglas AG ("CS-Interglas") headquartered in Germany,
together with fixed-price options to increase this equity interest to
84.0%. Hexcel's acquisition of the CS-Interglas equity interest and related
options was completed on December 23, 1998;
- - a 43.3% share in Asahi-Schwebel Co., Ltd. ("Asahi-Schwebel"), headquartered
in Japan, which in turn has its own joint venture with AlliedSignal Inc. in
Taiwan; and
- - a 50.0% share in Clark-Schwebel Tech-Fab Company ("CS Tech-Fab")
headquartered in the United States.
5
<PAGE>
CS-Interglas and Asahi-Schwebel are fiberglass fabric producers serving the
European and Asian electronics and telecommunications industries. CS Tech-Fab
manufactures non-woven materials for roofing, construction and other
specialty applications. The fixed-price options to increase the equity
interest in CS-Interglas are, in the Company's opinion, significantly higher
than their current fair market value and expire on December 31, 1999. The
unconsolidated net sales in 1998 for these joint ventures were in excess of
$300,000.
The acquisition of the Acquired Clark-Schwebel Business was accounted
for under the purchase method of accounting and was completed pursuant to an
Asset Purchase Agreement dated July 25, 1998, as amended, by and among
Hexcel, Stamford CS Acquisition Corp., and C-S (the "Asset Purchase
Agreement"). Under the Asset Purchase Agreement, Hexcel acquired the net
assets of the acquired business, other than certain excluded assets and
liabilities, in exchange for approximately $473,000 in cash. As part of the
acquisition, Hexcel entered into a $50,000 lease for property, plant and
equipment used in the acquired business from an affiliate of C-S, pursuant to
a long-term lease with purchase options.
PRO FORMA FINANCIAL INFORMATION
The pro forma net sales, net income and diluted net income per share of
Hexcel for the quarter ended March 31, 1998, after giving effect to the
acquisition of the Acquired Clark-Schwebel Business as if it had occurred on
January 1, 1998, were:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
3/31/98
- --------------------------------------------------------------------------------------------------------------------
<S> <C>
Pro forma net sales $ 317,159
Pro forma net income 18,151
Pro forma diluted net income per share $ 0.43
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE 3 -- INVENTORIES
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
3/31/99 12/31/98
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Raw materials $ 88,988 $ 90,881
Work in progress 74,439 77,769
Finished goods 41,321 44,549
- --------------------------------------------------------------------------------------------------------------------
Total inventories $ 204,748 $ 213,199
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE 4 -- NOTES PAYABLE, CAPITAL LEASE OBLIGATIONS AND INDEBTEDNESS TO A RELATED
PARTY
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
3/31/99 12/31/98
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Senior credit facility $ 394,489 $ 618,214
European credit and overdraft facilities 7,843 16,330
Convertible subordinated notes, due 2003 114,435 114,435
Convertible subordinated debentures, due 2011 25,625 25,625
Senior subordinated notes, due 2009 240,000 -
Various notes payable 408 547
- --------------------------------------------------------------------------------------------------------------------
Total notes payable 782,800 775,151
Capital lease obligations 52,450 54,092
Senior subordinated note payable to related party,
net of unamortized discount of $1,128 and $1,801
as of March 31, 1999 and December 31, 1998, respectively 23,849 35,675
- --------------------------------------------------------------------------------------------------------------------
Total notes payable, capital lease obligations and
indebtedness to a related party $ 859,099 $ 864,918
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
3/31/99 12/31/98
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Notes payable and current maturities of long-term liabilities $ 22,381 $ 26,867
Long-term notes payable and capital lease obligations,
less current maturities 812,869 802,376
Indebtedness to related parties 23,849 35,675
- --------------------------------------------------------------------------------------------------------------------
Total notes payable, capital lease obligations and
indebtedness to a related party $ 859,099 $ 864,918
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
SENIOR CREDIT FACILITY
In connection with the acquisition of the Acquired Clark-Schwebel
Business on September 15, 1998, Hexcel obtained a new global credit facility
(the "Senior Credit Facility") to: (a) fund the purchase of the Acquired
Clark-Schwebel Business; (b) refinance the Company's existing revolving
credit facility; and (c) provide for ongoing working capital and other
financing requirements of the Company. Simultaneously with the January 1999
closing of the $240,000 principal amount of 9.75% senior subordinated notes
due 2009 (the "Senior Subordinated Notes") offering, the Company amended the
Senior Credit Facility to, among other things, reduce the available borrowing
capacity from $910,000 to $672,000, modify certain financial covenants and to
permit the offering.
Depending on certain predetermined ratios and other conditions, interest
on outstanding borrowings under the Senior Credit Facility is computed at an
annual rate ranging from approximately 0.75% to 2.25% in excess of the
applicable London interbank rate, or at the option of Hexcel, at 0 to 1.25%
in excess of the base rate of the administrative agent for the lenders. In
addition, the Senior Credit Facility is subject to a commitment fee ranging
from 0.23% to 0.50% per annum of the total facility. The Senior Credit
Facility is secured by a pledge of shares of certain of Hexcel's
subsidiaries. The Company is subject to various financial covenants and
restrictions under the Senior Credit Facility, and is generally prohibited
from paying dividends or redeeming capital stock. Approximately $544,000 of
the Senior Credit Facility expires in September 2004, with the balance
expiring in 2005.
SENIOR SUBORDINATED NOTES DUE 2009
On January 21, 1999, the Company issued $240,000 of Senior Subordinated
Notes due 2009. The Senior Subordinated Notes are general unsecured
obligations of Hexcel that bear interest at a rate of 9.75% per annum. Net
proceeds of approximately $231,000 from this offering were used to repay
amounts owed under the Senior Credit Facility. The Senior Subordinated Notes
are redeemable beginning in January of 2004, in whole or in part, at the
option of Hexcel. The redemption prices range from 104.9% to 100.0% of the
outstanding principal amount, depending on the period in which redemption
occurs.
SENIOR SUBORDINATED NOTE PAYABLE TO A RELATED PARTY
The senior subordinated note payable to a related party, is payable to
Ciba Specialty Chemicals Inc., and is a general unsecured obligation of
Hexcel. Ciba Specialty Chemicals Inc. and its affiliate, Ciba Specialty
Chemicals Corporation, collectively hold approximately 49.6% of the Company's
common stock. From February 28, 1996 through February 28, 1999, the senior
subordinated note payable to a related party bore interest at a rate of 7.5%
per annum. On February 28, 1999, the interest rate increased to 10.5% per
annum, and will continue to increase by an additional 0.5% per year
thereafter until they mature in 2003. On February 17, 1999, the Company
redeemed $12,500 of the note payable, with such repayment financed with
borrowings under the Company's Senior Credit Facility.
7
<PAGE>
Over the past few years, the Company has announced two major business
consolidation programs. The first one was announced in May 1996 and later
revised in December 1996 (the "1996 program"), and primarily related to the
integration of the acquired composite business of Ciba-Geigy Ltd. and the
acquired carbon fibers and prepreg business of Hercules Inc. In December 1998
and March 1999, the Company announced a second program related to the
integration of the Acquired Clark-Schwebel Business and the combination of the
Company's U.S., European and Pacific Rim composite materials businesses into a
single, global business unit (the "1998/1999 program"). More detailed
discussions on each of these programs are set forth below. Total accrued
business acquisition and consolidation expenses at December 31, 1998 and March
31, 1999, and activity during the quarter ended March 31, 1999 for each of these
programs was as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
1998/1999 1996 PROGRAM
PROGRAM TOTAL
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BALANCE AS OF DECEMBER 31, 1998 $ 5,002 $ 3,200 $ 8,202
Business acquisition and consolidation expenses 2,809 - 2,809
Cash expenditures (2,242) - (2,242)
Non-cash usage, including asset write-downs and
currency translation effects (1,927) (100) (2,027)
- -----------------------------------------------------------------------------------------------
BALANCE AS OF MARCH 31, 1999 $ 3,642 $ 3,100 $ 6,742
- -----------------------------------------------------------------------------------------------
</TABLE>
1998/1999 PROGRAM
In December 1998, Hexcel announced business consolidation actions within its
reinforcement products and composite materials businesses. These actions
included the integration of Hexcel's existing fabrics business with the U.S.
operations of the Acquired Clark-Schwebel Business, and the combination of the
Company's U.S., European and Pacific Rim composite materials businesses into a
single, global business unit. The objectives of these actions were to eliminate
redundancies, improve manufacturing planning, and enhance customer service. As
of March 31, 1999, the Company had substantially completed these business
consolidation actions and to date, these actions have resulted in the
elimination of approximately 100 operating, sales, marketing and administrative
positions.
On March 16, 1999, the Company expanded its actions relating to the
integration of the Acquired Clark-Schwebel Business with the announcement of the
closure of its Cleveland, Georgia manufacturing facility by August 1999. This
facility, which was part of the Acquired Clark-Schwebel Business, employs
approximately 100 people and produces fabrics used to make laminate for printed
circuit boards. Certain production equipment from the Cleveland, Georgia
facility will be moved to the Company's Anderson, South Carolina facility.
Closure of this facility resulted from current competitive conditions in the
global market for electronic fiberglass materials and was not expected at the
time of the acquisition of the Acquired Clark-Schwebel Business.
Accrued business acquisition and consolidation expenses at December 31, 1998
and March 31, 1999, and activity during the quarter ended March 31, 1999 for the
1998/1999 program, were as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
EMPLOYEE FACILITY &
SEVERANCE & EQUIPMENT
1998/1999 PROGRAM RELOCATION RELOCATION TOTAL
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BALANCE AS OF DECEMBER 31, 1998 $ 3,020 $ 1,982 $ 5,002
Business acquisition and consolidation expenses 994 1,815 2,809
Cash expenditures (1,497) (745) (2,242)
Non-cash usage, including asset write-downs and
currency translation effects - (1,927) (1,927)
- -----------------------------------------------------------------------------------------------
BALANCE AS OF MARCH 31, 1999 $ 2,517 $ 1,125 $ 3,642
- -----------------------------------------------------------------------------------------------
</TABLE>
8
<PAGE>
As of December 31, 1998, accrued business consolidation and acquisition
expenses for the 1998/1999 program primarily consisted of severance for
employees terminated in December 1998, costs for early termination for
certain leases, and equipment relocation costs incurred, but not yet paid.
The Company's policy is to pay severance over a period of time rather than in
a lump-sum amount. During the first quarter of 1999, the Company recorded
additional business acquisition and consolidation expenses of $2,809,
primarily reflecting the costs of closing the Cleveland, Georgia facility, of
which $1,800 represented a non-cash write-down on equipment that will be
disposed of. Cash expenditures during the quarter ended March 31, 1999 for
the 1998/1999 program principally related to severance payments made to those
employees terminated in December 1998.
As of March 31, 1999, remaining accrued expenses for the 1998/1999 program
primarily reflected severance and relocation costs for employees in the
Company's Cleveland, Georgia facility and for employees terminated in December
1998, as well as costs relating to the early termination of certain leases.
Remaining cash expenditures for the 1998/1999 program are expected to be funded
through operating cash flows. The 1998/1999 program is expected to be
substantially completed by the end of 1999.
1996 PROGRAM
In 1996, Hexcel announced plans to consolidate the Company's operations over
a period of three years. The objective of the program was to integrate acquired
assets and operations into Hexcel, and to reorganize the Company's manufacturing
and research activities around strategic centers dedicated to select product
technologies. Management expected that this consolidation program would take
approximately three years to complete, in part because of the aerospace industry
requirements to "qualify" specific equipment and manufacturing facilities for
the manufacture of certain products. These qualification requirements increase
the complexity, cost and time of moving equipment and consolidating
manufacturing activities. The program is near completion, and the Company
expects that all activities related to this consolidation program will be
finished by mid-1999.
Accrued business acquisition and consolidation expenses at December 31, 1998
and March 31, 1999, and activity during the quarter ended March 31, 1999 for
this business acquisition and consolidation program, were as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
EMPLOYEE FACILITY &
SEVERANCE & EQUIPMENT
1996 PROGRAM RELOCATION RELOCATION TOTAL
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BALANCE AS OF DECEMBER 31, 1998 $ 2,848 $ 352 $ 3,200
Non-cash usage, including asset write-downs and
currency translation effects (100) - (100)
- -----------------------------------------------------------------------------------------------
BALANCE AS OF MARCH 31, 1999 $ 2,748 $ 352 $ 3,100
- -----------------------------------------------------------------------------------------------
</TABLE>
As of December 31, 1998 and March 31, 1999, accrued business acquisition and
consolidation expenses for the 1996 program related to a $600 foreign government
grant received by the Company that is required to be repaid over a five year
period due to lower employee levels as a result of the consolidation program,
$2,148 in employee retirement costs associated with terminations and $352 of
environmental costs related to a closed facility.
9
<PAGE>
NOTE 6 -- NET INCOME PER SHARE
Computations of basic and diluted net income per share for the
quarters ended March 31, 1999 and 1998, are as follows:
<TABLE>
- --------------------------------------------------------------------------------------------------------------------
1999 1998
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Basic net income per share:
Net income $ 5,208 $ 17,070
Weighted average common shares outstanding 36,365 36,845
- --------------------------------------------------------------------------------------------------------------------
Basic net income per share $ 0.14 $ 0.46
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
Diluted net income per share:
Net income $ 5,208 $ 17,070
Effect of dilutive securities -
Senior Subordinated Notes, due 2003 - 1,264
Senior Subordinated Debentures, due 2011 - 283
- --------------------------------------------------------------------------------------------------------------------
Adjusted net income $ 5,208 $ 18,617
- --------------------------------------------------------------------------------------------------------------------
Weighted average common shares outstanding 36,365 36,845
Effect of dilutive securities -
Stock options 95 1,428
Senior Subordinated Notes, due 2003 - 7,239
Senior Subordinated Debentures, due 2011 - 834
- --------------------------------------------------------------------------------------------------------------------
Diluted weighted average common shares outstanding 36,460 46,346
- --------------------------------------------------------------------------------------------------------------------
Diluted net income per share $ 0.14 $ 0.40
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
The Convertible Subordinated Notes, due 2003, and the Convertible
Subordinated Debentures, due 2011, were excluded from the 1999 computation of
diluted net income per share, as they were antidilutive. For the quarter
ended March 31, 1999, approximately 4,800 stock options, or substantially all
of the Company's outstanding stock options, were excluded from the
calculation of diluted net income per share. The exercise price for these
stock options ranged from $8.25 to $30.68, with the weighted average price
being approximately $12.55. For the quarter ended March 31, 1998,
substantially all of the Company's outstanding stock options were included in
the calculation of diluted net income per share.
NOTE 7 -- COMPREHENSIVE INCOME (LOSS)
<TABLE>
- --------------------------------------------------------------------------------------------------------------------
QUARTER ENDED MARCH 31,
1999 1998
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net income $ 5,208 $ 17,070
Currency translation adjustment (7,005) (1,573)
- --------------------------------------------------------------------------------------------------------------------
Total comprehensive income (loss) $ (1,797) $ 15,497
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
10
<PAGE>
NOTE 8 -- SEGMENT INFORMATION
Hexcel evaluates the performance of its operating segments based on
adjusted income before business acquisition and consolidation expenses,
interest, taxes and equity in earnings of affiliated companies ("Adjusted
EBIT"), and generally accounts for intersegment sales based on arm's length
prices. Corporate and certain other expenses are not allocated to the operating
segments.
Financial information on the Company's operating segments for the quarters
ended March 31, 1999 and 1998, including pro forma financial information, after
giving effect to the acquisition of the Acquired Clark-Schwebel Business as if
it occurred on January 1, 1998, is as follows:
<TABLE>
- --------------------------------------------------------------------------------------------------------------------
REINFORCEMENT COMPOSITE ENGINEERED
PRODUCTS MATERIALS PRODUCTS TOTAL
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FIRST QUARTER 1999
- --------------------------------------------------------------------------------------------------------------------
Net sales to external customers $ 85,807 $ 177,200 $ 53,163 $ 316,170
Intersegment sales 35,728 2,776 - 38,504
- --------------------------------------------------------------------------------------------------------------------
Total sales 121,535 179,976 53,163 354,674
Adjusted EBIT 10,273 26,397 2,596 39,266
Depreciation and amortization 8,902 5,037 1,005 14,944
Capital expenditures 4,189 3,492 1,666 9,347
- --------------------------------------------------------------------------------------------------------------------
PRO FORMA FIRST QUARTER 1998
- --------------------------------------------------------------------------------------------------------------------
Net sales to external customers 103,362 164,133 49,664 317,159
Intersegment sales 35,118 2,946 19 38,083
- --------------------------------------------------------------------------------------------------------------------
Total sales 138,480 167,079 49,683 355,242
Adjusted EBIT 22,344 26,075 2,910 51,329
Depreciation and amortization 9,422 4,249 774 14,445
Capital expenditures 4,772 6,474 900 12,146
- --------------------------------------------------------------------------------------------------------------------
FIRST QUARTER 1998
- --------------------------------------------------------------------------------------------------------------------
Net sales to external customers 42,944 164,133 49,664 256,741
Intersegment sales 35,118 2,946 19 38,083
- --------------------------------------------------------------------------------------------------------------------
Total sales 78,062 167,079 49,683 294,824
Adjusted EBIT 13,679 26,075 2,910 42,664
Depreciation and amortization 4,315 4,249 774 9,338
Capital expenditures $ 3,843 $ 6,474 $ 900 $ 11,217
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
Reconciliations of the totals reported for the operating segments to
consolidated income before income taxes, are as follows:
<TABLE>
- --------------------------------------------------------------------------------------------------------------------
FIRST PRO FORMA FIRST
QUARTER FIRST QUARTER QUARTER
1999 1998 1998
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Total Adjusted EBIT for reportable segments $ 39,266 $ 51,329 $ 42,664
Less:
Business acquisition and consolidation expenses 2,809 - -
Corporate, other expenses and eliminations 9,288 8,928 8,928
Interest expense 19,106 16,431 6,967
- --------------------------------------------------------------------------------------------------------------------
Consolidated income before income taxes $ 8,063 $ 25,970 $ 26,769
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
BUSINESS OVERVIEW
<TABLE>
-----------------------------------------------------------------------------------------------------------------
UNAUDITED
-----------------------------------------------------------------------------------------------------------------
Quarter Ended March 31,
Pro Forma
(IN MILLIONS, EXCEPT PER SHARE DATA) 1999 1998 (c) 1998
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $ 316.2 $ 317.2 $ 256.7
Gross margin % 22.4% 25.6% 25.7%
Adjusted operating income % (a) 9.5% 13.4% 13.1%
Adjusted EBITDA (b) $ 45.6 $ 57.5 $ 43.7
Business acquisition & consolidation expenses $ 2.8 $ - $ -
Net income $ 5.2 $ 18.2 $ 17.1
Adjusted net income (a) $ 7.0 $ 18.2 $ 17.1
-----------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------
Diluted earnings per share $ 0.14 $ 0.43 $ 0.40
Adjusted diluted earnings per share (a) $ 0.19 $ 0.43 $ 0.40
-----------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Excludes business acquisition and consolidation expenses and related
income taxes, as applicable.
(b) Excludes business acquisition and consolidation expenses, interest,
taxes, depreciation, amortization and equity in earnings of affiliated
companies.
(c) Pro forma results gives effect to the September 1998 acquisition of Clark
Schwebel, as if the transaction had occurred at the beginning of 1998.
Net income for the first quarter of 1999 was $5.2 million, or $0.14 per
diluted share, compared with $17.1 million, or $0.40 per diluted share, for the
first quarter of 1998. Excluding business acquisition and consolidation expenses
of $2.8 million ($1.8 million after tax) incurred in the first quarter of 1999,
diluted earnings per share were $0.19.
During the first quarter of 1999, demand in most of the markets that Hexcel
serves was in line with the Company's expectations, with net sales from
commercial aerospace holding steady and lower demand for carbon fiber products.
However, pricing in the global market for electronic fiberglass materials
remained under intense competitive pressure from certain Asian producers who
used the western markets to reduce their significant excess production capacity.
The Company's gross margins reflected the impact of higher unit carbon fiber
product costs due to lower production, the pricing reductions in the electronics
market, and supply chain pricing pressures in the commercial aerospace market.
Hexcel remains committed to improving performance by continuing to reduce
material costs from suppliers, decrease its own operating costs and increase
productivity through its Lean Enterprise, supply-chain and business
consolidation initiatives.
BUSINESS ACQUISITION
On September 15, 1998, the Company acquired certain assets and assumed
certain operating liabilities from Clark-Schwebel, Inc. and its subsidiaries
(the "Acquired Clark-Schwebel Business"). The Acquired Clark-Schwebel Business
is engaged in the manufacture and sale of high-quality fiberglass fabrics, which
are used to make printed circuit boards for electronic equipment such as
computers, cellular telephones, televisions and automobiles. The Acquired
12
<PAGE>
Clark-Schwebel Business also produces high performance specialty products for
use in insulation, filtration, wall and facade claddings, soft body armor and
reinforcements for composite materials. At the date of acquisition, the Acquired
Clark-Schwebel Business operated four manufacturing facilities in the
southeastern U.S. and had approximately 1,300 full time employees.
13
<PAGE>
As part of this acquisition, Hexcel also acquired Clark-Schwebel's equity
ownership interests in the following three joint ventures:
- - a 43.6% share in CS-Interglas AG ("CS-Interglas") headquartered in Germany,
together with fixed-price options to increase this equity interest to
84.0%. Hexcel's acquisition of the CS-Interglas equity interest and related
options was completed on December 23, 1998;
- - a 43.3% share in Asahi-Schwebel Co., Ltd. ("Asahi-Schwebel"), headquartered
in Japan, which in turn has its own joint venture with AlliedSignal Inc. in
Taiwan; and
- - a 50.0% share in Clark-Schwebel Tech-Fab Company ("CS Tech-Fab"),
headquartered in the United States.
CS-Interglas and Asahi-Schwebel are fiberglass fabric producers serving the
European and Asian electronics and telecommunications industries. CS Tech-Fab
manufactures non-woven materials for roofing, construction and other specialty
applications. The fixed-price options to increase the equity interest in
CS-Interglas are, in the Company's opinion, significantly higher than their
current fair market value. Accordingly, the Company does not currently
anticipate exercising the options, at the stated price, before their expiration
on December 31, 1999. The unconsolidated revenues in 1998 for these joint
ventures were in excess of $300 million.
The acquisition of the Acquired Clark-Schwebel Business was completed
pursuant to an Asset Purchase Agreement dated July 25, 1998, as amended, by and
among Hexcel, Stamford CS Acquisition Corp., and Clark-Schwebel (the "Asset
Purchase Agreement"). Under the Asset Purchase Agreement, Hexcel acquired the
net assets of the acquired business, other than certain excluded assets and
liabilities, in exchange for approximately $472.8 million in cash. Hexcel also
agreed to lease $50.0 million of property, plant and equipment used in the
acquired business from an affiliate of Clark-Schwebel, pursuant to a long-term
lease with purchase options.
The acquisition of the Acquired Clark-Schwebel Business was accounted for
under the purchase method of accounting. Accordingly, the consolidated balance
sheets, statements of operations, and cash flows include the financial
position, results of operations and cash flows of the acquired business as of
such date and for such periods that the business was owned by Hexcel. Further
discussions of the acquisition and its related financing are contained in
Notes 2 and 4 to the accompanying condensed consolidated financial statements.
RESULTS OF OPERATIONS
NET SALES: Net sales for the first quarter of 1999 were $316.2 million,
compared with $256.7 million for the first quarter of 1998 and $317.2 million
for the first quarter of 1998 on a pro forma basis, after giving effect to the
acquisition of the Acquired Clark-Schwebel Business as if the transaction had
occurred at the beginning of 1998. Strong sales of composite products to the
commercial aerospace and space and defense markets were offset by reduced sales
of carbon fiber and sales to the electronics market. On a constant currency
basis, first quarter 1999 net sales would not have been materially different
than reported.
14
<PAGE>
The following table summarizes net sales to third-party customers by
product group and market segment for the quarter ended March 31, 1999 and pro
forma net sales for the quarter ended March 31, 1998:
<TABLE>
- --------------------------------------------------------------------------------------------------------------------
UNAUDITED
------------------------------------------------------------------------------------
COMMERCIAL SPACE & GENERAL
(IN MILLIONS) AEROSPACE DEFENSE ELECTRONICS INDUSTRIAL RECREATION TOTAL
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FIRST QUARTER 1999 NET SALES
Reinforcement products $ 11.7 $ 5.5 $ 42.3 $ 21.5 $ 4.8 $ 85.8
Composite materials 122.4 27.5 - 18.3 9.0 177.2
Engineered products 48.9 3.3 - 1.0 - 53.2
- --------------------------------------------------------------------------------------------------------------------
$ 183.0 36.3 42.3 40.8 13.8 316.2
Total 58% $ 11% $ 13% $ 13% $ 5% $ 100%
- --------------------------------------------------------------------------------------------------------------------
PRO FORMA FIRST QUARTER 1998 NET SALES
Reinforcement products $ 11.2 $ 7.2 $ 52.2 $ 26.8 $ 6.0 $ 103.4
Composite materials 118.8 21.4 - 13.3 10.6 164.1
Engineered products 46.1 2.8 - 0.8 - 49.7
- --------------------------------------------------------------------------------------------------------------------
$ 176.1 $ 31.4 $ 52.2 $ 40.9 $ 16.6 $ 317.2
Total 56% 10% 16% 13% 5% 100%
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
Commercial aerospace net sales increased 4% to $183.0 million for the first
quarter of 1999, from $176.1 million on a pro forma basis for the first quarter
of 1998. The growth in sales was largely attributable to increased sales of
composite materials and reflects the increase in commercial aircraft build rates
by the Company's two largest customers, The Boeing Company ("Boeing") and Airbus
Industrie ("Airbus"). The increase also reflects an improvement in the
engineered products segment's shipments of retrofit interiors to airline
customers.
Approximately 44% of Hexcel's pro forma full year 1998 net sales were to
Boeing, Airbus and related subcontractors. Based on published projections,
combined deliveries for Boeing and Airbus were 577 and 788 in 1997 and 1998,
respectively, and are expected to peak at 913 in 1999, before declining to
approximately 800 in 2000. The Company sells material for every model of
commercial aircraft sold by Boeing and Airbus, with sales per aircraft ranging
from $0.1 million to over $1.0 million. Depending on the product, orders placed
with Hexcel are received anywhere between one and eighteen months prior to
delivery of the aircraft to the customer. As the Company supplies its products
ahead of the delivery of a commercial aircraft, it will start to see the impact
of reduced Boeing production rates by summer 1999.
During 1998, the Company's commercial aerospace customers started
emphasizing the need for material yield improvement and cost and inventory
reduction throughout the industry's supply chain. In response to these
pressures, the Company reduced the price of certain products in 1999. Further,
the Company is aware that in the third quarter of 1999, one customer is planning
to substitute one of Hexcel's premium products for a lower cost, lower priced
alternative product, which will also be provided by Hexcel. Although these
changes impact the Company's profit margins, the Company's various cost
reduction and efficiency improvement programs are focused on mitigating the
impact in whole or in part. Meanwhile, the Company's sales of products used to
retrofit aircraft interiors continue to grow, with a strong initial reception
for its kit product that extends the size of overhead stowage bins in narrow
aisle aircraft.
Space and defense net sales for the first quarter of 1999 increased 16% to
$36.3 million, from $31.4 million on a pro forma basis for the first quarter of
1998, primarily reflecting an increase in sales of composite materials to select
military and space programs.
15
<PAGE>
In the last quarter of 1998, the Company experienced cancellations of
certain carbon fiber orders. The Company believes that, in response to a
significant shortage of carbon fiber supply in 1997, a number of the Company's
customers, particularly those in the space and defense market, purchased and/or
ordered more carbon fiber than they needed during 1997 and 1998. Now that carbon
fiber supplies are more certain, customers are reducing their inventories and
are therefore anticipating lower purchasing needs for 1999. These factors
resulted in surplus inventories throughout the supply chain, including Hexcel,
at December 31, 1998 and a significant reduction in the anticipated carbon fiber
production for 1999 as compared to 1998. The increase in worldwide carbon fiber
capacity limits both the Company's ability to sell its short-term excess
capacity to other markets and prices at which such surplus capacity can be sold.
Electronics net sales decreased 19% to $42.3 million for the first quarter
of 1999, from $52.2 million on a pro forma basis for the first quarter of 1998.
The reduction in sales primarily reflects the impact of price reductions
combined with lower unit sales volume in the United States. During the quarter,
intense competition from manufacturers located in Asia continued to place
pressure on the prices of the Company's electronic fiberglass products. The
Company has been successful in partially offsetting these price reductions by
obtaining lower raw material prices. In addition the Company continues to seek
opportunities to reduce the cost of its products and during the quarter
announced the closure of its Cleveland, Georgia plant as a targeted cost
reduction action.
General industrial net sales for the first quarter of 1999 were comparable
to pro forma first quarter 1998. Recreation net sales decreased 17% in the first
quarter of 1999 compared to first quarter 1998 net sales on a pro forma basis,
reflecting reduced customer demand for certain products in this market,
including, one particular customer who is changing the design of many of its
athletic shoes to alternative materials.
BACKLOG: The backlog of commercial aerospace and space and defense orders
scheduled for delivery in the next 12 months was as follows:
<TABLE>
---------------------------------------------------------------------------------------------------------------
UNAUDITED
-------------------------------------------------------------
Commercial Space and
(IN MILLIONS) Aerospace Defense Total
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
AS OF MARCH 31, 1999
Reinforcement products $ 12.7 $ 15.3 $ 28.0
Composite materials 194.0 42.1 236.1
Engineered products 145.5 10.9 156.4
---------------------------------------------------------------------------------------------------------------
Total $ 352.2 $ 68.3 $ 420.5
---------------------------------------------------------------------------------------------------------------
AS OF DECEMBER 31, 1998
Reinforcement products $ 5.9 $ 6.5 $ 12.4
Composite materials 226.9 40.1 267.0
Engineered products 165.1 7.6 172.7
---------------------------------------------------------------------------------------------------------------
Total $ 397.9 $ 54.2 $ 452.1
---------------------------------------------------------------------------------------------------------------
AS OF MARCH 31, 1998
Reinforcement products $ 10.4 $ 20.0 $ 30.4
Composite materials 237.3 57.2 294.5
Engineered products 158.6 9.9 168.5
---------------------------------------------------------------------------------------------------------------
Total $ 406.3 $ 87.1 $ 493.4
---------------------------------------------------------------------------------------------------------------
</TABLE>
The decrease in the Company's backlog is attributable to commercial aerospace
build rates, which are
16
<PAGE>
expected to peak in 1999 and the continuing trend towards shorter lead times
and better supply-chain management by the industry overall. Because the
Company supplies its products ahead of the delivery of a commercial aircraft,
it will start to see the impact of the lower anticipated deliveries of Boeing
aircraft in 2000 by the second half of 1999. Backlog for the Company's other
markets is not a material trend indicator and accordingly, such amounts are
not presented.
GROSS MARGIN: Gross margin for the first quarter of 1999 was $70.8 million,
or 22.4% of net sales, compared with $66.1 million, or 25.7% of net sales, for
the first quarter of 1998. The decrease is attributable to a number of factors,
including a reduction in pricing, and to a lesser extent, sales volume, in the
global electronics market due to the competitive conditions, lower production
and sales of carbon fiber products, and supply chain pressures in the commercial
aerospace market. These factors were partially offset by lower material costs.
The Company is pursuing efforts to reduce its cost structure and increase its
productivity through its Lean Enterprise program, which was extended to all U.S.
locations in the latter part of 1998 and which will be extended to its European
facilities in 1999. The expected improvements in cost and productivity will be
offset by customer demand for reductions in the costs of the products that they
purchase from the Company.
OPERATING INCOME: Operating income was $27.2 million in the first quarter
of 1999, or 8.6% of net sales, compared with $33.7 million in the first quarter
of 1998, or 13.1% of net sales. Excluding business acquisition and consolidation
expenses, operating income was $30.0 million, or 9.5% of net sales. The
aggregate decrease in operating income, excluding business acquisition and
consolidation expenses, reflects the decrease in gross margins and increased
selling, general and administrative ("SG&A") and research and technology ("R&T")
expenses over the first quarter 1998. SG&A expenses were $34.3 million, or 10.9%
of net sales for the first quarter of 1999 compared with $27.2 million, or 10.6%
of net sales for the first quarter of 1998. The aggregate dollar increase in
SG&A was primarily attributable to the Acquired Clark-Schwebel Business and
costs associated with the implementation of the Company's Lean Enterprise and
supply-chain initiatives. R&T expenses were $6.5 million, or 2.1% of net sales
for the first quarter of 1999 compared with $5.2 million, or 2.0% of net sales
for the first quarter of 1998.
EQUITY IN LOSSES OF AFFILIATED COMPANIES: As part of the Acquired
Clark-Schwebel Business, the Company acquired interests in three joint ventures.
Competitive conditions in the electronics market, resulting from the Asian
economic situation, impacted the performance of two of these joint ventures
during the first quarter of 1999. As a result, the Company recognized a nominal
amount of equity in losses of affiliated companies in the first quarter of 1999.
NET INCOME AND NET INCOME PER SHARE: Net income for the first quarter of
1999 was $5.2 million, or $0.14 per diluted share, compared with net income for
the first quarter of 1998 of $17.1 million, or $0.40 per diluted share.
Excluding business acquisition and consolidation expenses of $2.8 million, first
quarter 1999 net income would have been $0.19 per diluted share. Pro forma first
quarter 1998 diluted net income per share, after giving effect to the
acquisition of the Acquired Clark-Schwebel Business as if the transaction had
occurred at the beginning of 1998, was $0.43 per diluted share.
There were 36.5 million diluted weighted-average shares outstanding during
the first quarter of 1999, versus 46.3 million during the first quarter of 1998.
The quarter-over-quarter decrease in the number of weighted average shares is
primarily attributable to the exclusion of 8.1 million of potential common
shares relating to the Convertible Subordinated Notes, due 2003, and the
Convertible Subordinated Debentures, due 2011, which were antidilutive in the
1999 period. Refer to Note 6 to the accompanying condensed consolidated
financial statements for the calculation and the number of shares used for
diluted net income per share.
17
<PAGE>
FINANCIAL CONDITION AND LIQUIDITY
SENIOR CREDIT FACILITY
In connection with the acquisition of the Acquired Clark-Schwebel Business
on September 15, 1998, Hexcel obtained a new global credit facility (the "Senior
Credit Facility") to: (a) fund the purchase of the Acquired Clark-Schwebel
Business; (b) refinance the Company's existing revolving credit facility; and
(c) provide for ongoing working capital and other financing requirements of the
Company. Simultaneously with the January 1999 closing of the $240.0 million
principal amount of 9.75% senior subordinated notes due 2009 (the "Senior
Subordinated Notes") offering, the Company amended the Senior Credit Facility
to, among other things, reduce the available borrowing capacity from $910.0
million to $672.0 million, modify certain financial covenants and to permit the
offering. Approximately $544 million of the Senior Credit Facility expires in
September 2004, with the balance expiring in 2005.
The Company expects that its financial resources, including the Senior
Credit Facility, will be sufficient to fund the Company's worldwide operations
for the foreseeable future. Nonetheless, one of the Company's primary goals over
the next few years is generating operating cash flow to reduce debt. Further
discussion of the Company's financial resources is contained in Note 4 to the
accompanying condensed consolidated financial statements.
SENIOR SUBORDINATED NOTES DUE 2009
On January 21, 1999, the Company issued $240.0 million of Senior
Subordinated Notes due 2009. The Senior Subordinated Notes are general unsecured
obligations of Hexcel that bear interest at a rate of 9.75% per annum. Net
proceeds of approximately $231 million from this offering were used to repay
amounts owed under the Senior Credit Facility. The Senior Subordinated Notes are
redeemable beginning in January of 2004, in whole or in part, at the option of
Hexcel. The redemption prices range from 104.9% to 100.0% of the outstanding
principal amount, depending on the period in which redemption occurs.
SENIOR SUBORDINATED NOTE PAYABLE TO A RELATED PARTY
The senior subordinated note payable to a related party, is payable to Ciba
Specialty Chemicals Inc., and is a general unsecured obligation of Hexcel. Ciba
Specialty Chemicals Inc. and its affiliate, Ciba Specialty Chemicals
Corporation, collectively hold approximately 49.6% of the Company's common
stock. From February 28, 1996 through February 28, 1999, the senior subordinated
note payable to a related party bore interest at a rate of 7.5% per annum. On
February 28, 1999, the interest rate increased to 10.5% per annum, and will
continue to increase by an additional 0.5% per year thereafter until they mature
in 2003. On February 17, 1999, the Company redeemed $12.5 million of the note
payable, with such repayment financed with borrowings under the Company's Senior
Credit Facility.
CAPITAL EXPENDITURES
Capital expenditures totaled $9.4 million for the first three months of
1999 compared to $11.5 million for the first three months of 1998 and $12.5
million for the first three months of 1998 on a pro forma basis. The decrease
reflects reduced spending due to changing market conditions, the expected
benefits from the Company's Lean Enterprise program and a commitment to reduce
debt.
ADJUSTED EBITDA, CASH FLOWS AND RATIO OF EARNINGS TO FIXED CHARGES
FIRST QUARTER, 1999: Earnings before business acquisition and consolidation
expenses, other income, interest, taxes, depreciation and amortization, and
equity in earnings of affiliated companies ("Adjusted EBITDA") was $45.6
million. Net cash provided by operating activities was $17.3 million, as $5.2
18
<PAGE>
million of net income and $15.7 million of non-cash depreciation and
amortization more than offset cash used by all other operating activities.
Net cash used for investing activities was $9.4 million, reflecting the
Company's capital expenditures for the quarter. Net cash used for financing
activities was $12.4 million, primarily reflecting $9.0 million of debt issuance
costs pertaining to the issuance of the Senior Subordinated Notes.
FIRST QUARTER, 1998: Adjusted EBITDA was $43.7 million. Pro forma Adjusted
EBITDA, after giving effect to the acquisition of the Acquired Clark-Schwebel
Business as if the transaction had occurred at the beginning of 1998, was $57.5
million. Net cash used for operating activities was $5.1 million, as increased
working capital of $26.7 million and restructuring payments of $1.8 million more
than offset $17.1 million of net income and $6.3 million of non-cash
depreciation and amortization and deferred income taxes. The increase in working
capital reflected higher levels of accounts receivable and inventory, as well as
reductions in accrued liabilities from peak year-end levels, primarily due to
the payment of obligations paid in 1998 for capital projects and employee
incentive and benefit programs incurred during 1997.
Net cash used for investing activities was $12.3 million, reflecting $11.5
million of capital expenditures. Net cash provided from financing activities,
which primarily included borrowings under the Company's previous credit
facility, totaled $11.0 million.
Adjusted EBITDA and pro forma Adjusted EBITDA have been presented to
provide a measure of Hexcel's operating performance that is commonly used by
investors and financial analysts to analyze and compare companies. Adjusted
EBITDA may not be comparable to similarly titled financial measures of other
companies. Adjusted EBITDA and pro forma Adjusted EBITDA do not represent
alternative measures of the Company's cash flows or operating income, and should
not be considered in isolation or as substitutes for measures of performance
presented in accordance with generally accepted accounting principles.
19
<PAGE>
Reconciliations of net income to EBITDA and Adjusted EBITDA for the
quarters ended March 31, 1999 and 1998, including pro forma first quarter 1998,
after giving effect to the acquisition of the Acquired Clark-Schwebel Business
as if it occurred at the beginning of 1998, are as follows:
<TABLE>
- ---------------------------------------------------------------------------------------------------------------------
PRO FORMA FIRST
FIRST QUARTER FIRST QUARTER QUARTER
(IN MILLIONS) 1999 1998 1998
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income $ 5.2 $ 18.2 $ 17.1
Provision for income taxes 2.8 9.4 9.6
Interest expense 19.1 16.4 7.0
Depreciation and amortization expense 15.7 15.1 10.0
Equity in earnings of affiliated companies - (1.6) -
- ---------------------------------------------------------------------------------------------------------------------
EBITDA 42.8 57.5 43.7
Business acquisition and consolidation expenses 2.8 - -
- ---------------------------------------------------------------------------------------------------------------------
Adjusted EBITDA $ 45.6 $ 57.5 $ 43.7
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
The ratio of earnings to fixed charges for the quarters ended March 31,
1999 and 1998, and pro forma first quarter 1998, were 1.4x, 4.6x and 2.6x,
respectively. The decrease in the ratio in the first quarter of 1999 reflects
the Company's lower operating income and higher interest costs. The calculation
of earnings to fixed charges assumes that one-third of the Company's rental
expense is attributable to interest expense.
BUSINESS CONSOLIDATION
Over the past few years, the Company has announced two major business
consolidation programs. The first one was announced in May 1996 and later
revised in December 1996 (the "1996 program"), and primarily related to the
integration of the acquired composite business of Ciba-Geigy Ltd. and the
acquired carbon fibers and prepreg business of Hercules Inc. In December 1998
and March 1999, the Company announced a second program related to the
integration of the Acquired Clark-Schwebel business and the combination of the
Company's U.S., European and Pacific Rim composite materials businesses into a
single, global business unit (the "1998/1999 program"). More detailed
discussions on each of these programs are set forth below. Total accrued
business acquisition and consolidation expenses at December 31, 1998 and March
31, 1999, and activity during the quarter ended March 31, 1999 for each of these
programs was as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
1998/1999 1996 PROGRAM
(IN THOUSANDS) PROGRAM TOTAL
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BALANCE AS OF DECEMBER 31, 1998 $ 5,002 $ 3,200 $ 8,202
Business acquisition and consolidation expenses 2,809 - 2,809
Cash expenditures (2,242) - (2,242)
Non-cash usage, including asset write-downs and
currency translation effects (1,927) (100) (2,027)
- -----------------------------------------------------------------------------------------------
BALANCE AS OF MARCH 31, 1999 $ 3,642 $ 3,100 $ 6,742
- -----------------------------------------------------------------------------------------------
</TABLE>
1998/1999 PROGRAM
In December 1998, Hexcel announced business consolidation actions within its
reinforcement products and composite materials businesses. These actions
included the integration of Hexcel's existing fabrics business with the U.S.
operations of the Acquired Clark-Schwebel Business, and the combination of the
Company's U.S., European and Pacific Rim composite materials businesses into a
single, global business unit. The objectives of these actions were to eliminate
redundancies, improve manufacturing planning, and enhance customer service. As
of March 31, 1999, the Company had substantially completed these business
consolidation actions and to date, these actions have resulted in the
elimination of approximately 100 operating, sales, marketing and administrative
positions. Estimated savings from these actions, which the Company has already
begun to realize, are expected to approximate $10 million per year.
On March 16, 1999, the Company expanded its actions relating to the
integration of the Acquired Clark-Schwebel Business with the announcement of the
closure of its Cleveland, Georgia manufacturing facility by August 1999. This
facility, which was part of the Acquired Clark-Schwebel Business, employs
approximately 100 people and produces fabrics used to make laminate for printed
circuit boards. Certain production equipment from the Cleveland, Georgia
facility will be moved to the Company's Anderson, South Carolina facility.
Closure of this facility resulted from current competitive conditions in the
global market for electronic fiberglass materials and was not expected at the
time of the acquisition of the Acquired Clark-Schwebel Business.
Accrued business acquisition and consolidation expenses at December 31, 1998
and March 31, 1999, and activity during the quarter ended March 31, 1999 for the
1998/1999 program, were as follows (in thousands):
20
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
EMPLOYEE FACILITY &
SEVERANCE & EQUIPMENT
1998/1999 PROGRAM RELOCATION RELOCATION TOTAL
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BALANCE AS OF DECEMBER 31, 1998 $ 3,020 $ 1,982 $ 5,002
Business acquisition and consolidation expenses 994 1,815 2,809
Cash expenditures (1,497) (745) (2,242)
Non-cash usage, including asset write-downs and
currency translation effects - (1,927) (1,927)
- -----------------------------------------------------------------------------------------------
BALANCE AS OF MARCH 31, 1999 $ 2,517 $ 1,125 $ 3,642
- -----------------------------------------------------------------------------------------------
</TABLE>
As of December 31, 1998, accrued business consolidation and acquisition
expenses for the 1998/1999 program primarily consisted of severance for
employees terminated in December 1998, costs for early termination for
certain leases, and equipment relocation costs incurred, but not yet paid.
The Company's policy is to pay severance over a period of time rather than in
a lump-sum amount. During the first quarter of 1999, the Company recorded
additional business acquisition and consolidation expenses of $2.8 million,
primarily reflecting the costs of closing the Cleveland, Georgia facility, of
which $1.8 million represented a non-cash write-down on equipment that will
be disposed of. The Company expects to record an additional charge of
slightly above $1 million during the second and third quarters of 1999
relating to the relocation of certain equipment from the Cleveland, Georgia
facility to the Company's Anderson, South Carolina facility. Cash
expenditures during the quarter ended March 31, 1999 for the 1998/1999
program principally related to severance payments made to those employees
terminated in December 1998.
As of March 31, 1999, remaining accrued expenses for the 1998/1999 program
primarily reflected severance and relocation costs for employees in the
Company's Cleveland, Georgia facility and for employees terminated in December
1998, as well as costs relating to the early termination of certain leases.
Remaining cash expenditures for the 1998/1999 program are expected to be funded
through operating cash flows. The 1998/1999 program is expected to be
substantially completed by the end of 1999. Anticipated cash savings from this
business consolidation activity are expected to help offset competitive pricing
pressures in the Company's electronics market. In addition to the Cleveland,
Georgia facility closure, the Company is continuing to conduct a global capacity
review. This review may result in the closing or right-sizing of additional
facilities and, as a result, additional consolidation charges may be recognized
in 1999.
1996 PROGRAM
In 1996, Hexcel announced plans to consolidate the Company's operations over
a period of three years. The objective of the program was to integrate acquired
assets and operations into Hexcel, and to reorganize the Company's manufacturing
and research activities around strategic centers dedicated to select product
technologies. Management expected that this consolidation program would take
approximately three years to complete, in part because of the aerospace industry
requirements to "qualify" specific equipment and manufacturing facilities for
the manufacture of certain products. These qualification requirements increase
the complexity, cost and time of moving equipment and consolidating
manufacturing activities. The program is near completion, and the Company
expects that all activities related to this consolidation program will be
finished by mid-1999.
Accrued business acquisition and consolidation expenses at December 31, 1998
and March 31, 1999, and activity during the quarter ended March 31, 1999 for
this business acquisition and consolidation program, were as follows (in
thousands):
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
EMPLOYEE FACILITY &
SEVERANCE & EQUIPMENT
1996 PROGRAM RELOCATION RELOCATION TOTAL
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BALANCE AS OF DECEMBER 31, 1998 $ 2,848 $ 352 $ 3,200
Non-cash usage, including asset write-downs and
currency translation effects (100) - (100)
- -----------------------------------------------------------------------------------------------
BALANCE AS OF MARCH 31, 1999 $ 2,748 $ 352 $ 3,100
- -----------------------------------------------------------------------------------------------
</TABLE>
As of December 31, 1998 and March 31, 1999, accrued business acquisition and
consolidation expenses for the 1996 program related to a $0.6 million foreign
government grant received by the Company that is required to be repaid over a
five year period due to lower employee levels as a result of the consolidation
program, $2.1 million in employee retirement costs associated with terminations
and $0.4 million of environmental costs related to a closed facility. The
employee retirement costs are expected to be disbursed by mid-1999. The Company
does not anticipate any additional expenses in relation to the 1996 program.
21
<PAGE>
YEAR 2000 READINESS DISCLOSURE
Hexcel, like most other companies, is continuing to address whether its
information technology systems and non-information technology devices with
embedded microprocessors (collectively "Business Systems and Devices") will
recognize and process dates starting with the year 2000 and beyond (the "Year
2000"). The Year 2000 issue can arise at any point in the Company's supply,
manufacturing, processing and distribution chains. The Company does not,
however, manufacture or sell products that contain microprocessors or software.
In early 1998, the Company established a central Year 2000 project office
to coordinate and monitor progress towards achieving corporate-wide Year 2000
compliance. A discussion of the Company's Business Systems and Devices,
suppliers and vendors as they pertain to the Company's Year 2000 issues, as of
April 30, 1999, is detailed as follows:
BUSINESS SYSTEMS & DEVICES
In order to address the Year 2000 issue as it relates to the Company's
Business Systems and Devices, the Company has developed, and is in the process
of implementing, a six phase plan. The Company is also using external consulting
services, where appropriate, as part of its efforts to address its Year 2000
issue. In implementing this plan, the Company has been, and continues to be
substantially on schedule. The components of this plan and their related status,
as of April 30, 1999, are detailed below and apply to both the Company's
Business Systems and its Devices:
(1) INVENTORY: This phase, which was completed in December 1998, consisted of
compiling a detailed listing of the Company's Business Systems and
Devices likely to be impacted by the Year 2000 issue.
(2) RISK ASSESSMENT AND ASSIGNING PRIORITIES: This phase consisted of
assessing the likelihood that a Business System or Device is not Year
2000 compliant as well as assigning a priority of importance to the
particular Business System or Device as it relates to the Company's
business operations. This phase was completed in December 1998.
(3) ASSESSING COMPLIANCE: This phase consisted of assessing Year 2000
compliance on the Company's Business Systems or Devices which have been
identified as essential to the Company's business operations. In
assessing compliance, the Company performs a variety of tasks including,
obtaining Year 2000 compliance statements and information from the
Company's vendors and service providers. This phase was completed in
March 1999. However, the Company is dependent upon
22
<PAGE>
its suppliers and service providers to continue to inform Hexcel as to
any updates or changes to the information supplied to Hexcel.
(4) REPAIRING OR REPLACING: This phase consists of repairing and replacing
non-Year 2000 compliant Business Systems and Devices which are essential
to the Company's operations. This phase is approximately 70% complete,
with substantial completion estimated by June 30, 1999.
(5) TESTING: This phase consists of testing the repair or replacement of
those Business Systems and Devices, which are essential to the Company's
business operations. The Company also intends to test the integration of
the various Business Systems and Devices within the Company's
manufacturing processes. This phase is approximately 55% complete, with
substantial completion estimated by June 30, 1999. The results of this
phase may change the estimated timing of completion of phase four.
(6) DEVELOPING CONTINGENCY PLANS: This phase consists of developing
alternative plans in the event that a business interruption occurs from a
Year 2000 issue. The Company is in the early stages of this phase. The
Company has targeted September 30, 1999 as the date for substantial
completion of its contingency plans, however, the Company believes that
this phase will be on-going through to the year 2000.
SUPPLIERS & CUSTOMERS
The Company is also gathering information from its significant suppliers
and customers concerning their Year 2000 issues as a means of assessing risks
and developing alternatives. The Company has sent out surveys to all of its
significant suppliers and customers to determine what steps, if any, those
companies are taking to remediate their respective Year 2000 issues. The Company
is, however, dependent upon its suppliers and customers with respect to the
completeness and accuracy of such responses.
As of April 30, 1999, the Company has received responses from nearly
two-thirds of its significant suppliers and one-third of its significant
customers. The responses from the Company's suppliers generally indicate that
these parties are taking actions to ensure that their ability to supply products
or services to the Company will not be impaired. To the extent that supplier
responses to Year 2000 readiness are unsatisfactory, the Company will attempt to
reduce risks of interruptions, with such options including changes in suppliers
to those who have demonstrated Year 2000 readiness, and accumulation of
inventory. The responses from the Company's customers also generally indicate
that these parties are taking actions to ensure their ability to purchase
products from the Company will not be impaired. The Company will continue to
monitor the status of all of its significant suppliers' and customers' Year 2000
readiness through to the year 2000, in order to determine whether additional or
alternative measures are necessary.
Total estimated costs to address the Company's Year 2000 issues, including
preparing the Company's Business Systems and Devices to become Year 2000
compliant, is approximately $5 million, of which approximately $1.5 million has
been incurred through March 31, 1999. The total estimated costs includes
approximately $2 million of capital expenditures to be used for the purchase of
certain capital equipment to replace equipment which is currently not Year 2000
compliant. The estimate also includes the cost of certain internal resources
fully dedicated to this project, however, the estimate does not include any
costs associated with the implementation of contingency plans, which have not
yet been developed. The Company has not used any external resources to
independently verify these cost estimates. Due to resource constraints caused by
the Year 2000 issue, the Company is deferring other information technology
projects. These deferrals, however, are not expected to have a material adverse
effect on the Company's results of operations or financial condition.
23
<PAGE>
The Company is progressing with the development of its Year 2000
contingency plans. These plans are expected to be substantially completed by
September 30, 1999. The Company is currently unable to assess the most
reasonably likely worst case scenarios. However, if necessary remediation
actions are not completed in a timely manner, or if the Company's suppliers and
customers do not successfully address their Year 2000 issues, the Company
estimates that a disruption in operations could occur. Such a disruption could
result in, for example, delays in the receipt of raw materials and distribution
of finished goods, or errors in customer orders. These consequences could have a
material impact on the operations, liquidity and financial condition of the
Company. The Company presently believes that by implementing its plans,
including modifications to existing Business Systems and Devices and conversion
to new or upgraded software and other systems, the Year 2000 issue will not pose
significant operational problems for the Company.
RECENTLY ISSUED ACCOUNTING STANDARD
In June 1998, the Financial Accounting Standards Board issued Statement No.
133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
133"). This Statement requires companies to record derivatives on the balance
sheet as assets and liabilities, measured at fair value. Gains or losses
resulting from changes in the values of those derivatives would be accounted for
depending on the use of the derivative and whether it qualifies for hedge
accounting. SFAS 133 is not expected to have a material impact on Hexcel's
consolidated financial statements. This Statement is effective for fiscal years
beginning after June 15, 1999. Hexcel will adopt this accounting standard as
required by January 1, 2000.
FORWARD-LOOKING STATEMENTS AND RISK FACTORS
Certain statements contained in "Management's Discussion and Analysis of
Financial Condition and Results of Operations," that are not of historical fact,
constitute "forward-looking statements". Such forward-looking statements
include, but are not limited to: (a) estimates of commercial aerospace
production and delivery rates, including those of Boeing and Airbus; (b)
estimates of the change in net sales in total and by market compared to pro
forma 1998 net sales; (c) expectations regarding the impact of pricing pressures
from Hexcel's customers; (d) expectations regarding the ability of Hexcel to
pass along price reductions to its suppliers; (e) expectations regarding future
sales based on current backlog; (f) expectations regarding sales growth, sales
mix, gross margins, manufacturing productivity and capital expenditures; (g)
expectations regarding Hexcel's financial condition and liquidity, as well as
future free cash flows and earnings; (h) estimated additional business
acquisition and consolidation expenses to be incurred in 1999; (i) expectations
regarding the costs and benefits of Hexcel's Lean Enterprise and business
consolidation programs, including the closure of the Company's Cleveland, GA
facility and implementation of a supply-chain management program; (j)
expectations regarding the exercise of the CS-Interglas options at their stated
price; and; (k) the impact of the Year 2000 issue, the estimated costs
associated with becoming Year 2000 compliant and the estimated target date for
substantial completion of remediation.
Such forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause actual results to be materially
different. Such factors include, but are not limited to, the following: the
integration of the Acquired Clark-Schwebel Business without disruption to
manufacturing, marketing and distribution activities; changes in general
economic and business conditions; changes in current pricing levels; changes in
political, social and economic conditions and local regulations, particularly in
Asia and Europe; foreign currency fluctuations; changes in aerospace delivery
rates;
24
<PAGE>
reductions in sales to any significant customers, particularly Boeing or
Airbus; changes in sales mix; changes in government defense procurement budgets;
changes in military aerospace programs technology; industry capacity;
competition; disruptions of established supply channels; manufacturing capacity
constraints; the availability, terms and deployment of capital; and the ability
of Hexcel to accurately estimate the cost of systems preparation and
successfully implement required actions for Year 2000 compliance. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause actual results to be materially different.
Additional information regarding these factors is contained in the Company's
Annual Report on Form 10-K for the year ended December 31, 1998.
25
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
A discussion of market risk exposures is included in Part II, Item 7A, of
Hexcel's Annual Report on Form 10-K for the fiscal year ended December 31, 1998.
There has been no material change to this information during the three months
ended March 31, 1999.
26
<PAGE>
PART II. OTHER INFORMATION
HEXCEL CORPORATION AND SUBSIDIARIES
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS:
<TABLE>
<S> <C>
1.1 Form of Employee Option Agreement (1999).
1.2 Form of Performance Accelerated Restricted Stock Unit Agreement (1999)
1.3 Form of Grant of Restricted Stock Unit Agreement (1999).
1.4 Split Dollar Agreement dated as of January 21, 1999 among Hexcel, John
J. Lee and certain Trustees.
10.5 Executive Severance Agreement between Hexcel and John J. Lee dated as
of February 3, 1999.
10.6 Form of Executive Severance Agreement between Hexcel and certain
executive officers dated as of February 3, 1999.
10.7 Form of Executive Severance Agreement between Hexcel and certain
executive officers dated as of February 3, 1999.
27. Financial Data Schedule.
</TABLE>
(b) REPORTS ON FORM 8-K:
Report dated January 5, 1999, relating to the proposed issuance of $275
million of senior subordinated notes due 2009 pursuant to Rule 144A.
Report dated January 25, 1999, relating to the Company's fourth quarter
and full-year 1998 financial results.
Report dated March 17, 1999, relating to the closure of the Company's
Cleveland, Georgia facility.
Report dated March 29, 1999, relating to the Company's first quarter
1999 outlook.
Report dated April 30, 1999, relating to the Company's pro forma and
actual business segment data and net sales to third-party customers by
product group, for each of the quarters ended March 31, June 30,
September 30 and December 31, 1998, and for the year ended December 31,
1998.
27
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized, and in the capacity indicated.
HEXCEL CORPORATION
(Registrant)
May 14, 1999 /s/ Wayne C. Pensky
- ------------------------------- -------------------------------
(Date) Wayne C. Pensky,
Vice President; Corporate Controller;
and Chief Accounting Officer
28
<PAGE>
Exhibit 10.1
1999 EMPLOYEE OPTION AGREEMENT
EMPLOYEE OPTION AGREEMENT, dated as of the Grant Date, by and between the
Optionee and Hexcel Corporation (the "Corporation").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Corporation has adopted the Hexcel Corporation Incentive Stock Plan
(the "Plan"); and
WHEREAS, the Executive Compensation Committee (the "Committee") of the Board of
Directors of the Corporation (the "Board") has determined that it is desirable
and in the best interest of the Corporation to grant to the Optionee a stock
option as an incentive for the Optionee to advance the interests of the
Corporation;
NOW, THEREFORE, the parties agree as follows:
1. NOTICE OF GRANT; INCORPORATION OF PLAN. A Notice of Grant is attached
hereto as Annex A and incorporated by reference herein. Unless otherwise
provided herein, capitalized terms used herein and set forth in such Notice of
Grant shall have the meanings ascribed to them in the Notice of Grant and
capitalized terms used herein and set forth in the Plan shall have the meanings
ascribed to them in the Plan. The Plan is incorporated by reference and made a
part of this Employee Option Agreement, and this Employee Option Agreement shall
be subject to the terms of the Plan, as the Plan may be amended from time to
time, provided that any such amendment of the Plan must be made in accordance
with Section X of the Plan. The Option granted herein constitutes an Award
within the meaning of the Plan.
2. GRANT OF OPTION. Pursuant to the Plan and subject to the terms and
conditions set forth herein and therein, the Corporation hereby grants to the
Optionee the right and option (the "Option") to purchase all or any part of the
Option Shares of the Corporation's common stock, $.01 par value per share (the
"Common Stock"), which Option is not intended to qualify as an incentive stock
option, as defined in Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code").
3. PURCHASE PRICE. The purchase price per share of the Option Shares shall be
the Purchase Price.
4. TERM OF OPTION.
(a) EXPIRATION DATE; TERM. Subject to Section 4(c) below, the Option
shall expire on, and shall no longer be exercisable following, the tenth
anniversary of the Grant Date.
<PAGE>
The ten-year period from the Grant Date to its tenth anniversary shall
constitute the "Term" of the Option.
(b) VESTING PERIOD; EXERCISABILITY. Subject to Section 4(c) below, the
Option shall vest and become exercisable at the rate of 33-1/3% of the
Option Shares on each of the first three anniversaries of the Grant Date.
(c) TERMINATION OF EMPLOYMENT; CHANGE IN CONTROL.
(i) For purposes of the grant hereunder, any transfer of employment by the
Optionee among the Corporation and the Subsidiaries shall not be considered
a termination of employment. If the Optionee's employment with the
Corporation is terminated for Cause (as defined in the last Section
hereof), the Option, whether or not then vested, shall be automatically
terminated as of the date of such termination of employment. If the
Optionee's employment with the Corporation shall terminate other than by
reason of Retirement (as defined in the last Section hereof), Disability
(as defined in the last Section hereof), death or Cause, the Option (to the
extent then vested) may be exercised at any time within ninety (90) days
after such termination (but not beyond the Term of the Option). The
Option, to the extent not then vested, shall immediately expire upon such
termination.
If the Optionee dies or becomes Disabled (A) while employed by the
Corporation or (B) within 90 days after the termination of his or her
employment other than for Cause or Retirement, the Option (to the extent
then vested) may be exercised at any time within one year after the
Optionee's death or Disability (but not beyond the Term of the Option).
The Option, to the extent not then vested, shall immediately expire upon
such death or disability.
If the Optionee's employment terminates by reason of Retirement, the Option
shall (A) become fully and immediately vested and exercisable and (B)
remain exercisable for three years from the date of such Retirement (but
not beyond the Term of the Option).
(ii) In the event of a Change in Control (as defined in the last Section
hereof), the Option shall immediately become fully vested and exercisable
and the post-termination periods of exercisability set forth in Section
4(i) hereof shall apply, except that the post-termination period of
exercisability shall be extended and the Option shall remain exercisable
for a period of three years from the date of such termination of
employment, if, within two years after a Change in Control, (A) the
Optionee's employment is terminated by the Company other than by reason of
Retirement, Cause, Disability or death or (B) the Optionee terminates the
Optionee's employment for Good Reason (as defined in the last Section
hereof).
-2-
<PAGE>
5. ADJUSTMENT UPON CHANGES IN CAPITALIZATION.
(a) The aggregate number of Option Shares and the Purchase Price shall be
appropriately adjusted by the Committee for any increase or decrease in the
number of issued shares of Common Stock resulting from a subdivision or
consolidation of shares or other capital adjustment, or the payment of a
stock dividend or other increase or decrease in such shares, effected
without receipt of consideration by the Corporation, or other change in
corporate or capital structure. The Committee shall also make the
foregoing changes and any other changes, including changes in the classes
of securities available, to the extent reasonably necessary or desirable to
preserve the intended benefits under this Employee Option Agreement in the
event of any other reorganization, recapitalization, merger, consolidation,
spin-off, extraordinary dividend or other distribution or similar
transaction involving the Corporation.
(b) Any adjustment under this Section 5 in the number of Option Shares and
the Purchase Price shall apply to only the unexercised portion of the
Option. If fractions of a share would result from any such adjustment, the
adjustment shall be rounded down to the nearest whole number of shares.
6. METHOD OF EXERCISING OPTION AND WITHHOLDING.
(a) The Option shall be exercised by the delivery by the Optionee to the
Corporation at its principal office (or at such other address as may be
established by the Committee) of written notice of the number of Option
Shares with respect to which the Option is exercised, accompanied by
payment in full of the aggregate Purchase Price for such Option Shares.
Payment for such Option Shares shall be made (i) in U.S. dollars by
personal check, bank draft or money order payable to the order of the
Corporation, or by money transfers or direct account debits to an account
designated by the Corporation; (ii) through the delivery of shares of
Common Stock with a Fair Market Value equal to the total payment due from
the Optionee; (iii) pursuant to a "cashless exercise" program if such a
program is established by the Corporation; or (iv) by any combination of
the methods described in (i) through (iii) above.
(b) The Corporation's obligation to deliver shares of Common Stock upon
the exercise of the Option shall be subject to the payment by the Optionee
of applicable federal, state and local withholding tax, if any. The
Corporation shall, to the extent permitted by law, have the right to deduct
from any payment of any kind otherwise due to the Optionee any federal,
state or local taxes required to be withheld with respect to such payment.
7. TRANSFER. Except as provided in this Section 7, the Option is not
transferable otherwise than by will or the laws of descent and distribution, and
the Option may be exercised during the Optionee's lifetime only by the Optionee.
Any attempt to transfer
3
<PAGE>
the Option in contravention of this Section 7 is void AB INITIO. The Option
shall not be subject to execution, attachment or other process.
Notwithstanding the foregoing, the Optionee shall be permitted to transfer
the Option to members of his or her immediate family (I.E., children,
grandchildren or spouse), trusts for the benefit of such family members, and
partnerships whose only partners are such family members; provided, however,
that no consideration can be paid for the transfer of the Option and the
transferee of the Option shall be subject to all conditions applicable to the
Option prior to its transfer.
8. NO RIGHTS IN OPTION SHARES. The Optionee shall have none of the rights of
a stockholder with respect to the Option Shares unless and until shares of
Common Stock are issued upon exercise of the Option.
9. NO RIGHT TO EMPLOYMENT. Nothing contained herein shall be deemed to confer
upon the Optionee any right to remain as an employee of the Corporation.
10. GOVERNING LAW/JURISDICTION. This Employee Option Agreement shall be
governed by and construed in accordance with the laws of the State of Delaware
without reference to principles of conflict of laws.
11. RESOLUTION OF DISPUTES. Any disputes arising under or in connection with
this Employee Option Agreement shall be resolved by binding arbitration before a
single arbitrator, to be held in New York in accordance with the commercial
rules and procedures of the American Arbitration Association. Judgment upon the
award rendered by the arbitrator shall be final and subject to appeal only to
the extent permitted by law. Each party shall bear such party's own expenses
incurred in connection with any arbitration; PROVIDED, HOWEVER, that the cost of
the arbitration, including without limitation, reasonable attorneys' fees of the
Optionee, shall be borne by the Corporation in the event the Optionee is the
prevailing party in the arbitration. Anything to the contrary notwithstanding,
each party hereto has the right to proceed with a court action for injunctive
relief or relief from violations of law not within the jurisdiction of an
arbitrator.
12. NOTICES. Any notice required or permitted under this Employee Option
Agreement shall be deemed given when delivered personally, or when deposited in
a United States Post Office, postage prepaid, addressed, as appropriate, to the
Optionee at the last address specified in Optionee's employment records, or such
other address as the Optionee may designate in writing to the Corporation, or to
the Corporation, Attention: Corporate Secretary, or such other address as the
Corporation may designate in writing to the Optionee.
13. FAILURE TO ENFORCE NOT A WAIVER. The failure of either party hereto to
enforce at any time any provision of this Employee Option Agreement shall in no
way be construed to be a waiver of such provision or of any other provision
hereof.
4
<PAGE>
14. COUNTERPARTS. This Employee Option Agreement may be executed in two or
more counterparts, each of which shall be an original but all of which together
shall represent one and the same agreement.
15. MISCELLANEOUS. This Employee Option Agreement cannot be changed or
terminated orally. This Employee Option Agreement and the Plan contain the
entire agreement between the parties relating to the subject matter hereof. The
section headings herein are intended for reference only and shall not affect the
interpretation hereof.
16. DEFINITIONS. For purposes of this Employee Option Agreement:
(I) the term "Beneficial Owner" (and variants thereof) shall have the
meaning given in Rule 13d-3 promulgated under the Exchange Act;
(II) the term "Cause" shall mean (A) the willful and continued failure by
the Optionee to substantially perform the Optionee's duties with the
Corporation (other than any such failure resulting from the Optionee's
incapacity due to physical or mental illness) after a written demand for
substantial performance is delivered to the Optionee by the Corporation,
which demand specifically identifies the manner in which the Corporation
believes that the Optionee has not substantially performed the Optionee's
duties, or (B) the willful engaging by the Optionee in conduct which is
demonstrably and materially injurious to the Corporation or its
subsidiaries, monetarily or otherwise. For purposes of clauses (A) and (B)
of this definition, no act, or failure to act, on the Optionee's part shall
be deemed "willful" unless done, or omitted to be done, by the Optionee not
in good faith and without the reasonable belief that the Optionee's act, or
failure to act, was in the best interest of the Corporation;
(III) the term "Change in Control" shall mean any of the following events:
(1)(a) any Person (as defined in this Section) is or becomes the
Beneficial Owner of 20% or more of either (i) the then outstanding
Common Stock of the Corporation (the "Outstanding Common Stock") or
(ii) the combined voting power of the then outstanding securities
entitled to vote generally in the election of directors of the
Corporation (the "Total Voting Power"); excluding, however, the
following: (A) any acquisition by the Corporation or any of its
affiliates or (B) any acquisition by any employee benefit plan (or
related trust) sponsored or maintained by the Corporation or any of
its affiliates and (b) Ciba (as defined in this Section) beneficially
owns, in the aggregate, a lesser percentage of the Total Voting Power
than such Person beneficially owns; or
(2) a change in the composition of the Board such that the
individuals who, as of the effective date of this Employee Option
Agree-
5
<PAGE>
ment, constitute the Board (such individuals shall be hereinafter
referred to as the "Incumbent Directors") cease for any reason to
constitute at least a majority of the Board; PROVIDED, HOWEVER, for
purposes of this definition, that any individual who becomes a
director subsequent to such effective date, whose election, or
nomination for election by the Corporation's stockholders, was made or
approved pursuant to the Governance Agreement (as defined in this
Section) or by a vote of at least a majority of the Incumbent
Directors (or directors whose election or nomination for election was
previously so approved) shall be considered a member of the Incumbent
Board; but, PROVIDED, FURTHER, that any such individual whose initial
assumption of office occurs as a result of either an actual or
threatened election contest (as such terms are used in Rule 14a-11 of
Regulation 14A promulgated under the Exchange Act) or other actual or
threatened solicitation of proxies or consents by or on behalf of a
person or legal entity other than the Board shall not be considered a
member of the Incumbent Board; or
(3) the approval by the stockholders of the Corporation of a
reorganization, merger or consolidation or sale or other disposition
of all or substantially all of the assets of the Corporation
("Corporate Transaction"); excluding, however, such a Corporate
Transaction (a) pursuant to which all or substantially all of the
individuals and entities who are the beneficial owners, respectively,
of the Outstanding Common Stock and Total Voting Power immediately
prior to such Corporate Transaction will beneficially own, directly or
indirectly, more than 50%, respectively, of the outstanding common
stock and the combined voting power of the then outstanding securities
entitled to vote generally in the election of directors of the company
resulting from such Corporate Transaction (including, without
limitation, a corporation which as a result of such transaction owns
the Corporation or all or substantially all of the Corporation's
assets either directly or through one or more subsidiaries) in
substantially the same proportions as their ownership immediately
prior to such Corporate Transaction of the Outstanding Common Stock
and Total Voting Power, as the case may be, or (b) after which no
Person beneficially owns a greater percentage of the combined voting
power of the then outstanding securities entitled to vote generally in
the election of directors of such corporation than does Ciba; or
(4) Ciba shall become the Beneficial Owner of more than 57.5% of
the Total Voting Power; or
(5) the approval by the stockholders of the Corporation of a
complete liquidation or dissolution of the Corporation;
6
<PAGE>
(IV) the term "Ciba" shall mean Ciba Specialty Chemicals Holding Inc., a
Swiss corporation, together with its affiliates holding Corporation voting
securities pursuant to Section 4.01(b) of the Governance Agreement;
(V) the term "Disability (or becoming Disabled)" shall mean that, as a
result of the Optionee's incapacity due to physical or mental illness or
injury, he or she shall not have performed all or substantially all of his
or her usual duties as an employee of the Corporation for a period of more
than one-hundred-fifty (150) days in any period of one-hundred-eighty (180)
consecutive days;
(VI) the term "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended from time to time;
(VII) the term "Good Reason" for termination by the Optionee of the
Optionee's employment shall mean the occurrence (without the Optionee's
express written consent) of any one of the following acts by the
Corporation, or failures by the Corporation to act, unless, in the case of
any act or failure to act described in paragraphs (1), (5) or (6) below,
such act or failure to act is corrected prior to the date of termination of
the Optionee's employment:
(1) a significant adverse alteration in the nature or
status of the Optionee's responsibilities, position or authority from
those in effect immediately prior to the Change in Control;
(2) a reduction by the Corporation in the Optionee's annual
base salary as in effect on the date hereof or as the same may be
increased from time to time;
(3) the relocation of the Optionee's principal place of
employment to a location more than fifty (50) miles from the
Optionee's principal place of employment immediately prior to the
Change in Control or the Corporation's requiring the Optionee to work
anywhere other than at such principal place of employment (or
permitted relocation thereof) except for required travel on the
Corporation's business to an extent substantially consistent with the
Optionee's present business travel obligations;
(4) the failure by the Corporation to pay to the Optionee
any portion of the Optionee's current compensation, or to pay to the
Optionee any portion of an installment of deferred compensation under
any deferred compensation program of the Corporation, within seven (7)
days of the date such compensation is due;
(5) the failure by the Corporation to continue in effect
any compensation plan in which the Optionee participates immediately
7
<PAGE>
prior to the Change in Control which is material to the Optionee's
total compensation, or any substitute plans adopted prior to the
Change in Control, unless an equitable arrangement (embodied in an
ongoing substitute or alternative plan) has been made with respect to
such plan, or the failure by the Corporation to continue the
Optionee's participation therein (or in such substitute or alternative
plan) on a basis not materially less favorable, both in terms of the
amount or timing of payment of benefits provided and the level of the
Optionee's participation relative to other participants, as existed
immediately prior to the Change in Control; or
(6) the failure by the Corporation to continue to provide
the Optionee with benefits substantially similar to those enjoyed by
the Optionee under any of the Corporation's pension, savings, life
insurance, medical, health and accident, or disability plans in which
the Optionee was participating immediately prior to the Change in
Control (except for across-the-board changes similarly affecting all
senior executives of the Corporation and all senior executives of any
Person in control of the Corporation), the taking of any other action
by the Corporation which would directly or indirectly materially
reduce any of such benefits or deprive the Optionee of any material
fringe benefit enjoyed by the Optionee at the time of the Change in
Control, or the failure by the Corporation to provide the Optionee
with the number of paid vacation days to which the Optionee is
entitled on the basis of years of service with the Corporation in
accordance with the Corporation's normal vacation policy in effect at
the time of the Change in Control.
The Optionee's right to terminate the Optionee's employment for Good Reason
shall not be affected by the Optionee's incapacity due to physical or
mental illness. The Optionee's continued employment shall not constitute
consent to, or a waiver of rights with respect to, any act or failure to
act constituting Good Reason hereunder.
For purposes of any determination regarding the existence of Good Reason,
any claim by the Optionee that Good Reason exists shall be presumed to be
correct unless the Corporation establishes to the Board by clear and
convincing evidence that Good Reason does not exist;
(VIII) the term "Governance Agreement" shall have the meaning given in the
Strategic Alliance Agreement (as defined in this Section);
(IX) the term "Person" shall have the meaning given in Section 3(a)(9) of
the Exchange Act, as modified and used in Sections 13(d) and 14(d) of the
Exchange Act, but excluding Ciba for so long as Ciba is subject to the
restrictions imposed by the Governance Agreement;
8
<PAGE>
(X) the term "Retirement" shall mean termination of the Optionee's
employment, other than by reason of death or Cause, either (A) at or after
age 65 or (B) at or after age 55 after five (5) years of employment by the
Corporation (or a Subsidiary thereof); and
(XI) the term "Strategic Alliance Agreement" shall mean the Strategic
Alliance Agreement among the Corporation, Ciba-Geigy Limited and Ciba-Geigy
Corporation, dated as of September 29, 1995, as amended, and any of their
respective permitted successors or assigns thereunder.
9
<PAGE>
ANNEX A
NOTICE OF GRANT
EMPLOYEE STOCK OPTION
HEXCEL CORPORATION INCENTIVE STOCK PLAN
The following employee of Hexcel Corporation, a Delaware corporation
("Hexcel") or a Subsidiary, has been granted an option to purchase shares of the
Common Stock of Hexcel, $.01 par value, in accordance with the terms of this
Notice of Grant and the Employee Option Agreement to which this Notice of Grant
is attached.
The following is a summary of the principal terms of the option which has
been granted. The terms below shall have the meanings ascribed to them below
when used in the Employee Option Agreement.
<TABLE>
<S> <C>
- ------------------------------------------------------------------------------
Optionee
- ------------------------------------------------------------------------------
Address of Optionee
- ------------------------------------------------------------------------------
Employee Number
- ------------------------------------------------------------------------------
Employee ID Number
- ------------------------------------------------------------------------------
Foreign Sub Plan, if applicable
- ------------------------------------------------------------------------------
Grant Date
- ------------------------------------------------------------------------------
Purchase Price
- ------------------------------------------------------------------------------
Aggregate Number of Shares
Granted (the "Option Shares")
- ------------------------------------------------------------------------------
</TABLE>
IN WITNESS WHEREOF, the parties hereby agree to the terms of this Notice of
Grant and the Employee Option Agreement to which this Notice of Grant is
attached and execute this Notice of Grant and Employee Option Agreement as of
the Grant Date.
__________________________ HEXCEL CORPORATION
Optionee
By:_________________________
Name:_______________________
Title:________________________
<PAGE>
Exhibit 10.2
1999 PERFORMANCE ACCELERATED
RESTRICTED STOCK UNIT AGREEMENT
(February 3, 1999 Grant)
This Performance Accelerated Restricted Stock Unit Agreement (the
"Agreement"), is entered into as of the Grant Date, by and between Hexcel
Corporation, a Delaware corporation (the "Company"), and the Grantee.
Pursuant to the Hexcel Corporation Incentive Stock Plan (the "Plan"),
the Executive Compensation Committee (the "Committee") of the Board of Directors
of the Company (the "Board") has determined that the Grantee shall be granted
Performance Accelerated Restricted Stock Units ("PARS") upon the terms and
subject to the conditions hereinafter contained. Capitalized terms used but not
defined herein shall have the meanings assigned to them in the Plan.
1. NOTICE OF GRANT; INCORPORATION OF PLAN. A Notice of Grant is
attached hereto as Annex A and incorporated by reference herein. Unless
otherwise provided herein, capitalized terms used in this Agreement and set
forth in the Notice of Grant shall have the meanings ascribed to them in the
Notice of Grant and capitalized terms used in this Agreement and set forth in
the Plan shall have the meanings ascribed to them in the Plan. The Plan is
incorporated by reference and made a part of this Agreement, and this Agreement
shall be subject to the terms of the Plan, as the Plan may be amended from time
to time, provided that any such amendment of the Plan must be made in accordance
with Section X of the Plan. The PARS granted herein constitute an Award within
the meaning of the Plan.
2. TERMS OF RESTRICTED STOCK. The grant of PARS provided in
Section 1 hereof shall be subject to the following terms, conditions and
restrictions:
(a) The Grantee shall not possess any incidents of ownership
(including, without limitation, dividend and voting rights) in shares of Common
Stock in respect of the PARS until such PARS have vested and been distributed to
the Grantee in the form of shares of Common Stock.
(b) Except as provided in this Section 2 (b), the PARS and any
interest therein may not be sold, assigned, transferred, pledged, hypothecated
or otherwise disposed of, except by will or the laws of descent and
distribution, prior to the distribution of the Common Stock in respect of such
PARS and subject to the conditions set forth in the Plan and this Agreement. Any
attempt to transfer PARS in contravention of this Section is void AB INITIO.
PARS shall not be subject to execution, attachment or other process.
Notwithstanding the foregoing, the Grantee shall be permitted to transfer PARS
to members of his or her immediate family (i.e., children, grandchildren or
spouse), trusts for the benefit of such family members, and partnerships whose
only partners are such family members; provided, however, that no consideration
can be paid for the transfer of the PARS and the transferee of the PARS shall be
subject to all conditions applicable to the PARS (including all of the terms and
conditions of this Agreement) prior to transfer.
-1-
<PAGE>
3. VESTING AND CONVERSION OF PARS. The PARS shall vest on (a)
January 1, 2006, or (b) on an earlier date or dates to the extent certain pre-
determined performance criteria (the "PARS Goals") are achieved. The PARS Goals
shall be as follows: if Company's income before income taxes (excluding business
acquisition and consolidation expenses) ("EBT"), determined by reference to the
Company's audited financial statements, equal or exceed $66.4 million for any
fiscal year of the Company, 33-1/3% (or, if applicable, an additional 33-1/3%)
of the total number of PARS shall become vested; if EBT for any fiscal year of
the Company equal or exceed $75 million, 66-2/3% (or, if applicable, up to an
additional 66-2/3%) of the total number of PARS shall become vested; and if EBT
for any fiscal year of the Company equal or exceed $80 million, 100% of the
total number of PARS shall become vested; provided, however, that no more than
100% of the total number of PARS may become vested. Upon the later to occur of
(i) January 1, 2002 or (ii) the vesting of a certain number of PARS, such vested
PARS shall be converted into an equivalent number of shares of Common Stock that
will be immediately distributed to the Grantee; provided, however, that, to the
extent that (and only to the extent that) the Company would be precluded from
deducting the associated compensation expense because of Section 162(m) of the
Internal Revenue Code of 1986, as amended (the "Code"), such PARS shall be
converted and distributed to the Grantee on the first business day of the first
year (or years, if the first deferred distribution shall not include all of such
PARS) in which the Company will not be so precluded; and provided further, that
no PARS shall be converted and distributed to the Grantee unless the Grantee is
an employee of the Company (or a Subsidiary) on December 31, 2001. On each
dividend payment date with respect to the Common Stock subsequent to any PARS
becoming fully vested but not yet converted and distributed by virtue of the
immediately preceding proviso, the Company shall credit the Grantee with an
additional number of fully vested whole and partial PARS (assuming each such
PARS unit was a share of Common Stock) equal in value to the amount of dividends
which the Grantee would have received on such dividend payment date if all such
vested PARS (including PARS previously credited to the Grantee pursuant to this
section) which had not yet been converted into shares had been so converted
prior to the record date of such dividend. Such dividends will be credited as
vested PARS as of the payment date of such dividends and such vested PARS shall
thereafter be treated in the same manner as other PARS under this Agreement (the
foregoing method of dividend crediting being referred to herein as being
credited with the "Dividend Equivalent").
Upon the distribution of the shares of Common Stock in respect of
the PARS, the Company shall issue to the Grantee or the Grantee's personal
representative a stock certificate representing such shares of Common Stock,
free of any restrictions.
4. TERMINATION OF EMPLOYMENT; CHANGE OF CONTROL.
(a) For purposes of the grant hereunder, any transfer of
employment by the Grantee among the Company and its Subsidiaries shall not be
considered a termination of employment. Notwithstanding any other provision
contained herein or in the Plan, (i) if the Grantee dies or terminates
employment due to Disability (as defined in the last Section hereof), all PARS
shall vest, be converted into shares of Common Stock and be immediately
distributed to the Grantee, (ii) if the Grantee's employment with the Company is
involuntarily terminated other than for Cause (as defined in the last Section
hereof), all PARS shall vest, be converted into shares of Common Stock and be
immediately distributed to the Grantee, (iii) if the Grantee voluntarily
terminates employment with the Company, all vested PARS
-2-
<PAGE>
shall be converted into shares of Common Stock and be immediately distributed
to the Grantee, provided that the Grantee is an employee of the Company (or a
Subsidiary) on December 31, 2001, and (iv) if the Grantee's employment with
the Company terminates due to the Grantee's Retirement (as defined in the
last Section hereof), all PARS shall vest, be converted in shares of Common
Stock and be immediately distributed to the Grantee; provided, however,
that in each case an appropriate number of such PARS shall not be
converted and distributed to the Grantee until the first business day of the
first year in which the Company is not precluded from deducting the
associated compensation expense under Section 162(m) of the Code, but only to
the extent such number of PARS would not be deductible until such time;
further, provided, that the Grantee shall, if applicable, be credited with
the Dividend Equivalent with respect to such PARS.
If the Grantee's employment with the Company is involuntarily
terminated for Cause or the Grantee voluntarily terminates his employment with
the Company, the Grantee shall forfeit all PARS which have not yet become
vested as of the date of termination of employment.
(b) In the event of a Change in Control (as defined in the last
Section hereof), all PARS shall vest, be converted into shares of Common Stock
and be immediately distributed to the Grantee.
5. EQUITABLE ADJUSTMENT.
The aggregate number of shares of Common Stock subject to the
PARS shall be proportionately adjusted for any increase or decrease in the
number of issued shares of Common Stock resulting from a subdivision or
consolidation of shares or other capital adjustment, or the payment of a stock
dividend or other increase or decrease in such shares, effected without the
receipt of consideration by the Company, or other change in corporate or capital
structure. The Committee shall also make the foregoing changes and any other
changes, including changes in the classes of securities available, to the extent
reasonably necessary or desirable to preserve the intended benefits under this
Agreement in the event of any other reorganization, recapitalization, merger,
consolidation, spin-off, extraordinary dividend or other distribution or similar
transaction involving the Company.
6. TAXES. The Grantee shall pay to the Company promptly upon
request any taxes the Company reasonably determines it is required to withhold
under applicable tax laws with respect to the PARS. Such payment shall be made
as provided in Section IX(f) of the Plan.
7. NO GUARANTEE OF EMPLOYMENT. Nothing set forth herein or in
the Plan shall confer upon the Grantee any right of continued employment for any
period by the Company, or shall interfere in any way with the right of the
Company to terminate such employment.
8. NOTICES. Any notice required or permitted under this
Agreement shall be deemed given when delivered personally, or when deposited in
a United States Post Office, postage prepaid, addressed, as appropriate, to the
Grantee at the last address specified in Grantee's employment records, or such
other address as the Grantee may designate in
-3-
<PAGE>
writing to the Company, or to the Company, Attention: Corporate Secretary,
or such other address as the Company may designate in writing to the Grantee.
9. FAILURE TO ENFORCE NOT A WAIVER. The failure of either party
hereto to enforce at any time any provision of this Agreement shall in no way be
construed to be a waiver of such provision or of any other provision hereof.
10. GOVERNING LAW. This Agreement shall be governed by and
construed according to the laws of the State of Delaware, without regard to the
conflicts of laws provisions thereof.
11. INCORPORATION OF PLAN. The Plan is hereby incorporated by
reference and made a part of this Agreement, and this Agreement shall be
subject to the terms of the Plan, as the Plan may be amended from time to time,
provided that any such amendment of the Plan must be made in accordance with
Section X of the Plan. The PARS granted herein constitute Awards within the
meaning of the Plan.
12. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be an original but all of which together shall
represent one and the same agreement.
13. MISCELLANEOUS. This Agreement cannot be changed or terminated
orally. This Agreement and the Plan contain the entire agreement between the
parties relating to the subject matter hereof. The section headings herein are
intended for reference only and shall not affect the interpretation hereof.
14. DEFINITIONS. For purposes of this Agreement:
(I) the term "Beneficial Owner" (and variants thereof) shall have the
meaning given in Rule 13d-3 promulgated under the Exchange Act;
(II) the term "Cause" shall mean (A) the willful and continued failure by
the Grantee to substantially perform the Grantee's duties with the Company
(other than any such failure resulting from the Grantee's incapacity due to
physical or mental illness) after a written demand for substantial
performance is delivered to the Grantee by the Company, which demand
specifically identifies the manner in which the Company believes that the
Grantee has not substantially performed the Grantee's duties, or (B) the
willful engaging by the Grantee in conduct which is demonstrably and
materially injurious to the Company or its subsidiaries, monetarily or
otherwise. For purposes of clauses (A) and (B) of this definition, no act,
or failure to act, on the Grantee's part shall be deemed "willful" unless
done, or omitted to be done, by the Grantee not in good faith and without
the reasonable belief that the Grantee's act, or failure to act, was in the
best interest of the Company;
(III) the term "Change in Control" shall mean any of the following events:
(A)(i) any Person (as defined in this Section), is or
becomes the Beneficial Owner of 20% or more of either (x) the then
outstanding Common Stock of the Company (the "Outstanding Common
Stock") or (y) the combined
-4-
<PAGE>
voting power of the then outstanding securities entitled to vote
generally in the election of directors of the Company (the "Total
Voting Power"); excluding, however, the following: (1) any
acquisition by the Company or any of its affiliates or (2) any
acquisition by any employee benefit plan (or related trust)
sponsored or maintained by the Company or any of its affiliates
and (ii) Ciba (as defined in this Section) beneficially owns, in
the aggregate, a lesser percentage of the Total Voting Power than
such Person beneficially owns; or
(B) a change in the composition of the Board such that the
individuals who, as of the effective date of this Agreement,
constitute the Board (such individuals shall be hereinafter referred
to as the "Incumbent Directors") cease for any reason to constitute
at least a majority of the Board; provided, however, for purposes of
this definition, that any individual who becomes a director
subsequent to such effective date, whose election, or nomination
for election by the Company's stockholders, was made or approved
pursuant to the Governance Agreement (as defined in this Section) or
by a vote of at least a majority of the Incumbent Directors (or
directors whose election or nomination for election was previously
so approved) shall be considered a member of the Incumbent Board;
but, provided, further, that any such individual whose initial
assumption of office occurs as a result of either an actual or
threatened election contest (as such terms are used in Rule 14a-11
of Regulation 14A promulgated under the Exchange Act) or other
actual or threatened solicitation of proxies or consents by or on
behalf of a person or legal entity other than the Board shall not be
considered a member of the Incumbent Board; or
(C) the approval by the stockholders of the Company of a
reorganization, merger or consolidation or sale or other disposition
of all or substantially all of the assets of the Company ("Corporate
Transaction"); excluding, however, such a Corporate Transaction (i)
pursuant to which all or substantially all of the individuals and
entities who are the beneficial owners, respectively, of the
Outstanding Common Stock and Total Voting Power immediately prior to
such Corporate Transaction will beneficially own, directly or
indirectly, more than 50%, respectively, of the outstanding common
stock and the combined voting power of the then outstanding
securities entitled to vote generally in the election of directors
of the company resulting from such Corporate Transaction (including,
without limitation, a corporation which as a result of such
transaction owns the Company or all or substantially all of the
Company's assets either directly or through one or more
subsidiaries) in substantially the same proportions as their
ownership immediately prior to such Corporate Transaction of the
Outstanding Common Stock and Total Voting Power, as the case may be,
or (ii) after which no Person beneficially owns a greater percentage
of the combined voting power of the then outstanding securities
entitled to vote generally in the election of directors of such
corporation than does Ciba; or
(D) Ciba shall become the Beneficial Owner of more than
57.5% of the Total Voting Power; or
(E) the approval by the stockholders of the Company of a
complete
-5-
<PAGE>
liquidation or dissolution of the Company.
-6-
<PAGE>
(IV) the term "Ciba" shall mean Ciba Specialty Chemicals Holding Inc., a
Swiss corporation, together with its affiliates holding Company voting
securities pursuant to Section 4.01(b) of the Governance Agreement;
(V) the term "Disability" shall mean that, as a result of the Grantee's
incapacity due to physical or mental illness or injury, the Grantee shall
not have performed all or substantially all of the Grantee's usual duties as
an employee of the Company for a period of more than one-hundred-fifty (150)
days in any period of one-hundred-eighty (180) consecutive days;
(VI) the term "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended;
(VII) the term "Governance Agreement" shall have the meaning given in the
Strategic Alliance Agreement (as defined in this Section);
(VIII) the term "Person" shall have the meaning given in Section 3(a)(9) of
the Exchange Act, as modified and used in Sections 13(d) and 14(d) of the
Exchange Act, but excluding Ciba for so long as Ciba is subject to the
restrictions imposed by the Governance Agreement;
(IX) the term "Retirement" shall mean termination of the Grantee's
employment, other than by reason of death or Cause, either (A) at or after
age 65 or (B) at or after age 55 after five (5) years of employment by the
Company (or a Subsidiary thereof); and
(X) the term "Strategic Alliance Agreement" shall mean the Strategic
Alliance Agreement among the Company, Ciba-Geigy Limited and Ciba-Geigy
Corporation, dated as of September 29, 1995, as amended, and any of their
respective permitted successors or assigns thereunder.
-7-
<PAGE>
ANNEX A
NOTICE OF GRANT
PERFORMANCE ACCELERATED RESTRICTED STOCK UNITS
HEXCEL CORPORATION INCENTIVE STOCK PLAN
The following employee of Hexcel Corporation, a Delaware corporation
("Hexcel") or a Subsidiary, has been granted performance accelerated restricted
stock units in accordance with the terms of this Notice of Grant and the
Agreement to which this Notice of Grant is attached.
The terms below shall have the meanings ascribed to them below when used in
the Agreement.
<TABLE>
<S> <C>
- ------------------------------------------------------------------------------
Grantee
- ------------------------------------------------------------------------------
Address of Grantee
- ------------------------------------------------------------------------------
Employee Number
- ------------------------------------------------------------------------------
Employee ID Number
- ------------------------------------------------------------------------------
Foreign Sub Plan, if applicable
- ------------------------------------------------------------------------------
Grant Date February 3, 1999
- ------------------------------------------------------------------------------
Aggregate Number of PARS
Granted
- ------------------------------------------------------------------------------
</TABLE>
IN WITNESS WHEREOF, the parties hereby agree to the terms of this Notice of
Grant and the Agreement to which this Notice of Grant is attached and execute
this Notice of Grant and the Agreement as of the Grant Date.
__________________________ HEXCEL CORPORATION
Grantee
By:_________________________
Name:_______________________
Title:________________________
-8-
<PAGE>
Exhibit 10.3
GRANT OF RESTRICTED STOCK UNITS UNDER THE
HEXCEL CORPORATION MANAGEMENT STOCK PURCHASE PLAN
Grant Date: February 3, 1999
1. GRANT SUBJECT TO PLAN. This Grant (defined below) is made and accepted
pursuant to the terms and provisions of the Hexcel Corporation Management Stock
Purchase Plan (the "Plan") and expressly incorporates herein all of the terms
and provisions of the Plan. Notwithstanding anything in this Grant to the
contrary, in the event that any inconsistency arises between any term or
provision of the Plan and any term or provision of this Grant, then the
applicable term or provision of the Plan shall control. By acknowledging
acceptance of this Grant the Grantee (defined below) also acknowledges receipt
of a copy of the Plan at the time the Grantee made the election referred to in
paragraph 2 below. All capitalized terms used herein and not otherwise defined
herein have the meaning ascribed thereto in the Plan.
2. GRANT. Pursuant to Plan, and in accordance with the election made by the
Grantee, Hexcel Corporation (the "Company"), which term shall include its
successors as provided in the Plan, in lieu of making a cash payment to the
Grantee in respect of ___% of the Grantee's Annual Bonus for the 1998 fiscal
year, hereby grants to ______________ (the "Grantee"), and Grantee hereby
purchases from the Company, ______ Restricted Stock Units (the "Restricted Stock
Units") under the Plan, subject to the terms and conditions set forth herein and
in the Plan (together, the "Grant").
The Purchase Price for each Restricted Stock Unit is $7.35, which represents 80%
of the Fair Market Value of such unit as of the Grant Date.
3. NORMAL VESTING; NORMAL END OF RESTRICTED PERIOD. Subject to Paragraph 4
of this Grant, one-third (1/3) of the Restricted Stock Units shall vest on each
of the first three anniversaries of the Grant Date and the Restricted Period
shall end on the third anniversary of the Grant Date.
4. ACCELERATION OF VESTING AND END OF RESTRICTED PERIOD. The Restricted
Stock Units shall immediately become completely vested and the Restricted Period
shall end upon the first to occur of (a) a Change of Control,
<PAGE>
(b) the involuntary termination of Grantee's employment without Cause, or
(c) the termination of Grantee's employment by reason of Retirement or the
Grantee's death or Disability.
5. PAYMENT AT END OF RESTRICTED PERIOD. Upon termination of the Restricted
Period with respect to the Restricted Stock Units, the Company will pay to the
Grantee or the Grantee's estate (in the event of Grantee's death) a number of
shares of unrestricted Stock equal to the number of Restricted Stock Units.
6. TERMINATION DURING RESTRICTED PERIOD.
(a) VESTED RESTRICTED STOCK UNITS. If Grantee's employment is
terminated during the Restricted Period for any reason, Grantee or
Grantee's estate (in the event of Grantee's death) will receive a number
of shares of unrestricted Stock equal to the number of vested Restricted
Stock Units at the time of termination (giving effect to any vesting
which may occur in connection with such termination).
(b) UNVESTED RESTRICTED STOCK UNITS. If Grantee's employment is
terminated during the Restricted Period for any reason, Grantee or
Grantee's estate (in the event of Grantee's death) will receive a cash
payment equal to the Purchase Price paid for all unvested Restricted
Stock Units.
7. RESTRICTIONS. During the Restricted Period, the Grantee may not sell,
assign, transfer, pledge, hypothecate, or otherwise dispose of Restricted Stock
Units (whether vested or unvested), except by will or laws of descent and
distribution.
8. NO RIGHTS AS STOCKHOLDER. Neither the Grantee nor any permitted
transferee of the Grantee, shall have any rights as a stockholder with respect
to any shares of Stock issuable pursuant to the Restricted Stock Units until the
date on which a stock certificate (or certificates) representing such Stock is
issued.
9. EQUITABLE ADJUSTMENT OF RESTRICTED SHARES. The number of shares of
unrestricted Stock available pursuant to the Plan are subject to equitable
adjustment as provided in Section 7 of the Plan.
2
<PAGE>
10. NOTICES. Notices hereunder shall be mailed or delivered to the Company
at its principal place of business, Two Stamford Plaza, 281 Tresser Boulevard,
Stamford, Connecticut 06901, Attention: David Wong, Vice President, Corporate
Affairs, and shall be mailed or delivered to the Grantee at the Grantee's
address set forth below, or in either case at such other address as one party
may subsequently furnish to the other party in writing.
11. NO RIGHTS TO EMPLOYMENT. This Grant shall not confer upon the Grantee
any right with respect to continuance of employment by the Company or a
Subsidiary, nor shall it interfere in any way with any right of the Grantee's
employer to terminate the Grantee's employment at any time.
12. PAYMENT OF WITHHOLDING TAXES. The Committee shall have discretion to
permit or require the Grantee, on such terms and conditions as it determines, to
pay all or a portion of any taxes arising in connection with a purchase of
Restricted Stock Units hereunder or the vesting or lapse of restrictions with
respect thereto by having the Company withhold shares of Stock that would
otherwise be exchanged for Restricted Stock Units or by the Grantee's delivering
other shares of Stock having a value equal to the amount of taxes to be withheld
or to otherwise withhold amounts payable to the Grantee in accordance with
applicable law.
13. GOVERNING LAW. This Grant and all matters related hereto shall be
governed by the laws of the State of Delaware.
HEXCEL CORPORATION
By: __________________
Name: David M. Wong
Title: Vice President, Corporate Affairs
Receipt of the foregoing Grant is hereby acknowledged and accepted and the terms
and conditions of the Grant are hereby agreed to as of the Grant Date.
GRANTEE ADDRESS
_______________________ __________________________
Name: __________________________
__________________________
3
<PAGE>
Exhibit 10.4
SPLIT-DOLLAR AGREEMENT
THIS AGREEMENT made and entered into this 21st day of January, 1999, by and
among Hexcel Corporation, a Delaware Corporation, with principal offices and
place of business in the State of Connecticut (hereinafter referred to as the
"Corporation"), John J. Lee, an individual residing in the State of New York
(hereinafter referred to as the "Employee"), and John J. Lee, III, David R.
Lindskog and Stewart J. McMillan, Trustees of the John J. Lee 1998 Irrevocable
Insurance Trust U/A December 23, 1998 (hereinafter referred to as the "Owner"),
WITNESSETH THAT:
WHEREAS, the Employee is employed by the Corporation; and
WHEREAS, the Employee wishes to provide life insurance protection for his
family, under a policy of life insurance (hereinafter referred to as the
"Policy"), insuring his life and the life of his wife (hereinafter jointly
referred to as the "Insureds"), which Policy is described in Exhibit A attached
hereto and by this reference made a part hereof, and which is being issued by
Pacific Life Insurance Company (hereinafter referred to as the "Insurer"); and
WHEREAS, the Corporation is willing to pay a portion of the premiums due on
the Policy as an additional employment benefit for the Employee, on the terms
and conditions hereinafter set forth; and
WHEREAS, Owner is the owner of the Policy and, as such, possesses all
incidents of ownership in and to the Policy; and
WHEREAS, the Corporation wishes to have the Policy collaterally assigned to
it by the Owner, in order to secure the repayment of the amounts which it will
pay toward the premiums on the Policy; and
<PAGE>
NOW, THEREFORE, in consideration of the premises and of the mutual promises
contained herein, the parties hereto agree as follows:
1. PURCHASE OF POLICY. The Owner will contemporaneously purchase the
Policy from the Insurer which has a Face Amount of Insurance (as such term is
defined in the Policy) of $5,026,917 and Increasing Death Benefit Option (as
such term is defined in the Policy). The parties hereto agree that they will
take all necessary action to cause the Insurer to issue the Policy, and shall
take any further action which may be necessary to cause the Policy to conform to
the provisions of this Agreement. The parties hereto agree that the Policy
shall be subject to the terms and conditions of this Agreement and of the
collateral assignment filed with the Insurer relating to the Policy.
2. OWNERSHIP OF POLICY. The Owner shall be the sole and absolute owner
of the Policy, and may exercise all ownership rights granted to the owner
thereof by the terms of the Policy, including, but not limited to, the right to
elect to change the Death Benefit Option, the Face Amount of Insurance and the
investment options of the Policy, except as may otherwise be provided herein.
3. PAYMENT OF PREMIUMS.
a. Thirty (30) days prior to the payment of a Policy premium, the
Corporation shall notify the Employee and the Owner of the exact amount due from
the Employee hereunder, which shall be an amount equal to the annual cost of
current life insurance protection on the joint lives of the Insureds, measured
by the U.S. Life Table 38, while both are alive and thereafter measured by the
lower of the PS 58 rate, set forth in Revenue Ruling 55-747 (or the
corresponding applicable provision of any future Revenue Ruling), or the
Insurer's current
2
<PAGE>
published premium rate for annually renewable term insurance for standard
risks. Either the Employee or the Owner, on behalf of the Employee, shall
pay such required contribution to the Corporation prior to the premium due
date. If neither the Employee nor the Owner makes such timely payment, the
Corporation, in its sole discretion, may elect to make the Employee's portion
of the premium payment, which payment shall be recovered by the Corporation
as provided herein.
b. The Corporation shall pay the sum of Two Hundred Fifty-Seven
Thousand Eight Hundred and Seventy Dollars ($257,870) annually, for five
consecutive years beginning on the date of this Agreement to the Insurer, and
shall, upon request, promptly furnish the Employee evidence of timely payment of
such payment. The Corporation shall annually furnish the Employee a statement
of the amount of income reportable by the Employee for federal and state income
tax purposes as a result of the insurance protection provided the Owner as the
Policy beneficiary.
4. COLLATERAL ASSIGNMENT. To secure the repayment to the Corporation
of the amount of the premiums on the Policy paid by it hereunder, the Owner has,
contemporaneously herewith, assigned the Policy to the Corporation as
collateral, under the form used by the Insurer for such assignments.
Notwithstanding any other provision hereof or such assignment, the Corporation
shall neither have nor exercise the power to borrow against, withdraw from, nor
surrender or cancel the Policy during the term of this Agreement. The
collateral assignment of the Policy to the Corporation hereunder shall not be
terminated, altered or amended by the Owner, without the express written consent
of the Corporation. The parties hereto agree to take
3
<PAGE>
all action necessary to cause such collateral assignment to conform to the
provisions of this Agreement.
5. LIMITATIONS ON OWNER'S RIGHTS IN POLICY.
a. Except as otherwise provided herein, the Owner shall not sell,
assign, transfer, borrow against or withdraw from the cash surrender value of
the Policy, surrender or cancel the Policy, change the beneficiary designation
provision thereof, or change the Face Amount of Insurance or the Death Benefit
Option of the Policy without, in any such case, the express written consent of
the Corporation.
b. Notwithstanding any provision hereof to the contrary, the
Owner shall have the sole authority to direct the manner in which the account(s)
established pursuant to the terms of the Policy shall be invested among the
various investment options from time to time available pursuant to the terms of
the Policy.
6. COLLECTION OF DEATH PROCEEDS.
a. Upon the death of the survivor of the Insureds, the
Corporation and the Owner shall cooperate with the beneficiary or beneficiaries
designated by the Owner to take whatever action is necessary to collect the
death benefit provided under the Policy; when such benefit has been collected
and paid as provided herein, this Agreement shall thereupon terminate.
b. Upon the death of the survivor of the Insureds, the
Corporation shall have the unqualified right to receive a portion of such death
benefit equal to the total amount of the premiums paid by it hereunder. The
balance of the death benefit provided under the Policy, if any, shall be paid
directly to the beneficiary or beneficiaries designated by the Owner, in the
manner and in the amount or amounts provided in the beneficiary designation
provision of the
4
<PAGE>
Policy. In no event shall the amount payable to the Corporation hereunder
exceed the Policy proceeds payable as a result of the maturity of the Policy
as a death claim. No amount shall be paid from such death benefit to the
beneficiary or beneficiaries designated by the Owner until the full amount
due the Corporation hereunder has been paid. The parties hereto agree that
the beneficiary designation provision of the Policy shall conform to the
provisions hereof.
c. Notwithstanding any provision hereof to the contrary, in the
event that, for any reason whatsoever, no death benefit is payable under the
Policy upon the death of the survivor of the Insureds and in lieu thereof the
Insurer refunds all or any part of the premiums paid for the Policy, the
Corporation and the beneficiary or beneficiaries designated by the Owner shall
have the unqualified right to share such premiums based on their respective
cumulative contributions thereto.
7. TERMINATION OF THE AGREEMENT DURING THE LIFETIME OF THE INSUREDS.
a. This Agreement shall terminate, while either of the Insureds
is alive, without notice, upon the occurrence of any of the following events:
(a) total cessation of the Corporation's business; (b) bankruptcy, receivership
or dissolution of the Corporation; or (c) on the sixteenth anniversary of this
Agreement.
b. In addition, either the Employee or the Owner may terminate
this Agreement while either of the Insureds is alive and while no premium under
the Policy is overdue, by written notice to the other parties hereto. Such
termination shall be effective as of the date of such notice. The Corporation
shall not have the right to terminate this Agreement.
5
<PAGE>
8. DISPOSITION OF THE POLICY ON TERMINATION OF THE AGREEMENT DURING THE
LIFETIME OF THE INSUREDS.
a. For sixty (60) days after the date of the termination of this
Agreement during the lifetime of the Insureds, the Owner shall have the option
of obtaining the release of the collateral assignment of the Policy to the
Corporation. To obtain such release, the Owner shall reimburse to the
Corporation the lesser of the total amount of the premium payments made by the
Corporation hereunder or the then cash surrender value of the Policy. Upon
receipt of such amount, the Corporation shall release the collateral assignment
of the Policy, by the execution and delivery of an appropriate instrument of
release.
b. If the Owner fails to exercise such option within such sixty
(60) day period, then, at the request of the Corporation, the Owner shall
execute any document or documents required by the Insurer to transfer the
interest of the Owner in the Policy to the Corporation. Alternatively, the
Corporation may enforce its right to be repaid the amount due it hereunder from
the cash surrender value of the Policy under the collateral assignment of the
Policy; provided that in the event the cash surrender value of the Policy
exceeds the amount due the Corporation, such excess shall be paid to the Owner.
Thereafter, neither the Owner nor the Owner's successors, assigns or
beneficiaries shall have any further interest in and to the Policy, either under
the terms thereof or under this Agreement.
9. INSURER NOT A PARTY. The Insurer shall be fully discharged from its
obligations under the Policy by payment of the Policy death benefit to the
beneficiary or beneficiaries named in the Policy, subject to the terms and
conditions of the Policy. In no event shall the Insurer be considered a party
to this Agreement, or any modification or amendment hereof. No provision of
6
<PAGE>
this Agreement, nor of any modification or amendment hereof, shall in any way be
construed as enlarging, changing, varying, or in any other way affecting the
obligations of the Insurer as expressly provided in the Policy, except insofar
as the provisions hereof are made a part of the Policy by the collateral
assignment executed by the Owner and filed with the Insurer in connection
herewith.
10. NAMED FIDUCIARY, DETERMINATION OF BENEFITS, CLAIMS PROCEDURE AND
ADMINISTRATION.
a. The Corporation is hereby designated as the named fiduciary
under this Agreement. The named fiduciary shall have authority to control and
manage the operation and administration of this Agreement, and it shall be
responsible for establishing and carrying out a funding policy and method
consistent with the objectives of this Agreement.
b. (1) CLAIM.
A person who believes that he or she is being denied a benefit
to which he or she is entitled under this Agreement (hereinafter referred to as
a "Claimant") may file a written request for such benefit with the Corporation,
setting forth his or her claim. The request must be addressed to the President
of the Corporation at its then principal place of business.
(2) CLAIM DECISION.
Upon receipt of a claim, the Corporation shall advise the
Claimant that a reply will be forthcoming within ninety (90) days and shall, in
fact, deliver such reply within such period. The Corporation may, however,
extend the reply period for an additional ninety (90) days for reasonable cause.
7
<PAGE>
If the claim is denied in whole or in part, the Corporation
shall adopt a written opinion, using language calculated to be understood by the
Claimant, setting forth: (a) the specific reason or reasons for such denial; (b)
the specific reference to pertinent provisions of this Agreement on which such
denial is based; (c) a description of any additional material or information
necessary for the Claimant to perfect his or her claim and an explanation why
such material or such information is necessary; (d) appropriate information as
to the steps to be taken if the Claimant wishes to submit the claim for review;
and (e) the time limits for requesting a review under subsection (3) and for
review under subsection (4) hereof.
(3) REQUEST FOR REVIEW.
Within sixty (60) days after the receipt by the Claimant of
the written opinion described above, the Claimant may request in writing that
the Secretary of the Corporation review the determination of the Corporation.
Such request must be addressed to the Secretary of the Corporation, at its then
principal place of business. The Claimant or his or her duly authorized
representative may, but need not, review the pertinent documents and submit
issues and comments in writing for consideration by the Corporation. If the
Claimant does not request a review of the Corporation's determination by the
Secretary of the Corporation within such sixty (60) day period, he shall be
barred and estopped from challenging the Corporation's determination.
(4) REVIEW OF DECISION.
Within sixty (60) days after the Secretary's receipt of a
request for review, he or she will review the Corporation's determination.
After considering all materials presented by the Claimant, the Secretary will
render a written opinion, written in a manner calculated to be
8
<PAGE>
understood by the Claimant, setting forth the specific reasons for the
decision and containing specific references to the pertinent provisions of
this Agreement on which the decision is based. If special circumstances
require that the sixty (60) day time period be extended, the Secretary will
so notify the Claimant and will render the decision as soon as possible, but
no later than one hundred twenty (120) days after receipt of the request for
review.
11. AMENDMENT. This Agreement may not be amended, altered or modified,
except by a written instrument signed by the parties hereto, or their respective
successors or assigns, and may not be otherwise terminated except as provided
herein.
12. BINDING EFFECT. This Agreement shall be binding upon and inure to
the benefit of the Corporation and its successors and assigns, and the Employee,
the Owner, and their respective successors, assigns, heirs, executors,
administrators and beneficiaries.
13. NOTICE. Any notice, consent or demand required or permitted to be
given under the provisions of this Agreement shall be in writing, and shall be
signed by the party giving or making the same. If such notice, consent or
demand is mailed to a party hereto, it shall be sent by United States certified
mail, postage prepaid, addressed to such party's last known address as shown on
the records of the Corporation. The date of such mailing shall be deemed the
date of notice, consent or demand.
9
<PAGE>
14. GOVERNING LAW. This Agreement, and the rights of the parties
hereunder, shall be governed by and construed in accordance with the laws of the
State of Connecticut.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement,
in triplicate, as of the day and year first above written.
HEXCEL CORPORATION
By_______________________________________
President
ATTEST:
_______________________
Secretary
"Corporation"
__________________________________________
JOHN J. LEE,
"Employee"
JOHN J. LEE IRREVOCABLE INSURANCE TRUST U/A DATED
DECEMBER 23, 1998
By_______________________________________
John J. Lee, III, Trustee
By_______________________________________
David R. Lindskog, Trustee
By_______________________________________
Stewart J. McMillan, Trustee
"Owner"
10
<PAGE>
EXHIBIT A
The following life insurance policy is subject to the attached
Split-Dollar Agreement:
<TABLE>
<S> <C>
Insurer Pacific Life
Insureds John J. Lee and Gayle K. Lee
Policy Number VP6072977-0
Face Amount of Insurance $5,026,917
Dividend Option None
Death Benefit Option: Increasing
Date of Issue December 5, 1998
</TABLE>
12
<PAGE>
EXHIBIT 10.5
[EXECUTION COPY]
FOOTER B HAS BEEN ENTERED (DRAFT)
EXECUTIVE SEVERANCE AGREEMENT
AGREEMENT made as of the 3rd day of February, 1999, between HEXCEL
CORPORATION, a Delaware corporation with offices at Stamford, Connecticut (the
"Company"), and John J. Lee (the "Executive").
WHEREAS, the Company is engaged in the business of developing,
manufacturing and marketing carbon fibers, fabrics, high-performance composite
materials and parts therefrom for the commercial aerospace, space and defense,
recreation and industrial markets throughout the world, and hereafter may engage
in other areas of business (collectively, the "Business");
WHEREAS, the Executive, as a result of training, expertise and
personal application over the years, has acquired and will continue to acquire
considerable and unique expertise and knowledge which are of substantial value
to the Company in the conduct, management and operation of the Business;
WHEREAS, the Company is willing to provide the Executive with certain
benefits in the event of the termination of the Executive's employment with the
Company, including in the event of a Change in Control (as hereinafter defined);
and
WHEREAS, the Executive, in consideration of receiving such benefits
from the Company, is willing to afford certain protection to the Company in
regard to the confidentiality of its information, ownership of inventions and
competitive activities.
NOW, THEREFORE, in consideration of the mutual covenants of the
Executive and the Company and of the Executive's continued employment with the
Company, the parties agree as follows:
1. POSITION AND DUTIES. The Executive shall initially serve as
Chairman of the Board and Chief Executive Officer of the Company and shall
have such duties, responsibilities, and authority as he may have as of the
date hereof (or any position to which he may be promoted after the date
hereof). The Executive shall devote substantially all his working time and
efforts to the business and affairs of the Company.
2. PLACE OF PERFORMANCE. In connection with the Executive's
employment by the Company, the Executive shall be based at the principal
executive
<PAGE>
offices of the Company in Stamford, Connecticut, except for required travel
on the Company's business.
3. TERMINATION. The Executive's employment hereunder may be
terminated under the following circumstances:
(a) DEATH. The Executive's employment hereunder shall
automatically terminate upon his death.
(b) DISABILITY. The Company may terminate the Executive's
employment hereunder due to the Executive's inability to perform the customary
duties of his employment by reason of any medical or psychological illness or
condition that is expected to be permanent or of indefinite duration, excluding
any such illness or condition that results from intentional self-inflicted
injury, alcoholism or drug abuse.
(c) CAUSE. The Company may terminate the Executive's employment
hereunder for Cause. The following shall constitute Cause:
(i) the willful and continued failure by the Executive to
substantially perform his duties with the Company (other than any such failure
resulting from the Executive's incapability due to physical or mental illness or
any such actual or anticipated failure after the issuance of a Notice of
Termination by the Executive for Good Reason) after demand for substantial
performance is delivered by the Company that specifically identifies the manner
in which the Company believes the Executive has not substantially performed his
duties; or
(ii) the willful engaging by the Executive in misconduct that
is demonstrably and materially injurious to the Company, monetarily or otherwise
including, but not limited to, conduct that violates the covenant not to compete
in Section 6 hereof. No act, or failure to act, on the Executive's part shall
be considered "willful" unless done, or omitted to be done, by him not in good
faith and without reasonable belief that his action or omission was in the best
interest of the Company. Notwithstanding the foregoing, the Executive shall not
be deemed to have been terminated for Cause without (i) reasonable notice from
the Board to the Executive setting forth the reasons for the Company's intention
to terminate for Cause, (ii) delivery to the Executive of a resolution duly
adopted by the affirmative vote of two-thirds or more of the Board then in
office (excluding the Executive if he is then a member of the Board) at a
meeting of the Board called and held for such purpose, finding that in the good
faith opinion of the Board, the Executive was guilty of the conduct herein set
forth and specifying the particulars thereof in detail, (iii) an opportunity for
the Executive, together with his counsel, to be heard before the Board, and (iv)
delivery to the Executive of a Notice of Termination from the Board specifying
the particulars thereof in detail.
(d) GOOD REASON. The Executive may terminate his employment
hereunder for Good Reason. The following shall constitute Good Reason:
2
<PAGE>
(i) A diminution in the Executive's position, duties,
responsibilities or authority (except during periods when the Executive is
unable to perform all or substantially all of his duties or responsibilities on
account of illness (either physical or mental) or other incapacity);
(ii) A reduction in the Executive's annual rate of base salary
as in effect on the date hereof or as the same may be increased from time to
time;
(iii) Failure by the Company to continue in effect any
compensation plan in which the Executive participates which is material to the
Executive's total compensation, unless an equitable arrangement (embodied in an
ongoing substitute plan) has been made with respect to such plan, or failure by
the Company to continue the Executive's participation therein (or in such
substitute plan) on a basis not materially less favorable to the Executive;
(iv) Failure by the Company to continue to provide the
Executive with benefits substantially similar to those enjoyed by the Executive
under any of the Company's pension, savings, life insurance, medical, health and
accident, or disability plans in which the Executive was participating (except
for across-the-board changes similarly affecting all senior executives of the
Company and all senior executives of any Person in control of the Company), or
failure by the Company to continue to provide the Executive with the number of
paid vacation days per year equal to the greater of (i) five and (ii) the number
to which the Executive is entitled in accordance with the Company's vacation
policy;
(v) Failure to provide facilities or services which are
suitable to the Executive's position;
(vi) Failure of any successor (whether direct or indirect, by
purchase of stock or assets, merger, consolidation or otherwise) to the Company
to assume the Company's obligations hereunder or failure by the Company to
remain liable to the Executive hereunder after such assumption;
(vii) Any termination by the Company of the Executive's
employment which is not effected pursuant to a Notice of Termination satisfying
the requirements of a Notice of Termination contained in this Agreement;
(viii) The relocation of the Executive's principal place of
employment to a location more than fifty (50) miles from the Executive's
principal place of employment as at the date hereof; or
(ix) Failure to pay the Executive any portion of current or
deferred compensation within seven (7) days of the date such compensation is
due.
3
<PAGE>
The Executive's continued employment shall not constitute consent to, or waiver
of rights with respect to, any circumstance constituting Good Reason hereunder;
provided, however, that the Executive shall be deemed to have waived his rights
pursuant to circumstances constituting Good Reason hereunder if he shall not
have provided the Company a Notice of Termination within ninety (90) days
following his knowledge of the occurrence of circumstances constituting Good
Reason.
(e) OTHER THAN DEATH, DISABILITY, CAUSE OR GOOD REASON. (i) The
Company may terminate the Executive's employment, other than as provided in
Sections (3)(a), (b) or (c) hereof, upon written notice to the Executive and
(ii) the Executive may terminate his employment with the Company, other than as
provided in Section 3(d) hereof, upon written notice to the Company.
(f) NOTICE OF TERMINATION; DATE OF TERMINATION. Any termination
of the Executive's employment by the Company or by the Executive (other than a
termination pursuant to Section 3(a) hereof) shall be communicated by written
Notice of Termination to the other party hereto in accordance with Section 10.
For purposes of this Agreement,
(i) "Notice of Termination" shall mean a notice which shall
indicate the specific termination provision in this Agreement relied upon and
shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of the Executive's employment under the
provision so indicated, and
(ii) "Date of Termination" shall mean (A) if the Executive's
employment is terminated pursuant to Section 3(a), the date of his death, (B) if
the Executive's employment is terminated pursuant to Section 3(b), thirty days
after Notice of Termination is given (provided that the Executive shall not have
returned substantially to full-time performance of the Executive's duties
during such thirty day period), (C) if the Executive's employment is terminated
pursuant to Sections 3(c), (d) or (e), the date specified in the Notice of
Termination (provided that such date shall not be more than thirty days from the
date Notice of Termination is given and, in the case of a termination for Cause,
shall not be less than fifteen days from the date Notice of Termination is
given), or (D) if the Executive terminates his employment and fails to provide
written notice to the Company of such termination, the date of such termination.
4. COMPENSATION UPON DEATH, DISABILITY OR TERMINATION.
Subject to section 15(b) hereof:
(a) If the Executive's employment is terminated by his death, the
Company shall pay the Executive's legal representative (i) at the time such
payments are due, the Executive's full base salary through the Date of
Termination at the rate in effect at the Date of Termination and all other
unpaid amounts, if any, to which the Executive is entitled as of the Date of
Termination including any reimbursable business expenses and amounts earned
under any compensation plan or program (including the
4
<PAGE>
Bonus Plan) and (ii) within ten days following the date of the Executive's
death, a lump sum payment in an amount equal to the sum of (A) the
Executive's annual base salary in effect as of the Date of Termination and
(B) the Executive's Average Annual Bonus (the term "Average Annual Bonus"
shall mean the average of the last three annual bonus amounts awarded to the
Executive under the Company's Management Incentive Compensation Plan, or any
successor, alternate or supplemental plan (the "Bonus Plan") or, if the
Executive has not participated in the Bonus Plan for three completed annual
award periods, the average of the annual bonus amounts awarded, provided that
any award made in respect of an annual award period in which the Executive
did not participate for the full period (the "Pro-Rata Award") shall be
annualized for purposes of computing the Average Bonus Amount by multiplying
the Pro-Rata Award by a fraction, of which the numerator is 365 and the
denominator is the number of days during which the Executive participated in
such annual award period).
(b) During any period that the Executive fails to perform his
duties hereunder as a result of incapacity due to physical or mental illness the
Executive shall continue to receive his full base salary at the rate then in
effect for such period (offset by any payments to the Executive received
pursuant to disability benefit plans maintained by the Company) until his
employment is terminated pursuant to Section 3(b) hereof; and within ten days
following such termination, the Company shall pay the Executive (i) all unpaid
amounts, if any, to which the Executive is entitled as of the Date of
Termination including any reimbursable business expenses and amounts earned
under any compensation plan or program (including the Bonus Plan) and (ii) a
lump sum payment in an amount equal to the sum of (A) the Executive's annual
base salary in effect as of the Date of Termination and (B) the Executive's
Average Annual Bonus.
(c) If the Executive's employment is terminated by the Company for
Cause or by the Executive for other than Good Reason, the Company shall at the
time such payments are due pay the Executive his full base salary through the
Date of Termination at the rate in effect at the time Notice of Termination is
given and all other unpaid amounts, if any, to which the Executive is entitled
as of the Date of Termination including any reimbursable business expenses and
amounts earned under any compensation plan or program (including the Bonus
Plan), and the Company shall, thereafter, have no further obligations to the
Executive under this Agreement.
(d) If (1) the Company shall terminate the Executive's employment
other than for Disability and other than for Cause or (2) the Executive shall
terminate his employment for Good Reason, then
(i) the Company shall pay the Executive on the Date of
Termination, by wire transfer to the bank account designated by the Executive,
the Executive's full base salary through the Date of Termination at the rate in
effect at the time Notice of Termination is given (disregarding any reduction in
salary rate which would constitute a Good Reason) and all other unpaid amounts,
if any, to which the Executive is entitled as of the Date of Termination
including any reimbursable business
5
<PAGE>
expenses and amounts earned under any compensation plan or program (including
the Bonus Plan);
(ii) in lieu of any further salary payments to the Executive
for periods subsequent to the Date of Termination, the Company shall pay to the
Executive on the Date of Termination, by wire transfer to the bank account
designated by the Executive, an amount equal to the product of (A) the sum of
(1) the Executive's annual base salary in effect at the time the Notice of
Termination is given (disregarding any reduction in salary rate which would
constitute a Good Reason) and (2) the Executive's Average Annual Bonus, and (B)
(x) if the Executive terminates his employment or the Company terminates the
Executive's employment, in either case within two years after the occurrence of
a Change in Control, the number three or (y) in any other case, the number one;
and
(iii) the Company shall continue the participation of the
Executive for a period of one year (except, if the Executive terminates his
employment or the Company terminates the Executive's employment, in either case
within two years after the occurrence of a Change in Control, such period shall
be three years), in all medical, health, life and other employee "welfare" plans
and programs in which the Executive participated immediately prior to the Date
of Termination, provided that the Executive's continued participation is
possible under the general terms and provisions of such plans and programs. In
the event that the Executive's participation in any such plan or program is
barred, the Company shall by other means provide the Executive with benefits
equivalent to those which the Executive would otherwise have been entitled to
receive under such plans and programs from which his continued participation is
barred.
(e) If the Company shall terminate the Executive's employment
other than for Cause, or the Executive shall terminate his employment for Good
Reason, during the period of a Potential Change in Control or at the request of
a person who, directly or indirectly, takes any action designed to cause a
Change in Control, then the Company shall make payments and provide benefits to
the Executive under this Agreement as though a Change in Control had occurred
immediately prior to such termination. A "Potential Change in Control" shall
exist during the period commencing at the time the Company enters into any
agreement or arrangement which, if consummated, would result in a Change in
Control and ending at the time such agreement or arrangement either (i) results
in a Change in Control or (ii) terminates, expires or otherwise becomes of no
further force or effect.
(f) For purposes of this Agreement, a "Change in Control" shall
mean the first to occur of the following events:
(1) (i) Any person (as defined in Section 3(a)(9) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), as modified
and used in Sections 13(d) and 14(d) of the Exchange Act, but excluding Ciba for
so long as Ciba is subject to the restrictions imposed by the Governance
Agreement) (a "Person")
6
<PAGE>
is or becomes the Beneficial Owner (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of 20% or more of either (A) the then
outstanding Common Stock of the Company (the "Outstanding Common Stock") or
(B) the combined voting power of the then outstanding securities entitled to
vote generally in the election of directors of the Company (the "Total Voting
Power"); excluding, however, the following: (x) any acquisition by the
Company or any of its affiliates or (y) any acquisition by any employee
benefit plan (or related trust) sponsored or maintained by the Company or any
of its affiliates and (ii) Ciba Beneficially Owns, in the aggregate, a lesser
percentage of the Total Voting Power than such Person Beneficially Owns;
(2) A change in the composition of the Board such that the
individuals who, as of the effective date of this Agreement, constitute the
Board (such individuals shall be hereinafter referred to as the "Incumbent
Directors") cease for any reason to constitute at least a majority of the Board;
provided, however, for purposes of this definition, that any individual who
becomes a director subsequent to such effective date, whose election, or
nomination for election by the Company's stockholders, was made or approved
pursuant to the Governance Agreement or by a vote of at least a majority of the
Incumbent Directors (or directors whose election or nomination for election was
previously so approved) shall be considered a member of the Incumbent Board;
but, provided, further, that any such individual whose initial assumption of
office occurs as a result of either an actual or threatened election contest (as
such terms are used in Rule 14a-11 of Regulation 14A promulgated under the
Exchange Act) or other actual or threatened solicitation of proxies or consents
by or on behalf of a person or legal entity other than the Board shall not be so
considered a member of the Incumbent Board;
(3) The effective date of a reorganization, merger or
consolidation by the Company, or the approval by the stockholders of the Company
of a sale or other disposition of all or substantially all of the assets of the
Company ("Corporate Transaction"); excluding, however, such a Corporate
Transaction (1) pursuant to which all or substantially all of the individuals
and entities who are the beneficial owners, respectively, of the Outstanding
Common Stock and Total Voting Power immediately prior to such Corporate
Transaction will beneficially own, directly or indirectly, more than 50%,
respectively, of the outstanding common stock and the combined voting power of
the then outstanding securities entitled to vote generally in the election of
directors of the company resulting from such Corporate Transaction (including,
without limitation, a corporation which as a result of such transaction owns the
Company or all or substantially all of the Company's assets either directly or
through one or more subsidiaries) in substantially the same proportions as their
ownership, immediately prior to such Corporate Transaction, of the Outstanding
Common Stock and Total Voting Power, as the case may be, or (2) after which no
Person beneficially owns a greater percentage of the combined voting power of
the then outstanding securities entitled to vote generally in the election of
directors of such corporation than does Ciba;
7
<PAGE>
(4) Ciba shall become the Beneficial Owner of more than 57.5% of
the Total Voting Power; or
(5) The approval by the stockholders of the Company of a
complete liquidation or dissolution of the Company.
For purposes of this Section 4(f), the term "Ciba" shall mean Ciba
Specialty Chemicals Holding Inc., a Swiss corporation, together with it
affiliates holding Company voting securities pursuant to Section 4.01(b) of the
Governance Agreement, and the term "Governance Agreement" shall have the meaning
given in that certain Strategic Alliance Agreement among the Company, Ciba-Geigy
Limited and Ciba Geigy Corporation, dated as of September 29, 1995, as amended,
and any of their respective permitted successors or assigns thereunder.
(g) Notwithstanding any other provisions of this Agreement, in the
event that any payment, benefit, property or right received or to be received by
the Executive in connection with a Change in Control or the Executive's
termination of employment (whether pursuant to the terms of this Agreement or
any other plan, arrangement or agreement with the Company, any Person whose
actions result in a Change in Control or any Person affiliated with the Company
or such Person) (all such payments, benefits, properties and rights being
hereinafter referred to as the "Total Payments") would be subject (in whole or
part) to the tax (the "Excise Tax") imposed by Section 4999 of the Internal
Revenue Code of 1986, as amended, or any successor provision (the "Code"), then
the payments and benefits provided under Section 4(d) or 4(e) hereof ("Severance
Payments") which are cash shall first be reduced, and the noncash Severance
Payments shall thereafter be reduced, to the extent necessary so that no portion
of the Total Payments is subject to the Excise Tax, but only if (A) the net
amount of such Total Payments, as so reduced (and after subtracting the net
amount of federal, state and local income taxes on such reduced Total Payments)
is greater than or equal to (B) the net amount of such Total Payments without
such reduction (but after subtracting the net amount of federal, state and local
income taxes on such Total Payments and the amount of Excise Tax to which the
Executive would be subject in respect of such unreduced Total Payments);
provided, however, that the Executive may elect (by waiving the receipt or
enjoyment of all or any portion of the noncash Severance Payments at such time
and in such manner that the Severance Payments so waived shall not constitute a
"payment" within the meaning of section 280G(b) of the Code) to have the noncash
Severance Payments reduced (or eliminated) prior to any reduction of the cash
Severance Payments. For purposes of determining whether and the extent to which
the Total Payments will be subject to the Excise Tax (i) no portion of the Total
Payments the receipt or enjoyment of which the Executive shall have waived at
such time and in such manner as not to constitute a "payment" within the meaning
of section 280G(b) of the Code shall be taken into account, (ii) no portion of
the Total Payments shall be taken into account which, in the written opinion of
tax counsel ("Tax Counsel") reasonably acceptable to the Executive and selected
by the accounting firm (the "Auditor") which was, immediately prior to the
Change in Control, the Company's independent auditor, does not constitute a
"parachute payment" within the meaning of
8
<PAGE>
section 280G(b)(2) of the Code (including by reason of section 280G(b)(4)(A)
of the Code) and, in calculating the Excise Tax, no portion of such Total
Payments shall be taken into account which, in the written opinion of Tax
Counsel, constitutes reasonable compensation for services actually rendered,
within the meaning of section 280G(b)(4)(B) of the Code, in excess of the
Base Amount allocable to such reasonable compensation, and (iii) the value of
any noncash benefit or any deferred payment or benefit included in the Total
Payments shall be determined by the Auditor in accordance with the principles
of sections 280G(d)(3) and (4) of the Code. At the time that payments are
made under this Agreement, the Company shall provide the Executive with a
written statement setting forth the manner in which such payments were
calculated and the basis for such calculations including, without limitation,
any opinions or other advice the Company has received from Tax Counsel, the
Auditor or other advisors or consultants (and all such opinions or advice
shall be in writing, shall be attached to the statement and shall expressly
state that the Executive may rely thereon). If the Executive objects to the
Company's calculations, the Company shall pay to the Executive such portion
of the Severance Payments (up to 100% thereof) as the Executive determines is
necessary to result in the proper application of the first sentence of this
Section 4(g). The Executive and the Company shall each reasonably cooperate
with the other in connection with any administrative or judicial proceedings
concerning the existence or amount of liability for Excise Tax with respect
to the Total Payments.
5. NO MITIGATION. The Executive shall not be required to mitigate the
amount of any payment provided for in this Agreement by seeking other employment
or otherwise, nor shall the amount of any payment or benefit provided for in
this Agreement be reduced by any compensation earned by the Executive as the
result of employment by another employer, by retirement benefits, by offset
against any amount claimed to be owed by the Executive to the Company, or
otherwise.
6. COVENANT NOT TO COMPETE. The Executive acknowledges that, as a
senior management employee, the Executive will be involved, on a high level, in
the development, implementation and management of the Company's global business
plans, including those which involve the Company's finances, research,
marketing, planning, operations, and acquisition strategies. By virtue of the
Executive's position and knowledge of the Company, the Executive acknowledges
that his employment by a competitor of the Company represents a serious
competitive danger to the Company, and that the use of the Executive's
experience and knowledge about the Company's business, strategies and plans by a
competitor can and would constitute a valuable competitive advantage over the
Company. In view of the foregoing, and in consideration of the payments made to
the Executive under this Agreement, the Executive covenants and agrees that, if
the Executive's employment is terminated and the Company has fulfilled its
obligations under this Agreement, for a period of one year (or three years if
the Executive receives the payments under clause (B)(x) of Section 4(d)(ii)
hereof) after the Date of Termination the Executive will not engage, in any
capacity, directly or indirectly, including but not limited as employee, agent,
consultant, manager, executive, owner or stockholder (except as a passive
investor holding less than a 5% equity interest in any enterprise) in any
business entity engaged in competition with the
9
<PAGE>
Business conducted by the Company on the Date of Termination anywhere in the
world; provided, that the Executive may be employed by a competitor of the
Company so long as the Executive's duties and responsibilities do not relate
directly or indirectly to the business segment of the new employer which is
actually or potentially competitive with the Business.
7. ASSIGNMENT OF INVENTIONS. The Executive agrees that all processes,
technologies, designs and inventions, including new contributions, improvements,
ideas and discoveries, whether patentable or not (collectively "Inventions"),
conceived, developed, invented or made by the Executive prior to the Date of
Termination shall belong to the Company, provided that such Inventions grew out
of the Executive's work with the Company or any of its subsidiaries or
affiliates, are related in any manner to the business (commercial or
experimental) of the Company or any of its subsidiaries or affiliates or are
conceived or made on the Company's time or with the use of the Company's
facilities or materials. At the request of the Company, the Executive shall (i)
promptly disclose such Inventions to the Company, (ii) assign to the Company,
without additional compensation, all patent and other rights to such Inventions
for the United States and foreign countries, (iii) sign all papers necessary to
carry out the foregoing, and (iv) give testimony or otherwise take action in
support of the Executive's status as the inventor of such Inventions, in each
case at the Company's expense.
8. CONFIDENTIALITY. In addition to any obligation regarding
Inventions, the Executive acknowledges that the trade secrets and confidential
and proprietary information of the Company, its subsidiaries and affiliates,
including without limitation:
(a) unpublished information concerning:
(i) research activities and plans,
(ii) marketing or sales plans,
(iii) pricing or pricing strategies,
(iv) operational techniques, and
(v) strategic plans;
(b) unpublished financial information, including information
concerning revenues, profits and profit margins;
(c) internal confidential manuals; and
(d) any "material inside information" as such phrase is used for
purposes of the Securities Exchange Act of 1934, as amended; all constitute
valuable, special and unique information of the Company, its subsidiaries and
affiliates. In recognition of this fact, the Executive agrees that the Executive
will not disclose any such trade secrets or confidential or proprietary
information (except (i) information which becomes publicly available without
violation of this Agreement, (ii) information of which the Executive, prior to
disclosure by the Executive, did not know and should not have known was
disclosed to the Executive by a third party in violation of any other person's
10
<PAGE>
confidentiality or fiduciary obligation, (iii) disclosure required in connection
with any legal process (provided the Executive promptly gives the Company
written notice of any legal process seeking to compel such disclosure and
reasonably cooperates in the Company's attempt to eliminate or limit the scope
of such disclosure) and (iv) disclosure while employed by the Company which the
Executive reasonably and in good faith believes to be in or not opposed to the
interests of the Company) to any person, firm, corporation, association or other
entity, for any reason or purpose whatsoever, nor shall the Executive make use
of any such information for the benefit of any person, firm, corporation or
other entity except on behalf of the Company, its subsidiaries and affiliates.
9. BINDING AGREEMENT. This Agreement and all rights of the Executive
hereunder shall inure to the benefit of and be enforceable by the Executive's
personal or legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees. If the Executive should die while any
amounts would still be payable to him hereunder if he had continued to live, all
such amounts, unless otherwise provided in this Agreement, shall be paid to the
Executive's devisee, legatee, or other designee or, if there be no such
designee, to the Executive's estate.
10. NOTICE. Notices, demands and all other communications provided
for in this Agreement shall be in writing and shall be deemed to have been duly
given when delivered, if delivered personally, or mailed by United States
certified or registered mail, return receipt requested, postage prepaid, and
when received if delivered otherwise, addressed as follows:
If to the Executive:
John J. Lee
18 Walnut Avenue
Larchmont, NY 10538
If to the Company:
Hexcel Corporation
281 Tresser Blvd.
Stamford, CT 06901-3238
Attn: General Counsel
or to such other address as any party may have furnished to the other in writing
in accordance herewith, except that notices of change of address shall be
effective only upon receipt.
11. GENERAL PROVISIONS. No provision of this Agreement may be
modified, waived or discharged unless such waiver, modification or discharge is
agreed to in writing signed by the Executive (or, if applicable, his legal
representative) and the
11
<PAGE>
Company. No waiver by either party hereto at any time of any breach by the
other party hereto of, or compliance with, any condition or provision of
this Agreement to be performed by such other party shall be deemed a waiver
of similar or dissimilar provisions or conditions at the same or at any prior
or subsequent time. No representations, oral or otherwise, express or
implied, with respect to the subject matter hereof have been made by either
party which are not set forth expressly in this Agreement. The validity,
interpretation, construction and performance of this Agreement shall be
governed by the laws of the State of Connecticut without regard to its
conflicts of law principles.
12. VALIDITY AND ENFORCEABILITY. The invalidity or unenforceability
of any provision of this Agreement shall not affect the validity or
enforceability of any other provision of this Agreement, which shall remain in
full force and effect. It is the desire and intent of the parties that the
provisions of Sections 6, 7 and 8 hereof shall be enforceable to the fullest
extent permitted by applicable law or public policy. If any such provision or
the application thereof to any person or circumstance shall, to any extent, be
construed to be invalid or unenforceable in whole or in part, then such
provision shall be construed in a manner so as to permit its enforceability to
the fullest extent permitted by applicable law or public policy. In any case,
the remaining provisions or the application thereof to any person or
circumstance other than those to which they have been held invalid or
unenforceable, shall remain in full force and effect.
13. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
14. ARBITRATION. Any dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration,
conducted before a panel of three arbitrators in the State of Connecticut, in
accordance with the rules of the American Arbitration Association then in
effect. Judgment may be entered on the arbitrator's award in any court having
jurisdiction; provided, however, that the Company shall be entitled to seek a
restraining order or injunction in any court of competent jurisdiction to
prevent any continuation of any violation of the provisions of Sections 6, 7 or
8 hereof.
15. EXISTING EMPLOYMENT AGREEMENT. The Company and the Executive have
previously entered into an Employment Agreement dated February 29, 1996 (the
"Employment Agreement"). The Company and the Executive intend that the
Executive's entitlement to severance payments in lieu of salary and bonus upon a
Change in Control shall be governed solely by this Agreement, and that payments
under this Agreement in respect of other benefits shall be reduced by any
amounts received by the Executive under the Employment Agreement for similar
benefits. Accordingly, the Company and the Executive agree as follows:
(a) In Clause B of Section 8(d) of the Employment Agreement, the
phrase
12
<PAGE>
"(B) the Executive shall terminate his
employment for Good Reason, then"
13
<PAGE>
shall be amended to read
"(B) the Executive shall terminate his
employment for Good Reason (but for
the purpose of this Section 8(d), the
term Good Reason shall not include
any reference to change in control as
set forth in Section 7(d)(ii)(C) hereof),
then".
Except as expressly amended by this Section 15(a), the Employment Agreement
shall remain in full force and effect as originally written.
(b) Payments in respect of the following benefits under this
Agreement shall be reduced (but to not less than zero) as follows:
(A) Payments under Section 4(a) hereof shall be reduced by
payments received under Section 8(b) of the Employment Agreement;
(B) Payments under Section 4(b) hereof shall be reduced by
payments received under Section 8(a) of the Employment Agreement;
(C) Payments under Section 4(c) hereof shall be reduced by
payments received under Section 8(c) of the Employment Agreement; and
(D) Payments under Sections 4(d)(i) and (ii) hereof shall
be reduced by payments received under Sections 8(d)(i) and (ii) of the
Employment Agreement.
16. REMEDIES. The Executive agrees that in addition to any other
remedy provided at law or in equity or in this Agreement, the Company shall be
entitled to a temporary restraining order and both preliminary and permanent
injunctions restraining Executive from violating any provision of Sections 6, 7
and 8 hereof. In the event the Company fails to make any payment to the
Executive when due, the Executive, in addition to any other remedy available at
law or in equity, shall be entitled to interest on such unpaid amounts from the
date such payment was due to the date actual payment is received by the
Executive, at the legal rate applicable to unpaid judgments. The Company shall
pay to the Executive all legal, audit, and actuarial fees and expenses as a
result of the termination of employment, including all such fees and expenses
incurred in contesting, arbitrating or disputing any action or failure to act by
the Company or in seeking to obtain or enforce any right under this Agreement or
any other plan, arrangement or agreement with the Company, provided that the
Executive has obtained a final determination supporting at least part of his
claim and there has been no determination that the balance of his claim was made
in bad faith.
14
<PAGE>
17. CONSENT TO JURISDICTION AND FORUM. The Executive hereby expressly
and irrevocably agrees that any action, whether at law or in equity, permitted
to be brought by the Company under this Agreement may be brought in the State of
Connecticut or in any federal court therein. The Executive hereby irrevocably
consents to personal jurisdiction in such court and to accept service of process
in accordance with the provisions of the laws of the State of Connecticut. In
the event the Company commences any such action in the State of Connecticut or
in any Federal court therein, the Company shall reimburse the Executive for the
reasonable expenses incurred by the Executive in his appearance in such forum
which are in addition to the expenses the Executive would have incurred by
appearing in the forum of the Executive's residence at that time, including but
not limited to additional legal fees.
HEXCEL CORPORATION
By: __________________________________
Name:
Title:
__________________________________
John J. Lee
15
<PAGE>
EXHIBIT 10.6
EXECUTIVE SEVERANCE AGREEMENT
AGREEMENT made as of the 3rd day of February, 1999, between HEXCEL
CORPORATION, a Delaware corporation with offices at Stamford, Connecticut (the
"Company"), and _________________________ (the "Executive").
WHEREAS, the Company is engaged in the business of developing,
manufacturing and marketing carbon fibers, fabrics, high-performance composite
materials and parts therefrom for the commercial aerospace, space and defense,
recreation and industrial markets throughout the world, and hereafter may engage
in other areas of business (collectively, the "Business");
WHEREAS, the Executive, as a result of training, expertise and
personal application over the years, has acquired and will continue to acquire
considerable and unique expertise and knowledge which are of substantial value
to the Company in the conduct, management and operation of the Business;
WHEREAS, the Company is willing to provide the Executive with certain
benefits in the event of the termination of the Executive's employment with the
Company, including in the event of a Change in Control (as hereinafter defined);
and
WHEREAS, the Executive, in consideration of receiving such benefits
from the Company, is willing to afford certain protection to the Company in
regard to the confidentiality of its information, ownership of inventions and
competitive activities.
NOW, THEREFORE, in consideration of the mutual covenants of the
Executive and the Company and of the Executive's continued employment with the
Company, the parties agree as follows:
1. POSITION AND DUTIES. The Executive shall initially serve as
_________ of the Company and shall have such duties, responsibilities, and
authority as he may have as of the date hereof (or any position to which he may
be promoted after the date hereof). The Executive shall devote substantially all
his working time and efforts to the business and affairs of the Company.
2. PLACE OF PERFORMANCE. In connection with the Executive's
employment by the Company, the Executive shall be based at the principal
<PAGE>
executive offices of the Company in [Stamford, Connecticut], except for required
travel on the Company's business.
3. TERMINATION. The Executive's employment hereunder may be
terminated under the following circumstances:
(a) DEATH. The Executive's employment hereunder shall
automatically terminate upon his death.
(b) DISABILITY. The Company may terminate the Executive's
employment hereunder due to the Executive's inability to perform the customary
duties of his employment by reason of any medical or psychological illness or
condition that is expected to be permanent or of indefinite duration, excluding
any such illness or condition that results from intentional self-inflicted
injury, alcoholism or drug abuse.
(c) CAUSE. The Company may terminate the Executive's employment
hereunder for Cause. The following shall constitute Cause:
(i) the willful and continued failure by the Executive to
substantially perform his duties with the Company (other than any such failure
resulting from the Executive's incapability due to physical or mental illness or
any such actual or anticipated failure after the issuance of a Notice of
Termination by the Executive for Good Reason) after demand for substantial
performance is delivered by the Company that specifically identifies the manner
in which the Company believes the Executive has not substantially performed his
duties; or
(ii) the willful engaging by the Executive in misconduct that
is demonstrably and materially injurious to the Company, monetarily or otherwise
including, but not limited to, conduct that violates the covenant not to compete
in Section 6 hereof. No act, or failure to act, on the Executive's part shall
be considered "willful" unless done, or omitted to be done, by him not in good
faith and without reasonable belief that his action or omission was in the best
interest of the Company. Notwithstanding the foregoing, the Executive shall not
be deemed to have been terminated for Cause without (i) reasonable notice from
the Board to the Executive setting forth the reasons for the Company's intention
to terminate for Cause, (ii) delivery to the Executive of a resolution duly
adopted by the affirmative vote of two-thirds or more of the Board then in
office (excluding the Executive if he is then a member of the Board) at a
meeting of the Board called and held for such purpose, finding that in the good
faith opinion of the Board, the Executive was guilty of the conduct herein set
forth and specifying the particulars thereof in detail, (iii) an opportunity for
the Executive, together with his counsel, to be heard before the Board, and (iv)
delivery to the Executive of a Notice of Termination from the Board specifying
the particulars thereof in detail.
2
<PAGE>
(d) GOOD REASON. The Executive may terminate his employment
hereunder for Good Reason. The following shall constitute Good Reason:
(i) A diminution in the Executive's position, duties,
responsibilities or authority (except during periods when the Executive is
unable to perform all or substantially all of his duties or responsibilities on
account of illness (either physical or mental) or other incapacity);
(ii) A reduction in the Executive's annual rate of base
salary as in effect on the date hereof or as the same may be increased from time
to time;
(iii) Failure by the Company to continue in effect any
compensation plan in which the Executive participates which is material to the
Executive's total compensation, unless an equitable arrangement (embodied in an
ongoing substitute plan) has been made with respect to such plan, or failure by
the Company to continue the Executive's participation therein (or in such
substitute plan) on a basis not materially less favorable to the Executive;
(iv) Failure by the Company to continue to provide the
Executive with benefits substantially similar to those enjoyed by the Executive
under any of the Company's pension, savings, life insurance, medical, health and
accident, or disability plans in which the Executive was participating (except
for across-the-board changes similarly affecting all senior executives of the
Company and all senior executives of any Person in control of the Company), or
failure by the Company to continue to provide the Executive with the number of
paid vacation days per year equal to the greater of (i) _____ and (ii) the
number to which the Executive is entitled in accordance with the Company's
vacation policy;
(v) Failure to provide facilities or services which are
suitable to the Executive's position;
(vi) Failure of any successor (whether direct or indirect, by
purchase of stock or assets, merger, consolidation or otherwise) to the Company
to assume the Company's obligations hereunder or failure by the Company to
remain liable to the Executive hereunder after such assumption;
(vii) Any termination by the Company of the Executive's
employment which is not effected pursuant to a Notice of Termination satisfying
the requirements of a Notice of Termination contained in this Agreement;
3
<PAGE>
(viii) The relocation of the Executive's principal place of
employment to a location more than fifty (50) miles from the Executive's
principal place of employment as at the date hereof; or
(ix) Failure to pay the Executive any portion of current or
deferred compensation within seven (7) days of the date such compensation is
due.
The Executive's continued employment shall not constitute consent to, or waiver
of rights with respect to, any circumstance constituting Good Reason hereunder;
provided, however, that the Executive shall be deemed to have waived his rights
pursuant to circumstances constituting Good Reason hereunder if he shall not
have provided the Company a Notice of Termination within ninety (90) days
following his knowledge of the occurrence of circumstances constituting Good
Reason.
(e) OTHER THAN DEATH, DISABILITY, CAUSE OR GOOD REASON. (i) The
Company may terminate the Executive's employment, other than as provided in
Sections (3)(a), (b) or (c) hereof, upon written notice to the Executive and
(ii) the Executive may terminate his employment with the Company, other than as
provided in Section 3(d) hereof, upon written notice to the Company.
(f) NOTICE OF TERMINATION; DATE OF TERMINATION. Any termination
of the Executive's employment by the Company or by the Executive (other than a
termination pursuant to Section 3(a) hereof) shall be communicated by written
Notice of Termination to the other party hereto in accordance with Section 10.
For purposes of this Agreement,
(i) "Notice of Termination" shall mean a notice which shall
indicate the specific termination provision in this Agreement relied upon and
shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of the Executive's employment under the
provision so indicated, and
(ii) "Date of Termination" shall mean (A) if the Executive's
employment is terminated pursuant to Section 3(a), the date of his death, (B) if
the Executive's employment is terminated pursuant to Section 3(b), thirty days
after Notice of Termination is given (provided that the Executive shall not have
returned substantially to full-time performance of the Executive's duties
during such thirty day period), (C) if the Executive's employment is terminated
pursuant to Sections 3(c), (d) or (e), the date specified in the Notice of
Termination (provided that such date shall not be more than thirty days from the
date Notice of Termination is given and, in the case of a termination for Cause,
shall not be less than fifteen days from the date Notice of Termination is
given), or (D) if the Executive terminates his employment and fails to provide
written notice to the Company of such termination, the date of such termination.
4
<PAGE>
4. COMPENSATION UPON DEATH, DISABILITY OR TERMINATION.
(a) If the Executive's employment is terminated by his death, the
Company shall pay the Executive's legal representative (i) at the time such
payments are due, the Executive's full base salary through the Date of
Termination at the rate in effect at the Date of Termination and all other
unpaid amounts, if any, to which the Executive is entitled as of the Date of
Termination including any reimbursable business expenses and amounts earned
under any compensation plan or program (including the Bonus Plan) and (ii)
within ten days following the date of the Executive's death, a lump sum payment
in an amount equal to the sum of (A) the Executive's annual base salary in
effect as of the Date of Termination and (B) the Executive's Average Annual
Bonus (the term "Average Annual Bonus" shall mean the average of the last three
annual bonus amounts awarded to the Executive under the Company's Management
Incentive Compensation Plan, or any successor, alternate or supplemental plan
(the "Bonus Plan") or, if the Executive has not participated in the Bonus Plan
for three completed annual award periods, the average of the annual bonus
amounts awarded, provided that any award made in respect of an annual award
period in which the Executive did not participate for the full period (the "Pro-
Rata Award") shall be annualized for purposes of computing the Average Bonus
Amount by multiplying the Pro-Rata Award by a fraction, of which the numerator
is 365 and the denominator is the number of days during which the Executive
participated in such annual award period).
(b) During any period that the Executive fails to perform his
duties hereunder as a result of incapacity due to physical or mental illness the
Executive shall continue to receive his full base salary at the rate then in
effect for such period (offset by any payments to the Executive received
pursuant to disability benefit plans maintained by the Company) until his
employment is terminated pursuant to Section 3(b) hereof; and within ten days
following such termination, the Company shall pay the Executive (i) all unpaid
amounts, if any, to which the Executive is entitled as of the Date of
Termination including any reimbursable business expenses and amounts earned
under any compensation plan or program (including the Bonus Plan) and (ii) a
lump sum payment in an amount equal to the sum of (A) the Executive's annual
base salary in effect as of the Date of Termination and (B) the Executive's
Average Annual Bonus.
(c) If the Executive's employment is terminated by the Company for
Cause or by the Executive for other than Good Reason, the Company shall at the
time such payments are due pay the Executive his full base salary through the
Date of Termination at the rate in effect at the time Notice of Termination is
given and all other unpaid amounts, if any, to which the Executive is entitled
as of the Date of Termination including any reimbursable business expenses and
amounts earned under any compensation plan or program (including the Bonus
5
<PAGE>
Plan), and the Company shall, thereafter, have no further obligations to the
Executive under this Agreement.
(d) If (1) the Company shall terminate the Executive's employment
other than for Disability and other than for Cause or (2) the Executive shall
terminate his employment for Good Reason, then
(i) the Company shall pay the Executive on the Date of
Termination, by wire transfer to the bank account designated by the Executive,
the Executive's full base salary through the Date of Termination at the rate in
effect at the time Notice of Termination is given (disregarding any reduction in
salary rate which would constitute a Good Reason) and all other unpaid amounts,
if any, to which the Executive is entitled as of the Date of Termination
including any reimbursable business expenses and amounts earned under any
compensation plan or program (including the Bonus Plan);
(ii) in lieu of any further salary payments to the Executive
for periods subsequent to the Date of Termination, the Company shall pay to the
Executive on the Date of Termination, by wire transfer to the bank account
designated by the Executive, an amount equal to the product of (A) the sum of
(1) the Executive's annual base salary in effect at the time the Notice of
Termination is given (disregarding any reduction in salary rate which would
constitute a Good Reason) and (2) the Executive's Average Annual Bonus, and (B)
(x) if the Executive terminates his employment or the Company terminates the
Executive's employment, in either case within two years after the occurrence of
a Change in Control, the number two or (y) in any other case, the number one;
and
(iii) the Company shall continue the participation of the
Executive for a period of one year (except, if the Executive terminates his
employment or the Company terminates the Executive's employment, in either case
within two years after the occurrence of a Change in Control, such period shall
be two years), in all medical, health, life and other employee "welfare" plans
and programs in which the Executive participated immediately prior to the Date
of Termination, provided that the Executive's continued participation is
possible under the general terms and provisions of such plans and programs. In
the event that the Executive's participation in any such plan or program is
barred, the Company shall by other means provide the Executive with benefits
equivalent to those which the Executive would otherwise have been entitled to
receive under such plans and programs from which his continued participation is
barred.
(e) If the Company shall terminate the Executive's employment
other than for Cause, or the Executive shall terminate his employment for Good
Reason, during the period of a Potential Change in Control or at the request of
a person who, directly or indirectly, takes any action designed to cause a
Change in
6
<PAGE>
Control, then the Company shall make payments and provide benefits to the
Executive under this Agreement as though a Change in Control had occurred
immediately prior to such termination. A "Potential Change in Control" shall
exist during the period commencing at the time the Company enters into any
agreement or arrangement which, if consummated, would result in a Change in
Control and ending at the time such agreement or arrangement either (i)
results in a Change in Control or (ii) terminates, expires or otherwise
becomes of no further force or effect.
(f) For purposes of this Agreement, a "Change in Control" shall
mean the first to occur of the following events:
(1) (i) Any person (as defined in Section 3(a)(9) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), as modified
and used in Sections 13(d) and 14(d) of the Exchange Act, but excluding Ciba for
so long as Ciba is subject to the restrictions imposed by the Governance
Agreement) (a "Person") is or becomes the Beneficial Owner (within the meaning
of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of either (A)
the then outstanding Common Stock of the Company (the "Outstanding Common
Stock") or (B) the combined voting power of the then outstanding securities
entitled to vote generally in the election of directors of the Company (the
"Total Voting Power"); excluding, however, the following: (x) any acquisition
by the Company or any of its affiliates or (y) any acquisition by any employee
benefit plan (or related trust) sponsored or maintained by the Company or any of
its affiliates and (ii) Ciba Beneficially Owns, in the aggregate, a lesser
percentage of the Total Voting Power than such Person Beneficially Owns;
(2) A change in the composition of the Board such that the
individuals who, as of the effective date of this Agreement, constitute the
Board (such individuals shall be hereinafter referred to as the "Incumbent
Directors") cease for any reason to constitute at least a majority of the Board;
provided, however, for purposes of this definition, that any individual who
becomes a director subsequent to such effective date, whose election, or
nomination for election by the Company's stockholders, was made or approved
pursuant to the Governance Agreement or by a vote of at least a majority of the
Incumbent Directors (or directors whose election or nomination for election was
previously so approved) shall be considered a member of the Incumbent Board;
but, provided, further, that any such individual whose initial assumption of
office occurs as a result of either an actual or threatened election contest (as
such terms are used in Rule 14a-11 of Regulation 14A promulgated under the
Exchange Act) or other actual or threatened solicitation of proxies or consents
by or on behalf of a person or legal entity other than the Board shall not be so
considered a member of the Incumbent Board;
(3) The effective date of a reorganization, merger or
consolidation by the Company, or the approval by the stockholders of the Company
7
<PAGE>
of a sale or other disposition of all or substantially all of the assets of the
Company ("Corporate Transaction"); excluding, however, such a Corporate
Transaction (1) pursuant to which all or substantially all of the individuals
and entities who are the beneficial owners, respectively, of the Outstanding
Common Stock and Total Voting Power immediately prior to such Corporate
Transaction will beneficially own, directly or indirectly, more than 50%,
respectively, of the outstanding common stock and the combined voting power of
the then outstanding securities entitled to vote generally in the election of
directors of the company resulting from such Corporate Transaction (including,
without limitation, a corporation which as a result of such transaction owns the
Company or all or substantially all of the Company's assets either directly or
through one or more subsidiaries) in substantially the same proportions as their
ownership, immediately prior to such Corporate Transaction, of the Outstanding
Common Stock and Total Voting Power, as the case may be, or (2) after which no
Person beneficially owns a greater percentage of the combined voting power of
the then outstanding securities entitled to vote generally in the election of
directors of such corporation than does Ciba;
(4) Ciba shall become the Beneficial Owner of more than 57.5%
of the Total Voting Power; or
(5) The approval by the stockholders of the Company of a
complete liquidation or dissolution of the Company.
For purposes of this Section 4(f), (x) the term "Ciba" shall mean
Ciba Specialty Chemicals Holding Inc., a Swiss corporation, together with it
affiliates holding Company voting securities pursuant to Section 4.01(b) of the
Governance Agreement, (y) the term "Governance Agreement" shall have the meaning
given in that certain Strategic Alliance Agreement among the Company, Ciba-Geigy
Limited and Ciba Geigy Corporation, dated as of September 29, 1995, as amended,
and any of their respective permitted successors or assigns thereunder, and (z)
the consolidation between Ciba and Clariant shall be deemed not to be a "Change
in Control."
(g) Notwithstanding any other provisions of this Agreement, in
the event that any payment, benefit, property or right received or to be
received by the Executive in connection with a Change in Control or the
Executive's termination of employment (whether pursuant to the terms of this
Agreement or any other plan, arrangement or agreement with the Company, any
Person whose actions result in a Change in Control or any Person affiliated with
the Company or such Person) (all such payments, benefits, properties and rights
being hereinafter referred to as the "Total Payments") would be subject (in
whole or part) to the tax (the "Excise Tax") imposed by Section 4999 of the
Internal Revenue Code of 1986, as amended, or any successor provision (the
"Code"), then the payments and benefits provided under Section 4(d) or 4(e)
hereof ("Severance Payments") which are cash shall first
8
<PAGE>
be reduced, and the noncash Severance Payments shall thereafter be reduced,
to the extent necessary so that no portion of the Total Payments is subject
to the Excise Tax, but only if (A) the net amount of such Total Payments, as
so reduced (and after subtracting the net amount of federal, state and local
income taxes on such reduced Total Payments) is greater than or equal to (B)
the net amount of such Total Payments without such reduction (but after
subtracting the net amount of federal, state and local income taxes on such
Total Payments and the amount of Excise Tax to which the Executive would be
subject in respect of such unreduced Total Payments); provided, however, that
the Executive may elect (by waiving the receipt or enjoyment of all or any
portion of the noncash Severance Payments at such time and in such manner
that the Severance Payments so waived shall not constitute a "payment" within
the meaning of section 280G(b) of the Code) to have the noncash Severance
Payments reduced (or eliminated) prior to any reduction of the cash Severance
Payments. For purposes of determining whether and the extent to which the
Total Payments will be subject to the Excise Tax (i) no portion of the Total
Payments the receipt or enjoyment of which the Executive shall have waived at
such time and in such manner as not to constitute a "payment" within the
meaning of section 280G(b) of the Code shall be taken into account, (ii) no
portion of the Total Payments shall be taken into account which, in the
written opinion of tax counsel ("Tax Counsel") reasonably acceptable to the
Executive and selected by the accounting firm (the "Auditor") which was,
immediately prior to the Change in Control, the Company's independent
auditor, does not constitute a "parachute payment" within the meaning of
section 280G(b)(2) of the Code (including by reason of section 280G(b)(4)(A)
of the Code) and, in calculating the Excise Tax, no portion of such Total
Payments shall be taken into account which, in the written opinion of Tax
Counsel, constitutes reasonable compensation for services actually rendered,
within the meaning of section 280G(b)(4)(B) of the Code, in excess of the
Base Amount allocable to such reasonable compensation, and (iii) the value of
any noncash benefit or any deferred payment or benefit included in the Total
Payments shall be determined by the Auditor in accordance with the principles
of sections 280G(d)(3) and (4) of the Code. At the time that payments are
made under this Agreement, the Company shall provide the Executive with a
written statement setting forth the manner in which such payments were
calculated and the basis for such calculations including, without limitation,
any opinions or other advice the Company has received from Tax Counsel, the
Auditor or other advisors or consultants (and all such opinions or advice
shall be in writing, shall be attached to the statement and shall expressly
state that the Executive may rely thereon). If the Executive objects to the
Company's calculations, the Company shall pay to the Executive such portion
of the Severance Payments (up to 100% thereof) as the Executive determines is
necessary to result in the proper application of the first sentence of this
Section 4(g). The Executive and the Company shall each reasonably cooperate
with the other in connection with any administrative or judicial proceedings
concerning the existence or amount of liability for Excise Tax with respect
to the Total Payments.
9
<PAGE>
5. NO MITIGATION. The Executive shall not be required to mitigate the
amount of any payment provided for in this Agreement by seeking other employment
or otherwise, nor shall the amount of any payment or benefit provided for in
this Agreement be reduced by any compensation earned by the Executive as the
result of employment by another employer, by retirement benefits, by offset
against any amount claimed to be owed by the Executive to the Company, or
otherwise.
6. COVENANT NOT TO COMPETE. The Executive acknowledges that, as a
senior management employee, the Executive will be involved, on a high level, in
the development, implementation and management of the Company's global business
plans, including those which involve the Company's finances, research,
marketing, planning, operations, and acquisition strategies. By virtue of the
Executive's position and knowledge of the Company, the Executive acknowledges
that his employment by a competitor of the Company represents a serious
competitive danger to the Company, and that the use of the Executive's
experience and knowledge about the Company's business, strategies and plans by a
competitor can and would constitute a valuable competitive advantage over the
Company. In view of the foregoing, and in consideration of the payments made to
the Executive under this Agreement, the Executive covenants and agrees that, if
the Executive's employment is terminated and the Company has fulfilled its
obligations under this Agreement, for a period of two years after the Date of
Termination the Executive will not engage, in any capacity, directly or
indirectly, including but not limited as employee, agent, consultant, manager,
executive, owner or stockholder (except as a passive investor holding less than
a 5% equity interest in any enterprise) in any business entity engaged in
competition with the Business conducted by the Company on the Date of
Termination anywhere in the world; provided, that the Executive may be employed
by a competitor of the Company so long as the Executive's duties and
responsibilities do not relate directly or indirectly to the business segment of
the new employer which is actually or potentially competitive with the Business.
7. ASSIGNMENT OF INVENTIONS. The Executive agrees that all processes,
technologies, designs and inventions, including new contributions, improvements,
ideas and discoveries, whether patentable or not (collectively "Inventions"),
conceived, developed, invented or made by the Executive prior to the Date of
Termination shall belong to the Company, provided that such Inventions grew out
of the Executive's work with the Company or any of its subsidiaries or
affiliates, are related in any manner to the business (commercial or
experimental) of the Company or any of its subsidiaries or affiliates or are
conceived or made on the Company's time or with the use of the Company's
facilities or materials. At the request of the Company, the Executive shall (i)
promptly disclose such Inventions to the Company, (ii) assign to the Company,
without additional compensation, all patent and other rights to such Inventions
for the United States and foreign
10
<PAGE>
countries, (iii) sign all papers necessary to carry out the foregoing, and
(iv) give testimony or otherwise take action in support of the Executive's
status as the inventor of such Inventions, in each case at the Company's
expense.
8. CONFIDENTIALITY. In addition to any obligation regarding
Inventions, the Executive acknowledges that the trade secrets and confidential
and proprietary information of the Company, its subsidiaries and affiliates,
including without limitation:
(a) unpublished information concerning:
(i) research activities and plans,
(ii) marketing or sales plans,
(iii) pricing or pricing strategies,
(iv) operational techniques, and
(v) strategic plans;
(b) unpublished financial information, including information
concerning revenues, profits and profit margins;
(c) internal confidential manuals; and
(d) any "material inside information" as such phrase is used for
purposes of the Securities Exchange Act of 1934, as amended; all constitute
valuable, special and unique information of the Company, its subsidiaries and
affiliates. In recognition of this fact, the Executive agrees that the
Executive will not disclose any such trade secrets or confidential or
proprietary information (except (i) information which becomes publicly available
without violation of this Agreement, (ii) information of which the Executive,
prior to disclosure by the Executive, did not know and should not have known was
disclosed to the Executive by a third party in violation of any other person's
confidentiality or fiduciary obligation, (iii) disclosure required in connection
with any legal process (provided the Executive promptly gives the Company
written notice of any legal process seeking to compel such disclosure and
reasonably cooperates in the Company's attempt to eliminate or limit the scope
of such disclosure) and (iv) disclosure while employed by the Company which the
Executive reasonably and in good faith believes to be in or not opposed to the
interests of the Company) to any person, firm, corporation, association or other
entity, for any reason or purpose whatsoever, nor shall the Executive make use
of any such information for the benefit of any person, firm, corporation or
other entity except on behalf of the Company, its subsidiaries and affiliates.
9. BINDING AGREEMENT. This Agreement and all rights of the Executive
hereunder shall inure to the benefit of and be enforceable by the Executive's
personal or legal representatives, executors, administrators,
11
<PAGE>
successors, heirs, distributees, devisees and legatees. If the Executive
should die while any amounts would still be payable to him hereunder if he
had continued to live, all such amounts, unless otherwise provided in this
Agreement, shall be paid to the Executive's devisee, legatee, or other
designee or, if there be no such designee, to the Executive's estate.
10. NOTICE. Notices, demands and all other communications provided
for in this Agreement shall be in writing and shall be deemed to have been duly
given when delivered, if delivered personally, or mailed by United States
certified or registered mail, return receipt requested, postage prepaid, and
when received if delivered otherwise, addressed as follows:
If to the Executive:
If to the Company:
Hexcel Corporation
281 Tresser Blvd.
Stamford, CT 06901-3238
Attn: General Counsel
or to such other address as any party may have furnished to the other in writing
in accordance herewith, except that notices of change of address shall be
effective only upon receipt.
11. GENERAL PROVISIONS. No provision of this Agreement may be
modified, waived or discharged unless such waiver, modification or discharge is
agreed to in writing signed by the Executive (or, if applicable, his legal
representative) and the Company. No waiver by either party hereto at any time
of any breach by the other party hereto of, or compliance with, any condition or
provision of this Agreement to be performed by such other party shall be deemed
a waiver of similar or dissimilar provisions or conditions at the same or at any
prior or subsequent time. No representations, oral or otherwise, express or
implied, with respect to the subject matter hereof have been made by either
party which are not set forth expressly in this Agreement. The validity,
interpretation, construction and performance of this Agreement shall be governed
by the laws of the State of [Connecticut] without regard to its conflicts of law
principles.
12. VALIDITY AND ENFORCEABILITY. The invalidity or unenforceability
of any provision of this Agreement shall not affect the validity or
enforceability of any other provision of this Agreement, which shall remain in
full force and effect. It is the
12
<PAGE>
desire and intent of the parties that the provisions of Sections 6, 7 and 8
hereof shall be enforceable to the fullest extent permitted by applicable law
or public policy. If any such provision or the application thereof to any
person or circumstance shall, to any extent, be construed to be invalid or
unenforceable in whole or in part, then such provision shall be construed in
a manner so as to permit its enforceability to the fullest extent permitted
by applicable law or public policy. In any case, the remaining provisions or
the application thereof to any person or circumstance other than those to
which they have been held invalid or unenforceable, shall remain in full
force and effect.
13. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
14. ARBITRATION. Any dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration,
conducted before a panel of three arbitrators in the State of [Connecticut], in
accordance with the rules of the American Arbitration Association then in
effect. Judgment may be entered on the arbitrator's award in any court having
jurisdiction; provided, however, that the Company shall be entitled to seek a
restraining order or injunction in any court of competent jurisdiction to
prevent any continuation of any violation of the provisions of Sections 6, 7 or
8 hereof.
15. ENTIRE AGREEMENT. This Agreement supercedes that certain
agreement between the Company and the Executive dated _______, which hereby is
terminated
16. REMEDIES. The Executive agrees that in addition to any other
remedy provided at law or in equity or in this Agreement, the Company shall be
entitled to a temporary restraining order and both preliminary and permanent
injunctions restraining Executive from violating any provision of Sections 6, 7
and 8 hereof. In the event the Company fails to make any payment to the
Executive when due, the Executive, in addition to any other remedy available at
law or in equity, shall be entitled to interest on such unpaid amounts from the
date such payment was due to the date actual payment is received by the
Executive, at the legal rate applicable to unpaid judgments. The Company shall
pay to the Executive all legal, audit, and actuarial fees and expenses as a
result of the termination of employment, including all such fees and expenses
incurred in contesting, arbitrating or disputing any action or failure to act by
the Company or in seeking to obtain or enforce any right under this Agreement or
any other plan, arrangement or agreement with the Company, provided that the
Executive has obtained a final determination supporting at least part of his
claim and there has been no determination that the balance of his claim was made
in bad faith.
13
<PAGE>
17. CONSENT TO JURISDICTION AND FORUM. The Executive hereby expressly
and irrevocably agrees that any action, whether at law or in equity, permitted
to be brought by the Company under this Agreement may be brought in the State of
[Connecticut] or in any federal court therein. The Executive hereby irrevocably
consents to personal jurisdiction in such court and to accept service of process
in accordance with the provisions of the laws of the State of [Connecticut]. In
the event the Company commences any such action in the State of [Connecticut] or
in any Federal court therein, the Company shall reimburse the Executive for the
reasonable expenses incurred by the Executive in his appearance in such forum
which are in addition to the expenses the Executive would have incurred by
appearing in the forum of the Executive's residence at that time, including but
not limited to additional legal fees.
HEXCEL CORPORATION
By: __________________________________
Name:
Title:
______________________________________
Executive
14
<PAGE>
SCHEDULE TO FORM OF
EXECUTIVE SEVERANCE AGREEMENT
LIST OF EACH EXECUTIVE OFFICER THAT IS A PARTY TO THIS FORM OF AGREEMENT WITH
HEXCEL:
Wayne Pensky
David Wong
15
<PAGE>
EXHIBIT 10.7
EXECUTIVE SEVERANCE AGREEMENT
AGREEMENT made as of the 3rd day of February, 1999, between HEXCEL
CORPORATION, a Delaware corporation with offices at Stamford, Connecticut (the
"Company"), and _________________________ (the "Executive").
WHEREAS, the Company is engaged in the business of developing,
manufacturing and marketing carbon fibers, fabrics, high-performance composite
materials and parts therefrom for the commercial aerospace, space and defense,
recreation and industrial markets throughout the world, and hereafter may engage
in other areas of business (collectively, the "Business");
WHEREAS, the Executive, as a result of training, expertise and
personal application over the years, has acquired and will continue to acquire
considerable and unique expertise and knowledge which are of substantial value
to the Company in the conduct, management and operation of the Business;
WHEREAS, the Company is willing to provide the Executive with certain
benefits in the event of the termination of the Executive's employment with the
Company, including in the event of a Change in Control (as hereinafter defined);
and
WHEREAS, the Executive, in consideration of receiving such benefits
from the Company, is willing to afford certain protection to the Company in
regard to the confidentiality of its information, ownership of inventions and
competitive activities.
NOW, THEREFORE, in consideration of the mutual covenants of the
Executive and the Company and of the Executive's continued employment with the
Company, the parties agree as follows:
1. POSITION AND DUTIES. The Executive shall initially serve as
_________ of the Company and shall have such duties, responsibilities, and
authority as he may have as of the date hereof (or any position to which he may
be promoted after the date hereof). The Executive shall devote substantially all
his working time and efforts to the business and affairs of the Company.
2. PLACE OF PERFORMANCE. In connection with the Executive's
employment by the Company, the Executive shall be based at the principal
executive offices of the Company in [Stamford, Connecticut], except for required
travel on the Company's business.
<PAGE>
3. TERMINATION. The Executive's employment hereunder may be
terminated under the following circumstances:
(a) DEATH. The Executive's employment hereunder shall
automatically terminate upon his death.
(b) DISABILITY. The Company may terminate the Executive's
employment hereunder due to the Executive's inability to perform the customary
duties of his employment by reason of any medical or psychological illness or
condition that is expected to be permanent or of indefinite duration, excluding
any such illness or condition that results from intentional self-inflicted
injury, alcoholism or drug abuse.
(c) CAUSE. The Company may terminate the Executive's employment
hereunder for Cause. The following shall constitute Cause:
(i) the willful and continued failure by the Executive to
substantially perform his duties with the Company (other than any such failure
resulting from the Executive's incapability due to physical or mental illness or
any such actual or anticipated failure after the issuance of a Notice of
Termination by the Executive for Good Reason) after demand for substantial
performance is delivered by the Company that specifically identifies the manner
in which the Company believes the Executive has not substantially performed his
duties; or
(ii) the willful engaging by the Executive in misconduct
that is demonstrably and materially injurious to the Company, monetarily or
otherwise including, but not limited to, conduct that violates the covenant not
to compete in Section 6 hereof. No act, or failure to act, on the Executive's
part shall be considered "willful" unless done, or omitted to be done, by him
not in good faith and without reasonable belief that his action or omission was
in the best interest of the Company. Notwithstanding the foregoing, the
Executive shall not be deemed to have been terminated for Cause without (i)
reasonable notice from the Board to the Executive setting forth the reasons for
the Company's intention to terminate for Cause, (ii) delivery to the Executive
of a resolution duly adopted by the affirmative vote of two-thirds or more of
the Board then in office (excluding the Executive if he is then a member of the
Board) at a meeting of the Board called and held for such purpose, finding that
in the good faith opinion of the Board, the Executive was guilty of the conduct
herein set forth and specifying the particulars thereof in detail, (iii) an
opportunity for the Executive, together with his counsel, to be heard before the
Board, and (iv) delivery to the Executive of a Notice of Termination from the
Board specifying the particulars thereof in detail.
2
<PAGE>
(d) GOOD REASON. The Executive may terminate his employment
hereunder for Good Reason. The following shall constitute Good Reason:
(i) A diminution in the Executive's position, duties,
responsibilities or authority (except during periods when the Executive is
unable to perform all or substantially all of his duties or responsibilities on
account of illness (either physical or mental) or other incapacity);
(ii) A reduction in the Executive's annual rate of base
salary as in effect on the date hereof or as the same may be increased from time
to time;
(iii) Failure by the Company to continue in effect any
compensation plan in which the Executive participates which is material to the
Executive's total compensation, unless an equitable arrangement (embodied in an
ongoing substitute plan) has been made with respect to such plan, or failure by
the Company to continue the Executive's participation therein (or in such
substitute plan) on a basis not materially less favorable to the Executive;
(iv) Failure by the Company to continue to provide the
Executive with benefits substantially similar to those enjoyed by the Executive
under any of the Company's pension, savings, life insurance, medical, health and
accident, or disability plans in which the Executive was participating (except
for across-the-board changes similarly affecting all senior executives of the
Company and all senior executives of any Person in control of the Company), or
failure by the Company to continue to provide the Executive with the number of
paid vacation days per year equal to the greater of (i) _____ and (ii) the
number to which the Executive is entitled in accordance with the Company's
vacation policy;
(v) Failure to provide facilities or services which are
suitable to the Executive's position;
(vi) Failure of any successor (whether direct or indirect,
by purchase of stock or assets, merger, consolidation or otherwise) to the
Company to assume the Company's obligations hereunder or failure by the Company
to remain liable to the Executive hereunder after such assumption;
(vii) Any termination by the Company of the Executive's
employment which is not effected pursuant to a Notice of Termination satisfying
the requirements of a Notice of Termination contained in this Agreement;
3
<PAGE>
(viii) The relocation of the Executive's principal place of
employment to a location more than fifty (50) miles from the Executive's
principal place of employment as at the date hereof; or
(ix) Failure to pay the Executive any portion of current or
deferred compensation within seven (7) days of the date such compensation is
due.
The Executive's continued employment shall not constitute consent to, or waiver
of rights with respect to, any circumstance constituting Good Reason hereunder;
provided, however, that the Executive shall be deemed to have waived his rights
pursuant to circumstances constituting Good Reason hereunder if he shall not
have provided the Company a Notice of Termination within ninety (90) days
following his knowledge of the occurrence of circumstances constituting Good
Reason.
(e) OTHER THAN DEATH, DISABILITY, CAUSE OR GOOD REASON. (i) The
Company may terminate the Executive's employment, other than as provided in
Sections (3)(a), (b) or (c) hereof, upon written notice to the Executive and
(ii) the Executive may terminate his employment with the Company, other than as
provided in Section 3(d) hereof, upon written notice to the Company.
(f) NOTICE OF TERMINATION; DATE OF TERMINATION. Any termination
of the Executive's employment by the Company or by the Executive (other than a
termination pursuant to Section 3(a) hereof) shall be communicated by written
Notice of Termination to the other party hereto in accordance with Section 10.
For purposes of this Agreement,
(i) "Notice of Termination" shall mean a notice which shall
indicate the specific termination provision in this Agreement relied upon and
shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of the Executive's employment under the
provision so indicated, and
(ii) "Date of Termination" shall mean (A) if the Executive's
employment is terminated pursuant to Section 3(a), the date of his death, (B) if
the Executive's employment is terminated pursuant to Section 3(b), thirty days
after Notice of Termination is given (provided that the Executive shall not have
returned substantially to full-time performance of the Executive's duties
during such thirty day period), (C) if the Executive's employment is terminated
pursuant to Sections 3(c), (d) or (e), the date specified in the Notice of
Termination (provided that such date shall not be more than thirty days from the
date Notice of Termination is given and, in the case of a termination for Cause,
shall not be less than fifteen days from the date Notice of Termination is
given), or (D) if the Executive terminates his employment and fails to provide
written notice to the Company of such termination, the date of such termination.
4
<PAGE>
4. COMPENSATION UPON DEATH, DISABILITY OR TERMINATION.
(a) If the Executive's employment is terminated by his death, the
Company shall pay the Executive's legal representative (i) at the time such
payments are due, the Executive's full base salary through the Date of
Termination at the rate in effect at the Date of Termination and all other
unpaid amounts, if any, to which the Executive is entitled as of the Date of
Termination including any reimbursable business expenses and amounts earned
under any compensation plan or program (including the Bonus Plan) and (ii)
within ten days following the date of the Executive's death, a lump sum payment
in an amount equal to the sum of (A) the Executive's annual base salary in
effect as of the Date of Termination and (B) the Executive's Average Annual
Bonus (the term "Average Annual Bonus" shall mean the average of the last three
annual bonus amounts awarded to the Executive under the Company's Management
Incentive Compensation Plan, or any successor, alternate or supplemental plan
(the "Bonus Plan") or, if the Executive has not participated in the Bonus Plan
for three completed annual award periods, the average of the annual bonus
amounts awarded, provided that any award made in respect of an annual award
period in which the Executive did not participate for the full period (the "Pro-
Rata Award") shall be annualized for purposes of computing the Average Bonus
Amount by multiplying the Pro-Rata Award by a fraction, of which the numerator
is 365 and the denominator is the number of days during which the Executive
participated in such annual award period).
(b) During any period that the Executive fails to perform his
duties hereunder as a result of incapacity due to physical or mental illness the
Executive shall continue to receive his full base salary at the rate then in
effect for such period (offset by any payments to the Executive received
pursuant to disability benefit plans maintained by the Company) until his
employment is terminated pursuant to Section 3(b) hereof; and within ten days
following such termination, the Company shall pay the Executive (i) all unpaid
amounts, if any, to which the Executive is entitled as of the Date of
Termination including any reimbursable business expenses and amounts earned
under any compensation plan or program (including the Bonus Plan) and (ii) a
lump sum payment in an amount equal to the sum of (A) the Executive's annual
base salary in effect as of the Date of Termination and (B) the Executive's
Average Annual Bonus.
(c) If the Executive's employment is terminated by the Company for
Cause or by the Executive for other than Good Reason, the Company shall at the
time such payments are due pay the Executive his full base salary through the
Date of Termination at the rate in effect at the time Notice of Termination is
given and all other unpaid amounts, if any, to which the Executive is entitled
as of the Date of Termination including any reimbursable business expenses and
amounts earned under any compensation plan or program (including the Bonus
5
<PAGE>
Plan), and the Company shall, thereafter, have no further obligations to the
Executive under this Agreement.
(d) If (1) the Company shall terminate the Executive's employment
other than for Disability and other than for Cause or (2) the Executive shall
terminate his employment for Good Reason, then
(i) the Company shall pay the Executive on the Date of
Termination, by wire transfer to the bank account designated by the Executive,
the Executive's full base salary through the Date of Termination at the rate in
effect at the time Notice of Termination is given (disregarding any reduction in
salary rate which would constitute a Good Reason) and all other unpaid amounts,
if any, to which the Executive is entitled as of the Date of Termination
including any reimbursable business expenses and amounts earned under any
compensation plan or program (including the Bonus Plan);
(ii) in lieu of any further salary payments to the Executive
for periods subsequent to the Date of Termination, the Company shall pay to the
Executive on the Date of Termination, by wire transfer to the bank account
designated by the Executive, an amount equal to the product of (A) the sum of
(1) the Executive's annual base salary in effect at the time the Notice of
Termination is given (disregarding any reduction in salary rate which would
constitute a Good Reason) and (2) the Executive's Average Annual Bonus, and (B)
(x) if the Executive terminates his employment or the Company terminates the
Executive's employment, in either case within two years after the occurrence of
a Change in Control, the number three or (y) in any other case, the number one;
and
(iii) the Company shall continue the participation of the
Executive for a period of one year (except, if the Executive terminates his
employment or the Company terminates the Executive's employment, in either case
within two years after the occurrence of a Change in Control, such period shall
be three years), in all medical, health, life and other employee "welfare" plans
and programs in which the Executive participated immediately prior to the Date
of Termination, provided that the Executive's continued participation is
possible under the general terms and provisions of such plans and programs. In
the event that the Executive's participation in any such plan or program is
barred, the Company shall by other means provide the Executive with benefits
equivalent to those which the Executive would otherwise have been entitled to
receive under such plans and programs from which his continued participation is
barred.
(e) If the Company shall terminate the Executive's employment
other than for Cause, or the Executive shall terminate his employment for Good
Reason, during the period of a Potential Change in Control or at the request of
a person who, directly or indirectly, takes any action designed to cause a
Change in
6
<PAGE>
Control, then the Company shall make payments and provide benefits to the
Executive under this Agreement as though a Change in Control had occurred
immediately prior to such termination. A "Potential Change in Control" shall
exist during the period commencing at the time the Company enters into any
agreement or arrangement which, if consummated, would result in a Change in
Control and ending at the time such agreement or arrangement either (i)
results in a Change in Control or (ii) terminates, expires or otherwise
becomes of no further force or effect.
(f) For purposes of this Agreement, a "Change in Control" shall
mean the first to occur of the following events:
(1) (i) Any person (as defined in Section 3(a)(9) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), as modified
and used in Sections 13(d) and 14(d) of the Exchange Act, but excluding Ciba for
so long as Ciba is subject to the restrictions imposed by the Governance
Agreement) (a "Person") is or becomes the Beneficial Owner (within the meaning
of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of either (A)
the then outstanding Common Stock of the Company (the "Outstanding Common
Stock") or (B) the combined voting power of the then outstanding securities
entitled to vote generally in the election of directors of the Company (the
"Total Voting Power"); excluding, however, the following: (x) any acquisition
by the Company or any of its affiliates or (y) any acquisition by any employee
benefit plan (or related trust) sponsored or maintained by the Company or any of
its affiliates and (ii) Ciba Beneficially Owns, in the aggregate, a lesser
percentage of the Total Voting Power than such Person Beneficially Owns;
(2) A change in the composition of the Board such that the
individuals who, as of the effective date of this Agreement, constitute the
Board (such individuals shall be hereinafter referred to as the "Incumbent
Directors") cease for any reason to constitute at least a majority of the Board;
provided, however, for purposes of this definition, that any individual who
becomes a director subsequent to such effective date, whose election, or
nomination for election by the Company's stockholders, was made or approved
pursuant to the Governance Agreement or by a vote of at least a majority of the
Incumbent Directors (or directors whose election or nomination for election was
previously so approved) shall be considered a member of the Incumbent Board;
but, provided, further, that any such individual whose initial assumption of
office occurs as a result of either an actual or threatened election contest (as
such terms are used in Rule 14a-11 of Regulation 14A promulgated under the
Exchange Act) or other actual or threatened solicitation of proxies or consents
by or on behalf of a person or legal entity other than the Board shall not be so
considered a member of the Incumbent Board;
(3) The effective date of a reorganization, merger or
consolidation by the Company, or the approval by the stockholders of the Company
7
<PAGE>
of a sale or other disposition of all or substantially all of the assets of the
Company ("Corporate Transaction"); excluding, however, such a Corporate
Transaction (1) pursuant to which all or substantially all of the individuals
and entities who are the beneficial owners, respectively, of the Outstanding
Common Stock and Total Voting Power immediately prior to such Corporate
Transaction will beneficially own, directly or indirectly, more than 50%,
respectively, of the outstanding common stock and the combined voting power of
the then outstanding securities entitled to vote generally in the election of
directors of the company resulting from such Corporate Transaction (including,
without limitation, a corporation which as a result of such transaction owns the
Company or all or substantially all of the Company's assets either directly or
through one or more subsidiaries) in substantially the same proportions as their
ownership, immediately prior to such Corporate Transaction, of the Outstanding
Common Stock and Total Voting Power, as the case may be, or (2) after which no
Person beneficially owns a greater percentage of the combined voting power of
the then outstanding securities entitled to vote generally in the election of
directors of such corporation than does Ciba;
(4) Ciba shall become the Beneficial Owner of more than 57.5%
of the Total Voting Power; or
(5) The approval by the stockholders of the Company of a
complete liquidation or dissolution of the Company.
For purposes of this Section 4(f), (x) the term "Ciba" shall mean
Ciba Specialty Chemicals Holding Inc., a Swiss corporation, together with it
affiliates holding Company voting securities pursuant to Section 4.01(b) of the
Governance Agreement, (y) the term "Governance Agreement" shall have the meaning
given in that certain Strategic Alliance Agreement among the Company, Ciba-Geigy
Limited and Ciba Geigy Corporation, dated as of September 29, 1995, as amended,
and any of their respective permitted successors or assigns thereunder, and (z)
the consolidation between Ciba and Clariant shall be deemed not to be a "Change
in Control."
(g) Notwithstanding any other provisions of this Agreement, in
the event that any payment, benefit, property or right received or to be
received by the Executive in connection with a Change in Control or the
Executive's termination of employment (whether pursuant to the terms of this
Agreement or any other plan, arrangement or agreement with the Company, any
Person whose actions result in a Change in Control or any Person affiliated with
the Company or such Person) (all such payments, benefits, properties and rights
being hereinafter referred to as the "Total Payments") would be subject (in
whole or part) to the tax (the "Excise Tax") imposed by Section 4999 of the
Internal Revenue Code of 1986, as amended, or any successor provision (the
"Code"), then the payments and benefits provided under Section 4(d) or 4(e)
hereof ("Severance Payments") which are cash shall first
8
<PAGE>
be reduced, and the noncash Severance Payments shall thereafter be reduced,
to the extent necessary so that no portion of the Total Payments is subject
to the Excise Tax, but only if (A) the net amount of such Total Payments, as
so reduced (and after subtracting the net amount of federal, state and local
income taxes on such reduced Total Payments) is greater than or equal to (B)
the net amount of such Total Payments without such reduction (but after
subtracting the net amount of federal, state and local income taxes on such
Total Payments and the amount of Excise Tax to which the Executive would be
subject in respect of such unreduced Total Payments); provided, however, that
the Executive may elect (by waiving the receipt or enjoyment of all or any
portion of the noncash Severance Payments at such time and in such manner
that the Severance Payments so waived shall not constitute a "payment" within
the meaning of section 280G(b) of the Code) to have the noncash Severance
Payments reduced (or eliminated) prior to any reduction of the cash Severance
Payments. For purposes of determining whether and the extent to which the
Total Payments will be subject to the Excise Tax (i) no portion of the Total
Payments the receipt or enjoyment of which the Executive shall have waived at
such time and in such manner as not to constitute a "payment" within the
meaning of section 280G(b) of the Code shall be taken into account, (ii) no
portion of the Total Payments shall be taken into account which, in the
written opinion of tax counsel ("Tax Counsel") reasonably acceptable to the
Executive and selected by the accounting firm (the "Auditor") which was,
immediately prior to the Change in Control, the Company's independent
auditor, does not constitute a "parachute payment" within the meaning of
section 280G(b)(2) of the Code (including by reason of section 280G(b)(4)(A)
of the Code) and, in calculating the Excise Tax, no portion of such Total
Payments shall be taken into account which, in the written opinion of Tax
Counsel, constitutes reasonable compensation for services actually rendered,
within the meaning of section 280G(b)(4)(B) of the Code, in excess of the
Base Amount allocable to such reasonable compensation, and (iii) the value of
any noncash benefit or any deferred payment or benefit included in the Total
Payments shall be determined by the Auditor in accordance with the principles
of sections 280G(d)(3) and (4) of the Code. At the time that payments are
made under this Agreement, the Company shall provide the Executive with a
written statement setting forth the manner in which such payments were
calculated and the basis for such calculations including, without limitation,
any opinions or other advice the Company has received from Tax Counsel, the
Auditor or other advisors or consultants (and all such opinions or advice
shall be in writing, shall be attached to the statement and shall expressly
state that the Executive may rely thereon). If the Executive objects to the
Company's calculations, the Company shall pay to the Executive such portion
of the Severance Payments (up to 100% thereof) as the Executive determines is
necessary to result in the proper application of the first sentence of this
Section 4(g). The Executive and the Company shall each reasonably cooperate
with the other in connection with any administrative or judicial proceedings
concerning the existence or amount of liability for Excise Tax with respect
to the Total Payments.
9
<PAGE>
5. NO MITIGATION. The Executive shall not be required to mitigate the
amount of any payment provided for in this Agreement by seeking other employment
or otherwise, nor shall the amount of any payment or benefit provided for in
this Agreement be reduced by any compensation earned by the Executive as the
result of employment by another employer, by retirement benefits, by offset
against any amount claimed to be owed by the Executive to the Company, or
otherwise.
6. COVENANT NOT TO COMPETE. The Executive acknowledges that, as a
senior management employee, the Executive will be involved, on a high level, in
the development, implementation and management of the Company's global business
plans, including those which involve the Company's finances, research,
marketing, planning, operations, and acquisition strategies. By virtue of the
Executive's position and knowledge of the Company, the Executive acknowledges
that his employment by a competitor of the Company represents a serious
competitive danger to the Company, and that the use of the Executive's
experience and knowledge about the Company's business, strategies and plans by a
competitor can and would constitute a valuable competitive advantage over the
Company. In view of the foregoing, and in consideration of the payments made to
the Executive under this Agreement, the Executive covenants and agrees that, if
the Executive's employment is terminated and the Company has fulfilled its
obligations under this Agreement, for a period of three years after the Date of
Termination the Executive will not engage, in any capacity, directly or
indirectly, including but not limited as employee, agent, consultant, manager,
executive, owner or stockholder (except as a passive investor holding less than
a 5% equity interest in any enterprise) in any business entity engaged in
competition with the Business conducted by the Company on the Date of
Termination anywhere in the world; provided, that the Executive may be employed
by a competitor of the Company so long as the Executive's duties and
responsibilities do not relate directly or indirectly to the business segment of
the new employer which is actually or potentially competitive with the Business.
7. ASSIGNMENT OF INVENTIONS. The Executive agrees that all processes,
technologies, designs and inventions, including new contributions, improvements,
ideas and discoveries, whether patentable or not (collectively "Inventions"),
conceived, developed, invented or made by the Executive prior to the Date of
Termination shall belong to the Company, provided that such Inventions grew out
of the Executive's work with the Company or any of its subsidiaries or
affiliates, are related in any manner to the business (commercial or
experimental) of the Company or any of its subsidiaries or affiliates or are
conceived or made on the Company's time or with the use of the Company's
facilities or materials. At the request of the Company, the Executive shall (i)
promptly disclose such Inventions to the Company, (ii) assign to the Company,
without additional compensation, all patent and other rights to such Inventions
for the United States and foreign
10
<PAGE>
countries, (iii) sign all papers necessary to carry out the foregoing, and
(iv) give testimony or otherwise take action in support of the Executive's
status as the inventor of such Inventions, in each case at the Company's
expense.
8. CONFIDENTIALITY. In addition to any obligation regarding
Inventions, the Executive acknowledges that the trade secrets and confidential
and proprietary information of the Company, its subsidiaries and affiliates,
including without limitation:
(a) unpublished information concerning:
(i) research activities and plans,
(ii) marketing or sales plans,
(iii) pricing or pricing strategies,
(iv) operational techniques, and
(v) strategic plans;
(b) unpublished financial information, including information
concerning revenues, profits and profit margins;
(c) internal confidential manuals; and
(d) any "material inside information" as such phrase is used for
purposes of the Securities Exchange Act of 1934, as amended; all constitute
valuable, special and unique information of the Company, its subsidiaries and
affiliates. In recognition of this fact, the Executive agrees that the
Executive will not disclose any such trade secrets or confidential or
proprietary information (except (i) information which becomes publicly available
without violation of this Agreement, (ii) information of which the Executive,
prior to disclosure by the Executive, did not know and should not have known was
disclosed to the Executive by a third party in violation of any other person's
confidentiality or fiduciary obligation, (iii) disclosure required in connection
with any legal process (provided the Executive promptly gives the Company
written notice of any legal process seeking to compel such disclosure and
reasonably cooperates in the Company's attempt to eliminate or limit the scope
of such disclosure) and (iv) disclosure while employed by the Company which the
Executive reasonably and in good faith believes to be in or not opposed to the
interests of the Company) to any person, firm, corporation, association or other
entity, for any reason or purpose whatsoever, nor shall the Executive make use
of any such information for the benefit of any person, firm, corporation or
other entity except on behalf of the Company, its subsidiaries and affiliates.
9. BINDING AGREEMENT. This Agreement and all rights of the Executive
hereunder shall inure to the benefit of and be enforceable by the Executive's
personal or legal representatives, executors, administrators,
11
<PAGE>
successors, heirs, distributees, devisees and legatees. If the Executive
should die while any amounts would still be payable to him hereunder if he
had continued to live, all such amounts, unless otherwise provided in this
Agreement, shall be paid to the Executive's devisee, legatee, or other
designee or, if there be no such designee, to the Executive's estate.
10. NOTICE. Notices, demands and all other communications provided
for in this Agreement shall be in writing and shall be deemed to have been duly
given when delivered, if delivered personally, or mailed by United States
certified or registered mail, return receipt requested, postage prepaid, and
when received if delivered otherwise, addressed as follows:
If to the Executive:
If to the Company:
Hexcel Corporation
281 Tresser Blvd.
Stamford, CT 06901-3238
Attn: General Counsel
or to such other address as any party may have furnished to the other in writing
in accordance herewith, except that notices of change of address shall be
effective only upon receipt.
11. GENERAL PROVISIONS. No provision of this Agreement may be
modified, waived or discharged unless such waiver, modification or discharge is
agreed to in writing signed by the Executive (or, if applicable, his legal
representative) and the Company. No waiver by either party hereto at any time
of any breach by the other party hereto of, or compliance with, any condition or
provision of this Agreement to be performed by such other party shall be deemed
a waiver of similar or dissimilar provisions or conditions at the same or at any
prior or subsequent time. No representations, oral or otherwise, express or
implied, with respect to the subject matter hereof have been made by either
party which are not set forth expressly in this Agreement. The validity,
interpretation, construction and performance of this Agreement shall be governed
by the laws of the State of [Connecticut] without regard to its conflicts of law
principles.
12. VALIDITY AND ENFORCEABILITY. The invalidity or unenforceability
of any provision of this Agreement shall not affect the validity or
enforceability of any other provision of this Agreement, which shall remain in
full force and effect. It is the
12
<PAGE>
desire and intent of the parties that the provisions of Sections 6, 7 and 8
hereof shall be enforceable to the fullest extent permitted by applicable law
or public policy. If any such provision or the application thereof to any
person or circumstance shall, to any extent, be construed to be invalid or
unenforceable in whole or in part, then such provision shall be construed in
a manner so as to permit its enforceability to the fullest extent permitted
by applicable law or public policy. In any case, the remaining provisions or
the application thereof to any person or circumstance other than those to
which they have been held invalid or unenforceable, shall remain in full
force and effect.
13. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
14. ARBITRATION. Any dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration,
conducted before a panel of three arbitrators in the State of [Connecticut], in
accordance with the rules of the American Arbitration Association then in
effect. Judgment may be entered on the arbitrator's award in any court having
jurisdiction; provided, however, that the Company shall be entitled to seek a
restraining order or injunction in any court of competent jurisdiction to
prevent any continuation of any violation of the provisions of Sections 6, 7 or
8 hereof.
15. ENTIRE AGREEMENT. This Agreement supercedes that certain
agreement between the Company and the Executive dated _______, which hereby is
terminated
16. REMEDIES. The Executive agrees that in addition to any other
remedy provided at law or in equity or in this Agreement, the Company shall be
entitled to a temporary restraining order and both preliminary and permanent
injunctions restraining Executive from violating any provision of Sections 6, 7
and 8 hereof. In the event the Company fails to make any payment to the
Executive when due, the Executive, in addition to any other remedy available at
law or in equity, shall be entitled to interest on such unpaid amounts from the
date such payment was due to the date actual payment is received by the
Executive, at the legal rate applicable to unpaid judgments. The Company shall
pay to the Executive all legal, audit, and actuarial fees and expenses as a
result of the termination of employment, including all such fees and expenses
incurred in contesting, arbitrating or disputing any action or failure to act by
the Company or in seeking to obtain or enforce any right under this Agreement or
any other plan, arrangement or agreement with the Company, provided that the
Executive has obtained a final determination supporting at least part of his
claim and there has been no determination that the balance of his claim was made
in bad faith.
13
<PAGE>
17. CONSENT TO JURISDICTION AND FORUM. The Executive hereby expressly
and irrevocably agrees that any action, whether at law or in equity, permitted
to be brought by the Company under this Agreement may be brought in the State of
[Connecticut] or in any federal court therein. The Executive hereby irrevocably
consents to personal jurisdiction in such court and to accept service of process
in accordance with the provisions of the laws of the State of [Connecticut]. In
the event the Company commences any such action in the State of [Connecticut] or
in any Federal court therein, the Company shall reimburse the Executive for the
reasonable expenses incurred by the Executive in his appearance in such forum
which are in addition to the expenses the Executive would have incurred by
appearing in the forum of the Executive's residence at that time, including but
not limited to additional legal fees.
HEXCEL CORPORATION
By: __________________________________
Name:
Title:
______________________________________
Executive
SCHEDULE TO FORM OF
14
<PAGE>
EXECUTIVE SEVERANCE AGREEMENT
LIST OF EACH EXECUTIVE OFFICER THAT IS A PARTY TO THIS FORM OF AGREEMENT WITH
HEXCEL:
Harold E. Kinne
Stephen C. Forsyth
Ira J. Krakower
Joseph H. Shaulson
15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 2,458
<SECURITIES> 0
<RECEIVABLES> 207,481
<ALLOWANCES> 7,597
<INVENTORY> 204,748
<CURRENT-ASSETS> 435,808
<PP&E> 623,245
<DEPRECIATION> 202,052
<TOTAL-ASSETS> 1,396,987
<CURRENT-LIABILITIES> 216,178
<BONDS> 836,718
0
0
<COMMON> 373
<OTHER-SE> 300,749
<TOTAL-LIABILITY-AND-EQUITY> 1,396,987
<SALES> 316,170
<TOTAL-REVENUES> 316,170
<CGS> 245,399
<TOTAL-COSTS> 245,399
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 19,106
<INCOME-PRETAX> 8,063
<INCOME-TAX> 2,839
<INCOME-CONTINUING> 5,208
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,208
<EPS-PRIMARY> 0.14
<EPS-DILUTED> 0.14
</TABLE>
