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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 2, 1999
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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HEXCEL CORPORATION
(Exact name of Registrant as specified in its charter)
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DELAWARE 3089 94-1109521
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification
incorporation or organization) No.)
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TWO STAMFORD PLAZA
281 TRESSER BOULEVARD
STAMFORD, CONNECTICUT 06901-3238
(203) 969-0666
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
IRA J. KRAKOWER, ESQ.
HEXCEL CORPORATION
TWO STAMFORD PLAZA
281 TRESSER BOULEVARD
STAMFORD, CONNECTICUT 06901-3238
(203) 969-0666
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
COPY TO:
JOSEPH A. COCO, ESQ.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
919 THIRD AVENUE
NEW YORK, NEW YORK 10022
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
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If the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration number of the earlier effective
registration statement for the same offering. / /____________
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /____________
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CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM
OFFERING PROPOSED MAXIMUM
TITLE OF EACH CLASS AMOUNT TO PRICE AGGREGATE OFFERING AMOUNT OF
OF SECURITIES TO BE REGISTERED BE REGISTERED PER UNIT(1) PRICE(1) REGISTRATION FEE
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9 3/4% Senior Subordinated Notes Due
2009..................................... $240,000,000 100% $240,000,000 $66,720
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(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(f) under the Securities Act of 1933, as amended.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
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THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
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SUBJECT TO COMPLETION, DATED FEBRUARY 2, 1999
PROSPECTUS
Offer to Exchange All 9 3/4% Senior Subordinated Notes Due 2009
for 9 3/4% Senior Subordinated Notes Due 2009, Which Have Been Registered
Under the Securities Act of 1933, As Amended, of
Hexcel Corporation
The Exchange Offer will expire at 5:00 P.M.,
New York City time, on , 1999, unless extended.
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Terms of the Exchange Offer:
- We will exchange all Original Notes that are validly tendered and not
withdrawn prior to the expiration of the Exchange Offer.
- You may withdraw tenders of Original Notes at any time prior to the
expiration of the Exchange Offer.
- We believe that the exchange of Original Notes will not be a taxable event
for U.S. federal income tax purposes, but you should see "Certain United
States Federal Income Tax Considerations" on page 111 for more
information.
- We will not receive any proceeds from the Exchange Offer.
- The terms of the Exchange Notes are substantially identical to the
Original Notes, except that the Exchange Notes are registered under the
Securities Act and the transfer restrictions and registration rights
applicable to the Original Notes do not apply to the Exchange Notes.
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See "Risk Factors" beginning on page 12 for a discussion of certain risks
that should be considered by holders prior to tendering their Original Notes.
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Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this Prospectus. Any representation to the contrary is a
criminal offense.
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The date of this Prospectus is , 1999.
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FORWARD-LOOKING STATEMENTS
This Prospectus includes and incorporates by reference forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995. These statements relate to analyses and other information which are based
on forecasts of future results and estimates of amounts not yet determinable.
These statements also relate to our future prospects, developments and business
strategies.
These forward-looking statements are identified by their use of terms and
phrases such as "anticipate," "believe," "could," "estimate," "expect,"
"intend," "may," "plan," "predict," "project," "will" and similar terms and
phrases, including references to assumptions. These statements are contained in
sections entitled "Prospectus Summary," "Risk Factors," "Management's Discussion
and Analysis of Financial Condition and Results of Operations," "Business" and
other sections of this Prospectus and in the documents incorporated by reference
in this Prospectus.
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) expectations regarding the growth in the production of
military aircraft and launch vehicle programs in 2000 and beyond; (c)
expectations regarding the recovery of the electronics market; (d) expectations
regarding the impact of pricing pressures from Hexcel's customers; (e)
expectations regarding the ability of Hexcel to pass along pricing reductions to
its suppliers; (f) expectations regarding future sales based on current backlog;
(g) expectations regarding sales growth, sales mix, gross margins, manufacturing
productivity, capital expenditures and effective tax rates; (h) expectations
regarding Hexcel's financial condition and liquidity, as well as future free
cash flows and earnings; (i) estimates of the total cost of Hexcel's business
consolidation program and estimates of the amount of cash expenditures to
complete the program; (j) expectations regarding the costs and benefits of
accelerating and expanding Hexcel's Lean Enterprise and business consolidation
programs and implementing a supply chain management program; 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; 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 for Year 2000 compliance. Additional information
regarding these factors is contained in our annual report on Form 10-K for the
year ended December 31, 1997 and subsequent quarterly reports on Form 10-Q.
Our risks are more specifically described in "Risk Factors" and in our
annual report on Form 10-K and quarterly reports on Form 10-Q, which are
incorporated by reference in this Prospectus. If one or more of these risks or
uncertainties materialize, or if underlying assumptions prove incorrect, our
actual results may vary materially from those expected, estimated or projected.
We do not undertake to update our forward-looking statements or risk factors
to reflect future events or circumstances.
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PROSPECTUS SUMMARY
The following summary highlights selected information from this Prospectus
and may not contain all of the information that is important to you. This
Prospectus includes specific terms of the notes we are offering, as well as
information regarding our business and detailed financial data. We encourage you
to read this Prospectus in its entirety. The terms "Hexcel," "the Company," "our
company" and "we" as used in this Prospectus refer to Hexcel Corporation, the
issuer of your notes and the notes to be issued in the Exchange Offer, and its
subsidiaries as a combined entity, except where it is made clear that such term
means only the parent company. Unless otherwise indicated, the market and market
share data contained in this Prospectus are derived from publicly available
industry sources, which we have not independently verified. You should pay
special attention to the "Risk Factors" section beginning on page 12 of this
Prospectus. For a description of certain industry-related terms, see "Glossary
of Terms."
THE EXCHANGE OFFER
On January 21, 1999, we completed the private offering of $240 million
aggregate principal amount of 9 3/4% Senior Subordinated Notes Due 2009 (the
"Original Notes"). In connection with this private offering, we entered into a
registration rights agreement with the initial purchasers of the Original Notes
in which we agreed, among other things, to deliver this Prospectus to you and to
complete an exchange offer for the Original Notes. Pursuant to the registration
rights agreement, we are offering to exchange $240 million aggregate principal
amount of our 9 3/4% Senior Subordinated Notes Due 2009, which have been
registered under the Securities Act (the "Exchange Notes"), for a like aggregate
principal amount of our Original Notes (the "Exchange Offer"). You are entitled
to exchange your Original Notes for Exchange Notes with substantially identical
terms. We urge you to read the discussions under the headings "Summary of the
Exchange Offer" and "Summary of Terms of the Exchange Notes" in this Prospectus
Summary for further information regarding the Exchange Offer and the Exchange
Notes.
THE COMPANY
GENERAL
Our company is the world's leading producer of advanced structural
materials. We develop, manufacture and market lightweight, high-performance
carbon fibers, industrial fabrics, composite materials and engineered products
for use in commercial aerospace, space and defense, electronics, recreation and
general industrial applications. Our materials are used in a wide variety of end
products, such as commercial and military aircraft, space launch vehicles and
satellites, printed circuit boards ("PCBs"), computers, cellular telephones,
televisions, high-speed trains and ferries, cars and trucks, windmill blades,
reinforcements for bridges and other structures, window blinds, skis and
snowboards, golf clubs, fishing poles, tennis rackets and bicycles.
Our business is organized around three strategic business segments,
presented in order of manufacturing integration from raw materials to finished
products.
- FIBERS AND FABRICS: this segment manufactures carbon fibers and carbon
fiber fabrics, fiberglass fabrics which form the substrate for PCBs, woven
industrial fabrics, woven fabrics for ballistics protection and carbon,
aramid and glass reinforcement materials, all of which comprise the
foundation of many composite materials, parts and structures;
- COMPOSITE MATERIALS: this segment produces honeycomb and prepregs, as well
as structural adhesives and specially machined honeycomb details and
composite panels, which are incorporated into aerospace platforms; and
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- ENGINEERED PRODUCTS: this segment engineers and produces composite parts
and structures, including finished components for commercial and military
aircraft and parts used in automotive, civil engineering and rail
applications.
Through a series of strategic acquisitions over the past three years, we
have expanded and diversified our product lines, manufacturing capabilities and
technology portfolio. With 24 manufacturing facilities located in seven
countries around the world and with joint ventures in Asia, Europe and the
United States, we are well positioned to take advantage of opportunities for
growth worldwide. We believe that we have achieved a degree of vertical
integration unmatched by any competitor. This vertical integration enhances our
control over the cost, quality and delivery of our products, and enables us to
offer a variety of solutions to our customers' structural materials needs. For
the twelve months ended September 30, 1998, our company generated pro forma net
sales of approximately $1.246 billion and pro forma Adjusted EBITDA (as defined)
of $214 million.
COMPETITIVE STRENGTHS
We believe that our competitive position is attributable to a number of key
strengths, including the following:
- MARKET LEADER. We believe that our company is the largest integrated
producer of advanced structural materials in the world. We are the largest
supplier of advanced structural materials to both the commercial and
military aerospace industries. We are the global leader in weaving carbon
fibers. As a result of the Clark-Schwebel acquisition, we are now the
global leader in weaving glass and aramid fibers, with an especially
strong position as the leading worldwide supplier of fiberglass fabrics
used in the manufacture of PCBs. Taken together, our overall size and
leading market positions make us a critical supplier to our customers in
multiple end-use industries.
- VERTICAL INTEGRATION. We believe that our acquisitions since 1996 have
built Hexcel into the most vertically integrated manufacturer of advanced
structural materials in the world. Vertical integration provides us with a
greater ability to control the cost, quality and delivery of our products.
In addition, because we develop, manufacture and sell products from
various points in the manufacturing process, we are able to provide the
broadest possible range of overall materials solutions to our customers.
Currently, we consume internally approximately 42% and 27% of our carbon
fiber and fabric production, respectively, and sell the balance of these
products to our customers.
- MARKET AND GEOGRAPHIC DIVERSITY. Approximately 58% of our pro forma net
sales for the twelve months ended September 30, 1998 was derived from the
commercial aerospace industry; 9% from the space and defense industry; 15%
from the electronics industry; 13% from general industrial markets; and 5%
from recreation products. During the same period, we sold 61%, 33% and 6%
of our products to customers located in North America, Europe and the
Pacific Rim, respectively. We believe that this market and geographic
diversity provides us with growth platforms in a number of global markets
that follow different business cycles.
- BROADEST RANGE OF QUALIFICATIONS IN THE AEROSPACE INDUSTRY. We believe
that our company has the broadest range of product qualifications of any
advanced materials manufacturer in the aerospace industry and has
qualified products for use in virtually all western commercial and
military aircraft programs. Before advanced structural materials may be
utilized in aerospace and military applications, they must be qualified.
All Airbus and Boeing commercial aircraft use Hexcel qualified products,
and our carbon fiber is the only qualified carbon fiber in many U.S.
military aircraft and rocket programs. We believe that our extensive range
of qualifications positions us to remain a leading supplier of advanced
structural materials to the aerospace industry.
- LEADER IN GROWING MULTILAYER PCB MARKET. We are the leading weaver of
fine, lightweight fiberglass fabrics used in the fabrication of multilayer
PCBs. This position allows us to capitalize on the
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continuing trend toward electronics miniaturization, which relies on
multilayer PCBs to achieve smaller size and increased functionality.
Multilayer PCBs are the fastest growing segment of the PCB industry and
our fabrics are one of the enabling technologies for such PCBs. The
worldwide PCB market is estimated at over $30 billion, with multilayer
PCBs comprising approximately two-thirds of the total market. As the
leading manufacturer of lightweight fabrics for multilayer PCBs, we are
well positioned to capture a significant portion of this market growth.
- MANUFACTURING AND TECHNICAL EXPERTISE. We have been a leader in advanced
structural materials technology for over 50 years and a leader in
fiberglass fabrics technology for nearly 40 years. We believe that the
range of technologies and products that we have developed over these
decades gives us a level of manufacturing expertise unsurpassed in our
industry. Our technically oriented sales force works with new and existing
customers to identify and engineer solutions to meet our customers' needs,
particularly by identifying areas where advanced structural materials may
beneficially replace traditional materials.
BUSINESS STRATEGY
Key elements of our strategy include the following:
- MAINTAIN LEADERSHIP POSITION IN COMMERCIAL AEROSPACE INDUSTRY. Commercial
aerospace remains the largest market for advanced structural materials. We
are the leading supplier to this industry, with strong positions at both
Boeing and Airbus. We believe that demand for commercial aircraft, and
therefore advanced structural materials, while leveling off in 1999, will
remain at historically high levels for the next several years as a result
of certain trends that have been identified in industry reports. See
"Business--Business Strategy." We believe that we are well positioned to
capitalize on such trends by continuing to produce a wide variety of
advanced structural materials for use in the manufacture of virtually
every commercial aircraft in the western world, whether the aircraft is
produced by Boeing, Airbus or regional manufacturers.
- REDUCE PRODUCTION COSTS AND IMPROVE MANUFACTURING EFFICIENCIES. We will
pursue specific initiatives to reduce production costs and capital
expenditures and improve manufacturing efficiencies, including
implementation of our Lean Enterprise program and value chain management
initiatives on a global basis. As has been the case with the program we
initiated in 1996, which we believe has resulted in a reduction of annual
costs in excess of $30 million, these new initiatives are expected to
generate significant improvements in our operating cost structure in 1999
and beyond. The goals of our current programs are to reduce unit product
costs, lower production cycle times, increase throughputs, lower
inventories and improve product quality and customer satisfaction.
- CAPITALIZE ON GROWING MILITARY AEROSPACE MARKETS. We intend to capitalize
on the expected growth of the military market, which uses a higher
percentage of advanced structural materials and higher value products than
the commercial market. We are already qualified to supply materials to a
broad range of military aircraft and helicopters scheduled to enter full
scale production at the start of the next decade. Demand for many of these
aircraft is driven in part by the need to replace aging fighter and
transport aircraft platforms. Some of these programs are currently in the
developmental stage, but in many cases government funding for production
has been approved. These programs include the V-22 Osprey tilt-rotor, F-22
(Raptor), F/A-18E/F (Hornet), C-17 transport, European Fighter Aircraft
(Typhoon), RAH-66 (Comanche) and NH90 helicopter.
- EXPLOIT OPPORTUNITIES FROM THE COMMERCIALIZATION OF SPACE. The rapid
growth in the commercial use of satellites for voice, data and image
communications, as well as mapping and weather monitoring, is expected to
generate increasing production of satellites, rockets and launch vehicles.
Advanced structural materials should benefit from the growth in
space-related markets because they are well suited to meet severe
environmental conditions during launch and in space and the need to
maximize launch payloads and reduce launch costs. We are currently
developing and positioning
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our products for the fabrication of satellites and for the next generation
of launch vehicles. Our products are already qualified for use in programs
such as the Delta II, III and IV, Sea Launch and Ariane rockets.
- GLOBALIZE AND INTEGRATE GLASS FABRICS OPERATIONS. As a result of our
acquisition of Clark-Schwebel and its equity interests in CS-Interglas and
Asahi-Schwebel, we are now the largest supplier of glass fabrics to
producers of PCBs and reinforcements for structural composites worldwide.
We intend to integrate the acquired Clark-Schwebel operations into our own
operations to create a global organization that can exploit best
manufacturing practices and technology, leverage procurement of raw
materials and optimize the utilization of our manufacturing capacity. We
expect that these efforts will significantly reduce costs and broaden our
reach in these key markets.
- EXPAND APPLICATIONS FOR ADVANCED STRUCTURAL MATERIALS. We are committed to
expanding the applications of our advanced materials both within existing
markets and into promising new sectors. To date, advanced structural
materials have found their greatest use in aerospace and recreation
applications, where their performance properties have shown the most
demonstrable value. We believe that these materials have significant
potential applications in surface transportation (e.g., high speed and
mass transit railways, cars and trucks, high speed ferries and commercial
shipping), civil engineering (e.g., repair and reinforcement of buildings
and bridges) and energy (e.g., windmill blades and fly wheels). Where
appropriate, we will leverage our development of new applications through
alliances with companies that have strong positions in these markets. For
example, we have entered into a strategic alliance with Sika Finanz AG, a
leading Swiss-based construction products company, to develop the market
for advanced structural materials in construction and civil engineering
applications.
RECENT DEVELOPMENTS
CLARK-SCHWEBEL ACQUISITION
On September 15, 1998, we acquired the industrial fabrics business of
Clark-Schwebel for a cash purchase price of approximately $472 million
(including $19 million paid on December 23, 1998). As part of this acquisition,
we also acquired Clark-Schwebel's equity ownership interests in three joint
ventures:
- a 43.3% share in Asahi-Schwebel Co., Ltd., headquartered in Japan, which
in turn has its own joint venture with AlliedSignal in Taiwan;
- a 43.6% share in CS-Interglas AG, headquartered in Germany, together with
fixed-price options to increase this equity interest to 84.0%; and
- a 50.0% share in Clark-Schwebel Tech-Fab Company, headquartered in the
United States.
We also entered into a $50 million lease of property, plant and equipment used
in that business, pursuant to a long-term lease that includes purchase options.
The acquired business is engaged in the manufacture and sale of high-quality
fiberglass fabrics used to make PCBs for electronics equipment such as
computers, cellular telephones, televisions and automotive components. The
business also produces high performance specialty products for use in
insulation, filtration, wall and facade claddings, ballistics and reinforcements
for composite materials. The Clark-Schwebel acquisition established our company
as a leading global materials supplier to the electronics industry, which we
believe has attractive long-term growth potential, and further diversified our
business beyond the historically cyclical commercial aerospace market.
BUSINESS CONSOLIDATION PROGRAM
As a result of the Clark-Schwebel acquisition, changing market conditions
and the need for continuous improvement, we are intensifying our business
consolidation efforts to achieve more rapid cost reductions throughout our
organization. Our efforts will include implementing an aggressive value chain
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management program and reducing costs through our Lean Enterprise program. In
addition, we have initiated a reorganization of our business operations to focus
on improved operating effectiveness and to integrate the Clark-Schwebel business
into our existing fabrics operations. We have consolidated our U.S., European
and Asian composite materials businesses into a single global business unit. As
a result of these and other actions, we anticipate recording approximately $12
million of business acquisition and consolidation costs in the fourth quarter of
1998. Approximately half of this charge will be for writedowns of certain assets
held for disposition.
Beginning in 1999 we anticipate annual cash savings from our business
consolidation activities to be approximately $10 million. In addition, we have
identified specific actions that we believe will result in significant savings
from our Lean Enterprise and value chain management initiatives. We believe that
these savings should help offset, but not eliminate, the expected negative
impacts in 1999 of price competition and product mix changes.
In addition to these initiatives, we expect to complete a global capacity
and utilization review of our worldwide facilities requirements during 1999.
This review may result in the closing or right-sizing of one or more facilities,
and will likely result in the recognition of additional business consolidation
charges in 1999.
SENIOR CREDIT FACILITY, AS AMENDED
In connection with the Clark-Schwebel acquisition on September 15, 1998, we
amended our senior credit facility to: (a) fund the Clark-Schwebel acquisition;
(b) refinance our company's then existing revolving credit facility; and (c)
provide for our ongoing working capital and other financing requirements.
Simultaneously with the closing of the offering of the outstanding 9 3/4% Senior
Subordinated Notes Due 2009, we amended our senior credit facility to, among
other things, modify certain financial covenants and to permit that offering. As
of September 30, 1998, our senior credit facility includes $360.0 million in
aggregate revolving credit facility commitments ($100.9 million outstanding) and
$311.5 million in aggregate term loans (including $152.6 million of Tranche A
Term Loans and $158.9 million of Tranche B Term Loans), after giving pro forma
effect to (1) the offering of the Original Notes and the application of the net
proceeds from that offering, (2) the redemption of $12.5 million aggregate
principal amount of senior subordinated notes payable to Ciba Specialty
Chemicals Inc. from borrowings under our senior credit facility and (3) the
payment of a $19.0 million deferred purchase price on December 23, 1998 in
connection with the acquisition of a 43.6% joint venture interest in
CS-Interglas AG.
We expect that, on or before February 28, 1999, we will redeem $12.5 million
of the $37.5 million aggregate principal amount of senior subordinated notes
payable to Ciba Specialty Chemicals Inc. with borrowings under our senior credit
facility. The interest rate on such notes is scheduled to increase from 7.5% per
annum to 10.5% per annum on February 28, 1999 and by an additional 0.5% per
annum on each February 28 thereafter through maturity in 2003. These notes were
issued in connection with the acquisition of the composites business of Ciba
Geigy Limited.
OFFERING OF ORIGINAL NOTES
On January 21, 1999, we issued and sold the Original Notes. We used the net
proceeds of that offering, which were approximately $231 million (after
discounts to the initial purchasers and other transaction fees and expenses), to
reduce borrowings under our senior credit facility.
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SUMMARY OF THE EXCHANGE OFFER
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Securities Offered.............. We are offering up to $240,000,000 aggregate principal
amount of new 9 3/4% Senior Subordinated Notes Due 2009,
which have been registered under the Securities Act. The
form and terms of these Exchange Notes are identical in
all material respects to those of the Original Notes. The
Exchange Notes, however, will not contain certain transfer
restrictions and registration rights applicable to the
Original Notes.
The Exchange Offer.............. We are offering to exchange new $1,000 principal amount of
our 9 3/4% Senior Subordinated Notes Due 2009, which have
been registered under the Securities Act, for $1,000
principal amount of our outstanding 9 3/4% Senior
Subordinated Notes Due 2009, which were issued in a
private offering on January 21, 1999.
In order to be exchanged, an Original Note must be
properly tendered and accepted. All Original Notes that
are validly tendered and not withdrawn will be exchanged.
As of the date of this Prospectus, there are $240.0
million principal of Original Notes outstanding. We will
issue Exchange Notes promptly after the expiration of the
Exchange Offer.
Resales......................... We believe that the Exchange Notes issued in the Exchange
Offer may be offered for resale, resold or otherwise
transferred by you without compliance with the
registration and prospectus delivery requirements of the
Securities Act provided that:
- you are acquiring the Exchange Notes in the ordinary
course of your business;
- you are not participating, do not intend to participate
and have no arrangement or understanding with any person
to participate, in a distribution of the Exchange Notes;
and
- you are not an "affiliate" of the Company.
If you do not meet the above criteria you will have to
comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any
reoffer, resale or other disposition of your Exchange
Notes.
Each broker or dealer that receives Exchange Notes for its
own account in exchange for Original Notes that were
acquired as a result of market-making or other trading
activities must acknowledge that it will deliver this
Prospectus in connection with any offer to resell, resale,
or other transfer of the Exchange Notes issued in the
Exchange Offer.
Expiration Date................. 5:00 p.m., New York City time, on , 1999, unless we
extend the expiration date.
Accrued Interest on the Exchange
Notes and Original Notes...... The Exchange Notes will bear interest from January 21,
1999. If your Original Notes are accepted for exchange,
then you will waive
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interest on the Original Notes accrued to the date the
Exchange Notes are issued.
Certain Conditions to the
Exchange Offer................ The Exchange Offer is subject to customary conditions,
which we may waive. Please read the section "The Exchange
Offer--Certain Conditions to the Exchange Offer" of this
Prospectus for more information regarding conditions to
the Exchange Offer.
Procedures for Tendering
Original Notes................ If you wish to tender your Original Notes, you must
complete, sign and date the Letter of Transmittal, or a
facsimile of it, in accordance with its instructions and
transmit the Letter of Transmittal, together with your
Original Notes and any other required documentation, and
The Bank of New York, who is the exchange agent, must
receive such documentation at the address set forth in the
Letter of Transmittal by 5:00 p.m. New York City time, on
the expiration date. By executing the Letter of
Transmittal, you will represent to us that you are
acquiring the Exchange Notes in the ordinary course of
your business, that you are not participating, do not
intend to participate and have no arrangement or
understanding with any person to participate, in the
distribution of Exchange Notes, and that you are not an
"affiliate" of ours. See "The Exchange Offer--Procedures
for Tendering."
Special Procedures for
Beneficial Holders............ If you are the beneficial holder of Original Notes that
are registered in the name of your broker, dealer,
commercial bank, trust company or other nominee, and you
wish to tender in the Exchange Offer, you should promptly
contact the person in whose name your Original Notes are
registered and instruct such person to tender on your
behalf. See "The Exchange Offer--Procedures for
Tendering."
Guaranteed Delivery
Procedures.................... If you wish to tender your Original Notes and you cannot
deliver your notes, the Letter of Transmittal or any other
required documents to the Exchange Agent before the
expiration date, you may tender your Original Notes
according to the guaranteed delivery procedures set forth
in "The Exchange Offer-- Guaranteed Delivery Procedures."
Withdrawal Rights............... Tenders may be withdrawn at any time before 5:00 p.m., New
York City time, on the expiration date.
Acceptance of Original Notes and
Delivery of Exchange
Notes......................... Subject to certain conditions, we will accept for exchange
any and all Original Notes which are properly tendered in
the Exchange Offer before 5:00 p.m., New York City time,
on the expiration date. The Exchange Notes will be
delivered promptly after the expiration date. See "The
Exchange Offer--Terms of the Exchange Offer."
Certain U.S. Federal Income Tax
Considerations................ We believe that your exchange of Original Notes for
Exchange Notes pursuant to the Exchange Offer will not
result in any gain or
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<S> <C>
loss to you for U.S. federal income tax purposes. See
"Certain United States Federal Income Tax Considerations"
in this Prospectus.
Exchange Agent.................. The Bank of New York is serving as Exchange Agent in
connection with the Exchange Offer. The address and
telephone number of the Exchange Agent are set forth in
"The Exchange Offer--Exchange Agent" in this Prospectus.
Use of Proceeds................. We will not receive any proceeds from the issuance of
Exchange Notes pursuant to the Exchange Offer. We will pay
all expenses incident to the Exchange Offer.
</TABLE>
SUMMARY OF TERMS OF THE EXCHANGE NOTES
The form and terms of the Exchange Notes and the Original Notes are
identical in all material respects, except that certain transfer restrictions
and registration rights applicable to the Original Notes do not apply to the
Exchange Notes. The Exchange Notes will evidence the same debt as the Original
Notes and will be governed by the same indenture. Where we refer to "Notes" in
this document, we are referring to both Original Notes and Exchange Notes.
<TABLE>
<S> <C>
Aggregate Amount................ $240.0 million principal amount of 9 3/4% Senior
Subordinated Notes Due 2009.
Maturity........................ January 15, 2009.
Interest rate................... 9 3/4% per year.
Interest payment dates.......... January 15 and July 15 of each year, commencing July 15,
1999.
Ranking......................... The Notes will be unsecured senior subordinated
obligations and will rank junior to our existing and
future senior indebtedness. The Notes will rank equally
with our existing and future senior subordinated
indebtedness and will rank senior to our subordinated
indebtedness. The Notes effectively will rank junior to
all liabilities of our subsidiaries. The terms "Senior
Indebtedness" and "Subordinated Indebtedness" are defined
in the "Description of the Notes--Ranking" and
"Description of the Notes--Certain Definitions" sections
of this Prospectus.
As of September 30, 1998, after giving pro forma effect to
(1) the offering of Original Notes and our use of the net
proceeds from that offering, (2) the redemption of $12.5
million aggregate principal amount of senior subordinated
notes payable to Ciba from borrowings under the Senior
Credit Facility and (3) the payment of $19.0 million of
deferred purchase price on December 23, 1998 in connection
with the acquisition of a 43.6% joint venture interest in
CS-Interglas, we would have had outstanding $481.8 million
of senior indebtedness and we would have had outstanding
$25.0 million of senior subordinated indebtedness other
than the Notes.
Optional redemption............. We cannot redeem the Notes until January 15, 2004, except
as described immediately below. Thereafter, we can redeem
some or
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<S> <C>
all of the Notes at the redemption prices listed in the
"Description of the Notes--Optional Redemption" section of
this Prospectus, plus accrued interest.
Optional Redemption after Public
Equity Offerings.............. At any time (which may be more than once) before January
15, 2002, we can choose to redeem up to 35% of the
original principal amount of the Notes (including the
original principal amount of any additional Notes) with
money that we raise in certain equity offerings, as long
as:
- we pay to holders of the Notes a redemption price of
109 3/4% of the face amount of the Notes we redeem, plus
accrued interest;
- we redeem the Notes within 120 days of completing such
equity offering; and
- at least 65% of the original aggregate principal amount
of the Notes (including the original principal amount of
any additional Notes) issued remains outstanding
afterwards.
Change of Control Offer......... If a change in control of our company occurs, we must give
holders of the Notes the opportunity to sell to us their
Notes at a purchase price of 101% of their face amount,
plus accrued interest. The term "Change of Control" is
defined in the "Description of the Notes-- Change of
Control" section of this Prospectus.
Certain Covenants............... The indenture governing the Notes will contain covenants
that limit our ability and that of our subsidiaries to:
- incur additional indebtedness;
- pay dividends or distributions on, or redeem or
repurchase, our capital stock;
- make investments;
- issue or sell capital stock of subsidiaries;
- engage in transactions with affiliates;
- create liens on our assets to service certain debt;
- transfer or sell assets;
- guarantee indebtedness;
- restrict dividend or other payments to us;
- consolidate, merge or transfer all or substantially all
of our assets and the assets of our subsidiaries; and
- engage in unrelated businesses.
These covenants are subject to important exceptions and
qualifications, which are described in the "Description of
the Notes --Certain Covenants" section of this Prospectus.
Use of Proceeds................. We will not receive any proceeds from the Exchange Offer.
See "Use of Proceeds." We have agreed to bear the expenses
of the Exchange Offer. No underwriter is being used in
connection with the Exchange Offer. For a description of
the use of proceeds of the
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<S> <C>
offering of Original Notes, see "--The Company--Recent
Developments--Offering of Original Notes."
</TABLE>
RISK FACTORS
You should carefully consider all of the information set forth or
incorporated by reference into this Prospectus and, in particular, the
information under "Risk Factors," beginning on page 12, before deciding to
tender your Original Notes in the Exchange Offer.
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<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA AND OTHER DATA
The following table presents summary financial and other data with respect
to Hexcel and has been derived from (1) the audited consolidated financial
statements of Hexcel as of and for the three years ended December 31, 1997, and
the unaudited condensed consolidated financial statements of Hexcel as of and
for the nine months ended September 30, 1997 and September 30, 1998, and for the
three months ended December 31, 1997 and (2) the unaudited pro forma financial
statements included elsewhere in this Prospectus which give effect to the Clark-
Schwebel acquisition (including $19.0 million of deferred purchase price paid on
December 23, 1998), the offering of the Original Notes and the application of
the net proceeds from that offering and the redemption of $12.5 million
aggregate principal amount of senior subordinated notes payable to Ciba with
borrowings under the Senior Credit Facility. The summary financial and other
data for Hexcel as of and for the nine months ended September 30, 1997 and
September 30, 1998 are derived from unaudited financial statements which, in the
opinion of our management, include all adjustments necessary for the fair
presentation of such information. Results for interim periods are not
necessarily indicative of the results for the full year. The information set
forth below should be read together with the other information contained under
the captions "Capitalization," "Pro Forma Financial Information," "Selected
Consolidated Financial Information" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and with the consolidated
financial statements and the related notes thereto, included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
FOR THE YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30,
--------------------------------------------- -------------------------
HISTORICAL PRO FORMA HISTORICAL
------------------------------- ------------ -------------------------
1995 1996 1997 1997 1997 1998(A)
--------- --------- --------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
STATEMENT OF OPERATIONS DATA:
Net sales.......................................... $ 350,238 $ 695,251 $ 936,855 $1,177,059 $ 682,249 $785,581
Gross margin....................................... 67,090 141,309 222,632 276,935 159,672 199,164
Gross margin percentage............................ 19.2% 20.3% 23.8% 23.5% 23.4% 25.4%
Business acquisition and consolidation
expenses......................................... $ -- $ 42,370 $ 25,343 $ 25,343 $ 21,150 $ 711
Operating income................................... 17,766 2,789 76,457 107,322 50,229 99,455
Other expense (income)............................. (791) (2,994) -- (35 ) -- --
Bankruptcy reorganization expenses................. 3,361 -- -- -- -- --
Income (loss) from continuing operations........... 3,201 (19,190) 73,630 71,587 61,307 48,546
OTHER DATA:
EBITDA (b)......................................... $ 26,819 $ 32,513 $ 112,254 $ 162,990 $ 78,240 $ 130,387
Adjusted EBITDA (b)................................ 29,389 71,889 137,597 188,298 99,390 131,098
Depreciation and amortization...................... 11,623 26,730 35,797 55,633 28,011 30,932
Capital expenditures............................... 12,144 43,569 57,369 65,699 31,695 41,703
Pro forma cash interest expense (c)................
Ratio of pro forma total debt to pro forma Adjusted
EBITDA...........................................
Ratio of pro forma Adjusted EBITDA to pro forma
cash interest expense............................
Ratio of earnings to fixed charges (d)............. 1.7x -- 2.9x 1.6x 2.6x 4.1x
BALANCE SHEET DATA (AT PERIOD END):
Working capital.................................... $ 61,570 $ 128,119 $ 200,694 $ 214,230 $249,665
Total assets....................................... 230,602 701,736 811,586 807,553 1,394,538
Total debt......................................... 90,144 311,016 353,371 376,275 856,947
Shareholders' equity............................... 48,374 179,329 249,901 234,558 300,262
<CAPTION>
FOR THE
TWELVE
MONTHS
ENDED
SEPTEMBER 30,
--------------
PRO FORMA PRO FORMA
------------ --------------
1998 1998
------------ --------------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales.......................................... $931,309 $ 1,245,713
Gross margin....................................... 233,212 310,609
Gross margin percentage............................ 25.0% 24.9%
Business acquisition and consolidation
expenses......................................... $ 711 $ 4,904
Operating income................................... 116,943 151,667
Other expense (income)............................. 13 (23 )
Bankruptcy reorganization expenses................. -- --
Income (loss) from continuing operations........... 44,040 56,852
OTHER DATA:
EBITDA (b)......................................... $ 161,627 $ 209,326
Adjusted EBITDA (b)................................ 162,351 214,207
Depreciation and amortization...................... 44,697 57,636
Capital expenditures............................... 45,244 73,319
Pro forma cash interest expense (c)................ 70,193
Ratio of pro forma total debt to pro forma Adjusted
EBITDA........................................... 4.1x
Ratio of pro forma Adjusted EBITDA to pro forma
cash interest expense............................ 3.1x
Ratio of earnings to fixed charges (d)............. 2.2x 2.1x
BALANCE SHEET DATA (AT PERIOD END):
Working capital.................................... $249,665
Total assets....................................... 1,422,538
Total debt......................................... 885,585
Shareholders' equity............................... 299,624
</TABLE>
- ------------------------
(a) Amounts include the operating results of the Clark-Schwebel Business since
the acquisition date, September 15, 1998.
(b) "EBITDA" is defined as income from continuing operations before interest,
taxes, depreciation and amortization. "Adjusted EBITDA" is defined as EBITDA
before business acquisition and consolidation expenses, other income and
bankruptcy reorganization expenses. Hexcel believes that EBITDA and Adjusted
EBITDA provide useful information regarding Hexcel's ability to service its
indebtedness, but should not be considered in isolation or as a substitute
for operating income or cash flow from operations (in each case as
determined in accordance with generally accepted accounting principles) as
an indicator of Hexcel's operating performance or as a measure of Hexcel's
liquidity.
(c) Pro forma cash interest expense is calculated assuming a weighted average
interest rate on the amounts outstanding under the Senior Credit Facility of
7.2% and using the actual rate of 9.75% on the Notes, and is net of non-cash
amortization of debt issuance costs.
(d) Earnings consist of income (loss) from continuing operations before fixed
charges and income taxes. Fixed charges consist of interest expense,
amortization of fees related to debt financing and that portion of rent
expense deemed to be interest. For the year ended December 31, 1996,
earnings were insufficient to cover fixed charges by approximately $15.8
million.
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RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING FACTORS BEFORE DECIDING TO
TENDER YOUR ORIGINAL NOTES IN THE EXCHANGE OFFER, AS WELL AS THE MORE DETAILED
DESCRIPTIONS CROSS-REFERENCED TO THE BODY OF THE PROSPECTUS AND THE OTHER
MATTERS DESCRIBED IN THIS PROSPECTUS. THE RISK FACTORS SET FORTH BELOW, OTHER
THAN "--ADVERSE CONSEQUENCES OF FAILURE TO EXCHANGE, "--ADVERSE EFFECT OF
ISSUANCE OF EXCHANGE NOTES ON MARKET FOR ORIGINAL NOTES" AND "--PROSPECTUS
DELIVERY REQUIREMENTS OF AFFILIATES AND BROKER-DEALERS IN CONNECTION WITH
RESALES OF EXCHANGE NOTES," GENERALLY APPLY TO THE ORIGINAL NOTES AS WELL AS THE
EXCHANGE NOTES.
ADVERSE CONSEQUENCES OF FAILURE TO EXCHANGE
The Original Notes were not registered under the Securities Act or under the
securities laws of any state and may not be resold, offered for resale or
otherwise transferred unless they are subsequently registered or resold pursuant
to an exemption from the registration requirements of the Securities Act and
applicable state securities laws. If you do not exchange your Original Notes for
Exchange Notes pursuant to the Exchange Offer, you will not be able to resell,
offer to resell or otherwise transfer the Original Notes unless they are
registered under the Securities Act or unless you resell them, offer to resell
or otherwise transfer them under an exemption from the registration requirements
of, or in a transaction not subject to, the Securities Act. In addition, we will
no longer be under an obligation to register the Original Notes under the
Securities Act except in the limited circumstances provided under the
registration rights agreement. In addition, if you want to exchange your
Original Notes in the Exchange Offer for the purpose of participating in a
distribution of the Exchange Notes, you may be deemed to have received
restricted securities, and, if so, will be required to comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction.
ADVERSE EFFECT OF ISSUANCE OF EXCHANGE NOTES ON MARKET FOR ORIGINAL NOTES
To the extent that Original Notes are tendered for exchange and accepted in
the Exchange Offer, the trading market for the untendered and tendered but
unaccepted Original Notes could be adversely affected. Please refer to the
section in this Prospectus entitled "--Adverse Consequences of Failure to
Exchange."
PROSPECTUS DELIVERY REQUIREMENTS OF AFFILIATES AND BROKER-DEALERS IN CONNECTION
WITH RESALES OF EXCHANGE NOTES
Based on certain no-action letters issued by the staff of the Securities and
Exchange Commission, we believe that the Exchange Notes may be offered for
resale, resold or otherwise transferred by you without compliance with the
registration and prospectus delivery requirements of the Securities Act provided
that:
- you are acquiring the Exchange Notes in the ordinary course of your
business,
- you are not participating, do not intend to participate, and have no
arrangement or understanding with any person to participate in the
distribution of the Exchange Notes within the meaning of the Securities
Act, and
- you are not an affiliate of the Company within the meaning of Rule 405 of
the Securities Act.
If any of the foregoing are not true and you transfer any Exchange Note
without delivering a prospectus meeting the requirements of the Securities Act
or without an exemption from registration of your Exchange Notes under such Act,
you may incur liability under the Securities Act. We do not and will not assume
or indemnify you against such liability.
Each broker-dealer that receives Exchange Notes for its own account in
exchange for Original Notes which were acquired by such broker-dealer as a
result of market making or other trading activities may be deemed to be an
"underwriter" within the meaning of the Securities Act and must acknowledge that
it will
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deliver a prospectus meeting the requirements of the Securities Act in
connection with any resale of such Exchange Notes. The Letter of Transmittal
states that by so acknowledging and by delivering a prospectus, a broker-dealer
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act. A broker-dealer may use this Prospectus for any offer to
resell, resale or other transfer of the Exchange Notes. We have agreed that, for
a period of 180 days after the consummation of the Exchange Offer, we will make
this Prospectus available to any broker-dealer for use in connection with any
such offer to resell, resale or other transfer. Please refer to the section of
this Prospectus entitled "Plan of Distribution."
SUBSTANTIAL LEVERAGE AND DEBT SERVICE REQUIREMENTS
We have substantial indebtedness and debt service requirements. As of
September 30, 1998, after giving pro forma effect to (1) the private offering of
the Original Notes (the "Private Offering") and the application of the proceeds
from that offering, (2) the redemption of $12.5 million aggregate principal
amount of senior subordinated notes payable to Ciba with borrowings under the
Senior Credit Facility and (3) the payment of $19.0 million of deferred purchase
price on December 23, 1998 in connection with the acquisition of a 43.6% joint
venture interest in CS-Interglas, we would have had $885.6 million of
outstanding indebtedness and our total debt, as a percentage of total
capitalization, would have been 75%. This substantial level of indebtedness will
have important consequences, including:
- limiting our ability to borrow additional amounts for working capital,
capital expenditures, debt service requirements, execution of our growth
strategy, research and development costs or other purposes;
- limiting our ability to use operating cash flow in other areas of our
business because we must dedicate a substantial portion of these funds to
make principal payments and fund debt service;
- increasing our vulnerability to general adverse economic and industry
conditions; and
- limiting our ability to capitalize on business opportunities and to react
to competitive pressures and adverse changes in government regulation.
We cannot assure you that we will generate sufficient cash flow from
operations, or that we will be able to obtain sufficient funding, to satisfy our
debt service obligations, including the Notes. Our ratio of pro forma Adjusted
EBITDA to pro forma cash interest expense for the twelve months ended September
30, 1998 would have been 3.1x. Our ability to pay interest on the Notes and to
meet our other debt service obligations depends upon, among other things, our
future operating performance and ability to refinance indebtedness when
necessary. Each of these factors is to a large extent dependent upon economic
conditions and financial, business and competitive factors beyond our control.
If, in the future, we cannot generate sufficient cash from operations to make
scheduled payments on the Notes or to meet our other obligations, we will need
to refinance such obligations, obtain additional financing or sell assets.
RESTRICTIONS IN DEBT AGREEMENTS
The operating and financial restrictions and covenants in our existing debt
agreements, including our Senior Credit Facility, the indentures governing the
Notes, our Convertible Subordinated Notes, Convertible Subordinated Debentures
and the Ciba Notes, and in any future financing agreements, may adversely affect
our ability to finance future operations or capital needs or to engage in other
business activities. In addition, the Senior Credit Facility requires that we
maintain compliance with certain financial ratios. A breach of any of these
restrictions or covenants could cause a default under the Notes and our other
debt. A significant portion of our indebtedness may then become immediately due
and payable. We are not certain whether we would have, or be able to obtain,
sufficient funds to make these accelerated payments, including payments on the
Notes.
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SUBORDINATION OF THE NOTES TO SENIOR INDEBTEDNESS AND LIABILITIES OF
SUBSIDIARIES
The Notes will be subordinate to the prior payment in full of all senior
indebtedness. As of September 30, 1998, after giving pro forma effect to (1) the
Private Offering and the application of the proceeds from that offering, (2) the
redemption of $12.5 million aggregate principal amount of senior subordinated
notes payable to Ciba with borrowings under the Senior Credit Facility and (3)
$19.0 million of deferred purchase price paid on December 23, 1998 in connection
with the acquisition of a 43.6% joint venture interest in CS-Interglas, we would
have had approximately $481.8 million of senior indebtedness outstanding.
Because of the subordination provisions of the Notes, in the event of our
bankruptcy, liquidation or dissolution, our assets would be available to pay
obligations under the Notes only after all payments had been made on our senior
indebtedness. We cannot assure you that sufficient assets will remain after all
such payments have been made to make any payments on the Notes. In addition,
certain events of default under our senior indebtedness would prohibit us from
making any payments on the Notes, including payments on interest when due. The
term "senior indebtedness" is defined in the "Description of the Notes--Ranking"
section of this Prospectus.
Our company conducts a portion of its operations through our subsidiaries.
Claims of creditors of any of such subsidiaries, including trade creditors,
secured creditors and creditors holding indebtedness and guarantees issued by
such subsidiaries, will generally have priority with respect to the assets and
earnings of such subsidiaries over the claims of creditors of our company,
including holders of the Notes, even if the obligations of those subsidiaries do
not constitute senior indebtedness. As of September 30, 1998, our company's
subsidiaries had approximately $245 million of liabilities.
NOTES ARE UNSECURED
In addition to being subordinate to all of our senior indebtedness, the
Notes will not be secured by any of our assets. Our obligations under our Senior
Credit Facility are secured by the pledge of the capital stock of certain of our
domestic subsidiaries (including Clark-Schwebel) and 65% of the capital stock of
certain of our foreign subsidiaries. If we become insolvent or are liquidated,
or if payment under our Senior Credit Facility is accelerated, the lenders under
our Senior Credit Facility would be entitled to exercise the remedies available
to a secured lender under applicable law. Therefore, our bank lenders will have
a claim on such assets before the holders of the Notes. See "Description of
Certain Indebtedness." We cannot assure you that the liquidation value of our
assets would be sufficient to repay in full the indebtedness under the Senior
Credit Facility and our other indebtedness, including the Notes.
RISKS ASSOCIATED WITH THE COMMERCIAL AEROSPACE INDUSTRY
Decreased demand in the commercial aerospace market could materially and
adversely affect our business operating results, prospects and financial
condition. Approximately 58% of our pro forma net sales for the twelve months
ended September 30, 1998 was derived from sales to the commercial aerospace
industry, which includes 38% of such sales to Boeing, Airbus and related
subcontractors. The commercial aerospace industry is historically cyclical and
is particularly sensitive to fluctuations based on general economic conditions
and airline profitability.
The Asian markets in particular are important markets for airlines and large
commercial aircraft manufacturers. Turbulence in the financial and currency
markets of many Asian countries since mid-1997 has created recessionary
conditions and has led to an uncertain economic outlook for these countries.
Boeing has developed a large backlog of aircraft sales to customers in Asia and
estimates that the current crisis in the Asian financial markets will result in
about 150 fewer airplane deliveries for all manufacturers during the next 5
years. In addition, Boeing has recently announced that in light of these recent
economic conditions in Asia, it plans to adjust its production schedules over
the next several years. The Asian crisis could result in additional
cancellations or deferrals of deliveries from Boeing and/or Airbus.
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<PAGE>
In addition, our customers have emphasized the need for improved yield in
the use of our products and cost and inventory reduction throughout the
commercial aerospace supply chain. This has led to pricing pressures during 1998
from our customers, which we expect to address, to the greatest extent possible,
through cost reduction efforts, substitution of lower cost composite materials
and price reductions from our suppliers. We cannot assure you, however, that
these measures will effectively offset the pricing pressures from our customers
in the commercial aerospace industry.
RELIANCE ON SIGNIFICANT CUSTOMERS
Approximately 38% of our pro forma sales for the twelve months ended
September 30, 1998 was to Boeing, Airbus and related subcontractors. The loss
of, or significant reduction in purchases by, such major customers could
materially and adversely affect our business, operating results, prospects and
financial condition.
RISK ASSOCIATED WITH CARBON FIBER INVENTORY CORRECTION
We experienced cancellations of certain carbon fiber orders due for delivery
in the fourth quarter of 1998. We believe that, in response to a significant
shortage of carbon fiber supply in 1997, a number of our customers, particularly
those in the space and defense market, purchased and/or ordered more carbon
fiber than they needed for production during the twelve months ended September
30, 1998. Consequently, customers are reducing their inventories of carbon
fibers and anticipating lower purchasing needs during 1999. These factors are
expected to result in higher than normal inventories in the near term and a
significant reduction in our production of carbon fiber in 1999 as compared to
1998. We further expect that carbon fiber pricing in a number of applications
will be lower in 1999, which could adversely affect our operating results,
prospects and financial condition. We cannot assure you that production will
return to preexisting levels in 2000 after our customers utilize current
inventories.
COMPETITION
We cannot assure you that we will be able to compete successfully with
either existing or new competitors. Most of the markets in which we operate are
highly competitive. We believe that product quality, product performance,
customer service and price are the principal factors considered by customers in
each of our business segments. In addition, other companies compete aggressively
for sole source or limited source qualifications in the commercial and military
aerospace markets. Some of these competitors may have lower costs, newer
technology or more favorable operating conditions than we do and could replace
us as the holder of sole source or limited source qualifications or become an
additional qualified source of materials for the commercial aerospace and space
and defense markets. Competitive pressures or the loss of sole source or limited
source qualifications could materially and adversely affect our operating
results, prospects and financial condition.
In addition, intense competition from manufacturers located in Asia and
Eastern Europe has forced us to reduce our prices for certain woven glass fiber
products used in PCB applications. We believe that the prices and margins for
some of our fabrics business products are likely to remain under pressure in
1999. Although we are actively pursuing opportunities to reduce costs and
capital expenditures as we consolidate our global fabrics business, we cannot
assure you that such initiatives will offset these adverse market trends. See
"Business--Competition."
REDUCTIONS IN SPACE AND DEFENSE SPENDING
We cannot assure you that the U.S. defense budgets and the related demand
for defense-related equipment will not decline or that sales of defense-related
equipment to foreign governments will continue at expected levels. Approximately
9% of our pro forma net sales during the twelve months ended September 30, 1998
was derived from the space and defense industry. The space and defense industry
is
15
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largely dependent upon government defense budgets, particularly the U.S. defense
budget. We cannot assure you that new military aircraft programs will enter full
scale production as expected, or that any such aircraft will use significant
amounts of our advanced structural materials. See "Business--Markets and
Customers."
LIMITED SUPPLY OF RAW MATERIALS
Because we purchase large volumes of raw materials, such as resins, carbon
fiber, fiber glass and aramids, any decrease in the supply or increase in the
cost of our raw materials could have a material adverse effect on our business.
Our profitability depends largely on the price and continuity of supply of such
raw materials, which are supplied by a limited number of sources. In addition,
qualification of certain raw materials limits the extent to which we are able to
substitute alternative materials in certain products. From time to time in
recent years, these raw materials have been subject to increased demand and/or
limited supply, thereby increasing our costs of acquiring these raw materials.
Our ability to pass on these costs to our customers is, to a large extent,
dependent on market conditions, including the extent to which our customers
would switch to alternative materials not produced by us in the event of an
increase in the prices of our products.
RISKS ASSOCIATED WITH OPERATIONS INITIATIVES
One of our principal strategies is to improve financial results through the
consolidation, rationalization and continuous improvement of our operations. We
expect to realize cost savings from the consolidation of our global fabrics
business and the ongoing rationalization of our facilities and personnel in our
other businesses. We are also pursuing additional cost savings from our Lean
Enterprise program and value chain management initiatives. Because of the
requirements of the aerospace and other industries to qualify specific equipment
and manufacturing facilities for the manufacture of certain products, the
complexity, cost and time of making and rationalizing manufacturing equipment is
greatly increased. We cannot assure you that we will be able to implement our
plans without delay. We may encounter unanticipated problems in connection with
the rationalization of operations, and our efforts may not result in the cost
savings that we currently anticipate.
ENVIRONMENTAL MATTERS
We are subject to extensive and changing federal, state, local and foreign
laws and regulations establishing health and environmental quality standards,
and may be subject to liabilities or penalties for violations of such standards.
We are also subject to laws and regulations governing remediation of
contamination at facilities currently or formerly owned or operated by us or to
which we have sent hazardous substances or wastes for treatment, recycling or
disposal. We have incurred substantial costs maintaining compliance with such
standards, laws and regulations, particularly in connection with environmental
laws governing air and wastewater emissions, and with ongoing remediation
activities at certain facilities and off-site disposal locations. We believe
that we will continue to incur substantial costs in connection with such matters
and may incur additional costs in the future in the event that existing laws and
regulations become subject to new or more stringent interpretations, new
requirements are imposed or additional contamination or other environmental
liabilities are discovered at our facilities. Failure to maintain compliance
with health and environmental quality standards could have a material adverse
effect on our business, results of operations and financial condition.
INFLUENCE OF SIGNIFICANT STOCKHOLDER
Ciba currently beneficially owns 49.6% of our outstanding common stock.
Under the Governance Agreement between Hexcel and Ciba, Ciba is entitled to
designate a certain number of members of our Board of Directors and a certain
number of committee members on each committee of the Board of Directors, based
upon Ciba's percentage ownership of our outstanding voting securities. In
addition, the
16
<PAGE>
Governance Agreement provides that the Board of Directors will not authorize
certain transactions without the approval of a certain number of the Ciba
designees depending upon the level of Ciba's percentage ownership of our
outstanding voting securities and the nature of the action. Consequently, Ciba
will have the ability to influence certain of our affairs so long as it
maintains ownership of certain percentages of our outstanding voting securities.
The interests of Ciba may not in all cases be aligned with the interests of
holders of the Notes. See "Business--Recent Acquisition History" and "Certain
Relationships and Related Transactions--The Governance Agreement."
NEW PRODUCT INTRODUCTIONS AND TECHNOLOGICAL CHANGE
Our future success will depend to a significant extent upon our ability to
continue to develop, profitably manufacture and deliver, on a timely basis,
innovative structural materials that satisfy market demand. Development of
product lines to meet the demands of the advanced structural materials market
requires substantial investment in research, development and engineering. There
can be no assurance that our future developmental efforts will prove successful,
or that sufficient cash flow will be available to adequately fund such efforts.
See "Business--Research and Technology."
POTENTIAL FAILURE OF COMPUTER SYSTEMS TO RECOGNIZE YEAR 2000
We are dependent on business systems (which include our information
technology systems and non-information technology devices with embedded
microprocessors) in operating our business. We also depend on the proper
functioning of business systems of third parties, such as our vendors and
customers. The failure of any of these systems to appropriately interpret the
upcoming calendar year 2000 could have a material adverse effect on our
financial condition, results of operations, cash flow and business prospects. We
are currently identifying our own applications that are not Year 2000 compliant
and taking steps to determine whether third parties are doing the same. In
addition, we are implementing a worldwide plan to prepare our computer systems
to be Year 2000 compliant. We have nearly completed our inventory phase and,
based on this analysis, our estimated future costs to prepare our business
systems to become Year 2000 compliant are approximately $5 million. Amounts
incurred as of September 30, 1998 were not material.
Our inability to remedy our own Year 2000 problems or the failure of third
parties to do so may cause business interruptions or shutdown, financial loss,
regulatory actions, reputational harm and/or legal liability. We cannot assure
you that our Year 2000 program or the programs of third parties who do business
with us will be effective, that our estimate about the timing and cost of
completing our program will be accurate, or that all remediation will be
complete by the Year 2000. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Year 2000 Readiness Disclosure."
INTERNATIONAL OPERATIONS, COUNTRY RISKS AND EXCHANGE RATE FLUCTUATIONS
Our international operations are subject to a number of special risks,
including currency exchange rate fluctuations, trade barriers, exchange
controls, national labor strikes, political risks and risks of increases in
duties, taxes and governmental royalties, as well as changes in laws and
policies governing operations of foreign-based companies. Approximately 40% of
our pro forma net sales for the twelve months ended September 30, 1998 was
derived from operations conducted outside of the United States at facilities
located in Austria, Belgium, England, France, Italy and Spain, through sales
offices in Asia, Australia, Germany and South America. We are also a partner in
joint ventures that manufacture and sell advanced structural materials in Asia
and fabrics in Europe and Asia. Earnings of our non-U.S. subsidiaries and
intercompany payments are subject to foreign income tax rules that may reduce
cash flows available to meet required debt service and other liquidity needs. In
addition, our operations or the value of our future earnings and cash flows
translated into U.S. dollars could be materially affected by foreign currency
exchange rate fluctuations.
17
<PAGE>
RISK ASSOCIATED WITH THE CONVERSION BY CERTAIN EU MEMBER STATES TO THE "EURO"
We may be exposed to certain risks as a result of the conversion by certain
European Union member states of their respective currencies to the "Euro" as
their legal currency on January 1, 1999. The conversion rates between such
member states' currencies and the Euro will be fixed by the Council of the
European Union. Risks related to the conversion to the Euro could include, among
other things:
- effects on pricing due to increased cross-border price transparency;
- costs of modifying information systems, including both software and
hardware;
- costs of relying on third parties whose systems also require modification;
- changes in the conduct of business and in the principal markets for our
products and services; and
- changes in the currency exchange rate risk.
The actual effects of the conversion may not be known for some time
following the conversion to the Euro, and such effects could have a material
adverse effect on our business, results of operations, and financial condition.
POSSIBLE INABILITY TO PURCHASE NOTES UPON A CHANGE OF CONTROL
Upon certain change of control events, each holder of Notes may require us
to purchase all or a portion of its Notes at a purchase price equal to 101% of
the principal amount thereof, plus accrued interest. Our ability to purchase the
Notes upon a change of control event will be limited by the terms of our debt
agreements. Upon a change of control event, we may be required immediately to
repay the outstanding principal, any accrued interest on and any other amounts
owed by us under our Senior Credit Facility. We cannot assure you that we would
be able to repay amounts outstanding under our Senior Credit Facility or obtain
necessary consents under such facility to purchase the Notes. In addition, upon
the happening of a change of control event, we will be required to offer to
purchase all of the Convertible Subordinated Notes. Any requirement to offer to
purchase any outstanding Notes or Convertible Subordinated Notes may result in
us having to refinance our outstanding indebtedness, which we may not be able to
do. In addition, even if we were able to refinance such indebtedness, such
financing may be on terms unfavorable to us. The term "change of control" is
defined in the "Description of the Notes--Certain Definitions" section of this
Prospectus.
POSSIBLE VOLATILITY OF TRADING PRICE
The trading price of the Notes could be subject to significant fluctuation
in response to, among other factors, variations in operating results,
developments in the industries in which we do business, general economic
conditions and changes in securities analysts' recommendations regarding our
securities. Such volatility may adversely affect the market price of the Notes.
NO ASSURANCE OF ACTIVE TRADING MARKET
The Exchange Notes are being offered to the holders of the Original Notes.
The Original Notes were issued on January 21, 1999 to a small number of
institutional investors and overseas investors and are eligible for trading in
the Private Offering, Resale and Trading through Automated Linkages (PORTAL)
Market, the National Association of Securities Dealers' screenbased, automated
market for trading of securities eligible for resale under Rule 144A. To the
extent that Original Notes are tendered and accepted in the Exchange Offer, the
trading market for the remaining untendered Original Notes could be adversely
affected. There is no existing trading market for the Exchange Notes. We do not
intend to apply for listing or quotation of the Exchange Notes on any exchange.
Therefore, we do not know the extent to which investor interest will lead to the
development of a trading market or how liquid that market might be, nor can we
make any assurances regarding the ability of Exchange Note holders to sell their
Exchange Notes or
18
<PAGE>
the price at which the Exchange Notes might be sold. Although the initial
purchasers of the Original Notes have informed us that they currently intend to
make a market in the Exchange Notes, they are not obligated to do so, and any
such market-making may be discontinued at any time without notice. As a result,
the market price of the Exchange Notes could be adversely affected. However, the
market for non-investment grade debt, such as the Exchange Notes, has been
subject to disruptions that have caused substantial volatility in the prices of
such securities. Any such disruptions may have an adverse effect on holders of
the Exchange Notes.
USE OF PROCEEDS
We will not receive any proceeds from the Exchange Offer. In consideration
for issuing the Exchange Notes, we will receive in exchange Original Notes of
like principal amount, the terms of which are identical in all material respects
to the Exchange Notes. The Original Notes surrendered in exchange for Exchange
Notes will be retired and canceled and cannot be reissued. Accordingly, issuance
of the Exchange Notes will not result in any increase in our indebtedness. We
have agreed to bear the expenses of the Exchange Offer. No underwriter is being
used in connection with the Exchange Offer.
For a description of the use of proceeds of the offering of Original Notes,
see "Prospectus Summary-- The Company--Recent Developments--Offering of Original
Notes."
19
<PAGE>
CAPITALIZATION
The following table sets forth the actual capitalization of our company as
of September 30, 1998 and as adjusted to give pro forma effect to (1) the
Private Offering and the application of the net proceeds from that offering, (2)
the redemption of $12.5 million aggregate principal amount of Ciba Notes with
borrowings under the Senior Credit Facility and (3) the payment of $19.0 million
of deferred purchase price on December 23, 1998 in connection with the
acquisition of a 43.6% joint venture interest in CS-Interglas (collectively, the
"Pro Forma Transactions"), in each case as if they had occurred on September 30,
1998.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30,
1998
--------------------
AS
ACTUAL ADJUSTED
--------- ---------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Senior debt:
Senior Credit Facility............................................. $ 611,916 $ 412,416(a)
European Credit and overdraft facilities........................... 13,620 13,620
Capital lease obligations (b)...................................... 55,236 55,236
Other.............................................................. 548 548
--------- ---------
Total Senior Debt (c)............................................ 681,320 481,820
Other debt:
Senior Subordinated Notes payable to Ciba, net of discount (d)..... 35,567 23,705
9 3/4% Senior Subordinated Notes Due 2009.......................... -- 240,000
7% Convertible Subordinated Notes Due 2003......................... 114,435 114,435
7% Convertible Subordinated Debentures Due 2011.................... 25,625 25,625
--------- ---------
Total other debt................................................. 175,627 403,765
--------- ---------
Total debt (c)............................................... 856,947 885,585
Shareholders' equity:
Common stock, $.01 par value, 100,000,000 shares authorized,
36,288,385 shares issued and outstanding (e)..................... 363 363
Additional paid-in capital (e)..................................... 260,234 260,234
Retained earnings.................................................. 33,005 32,367(f)
Cumulative currency translation adjustment......................... 6,660 6,660
--------- ---------
Total shareholders' equity....................................... 300,262 299,624
--------- ---------
Total capitalization......................................... $1,157,209 $1,185,209
--------- ---------
--------- ---------
</TABLE>
- ------------------------------
(a) Includes $19.0 million of deferred purchase price paid on December 23, 1998
in connection with the acquisition of a 43.6% joint venture interest in
CS-Interglas.
(b) Includes a $50 million capital lease for property, plant and equipment
entered into in connection with the Clark-Schwebel acquisition. The lease
expires in September 2006 and includes various purchase options.
(c) Includes $18.2 million of debt due within one year for both actual and as
adjusted.
(d) Represents the Ciba Notes (face amount of $37.5 million), net of unamortized
discount of $1.9 million as of September 30, 1998: as adjusted, the face
amount of the Ciba Notes is $25.0 million, or $23.7 million net of
unamortized discount of $1.3 million.
(e) Net of 847,020 shares of treasury stock acquired by our company at an
aggregate cost of $10.7 million.
(f) Reflects the $0.6 million write-off of the unamortized discount relating to
the $12.5 million aggregate principal amount of the Ciba Notes to be
redeemed, as a reduction of retained earnings.
20
<PAGE>
PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma combined statements of operations for the
fiscal year ended December 31, 1997, the nine months ended September 30, 1998
and the twelve months ended September 30, 1998 were prepared to illustrate the
estimated effects of the Pro Forma Transactions as if the Pro Forma Transactions
had occurred as of the beginning of the periods presented.
The unaudited pro forma financial information presented below is derived
from the audited financial statements of Hexcel as of and for the year ended
December 31, 1997, the audited financial statements of Clark-Schwebel as of and
for the 53 weeks ended January 3, 1998 and the unaudited financial statements of
Hexcel and of Clark-Schwebel as of and for the nine months ended September 30,
1998, Hexcel for the three months ended December 31, 1997 and Clark-Schwebel for
the fourteen weeks ended January 3, 1998.
The Clark-Schwebel acquisition has been accounted for using the purchase
method of accounting. The purchase method of accounting allocates the aggregate
purchase price to the assets acquired and liabilities assumed based upon their
respective fair values. The final allocation of the aggregate purchase price is
contingent upon studies and valuations which have not yet been completed. We are
unable to predict whether any adjustments as a result of the foregoing will have
a material effect on the pro forma financial statements.
The following unaudited pro forma financial information should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the consolidated financial statements of Hexcel
and the notes thereto appearing elsewhere in this Prospectus. The unaudited pro
forma financial information does not purport to be indicative of the results of
operations or financial condition that would have been reported had the events
assumed therein occurred on the dates indicated, nor does it purport to be
indicative of results of operations that may be achieved in the future.
The following unaudited pro forma financial information does not give effect
to any of the charges or expenses expected to be incurred in the future in
connection with the business consolidation program or to the operating,
financial and other benefits that may be realized from the business
consolidation program. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Recent Developments and Outlook--Other
Company Initiatives."
21
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
HISTORICAL
------------------
CLARK- ADJUSTMENTS PRO FORMA
HEXCEL SCHWEBEL (NOTE 1) COMBINED
-------- -------- ----------- ------------
<S> <C> <C> <C> <C>
Net sales............................... $936,855 $240,204 $ -- $ 1,177,059
Cost of sales........................... 714,223 184,901 1,000(a) 900,124
-------- -------- ----------- ------------
Gross margin........................ 222,632 55,303 (1,000) 276,935
Selling, general and administrative
expenses.............................. 102,449 13,771 7,451(b) 123,671
Research and technology expenses........ 18,383 2,216 -- 20,599
Business acquisition and consolidation
expenses.............................. 25,343 -- -- 25,343
-------- -------- ----------- ------------
Operating income.................... 76,457 39,316 (8,451) 107,322
Interest expense........................ 25,705 15,176 29,574(c) 70,455
Other income, net....................... -- 35 -- 35
-------- -------- ----------- ------------
Income before income taxes.......... 50,752 24,175 (38,025) 36,902
Provision (benefit) for income taxes.... (22,878) 9,657 (14,712)(d) (27,933)
Equity in earnings of joint ventures,
net................................... -- 3,997 2,755(e) 6,752
-------- -------- ----------- ------------
Net income.......................... $ 73,630 $ 18,515 $(20,558) $ 71,587
-------- -------- ----------- ------------
-------- -------- ----------- ------------
Net income per share:
Basic............................... $ 2.00 $ 1.95
Diluted............................. 1.74 1.69
Weighted average shares.................
Basic............................... 36,748 36,748
Diluted............................. 45,997 45,997
OTHER FINANCIAL DATA:
EBITDA (Note 2)..................... $112,254 $ 48,736 $ 2,000 $ 162,990
Adjusted EBITDA (Note 2)............ 137,597 48,701 2,000 188,298
Depreciation and amortization....... 35,797 9,385 10,451 55,633
Capital expenditures................ 57,369 8,330 -- 65,699
</TABLE>
See accompanying notes to Unaudited Pro Forma Combined Statements of Operations.
22
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1998
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
HISTORICAL
------------------
CLARK- ADJUSTMENTS PRO FORMA
HEXCEL SCHWEBEL (NOTE 1) COMBINED
-------- -------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales............................... $785,581 $145,728 $ -- $ 931,309
Cost of sales........................... 586,417 110,980 700(a) 698,097
-------- -------- ----------- -----------
Gross margin........................ 199,164 34,748 (700) 233,212
Selling, general and administrative
expenses.............................. 82,092 9,291 5,725(b) 97,108
Research and technology expenses........ 16,906 1,544 -- 18,450
Business acquisition and consolidation
expenses.............................. 711 -- -- 711
-------- -------- ----------- -----------
Operating income.................... 99,455 23,913 (6,425) 116,943
Interest expense........................ 23,167 17,606 13,969(c) 54,742
Other expense, net...................... -- 13 -- 13
-------- -------- ----------- -----------
Income before income taxes.......... 76,288 6,294 (20,394) 62,188
Provision (benefit) for income taxes.... 27,742 2,600 (7,746)(d) 22,596
Equity in earnings of joint ventures,
net................................... -- 2,818 1,630(e) 4,448
-------- -------- ----------- -----------
Net income.......................... $ 48,546 $ 6,512 $(11,018) $ 44,040
-------- -------- ----------- -----------
-------- -------- ----------- -----------
Net income per share:
Basic............................... $ 1.32 $ 1.20
Diluted............................. 1.15 1.06
Weighted average shares.................
Basic............................... 36,800 36,800
Diluted............................. 46,134 46,134
OTHER FINANCIAL DATA:
EBITDA (Note 2)..................... $130,387 $ 30,240 $ 1,000 $ 161,627
Adjusted EBITDA (Note 2)............ 131,098 30,253 1,000 162,351
Depreciation and amortization....... 30,932 6,340 7,425 44,697
Capital expenditures................ 41,703 3,541 -- 45,244
</TABLE>
See accompanying notes to Unaudited Pro Forma Combined Statements of Operations.
23
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
TWELVE MONTHS ENDED SEPTEMBER 30, 1998
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
HISTORICAL
--------------------
CLARK- ADJUSTMENTS PRO FORMA
HEXCEL SCHWEBEL (NOTE 1) COMBINED
---------- -------- ----------- ------------
<S> <C> <C> <C> <C>
Net sales............................... $1,040,187 $205,526 $ -- $ 1,245,713
Cost of sales........................... 778,065 156,089 950(a) 935,104
---------- -------- ----------- ------------
Gross margin........................ 262,122 49,437 (950) 310,609
Selling, general and administrative
expenses.............................. 109,771 12,797 7,530(b) 130,098
Research and technology expenses........ 21,766 2,174 -- 23,940
Business acquisition and consolidation
expenses.............................. 4,904 -- -- 4,904
---------- -------- ----------- ------------
Operating income.................... 125,681 34,466 (8,480) 151,667
Interest expense........................ 30,584 22,658 20,088(c) 73,330
Other income, net....................... -- 23 -- 23
---------- -------- ----------- ------------
Income before income taxes.......... 95,097 11,831 (28,568) 78,360
Provision (benefit) for income taxes.... 34,230 4,562 (10,670)(d) 28,122
Equity in earnings of joint ventures,
net................................... -- 4,030 2,584(e) 6,614
---------- -------- ----------- ------------
Net income.......................... $ 60,867 $ 11,299 $(15,314) $ 56,852
---------- -------- ----------- ------------
---------- -------- ----------- ------------
Net income per share:
Basic............................... $ 1.65 $ 1.54
Diluted............................. 1.45 1.37
Weighted average shares.................
Basic............................... 36,812 36,812
Diluted............................. 46,177 46,177
OTHER FINANCIAL DATA:
EBITDA (Note 2)..................... $ 164,399 $ 43,368 $ 1,559 $ 209,326
Adjusted EBITDA (Note 2)............ 169,303 43,345 1,559 214,207
Depreciation and amortization....... 38,718 8,879 10,039 57,636
Capital expenditures................ 67,377 5,942 -- 73,319
Pro forma cash interest expense..... 27,679 16,478 26,036 70,193
Ratio of pro forma total debt to pro
forma Adjusted EBITDA............. 4.1x
Ratio of pro forma Adjusted EBITDA
to pro forma cash interest
expense........................... 3.1x
</TABLE>
See accompanying notes to Unaudited Pro Forma Combined Statements of Operations.
24
<PAGE>
NOTES TO UNAUDITED PRO FORMA
COMBINED STATEMENTS OF OPERATIONS
NOTE 1 -- ADJUSTMENTS TO UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS.
<TABLE>
<CAPTION>
FOR THE FOR THE
FOR THE NINE MONTHS TWELVE MONTHS
YEAR ENDED ENDED ENDED
DECEMBER 31, 1997 SEPTEMBER 30, 1998 SEPTEMBER 30, 1998
----------------- ------------------ ------------------
<S><C> <C> <C> <C>
(IN THOUSANDS OF DOLLARS)
(a) Adjustment to reflect the increase in depreciation
costs resulting from the adjustment to fair
value of acquired property, plant and equipment,
and from the recognition at fair value of
property, plant and equipment to be leased
pursuant to a long-term lease with purchase
options......................................... 1,000 700 950
-------- -------- --------
-------- -------- --------
(b) Adjustment to reflect the following:
Elimination of management fees and other expenses
paid by the Clark-Schwebel Business to the
selling shareholders............................ (2,000) (1,000) (1,559)
Amortization of the excess of purchase price over
the net assets acquired (using a 34-year
weighted average amortization period, based on
asset lives ranging from 10 to 40 years)........ 9,451 6,725 9,089
-------- -------- --------
Net adjustment.................................... 7,451 5,725 7,530
-------- -------- --------
-------- -------- --------
(c) Adjustment to reflect the following:
Elimination of interest expense on debt
obligations of the Clark-Schwebel Business which
were not assumed by Hexcel...................... (15,176) (17,607) (22,658)
Net increase in interest expense attributable to
borrowings under the Senior Credit Facility and
the Notes to finance the acquisition of the
Clark-Schwebel Business and to refinance
Hexcel's previous bank debt. Interest on
outstanding borrowings under the Senior Credit
Facility is computed at variable rates based on
the London interbank rate or, at the option of
Hexcel, the base rate of the administrative
agent for the lenders. For purposes of
estimating pro forma adjustments, a weighted
average interest rate of approximately 7.2% has
been used. Interest on the outstanding balance
of the Notes has been calculated using the
actual interest rate of 9.75%................... 41,150 28,876 39,146
Estimated interest expense under a long-term lease
for $50,000 of property, plant and equipment.... 3,600 2,700 3,600
-------- -------- --------
Net adjustment.................................... 29,574 13,969 20,088
-------- -------- --------
-------- -------- --------
(d) Adjustment to reflect an average income tax rate
of 36.5% on the Clark-Schwebel Business and on
related transaction costs....................... (14,712) (7,746) (10,670)
-------- -------- --------
-------- -------- --------
(e) Adjustment to reflect Hexcel's ability to utilize
certain tax attributes to reduce aggregate tax
expense on the equity in earnings of the
Clark-Schwebel Business joint ventures.......... 2,755 1,630 2,584
-------- -------- --------
-------- -------- --------
</TABLE>
NOTE 2 -- EBITDA AND ADJUSTED EBITDA.
"EBITDA" is defined as income before income taxes, interest expense,
depreciation and amortization. "Adjusted EBITDA" is defined as EBITDA before
business acquisition and consolidation expenses and other income (expense), net.
Hexcel believes that EBITDA and Adjusted EBITDA provide useful information
regarding Hexcel's ability to service its indebtedness, but should not be
considered in isolation or as a substitute for operating income or cash flow
from operations (in each case as determined in accordance with generally
accepted accounting principles) as an indicator of Hexcel's operating
performance or as a measure of Hexcel's liquidity.
25
<PAGE>
SELECTED CONSOLIDATED FINANCIAL INFORMATION
The selected historical financial information of the Company set forth below
has been derived from the audited consolidated financial statements of the
Company as of and for the five years ended December 31, 1997. The selected
historical financial information as of and for the nine months ended September
30, 1997 and September 30, 1998 is derived from unaudited financial statements
which, in the opinion of the Company's management, include all adjustments
necessary for the fair presentation of such information. Results for interim
periods are not necessarily indicative of results for the full year. The
following selected financial information is qualified in its entirety by, and
should be read in conjunction with, the Company's consolidated financial
statements and the related notes thereto, included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
----------------------------------------------------------
1993 1994 1995 1996 1997
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
STATEMENT OF OPERATIONS DATA:
Net sales............................................................ $ 310,635 $ 313,795 $ 350,238 $ 695,251 $ 936,855
Cost of sales........................................................ 263,090 265,367 283,148 553,942 714,223
---------- ---------- ---------- ---------- ----------
Gross margin......................................................... 47,545 48,428 67,090 141,309 222,632
Selling, general & administrative expenses........................... 44,539 37,584 41,706 79,408 102,449
Research and technology expenses..................................... 7,971 8,201 7,618 16,742 18,383
Business acquisition and consolidation expenses (b).................. 46,600 -- -- 42,370 25,343
---------- ---------- ---------- ---------- ----------
Operating income (loss).............................................. (51,565) 2,643 17,766 2,789 76,457
Interest expense..................................................... 8,862 11,846 8,682 21,537 25,705
Other expense (income), net.......................................... 12,780 (4,861) (791) (2,994) --
Bankruptcy reorganization expenses................................... 641 20,152 3,361 -- --
---------- ---------- ---------- ---------- ----------
Income (loss) from continuing operations before income taxes......... (73,848) (24,494) 6,514 (15,754) 50,752
Provision (benefit) for income taxes................................. 6,024 3,586 3,313 3,436 (22,878)
---------- ---------- ---------- ---------- ----------
Income (loss) from continuing operations............................. $ (79,872) $ (28,080) $ 3,201 $ (19,190) $ 73,630
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
OTHER DATA:
EBITDA (c)........................................................... $ (50,106) $ 1,582 $ 26,819 $ 32,513 $ 112,254
Adjusted EBITDA (c).................................................. 9,915 16,873 29,389 71,889 137,597
Depreciation and amortization........................................ 14,880 14,230 11,623 26,730 35,797
Capital expenditures................................................. 6,264 8,362 12,144 43,569 57,369
Ratio of earnings to fixed charges (d)............................... -- -- 1.7x -- 2.9x
BALANCE SHEET DATA (AT PERIOD END):
Working capital...................................................... $ 61,745 $ (22,955) $ 61,570 $ 128,119 $ 200,694
Total assets......................................................... 263,242 243,457 230,602 701,736 811,586
Total debt........................................................... 117,136 109,539 90,144 311,016 353,371
Shareholders' equity (deficit)....................................... 20,753 (5,885) 48,374 179,329 249,901
<CAPTION>
FOR THE NINE MONTHS
ENDED SEPTEMBER 30,
----------------------
1997 1998(A)
---------- ----------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales............................................................ $ 682,249 $ 785,581
Cost of sales........................................................ 522,577 586,417
---------- ----------
Gross margin......................................................... 159,672 199,164
Selling, general & administrative expenses........................... 74,769 82,092
Research and technology expenses..................................... 13,524 16,906
Business acquisition and consolidation expenses (b).................. 21,150 711
---------- ----------
Operating income (loss).............................................. 50,229 99,455
Interest expense..................................................... 18,288 23,167
Other expense (income), net.......................................... -- --
Bankruptcy reorganization expenses................................... -- --
---------- ----------
Income (loss) from continuing operations before income taxes......... 31,941 76,288
Provision (benefit) for income taxes................................. (29,366) 27,742
---------- ----------
Income (loss) from continuing operations............................. $ 61,307 $ 48,546
---------- ----------
---------- ----------
OTHER DATA:
EBITDA (c)........................................................... $ 78,240 $ 130,387
Adjusted EBITDA (c).................................................. 99,390 131,098
Depreciation and amortization........................................ 28,011 30,932
Capital expenditures................................................. 31,695 41,703
Ratio of earnings to fixed charges (d)............................... 2.6x 4.1x
BALANCE SHEET DATA (AT PERIOD END):
Working capital...................................................... $ 214,230 $ 249,665
Total assets......................................................... 807,553 1,394,538
Total debt........................................................... 376,275 856,947
Shareholders' equity (deficit)....................................... 234,558 300,262
</TABLE>
- ------------------------
(a) Amounts include the operating results of the Clark-Schwebel Business since
the acquisition date, September 15, 1998.
(b) Business acquisition and consolidation expenses include amounts previously
reported as "Restructuring expenses."
(c) "EBITDA" is defined as income from continuing operations before interest,
taxes and depreciation and amortization. "Adjusted EBITDA" is defined as
EBITDA before business acquisition and consolidation expenses, other income
(expense) and bankruptcy reorganization expenses. The Company believes that
EBITDA and Adjusted EBITDA provide useful information regarding the
Company's ability to service its indebtedness, but should not be considered
in isolation or as a substitute for operating income or cash flow from
operations (in each case as determined in accordance with generally accepted
accounting principles) as an indicator of the Company's operating
performance or as a measure of the Company's liquidity.
(d) Earnings consist of income (loss) from continuing operations before fixed
charges and income taxes. Fixed charges consist of interest expense,
amortization of fees related to debt financing and that portion of rent
expense deemed to be interest. For the years ended December 31, 1993, 1994
and 1996, earnings were insufficient to cover fixed charges by approximately
$73.8 million, $24.5 million and $15.8 million, respectively.
26
<PAGE>
THE EXCHANGE OFFER
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the accompanying Letter of Transmittal, which together constitute the
Exchange Offer, we will accept for exchange Original Notes which are properly
tendered on or prior to the Expiration Date and not withdrawn as permitted
below. As used in this Prospectus, the term "Expiration Date" means 5:00 p.m.,
New York City time, on , 1999. However, if we, in our sole
discretion, have extended the period of time for which the Exchange Offer is
open, the term "Expiration Date" means the latest time and date to which we
extend the Exchange Offer.
As of the date of this Prospectus, $240 million aggregate principal amount
of the Original Notes is outstanding. This Prospectus, together with the Letter
of Transmittal, is first being sent on or about , 1999, to all
holders of Original Notes known to us. Our obligation to accept Original Notes
for exchange pursuant to the Exchange Offer is subject to certain conditions as
set forth below under "--Certain Conditions to the Exchange Offer."
We expressly reserve the right, at any time or from time to time, to extend
the period of time during which the Exchange Offer is open, and thereby delay
acceptance for exchange of any Original Notes, by giving oral or written notice
of such extension to the holders of Original Notes as described below. During
any such extension, all Original Notes previously tendered will remain subject
to the Exchange Offer and may be accepted for exchange by us. Any Original Notes
not accepted for exchange for any reason will be returned without expense to the
tendering holder as promptly as practicable after the expiration or termination
of the Exchange Offer.
Original Notes tendered in the Exchange Offer must be in denominations of
principal amount of $1,000 and any integral multiple of $1,000.
We expressly reserve the right to amend or terminate the Exchange Offer, and
not to accept for exchange any Original Notes not previously accepted for
exchange, upon the occurrence of any of the conditions of the Exchange Offer
specified below under "--Certain Conditions to the Exchange Offer." We will give
oral or written notice of any (1) extension, (2) amendment, (3) non-acceptance
or (4) termination to the holders of the Original Notes as promptly as
practicable on the next business day after the previously scheduled Expiration
Date. Such notice in the case of any extension is to be issued by means of a
press release or other public announcement no later than 9:00 a.m., New York
City time on such date.
PROCEDURES FOR TENDERING
The tender to us of Original Notes by a holder of Original Notes as set
forth below and acceptance of such tender by us will constitute a binding
agreement between the tendering holder and us upon the terms and subject to the
conditions set forth in this Prospectus and in the accompanying Letter of
Transmittal. Except as set forth below, a holder who wishes to tender Original
Notes for exchange pursuant to the Exchange Offer must transmit a properly
completed and duly executed Letter of Transmittal, including all other documents
required by such Letter of Transmittal, to The Bank of New York (the "Exchange
Agent") at the address set forth below under "--Exchange Agent" on or prior to
the Expiration Date. In addition, the Exchange Agent must receive:
- certificates for such Original Notes along with the Letter of Transmittal;
or
- prior to the Expiration Date, a timely confirmation of book-entry transfer
(a "Book-Entry Confirmation") of such Original Notes, if such procedure is
available, into the Exchange Agent's account at The Depository Trust
Company (the "Book-Entry Transfer Facility"), pursuant to the procedure
for book-entry transfer described below.
The holder must also comply with the guaranteed delivery procedures described
below.
27
<PAGE>
The method of delivery of Original Notes, Letters of Transmittal and all
other required documents is at your election and risk. If such delivery is by
mail, we recommend that you use registered mail, properly insured, with return
receipt requested. In all cases, you should allow sufficient time to assure
timely delivery. You should not send Letters of Transmittal or Original Notes to
us.
Any beneficial owner whose Original Notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee, and who wishes
to tender, should contact the registered holder promptly and instruct such
registered holder to tender on such beneficial owner's behalf. If such
beneficial owner wishes to tender on such owner's own behalf, such owner must,
prior to completing and executing the Letter of Transmittal and delivering such
owner's Original Notes, either (1) make appropriate arrangements to register
ownership of the Original Notes in such owner's name or (2) obtain a properly
completed bond power from the registered holder. The transfer of registered
ownership may take considerable time.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, must be guaranteed unless the Original Notes surrendered for exchange
are tendered:
- by a registered holder of the Original Notes who has not completed the box
entitled "Special Issuance Instructions" or "Special Delivery
Instructions" on the Letter of Transmittal or
- for the account of an Eligible Institution (as defined below).
In the event that signatures on a Letter of Transmittal or a notice of
withdrawal, as the case may be, are required to be guaranteed, such guarantees
must be by a firm which is a financial institution--including most banks,
savings and loan associations and brokerage houses--that is a participant in the
Securities Transfer Agents Medallion Program, the New York Stock Exchange
Medallion Signature Program or the Stock Exchanges Medallion Program
(collectively, "Eligible Institutions"). If Original Notes are registered in the
name of a person other than a signer of the Letter of Transmittal, the Original
Notes surrendered for exchange must be endorsed by, or be accompanied by a
written instrument or instruments of transfer or exchange, in satisfactory form
as determined by us in our sole discretion, duly executed by the registered
holder with the signature on such Original Notes guaranteed by an Eligible
Institution.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of Original Notes tendered for exchange will be
determined by us in our sole discretion. This determination shall be final and
binding. We reserve the absolute right to reject any and all tenders of any
particular Original Note not properly tendered or to not accept any particular
Original Notes which acceptance might, in our judgment or our counsel's
judgment, be unlawful. We also reserve the absolute right to waive any defects
or irregularities or conditions of the Exchange Offer as to any particular
Original Note either before or after the Expiration Date, including the right to
waive the ineligibility of any holder who seeks to tender Original Notes in the
Exchange Offer. The interpretation of the terms and conditions of the Exchange
Offer as to any particular Original Note either before or after the Expiration
Date, including the Letter of Transmittal and the instructions to such Letter of
Transmittal, by us shall be final and binding on all parties. Unless waived, any
defects or irregularities in connection with tenders of Original Notes for
exchange must be cured within such reasonable period of time as we shall
determine. Neither we, the Exchange Agent nor any other person shall be under
any duty to give notification of any defect or irregularity with respect to any
tender of Original Notes for exchange, nor shall any of them incur any liability
for failure to give such notification.
If the Letter of Transmittal is signed by a person or persons other than the
registered holder or holders of Original Notes, such Original Notes must be
endorsed or accompanied by appropriate powers of attorney. In either case, such
Original Notes must be signed exactly as the name or names of the registered
holder or holders appear on the Original Notes.
If the Letter of Transmittal or any Original Notes or powers of attorney are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a
28
<PAGE>
fiduciary or representative capacity, such persons should so indicate when
signing, and, unless waived by us, proper evidence satisfactory to us of their
authority to so act must be submitted.
By tendering, each holder will represent to us that, among other things, (1)
the Exchange Notes acquired pursuant to the Exchange Offer are being obtained in
the ordinary course of business of the person receiving such Exchange Notes
(whether or not such person is the holder) and (2) neither the holder nor such
other person has any arrangement or understanding with any person to participate
in the distribution of the Exchange Notes. In the case of a holder that is not a
broker-dealer, each such holder, by tendering, will also represent to us that
such holder is not engaged in and does not intend to engage in a distribution of
the Exchange Notes. If any holder or any such other person is an "affiliate," as
defined under Rule 405 of the Securities Act, of ours, or is engaged in, or
intends to engage in, or has an arrangement or understanding with any person to
participate in, a distribution of such Exchange Notes to be acquired pursuant to
the Exchange Offer, such holder or any such other person (1) could not rely on
the applicable interpretations of the staff of the SEC and (2) must comply with
the registration and Prospectus delivery requirements of the Securities Act in
connection with any resale transaction.
Each broker-dealer that receives Exchange Notes for its own account in
exchange for Original Notes, where such Original Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a Prospectus that meets the
requirements of the Securities Act in connection with any resale of such
Exchange Notes. The Letter of Transmittal states that by so acknowledging and by
delivering such a Prospectus, a broker-dealer will not be deemed to admit that
it is an "underwriter" within the meaning of the Securities Act. See "Plan of
Distribution."
ACCEPTANCE OF ORIGINAL NOTES FOR EXCHANGE; DELIVERY OF EXCHANGE NOTES
Upon satisfaction or waiver of all of the conditions to the Exchange Offer,
we will accept, promptly after the Expiration Date, all Original Notes properly
tendered, and will issue the Exchange Notes promptly after acceptance of the
Original Notes. See "--Certain Conditions to the Exchange Offer" below. For
purposes of the Exchange Offer, we shall be deemed to have accepted properly
tendered Original Notes for exchange when, as and if we have given oral or
written notice to the Exchange Agent, with written confirmation of any oral
notice to be given promptly after giving such notice.
For each Original Note accepted for exchange, the holder of such Original
Note will receive an Exchange Note having a principal amount equal to that of
the surrendered Original Note. The Exchange Notes will bear interest from the
most recent date to which interest has been paid on the Original Notes or, if no
interest has been paid on the Original Notes, from January 21, 1999.
Accordingly, registered holders of Exchange Notes on the relevant record date
for the first interest payment date following the consummation of the Exchange
Offer will receive interest accruing from the most recent date to which interest
has been paid or, if no interest has been paid, from January 21, 1999. Original
Notes accepted for exchange will cease to accrue interest from and after the
date of consummation of the Exchange Offer. Holders of Original Notes whose
Original Notes are accepted for exchange will not receive any payment in respect
of accrued interest on such Original Notes otherwise payable on any interest
payment date the record date for which occurs on or after consummation of the
Exchange Offer and will be deemed to have waived their rights to receive such
accrued interest on the Original Notes.
In all cases, issuance of Exchange Notes for Original Notes that are
accepted for exchange pursuant to the Exchange Offer will be made only after
timely receipt by the Exchange Agent of (1) certificates for such Original
Notes, or a timely Book-Entry Confirmation of such Original Notes, into the
Exchange Agent's account at the Book-Entry Transfer Facility, (2) a properly
completed and duly executed Letter of Transmittal and (3) all other required
documents.
If any tendered Original Notes are not accepted for any reason set forth in
the terms and conditions of the Exchange Offer, or if Original Notes are
submitted for a greater principal amount than the holder desires to exchange,
such unaccepted or non-exchanged Original Notes will be returned without expense
to
29
<PAGE>
the tendering holder of such Original Notes, or, in the case of Original Notes
tendered by book-entry transfer into the Exchange Agent's account at the
Book-Entry Transfer Facility pursuant to the book-entry procedures described
below, such non-exchanged Original Notes will be credited to an account
maintained with such Book-Entry Transfer Facility, as promptly as practicable
after the expiration or termination of the Exchange Offer.
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Original Notes at the Book-Entry Transfer Facility for purposes of the
Exchange Offer within two business days after the date of this Prospectus. Any
financial institution that is a participant in the Book-Entry Transfer
Facility's systems may make book-entry delivery of Original Notes by causing the
Book-Entry Transfer Facility to transfer such Original Notes into the Exchange
Agent's account at the Book-Entry Transfer Facility in accordance with such Book
Entry Transfer Facility's procedures for transfer. However, although delivery of
Original Notes may be effected through book-entry transfer at the Book-Entry
Transfer Facility, the Letter of Transmittal or a facsimile of such Letter of
Transmittal, with any required signature guarantees and any other required
documents, must, in any case, be transmitted to, and received by, the Exchange
Agent at the address set forth below under "--Exchange Agent" on or prior to the
Expiration Date, unless such holder has strictly complied with the guaranteed
delivery procedures described below.
GUARANTEED DELIVERY PROCEDURES
If a registered holder of the Original Notes desires to tender such Original
Notes, and the Original Notes are not immediately available, or time will not
permit such holder's Original Notes or other required documents to reach the
Exchange Agent before the Expiration Date, or the procedure for book-entry
transfer described above cannot be completed on a timely basis, a tender may
nonetheless be effected if:
- the tender is made through an Eligible Institution;
- prior to the Expiration Date, the Exchange Agent received from such
Eligible Institution a properly completed and duly executed Letter of
Transmittal, or a facsimile of such Letter of Transmittal, and Notice of
Guaranteed Delivery, substantially in the form provided by us, by
facsimile transmission, mail or hand delivery, (a) setting forth the name
and address of the holder of Original Notes and the amount of Original
Notes tendered, (b) stating that the tender is being made thereby, and (c)
guaranteeing that within three New York Stock Exchange ("NYSE") trading
days after the Expiration Date, the certificates for all physically
tendered Original Notes, in proper form for transfer, or a Book-Entry
Confirmation, as the case may be, and any other documents required by the
Letter of Transmittal will be deposited by the Eligible Institution with
the Exchange Agent; and
- the certificates for all physically tendered Original Notes, in proper
form for transfer, or a Book-Entry Confirmation, as the case may be, and
all other documents required by the Letter of Transmittal, are received by
the Exchange Agent within three NYSE trading days after the Expiration
Date.
WITHDRAWAL RIGHTS
Tenders of Original Notes may be withdrawn at any time prior to 5:00 p.m.,
New York City time, on the Expiration Date.
For a withdrawal to be effective, a written notice of withdrawal must be
received by the Exchange Agent at the address or, in the case of Eligible
Institutions, at the facsimile number, set forth below under
30
<PAGE>
"--Exchange Agent" prior to 5:00 p.m., New York City time, on the Expiration
Date. Any such notice of withdrawal must:
- specify the name of the person having tendered the Original Notes to be
withdrawn (the "Depositor");
- identify the Notes to be withdrawn, including the certificate number or
numbers and principal amount of such Original Notes;
- contain a statement that such holder is withdrawing his election to have
such Original Notes exchanged;
- be signed by the holder in the same manner as the original signature on
the Letter of Transmittal by which such Original Notes were tendered,
including any required signature guarantees, or be accompanied by
documents of transfer to have the Trustee with respect to the Original
Notes register the transfer of such Original Notes in the name of the
person withdrawing the tender; and
- specify the name in which such Original Notes are registered, if different
from that of the Depositor.
If Original Notes have been tendered pursuant to the procedure for
book-entry transfer described above, any notice of withdrawal must specify the
name and number of the account at the Book-Entry Transfer Facility to be
credited with the withdrawn Original Notes and otherwise comply with the
procedures of such facility. All questions as to the validity, form and
eligibility, including time of receipt, of such notices will be determined by
us, whose determination shall be final and binding on all parties. Any Original
Notes so withdrawn will be deemed not to have been validly tendered for exchange
for purposes of the Exchange Offer. No Exchange Notes will be issued with
respect to the Exchange Offer unless the Original Notes so withdrawn are validly
retendered. Any Original Notes that have been tendered for exchange, but which
are not exchanged for any reason, will be returned to the holder of such
Original Notes without cost to such holder, or, in the case of Original Notes
tendered by book-entry transfer into the Exchange Agent's account at the
Book-Entry Transfer Facility pursuant to the book-entry transfer procedures
described above, such Original Notes will be credited to an account maintained
with the Book-Entry Transfer Facility for the Original Notes, as soon as
practicable after withdrawal, rejection of tender or termination of the Exchange
Offer. Properly withdrawn Original Notes may be retendered by following the
procedures described under "--Procedures for Tendering" above at any time on or
prior to 5:00 p.m., New York City time, on the Expiration Date.
CERTAIN CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provision of the Exchange Offer, we shall not be
required to accept for exchange, or to issue Exchange Notes in exchange for, any
Original Notes, and may terminate or amend the Exchange Offer, if at any time
before the acceptance of such Original Notes for exchange or the exchange of the
Exchange Notes for such Original Notes, any of the following events shall occur:
- there shall be threatened, instituted or pending any action or proceeding
before, or any injunction, order or decree shall have been issued by, any
court or governmental agency or other governmental regulatory or
administrative agency or commission (1) seeking to restrain or prohibit
the making or consummation of the Exchange Offer or any other transaction
contemplated by the Exchange Offer, or assessing or seeking any damages as
a result of such transaction or (2) resulting in a material delay in our
ability to accept for exchange or exchange some or all of the Original
Notes pursuant to the Exchange Offer; or any statute, rule, regulation,
order or injunction shall be sought, proposed, introduced, enacted,
promulgated or deemed applicable to the Exchange Offer or any of the
transactions contemplated by the Exchange Offer by any government or
governmental authority, domestic or foreign, or any action shall have been
taken, proposed or threatened, by any government, governmental authority,
agency or court, domestic or foreign, that in our sole
31
<PAGE>
judgment might directly or indirectly result in any of the consequences
referred to in clauses (1) or (2) above or, in our sole judgment, might
result in the holders of Exchange Notes having obligations with respect to
resales and transfers of Exchange Notes which are greater than those
described in the interpretation of the SEC referred to above, or would
otherwise make it inadvisable to proceed with the Exchange Offer; or
- there shall have occurred:
(1) any general suspension of or general limitation on prices for, or
trading in, securities on any national securities exchange or in the
over-the-counter market;
(2) any limitation by a governmental agency or authority which may
adversely affect our ability to complete the transactions
contemplated by the Exchange Offer;
(3) a declaration of a banking moratorium or any suspension of payments
in respect of banks in the United States or any limitation by any
governmental agency or authority which adversely affects the
extension of credit; or
(4) a commencement of a war, armed hostilities or other similar
international calamity directly or indirectly involving the United
States, or, in the case of any of the foregoing existing at the time
of the commencement of the Exchange Offer, a material acceleration or
worsening of such calamities; or
- any change, or any development involving a prospective change, shall have
occurred or be threatened in our business, properties, assets,
liabilities, financial condition, operations, results of operations or
prospects and those of our subsidiaries taken as a whole that, in our sole
judgment, is or may be adverse to us, or we shall have become aware of
facts that, in our sole judgment, have or may have adverse significance
with respect to the value of the Original Notes or the Exchange Notes;
which in our sole judgment in any case, and regardless of the
circumstances, including any action by us, giving rise to any such
condition, makes it inadvisable to proceed with the Exchange Offer and/or
with such acceptance for exchange or with such exchange.
The foregoing conditions are to our sole benefit and may be asserted by us
regardless of the circumstances giving rise to any such condition, or may be
waived by us in whole or in part at any time and from time to time in our sole
discretion. Our failure at any time to exercise any of the foregoing rights
shall not be deemed a waiver of any such right and each such right shall be
deemed an ongoing right which may be asserted at any time and from time to time.
In addition, we will not accept for exchange any Original Notes tendered,
and no Exchange Notes will be issued in exchange for any such Original Notes, if
at such time any stop order shall be threatened or in effect with respect to the
Registration Statement of which this Prospectus constitutes a part or the
qualification of the Indenture under the Trust Indenture Act of 1939.
EXCHANGE AGENT
The Bank of New York has been appointed as the Exchange Agent for the
Exchange Offer. All executed Letters of Transmittal should be directed to the
Exchange Agent at the address set forth below. Questions and requests for
assistance, requests for additional copies of this Prospectus or of the Letter
of
32
<PAGE>
Transmittal and requests for Notices of Guaranteed Delivery should be directed
to the Exchange Agent addressed as follows:
DELIVERY TO: The Bank of New York, EXCHANGE AGENT
<TABLE>
<S> <C>
BY HAND OR OVERNIGHT DELIVERY: BY REGISTERED OR CERTIFIED MAIL:
The Bank of New York The Bank of New York
101 Barclay Street 101 Barclay Street, 7E
Corporate Trust Services Window New York, NY 10286
Ground Level Attention: Reorganization Section
New York, NY 10286
Attention: Reorganization Section
</TABLE>
FOR INFORMATION CALL:
(212) 815-6333
BY FACSIMILE TRANSMISSION
(FOR ELIGIBLE INSTITUTIONS ONLY):
(212) 571-3080
CONFIRM BY TELEPHONE:
(212) 815-6333
IF YOU DELIVER THE LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET
FORTH ABOVE OR TRANSMIT INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH
ABOVE, THEN SUCH DELIVERY OR TRANSMISSION DOES NOT CONSTITUTE A VALID DELIVERY
OF SUCH LETTER OF TRANSMITTAL.
FEES AND EXPENSES
We will not make any payment to brokers, dealers, or others soliciting
acceptances of the Exchange Offer. The estimated cash expenses to be incurred in
connection with the Exchange Offer will be paid by us. We estimate these
expenses in the aggregate to be approximately $500,000.
ACCOUNTING TREATMENT
The Company will not recognize any gain or loss for accounting purposes upon
the consummation of the Exchange Offer. We will amortize the expense of the
Exchange Offer over the term of the Exchange Notes under generally accepted
accounting principles.
TRANSFER TAXES
Holders who tender their Original Notes for exchange will not be obligated
to pay any related transfer taxes, except that holders who instruct us to
register Exchange Notes in the name of, or request that Original Notes not
tendered or not accepted in the Exchange Offer be returned to, a person other
than the registered tendering holder will be responsible for the payment of any
applicable transfer taxes.
CONSEQUENCES OF EXCHANGING OR FAILING TO EXCHANGE ORIGINAL NOTES
Holders of Original Notes who do not exchange their Original Notes for
Exchange Notes pursuant to the Exchange Offer will continue to be subject to the
provisions in the Indenture regarding transfer and exchange of the Original
Notes and the restrictions on transfer of such Original Notes as set forth in
the legend on such Notes as a consequence of the issuance of the Original Notes
pursuant to exemptions from, or in transactions not subject to, the registration
requirements of the Securities Act and applicable state securities laws. In
general, the Original Notes may not be offered or sold, unless registered under
the Securities Act, except pursuant to an exemption from, or in a transaction
not subject to, the Securities Act
33
<PAGE>
and applicable state securities laws. As discussed below in "Exchange Offer;
Registration Rights," we do not currently anticipate that we will register
Original Notes under the Securities Act.
Based on interpretations by the staff of the SEC, as set forth in no-action
letters issued to third parties, we believe that Exchange Notes issued pursuant
to the Exchange Offer in exchange for Original Notes may be offered for resale,
resold or otherwise transferred by holders of such Original Notes, other than
any such holder which is an "affiliate" of ours within the meaning of Rule 405
under the Securities Act, without compliance with the registration and
Prospectus delivery provisions of the Securities Act, provided that such
Exchange Notes are acquired in the ordinary course of such holders' business and
such holders have no arrangement or understanding with any person to participate
in the distribution of such Exchange Notes. However, the SEC has not considered
the Exchange Offer in the context of a no-action letter. There can be no
assurance that the staff of the SEC would make a similar determination with
respect to the Exchange Offer as in such other circumstances. Each holder, other
than a broker-dealer, must acknowledge that it is not engaged in, and does not
intend to engage in, a distribution of Exchange Notes and has no arrangement or
understanding to participate in a distribution of Exchange Notes. If any holder
is an affiliate of ours, and is engaged in or intends to engage in or has any
arrangement or understanding with respect to the distribution of the Exchange
Notes to be acquired pursuant to the Exchange Offer, such holder (1) could not
rely on the applicable interpretations of the staff of the SEC and (2) must
comply with the registration and Prospectus delivery requirements of the
Securities Act in connection with any resale transaction. Each broker-dealer
that receives Exchange Notes for its own account in exchange for Original Notes
must acknowledge that such Original Notes were acquired by such broker-dealer as
a result of market-making activities or other trading activities and that it
will deliver a Prospectus in connection with any resale of such Exchange Notes.
In addition, to comply with the securities laws of certain jurisdictions, if
applicable, the Exchange Notes may not be offered or sold unless they have been
registered or qualified for sale in such jurisdiction or an exemption from
registration or qualification, with which there has been compliance, is
available. See "Plan of Distribution."
34
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION AND ANALYSIS RELATES TO THE UNAUDITED RESULTS OF
OPERATIONS OF HEXCEL FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND SEPTEMBER
30, 1998. THE DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH THE
SELECTED CONSOLIDATED FINANCIAL INFORMATION AND THE CONSOLIDATED FINANCIAL
STATEMENTS OF THE COMPANY AND THE NOTES THERETO APPEARING ELSEWHERE AND OTHER
FINANCIAL INFORMATION INCORPORATED BY REFERENCE IN THIS PROSPECTUS.
GENERAL
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------
NINE MONTHS ENDED
SEPTEMBER 30,
1997 1998
- ---------------------------------------------------------------------------------
(DOLLARS IN
MILLIONS)
<S> <C> <C>
Sales...................................................... $ 682.2 $ 785.6
Gross margin %............................................. 23.4% 25.4%
Adjusted operating income % (a)............................ 10.5 12.8
Adjusted EBITDA (b)........................................ $ 99.4 $ 131.1
Net income................................................. 61.3 48.5
Adjusted net income (c).................................... 32.8 49.5
- ---------------------------------------------------------------------------------
</TABLE>
(a) Excludes business acquisition and consolidation expenses.
(b) Excludes business acquisition and consolidation expenses and
interest, taxes, depreciation and amortization.
(c) Excludes business acquisition and consolidation expenses and
other acquisition related costs and assumes a U.S. tax provision
of 36% for 1997.
For the nine months ended September 30, 1998, Hexcel continued to benefit
from strong commercial aerospace and space and defense markets as sales,
adjusted operating income and Adjusted EBITDA all reached record levels.
Excluding acquisition-related charges and other nonrecurring items, Adjusted
EBITDA for the nine months ended September 30, 1998 increased 32% over the same
period in 1997.
On September 15, 1998, the Company completed its acquisition of the
industrial fabrics business of Clark-Schwebel (the "Clark-Schwebel Business").
The acquisition of the Clark-Schwebel Business establishes the Company as a
leading global materials supplier to the electronics industry, which we believe
has attractive long-term growth potential. Furthermore, it diversifies the
Company's business beyond commercial aerospace. The acquisition was accounted
for using the purchase method of accounting and, accordingly, the results of
operations of the Clark-Schwebel Business since the date of acquisition are
included in the Company's 1998 results. Sales and Adjusted EBITDA for the
Clark-Schwebel Business for the approximate two week period ended September 30,
1998, were $7.0 million and $1.4 million, respectively.
The estimated costs of integrating the Clark-Schwebel Business into the
Company's preexisting fabrics operations will be finalized in, and recognized in
the results for, the fourth quarter of 1998. The Company expects a reduction in
its previously anticipated capital expenditures related to its existing fabrics
operations.
RECENT DEVELOPMENTS AND OUTLOOK
CARBON FIBERS. During October 1998, the Company experienced cancellations
of certain carbon fiber orders due for delivery in the fourth quarter of 1998.
Management 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 the twelve months ended September 30, 1998. Now that carbon fiber
supplies have increased, customers are reducing their inventories and are
anticipating lower purchasing needs for 1999. These
35
<PAGE>
factors are expected to result in surplus inventories at December 31, 1998 and a
significant reduction in the production of carbon fiber products in 1999 as
compared to 1998. The Company further expects that carbon fiber pricing in a
number of applications will be lower in 1999. Despite these shorter term
impacts, the Company still anticipates growth in carbon fiber sales in 2000 and
beyond as new military aircraft and launch vehicle programs enter full scale
production.
COMPOSITE MATERIALS. Over 70% of the Company's sales in this segment for
the nine months ended September 30, 1998 was to the commercial aerospace market,
with two customers, Boeing and Airbus, and their subcontractors comprising the
vast majority of these sales. Based on a recent announcement by Boeing, the
demand for Boeing commercial aircraft is expected to peak in 1999, with the
largest percentage reductions in demand thereafter occurring in sales of
wide-bodied aircraft. The anticipated reduction in wide-bodied sales is
primarily attributed to the Asian economic crisis. Boeing delivered 559 aircraft
in 1998, and expects to deliver 620 in 1999 and 490 in 2000. The effects of this
reduction will be partially offset by the expectations that the Company will
continue to benefit from the growth in Airbus aircraft delivery rates. Airbus
has reported deliveries of 229 aircraft in 1998, and has recently forecast
deliveries of 293 in 1999 and 317 in 2000. Depending upon the product, orders
are placed with Hexcel anywhere between one to 12 months prior to the delivery
of the aircraft to the customer. In addition, the Company's products are
included on every model of commercial aircraft sold by Boeing and Airbus, with
sales per aircraft ranging from $0.2 million to over $1.0 million. The regional
aircraft market (under 100 seats) continues to perform well, and no significant
changes in this market are expected in the next few years.
The Company's customers have also emphasized the need for material yield
improvement and cost and inventory reduction throughout the commercial aerospace
supply chain. This is leading to pricing pressures from the Company's customers,
which the Company expects to address, to the greatest extent possible, through
cost reduction efforts, substitution of lower cost composite materials in our
customers' end products and price reductions from the Company's suppliers.
FABRICS. Towards the end of the third quarter and in the fourth quarter of
1998, the Company experienced increased order volume for woven glass fiber
products used in electronic PCB applications, suggesting an end to the recent
inventory correction in the electronics industry. However, intense competition
from manufacturers located in Asia and Eastern Europe has placed pressure on the
Company's prices for these products. The Company believes that the prices and
margins for products of its fabrics business are likely to remain under pressure
in 1999. Any resulting price reductions are expected to be partially offset by
lower material costs. The Company is actively pursuing opportunities to reduce
costs and capital expenditures in the consolidation of the Clark-Schwebel
Business with its existing fabrics operations in order to help offset these
market trends.
OTHER COMPANY INITIATIVES. As a result of our acquisition of the
Clark-Schwebel Business, changing market conditions and the need for continuous
improvement, the Company is intensifying its business consolidation efforts to
achieve more rapid cost reductions throughout our organization. The Company's
efforts will include the implementation of an aggressive value chain management
program and the elimination of waste in our organization and processes through
our Lean Enterprise initiatives. In addition, the Company has initiated a
reorganization of its business operations to focus on improved operating
effectiveness and to integrate the Clark-Schwebel Business into its preexisting
fabrics operations. The Company has also consolidated its U.S., European and
Asian composite materials businesses into a single global business unit.
Beginning in 1999 we anticipate annual cash savings from our business
consolidation activities to be approximately $10 million. In addition, we have
identified specific actions that we believe will result in significant savings
from our Lean Enterprise and value chain management initiatives. We believe that
these savings should help offset, but not eliminate, expected negative impacts
in 1999 of price competition and product mix changes.
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<PAGE>
In addition to these initiatives, the Company expects to complete a global
capacity and utilization review of its worldwide facilities requirements during
1999. This review may result in the closing or right-sizing of one or more
facilities, and will likely result in the recognition of additional business
consolidation charges in 1999.
In pursuing the above plans, the Company will continue to focus on its goal
of generating $100 million in free cash flow in the fifteen months ending
December 1999. The Company is currently reviewing its capital expenditure and
working capital plans. The Company expects that capital expenditures for 1999
will be approximately $45 to $50 million. This compares to estimated capital
expenditures of approximately $67 million for 1998, which includes the
acquisition of the Clark-Schwebel Business for three and one-half months. The
Company expects that it will use such free cash flow to repay debt under the
Senior Credit Facility.
RESULTS OF OPERATIONS
NET SALES. The following table summarizes net sales to third-party
customers by product group and market segment for the nine months ended
September 30, 1997 and 1998:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------
COMMERCIAL SPACE & GENERAL
AEROSPACE DEFENSE ELECTRONICS INDUSTRIAL RECREATION TOTAL
------------------------------------------------------------------------------------------------------------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
NINE MONTHS ENDED SEPT. 30, 1997
Fibers and Fabrics $ 18.0 $ 10.1 $ 37.6 $ 54.1 $ 8.0 $ 127.8
Composite Materials 289.0 45.8 -- 46.7 44.9 426.4
Engineered Products 119.6 7.0 -- 1.4 -- 128.0
- ------------------------------------------------------------------------------------------------------------------
Total $ 426.6 $ 62.9 $ 37.6 $ 102.2 $ 52.9 $ 682.2
Percent of Total 63% 9% 5% 15% 8% 100%
- -------------------------------------------------------------------------------------------
NINE MONTHS ENDED SEPT. 30, 1998
Fibers and Fabrics $ 14.0 $ 21.6 $ 39.8 $ 47.4 $ 14.6 $ 137.4
Composite Materials 345.5 66.8 -- 41.6 31.3 485.2
Engineered Products 155.2 7.7 -- -- -- 162.9
- -------------------------------------------------------------------------------------------
Total $ 514.7 $ 96.1 $ 39.8 $ 89.0 $ 45.9 $ 785.5
Percent of Total 66% 12% 5% 11% 6% 100%
- -------------------------------------------------------------------------------------------
</TABLE>
Net sales for the first nine months of 1998 increased by 15% to $785.5
million, compared to $682.2 million for the comparable 1997 period. Excluding
sales attributable to the Clark-Schwebel Business, sales for the first nine
months of 1998 were $778.6 million, or an increase of 14% over 1997. The sales
growth was primarily due to strong sales of composite products to commercial
aerospace customers, primarily in Europe, as well as to the space and defense
markets. On a constant currency basis, sales for the first nine months of 1998
would have been about $8 million higher than reported.
Commercial aerospace net sales increased to $514.7 million for the first
nine months of 1998, from $426.6 million for the comparable period of 1997, an
increase of 21%. This increase corresponds to the expected peak in commercial
aircraft (over 100 seats) delivery rates in 1999, as discussed above in
"--Recent Developments and Outlook."
Space and defense net sales for the first nine months of 1998 increased 53%
to $96.1 million. The increase reflects improved sales of composite materials to
select military and space programs as well as the Company's acquisition of
Fiberite, Inc.'s satellite business on September 30, 1997.
Electronic sales increased $2.2 million, to $39.8 million for the first nine
months of 1998. The increase reflects the Company's acquisition of the
Clark-Schwebel Business. Despite a worldwide reduction in
37
<PAGE>
electronic industry sales volume experienced during the summer of 1998,
primarily resulting from inventory adjustments, the Company has experienced a
recent increase in sales orders which is consistent with predictions from
industry analysts that the market is beginning to recover. However, pricing in
this market remains subject to significant pressures, particularly due to
competition from manufacturers located in Asia and Eastern Europe. Any resulting
price reductions are expected to be partially offset by lower material costs.
Net sales in the general industrial and recreational markets decreased in
the first nine months of 1998 as compared to the comparable period in 1997,
primarily due to reduced customer demand for certain products in these markets.
BACKLOG. The following tables summarize the backlog of orders to be
delivered within twelve months, by product group, as of September 30, 1997,
December 31, 1997 and September 30, 1998:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
AEROSPACE(A) NON-AEROSPACE(B) TOTAL
- ----------------------------------------------------------------------------------------------------
(IN MILLIONS)
<S> <C> <C> <C>
AS OF SEPTEMBER 30, 1997
Fibers and Fabrics $ 45.6 $ 31.0 $ 76.6
Composite Materials 232.5 22.3 254.8
Engineered Products 162.2 -- 162.2
- -------------------------------------------------------------------------------------------
Total $ 440.3 $ 53.3 $ 493.6
- -------------------------------------------------------------------------------------------
AS OF DECEMBER 31, 1997
Fibers and Fabrics $ 33.3 $ 24.4 $ 57.7
Composite Materials 273.2 19.1 292.3
Engineered Products 170.0 -- 170.0
- -------------------------------------------------------------------------------------------
Total $ 476.5 $ 43.5 $ 520.0
- -------------------------------------------------------------------------------------------
AS OF SEPTEMBER 30, 1998 (C)
Fibers and Fabrics $ 13.2 $ 16.7 $ 29.9
Composite Materials 214.9 20.3 235.2
Engineered Products 156.8 0.4 157.2
- -------------------------------------------------------------------------------------------
Total $ 384.9 $ 37.4 $ 422.3
- -------------------------------------------------------------------------------------------
</TABLE>
- ------------------------
(a) Includes commercial aerospace and space and defense markets.
(b) Includes electronics, general industrial and recreation markets.
(c) Includes backlog of orders for Clark-Schwebel from September 15, 1998.
Backlog for aerospace materials was $384.9 million as of September 30, 1998,
a 19% decrease from backlog as of December 31, 1997 and a 13% decrease from
backlog as of September 30, 1997. The Company believes that the decrease in
backlog is attributable to a number of factors, including a continuing trend
toward shorter lead times and better supply-chain management by the industry
overall and, with respect to the decrease from December 31, 1997, the practice
of certain customers to place orders near the end of the fiscal year. In light
of changing conditions in the aerospace industry, twelve month backlog
information may no longer be a material trend indicator. The Company continues
to closely watch the economic situation in Asia, along with overall aircraft
orders and production trends, to monitor future growth.
Backlog for the non-aerospace markets was $37.4 million as of September 30,
1998, compared to $43.5 million as of December 31, 1997 and $53.3 million as of
September 30, 1997. The decrease in backlog is primarily attributable to a
decrease in orders from customers in the recreation market. Customers in the
electronics, general industrial and recreational markets generally operate with
little advance purchasing,
38
<PAGE>
and thus backlog for such businesses is subject to certain fluctuations. The
Clark-Schwebel Business also operates with nominal backlog. The Company's
backlog in the non-aerospace markets for the next twelve months is therefore not
necessarily a meaningful indicator of future sales.
GROSS MARGIN. Gross margin for the first nine months of 1998 was $199.2
million, or 25.4% of net sales, compared to $159.7 million, or 23.4% of net
sales, for the comparable period of 1997. While gross margin for the 1998 period
increased two percentage points over the 1997 period, on a quarterly trend
basis, the Company's gross margin percentage has leveled off as the current
business consolidation program has approached completion and commercial
aerospace growth has flattened. The Company is, however, pursuing efforts to
reduce its cost structure and increase its productivity through its Lean
Enterprise program, which will extend to all U.S. locations by year end and to
its European facilities in 1999. The expected improvement in cost and
productivity will be partially offset by customer demand for reductions in the
costs of the products they purchase from the Company.
OPERATING INCOME. Operating income for the first nine months of 1997 was
$50.2 million, compared with $99.5 million for the same period in 1998.
Excluding business acquisition and consolidation expenses of $21.2 million and
$0.7 million incurred in the first nine months of 1997 and 1998, respectively,
the improvement in operating income is the result of higher sales volume,
partially offset by increases in SG&A and R&T expenses. SG&A expenses were $82.1
million, or 10.4% of sales, for the first nine months of 1998, compared to $74.8
million, or 11.0% of sales, for the same period in 1997. The increase in SG&A
expenses is the result of higher sales volume. R&T expenses were $16.9 million,
or 2.2% of sales, for the first nine months of 1998, compared to $13.5 million,
or 2.0% of sales, for the comparable 1997 period.
INTEREST EXPENSE. Interest expense was $23.2 million for the first nine
months of 1998, compared with $18.3 million for the comparable 1997 period. The
increase in interest expense is primarily due to the additional financing
required for the Clark-Schwebel Business as well as working capital needs, and a
$1.6 million write-off of capitalized loan fees relating to the Company's
previous credit facilities.
PROVISION FOR INCOME TAXES. The effective income tax rate for the first
nine months of 1998 was 36%. For the first nine months of 1997, the benefit for
income taxes was $29.4 million, which included a $39.0 million reversal of a
U.S. tax valuation allowance.
Prior to September 30, 1997, the Company had fully provided valuation
allowances against its U.S. net deferred tax assets as there were uncertainties
in generating sufficient future taxable income to realize these net deferred tax
assets. On September 30, 1997, the Company reversed its U.S. tax valuation
allowance as it was more likely than not that these tax assets would be
realized. As a result, excluding the $39.0 million U.S. valuation allowance
reversal, no provision for U.S. federal income taxes was recorded for the nine
months ended September 30, 1997 due to the utilization of net operating loss
carryforwards. Going forward, the Company expects that its U.S. income tax rate
will approximate the statutory rate.
NET INCOME. Net income for the nine months ended September 30, 1998 was
$48.5 million versus $61.3 million for the comparable period of 1997. The
results for 1998 include approximately $1.3 million of after-tax,
acquisition-related charges. The 1997 results included $21.2 million of business
acquisition and consolidation expenses and a non-recurring credit resulting from
the reversal of a $39.0 million deferred tax reserve against the income tax
provision.
FINANCIAL CONDITION AND LIQUIDITY
SENIOR CREDIT FACILITY, AS AMENDED
In connection with the acquisition of the Clark-Schwebel Business on
September 15, 1998, Hexcel obtained the Senior Credit Facility to: (a) fund the
purchase of the Clark-Schwebel Business; (b) refinance the Company's then
existing revolving credit facility; and (c) provide for ongoing working capital
and other financing requirements of the Company. The Senior Credit Facility, as
amended in connection with the
39
<PAGE>
Private Offering, and after giving effect to the Pro Forma Transactions,
includes $360.0 million in aggregate revolving credit facility commitments
($100.9 million as of September 30, 1998), and $311.5 million in aggregate term
loans (including $152.6 million of Tranche A Term Loans and $158.9 million of
Tranche B Term Loans).
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 an annual rate ranging from
approximately 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 certain commitments under
the facility.
The Senior Credit Facility is secured by a pledge of stock of certain of
Hexcel's subsidiaries. In addition, 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 $513
million of the Senior Credit Facility expires in September 2004, with the
balance expiring in September 2005, in each case unless terminated earlier under
certain circumstances.
The net proceeds of the Private Offering were used to reduce certain
outstanding borrowings under the Senior Credit Facility. In addition, the
Company expects that it will redeem $12.5 million aggregate principal amount of
the Ciba Notes on or before February 28, 1999, with borrowings under the Senior
Credit Facility.
CAPITAL LEASE OBLIGATION
Hexcel has a $50.0 million capital lease for property, plant and equipment
used in the Clark-Schwebel Business. The lease expires in September 2006 and
includes various purchase options.
OTHER CAPITAL COMMITMENTS
Mandatory redemption of the Convertible Subordinated Debentures is scheduled
to begin in 2002 through annual sinking fund requirements of $1.1 million in
2002 and $1.8 million in each year thereafter.
The Company's total estimated financial commitments to its joint ventures in
China and Malaysia are approximately $31 million, which are expected to be made
in increments through 2001.
EBITDA AND CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1997. Adjusted EBITDA for the first nine
months of 1997 was $99.4 million. Net cash used for operating activities was
$19.1 million, primarily as the result of the increase in working capital of
$71.2 million, business acquisition and consolidation payments of $27.3 million,
as well as the deferred income tax allowance reversal of $39.0 million, all of
which more than offset $61.3 million of net income, $28.0 million of
depreciation and amortization and $21.2 million of business acquisition and
consolidation expenses. The substantial increase in working capital reflects
higher levels of accounts receivable and inventory resulting from increased
sales and production volumes. The working capital increase also reflects
reductions in accrued liabilities from peak year-end levels, primarily due to
the payment in 1997 of obligations incurred during 1996 for capital projects and
employee incentive and benefit programs.
Net cash used for investing activities was $65.7 million. This primarily
reflects $31.7 million of capital expenditures, $37.0 million related to the
acquisition of the satellite business and a license of technology from Fiberite
and the receipt of $5.0 million in connection with the sale of a 50% equity
interest in the Knytex joint venture. Net cash used for investing activities was
funded by borrowings under the Company's revolving credit facility.
40
<PAGE>
NINE MONTHS ENDED SEPTEMBER 30, 1998. Adjusted EBITDA for the first nine
months of 1998 was $131.1 million, a 32% increase over the comparable 1997
period. Net cash provided by operating activities was $48.1 million, as
increased working capital of $32.6 million and restructuring payments of $6.9
million partially offset $48.5 million of net income and $38.4 million of
non-cash depreciation and amortization and deferred income taxes. The increase
in working capital reflects higher levels of accounts receivable and inventory
due to higher sales volume, as well as reductions in accrued liabilities from
peak year-end levels, primarily due to the payment of obligations in 1998 for
capital projects and employee incentive and benefit programs incurred during
1997.
Net cash used for investing activities was $496.0 million, reflecting the
net cash paid for the Clark-Schwebel Business, net of cash acquired, of $453.0
million and capital expenditures of $41.7 million. On December 23, 1998, the
Company paid $19.0 million to complete its purchase of a 43.6% joint venture
interest in CS-Interglas. Net cash provided by financing activities was $436.9
million, primarily reflecting $442.3 million of funds borrowed under the Senior
Credit Facility that was offset in part by the acquisition of $10.0 million of
treasury stock.
Adjusted EBITDA has 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 does not represent an
alternative measure of the Company's cash flows or operating income, and should
not be considered in isolation or as a substitute for measures of performance
presented in accordance with generally accepted accounting principles.
CAPITAL EXPENDITURES
Capital expenditures increased to $41.7 million in the first nine months of
1998, from $31.7 million in the first nine months of 1997. This increase is
attributable to capital expenditures incurred in connection with the business
consolidation program as well as expenditures to improve manufacturing processes
and to expand production capacity for select product lines that are in high
demand.
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") 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.
In order to address the Year 2000 issue, the Company has developed and
implemented a six phase plan divided into the following components: (1)
inventory; (2) risk assessment and assigning priorities; (3) assessing
compliance; (4) repairing or replacing; (5) testing; and (6) developing
contingency plans. In addition, the Company established a central Year 2000
issue project office to coordinate and monitor progress towards achieving
corporate-wide Year 2000 compliance. The Company is also using external
consulting services, where appropriate, as part of its efforts to address its
Year 2000 issue.
With respect to the Company's Business Systems and its Year 2000 project,
the Company has nearly completed its inventory phase. The Company has
established June 30, 1999 as its target date for substantial completion of
phases one through four (i.e., repairing and replacing), and certain testing of
significant business systems and manufacturing processes.
The Company has initiated formal communications with all of its significant
suppliers and customers to survey what steps those companies are taking to
remediate their Year 2000 issues. 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
41
<PAGE>
readiness, and accumulation of inventory. The Company is also monitoring the
status of its significant customers as a means of assessing risks and developing
alternatives.
Estimated future costs to prepare the Company's Business Systems to become
Year 2000 compliant are approximately $5 million. This amount includes
approximately $1 million of capital expenditures to be used for the purchase of
certain capital equipment which is currently not Year 2000 compliant. The
estimate also includes the cost of certain internal resources fully dedicated to
this project. Due to resource constraints caused by the Year 2000 issue, the
Company is deferring other information technology projects. The estimate does
not include any costs associated with the implementation of contingency plans,
which have not yet been developed. Amounts expensed through September 30, 1998
were immaterial.
The Company presently believes that by implementing its plans, including
modifications to existing Business Systems and conversion to new or upgraded
software and other systems, the Year 2000 issue will not pose significant
operational problems for the Company. 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 Year 2000
issue could have a material impact on the operations, liquidity and financial
condition of the Company.
RECENTLY ISSUED ACCOUNTING STANDARDS
In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position ("SOP") 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use." Effective for fiscal years
beginning after December 15, 1998, this SOP requires that entities capitalize
certain internal-use software costs once certain criteria are met. The Company
does not expect SOP 98-1 to have a material impact on its consolidated financial
statements.
In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position SOP 98-5, "Reporting on the Costs of Start-Up Activities."
Effective for fiscal years beginning after December 15, 1998, this SOP requires
start-up activities and organization costs be expensed as incurred. The Company
does not expect SOP 98-5 to have a material impact on its consolidated financial
statements.
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.
42
<PAGE>
BUSINESS
GENERAL
Our company is the world's leading producer of advanced structural
materials. We develop, manufacture and market lightweight, high-performance
carbon fibers, industrial fabrics, composite materials and engineered products
for use in commercial aerospace, space and defense, electronics, recreation and
general industrial applications. Our materials are used in a wide variety of end
products, such as commercial and military aircraft, space launch vehicles and
satellites, printed circuit boards ("PCBs"), computers, cellular telephones,
televisions, high-speed trains and ferries, cars and trucks, windmill blades,
reinforcements for bridges and other structures, window blinds, skis and
snowboards, golf clubs, fishing poles, tennis rackets and bicycles.
Our business is organized around three strategic business segments,
presented in order of manufacturing integration from raw materials to finished
products.
- FIBERS AND FABRICS: this segment manufactures carbon fibers and carbon
fiber fabrics, fiberglass fabrics which form the substrate for PCBs, woven
industrial fabrics, woven fabrics for ballistics protection and carbon,
aramid and glass reinforcement materials, all of which comprise the
foundation of many composite materials, parts and structures;
- COMPOSITE MATERIALS: this segment produces honeycomb and prepregs, as well
as structural adhesives and specially machined honeycomb details and
composite panels, which are incorporated into aerospace platforms; and
- ENGINEERED PRODUCTS: this segment engineers and produces composite parts
and structures, including finished components for commercial and military
aircraft and parts used in automotive, civil engineering and rail
applications.
Through a series of strategic acquisitions over the past three years, we
have expanded and diversified our product lines, manufacturing capabilities and
technology portfolio. With 24 manufacturing facilities located in seven
countries around the world and with joint ventures in Asia, Europe and the
United States, we are well positioned to take advantage of opportunities for
growth worldwide. We believe that we have achieved a degree of vertical
integration unmatched by any competitor. This vertical integration enhances our
control over the cost, quality and delivery of our products, and enables us to
offer a variety of solutions to our customers' structural materials needs. For
the twelve months ended September 30, 1998, our company generated pro forma net
sales of approximately $1.246 billion and pro forma Adjusted EBITDA (as defined)
of $214 million.
COMPETITIVE STRENGTHS
We believe that our competitive position is attributable to a number of key
strengths, including the following:
- MARKET LEADER. We believe that our company is the largest integrated
producer of advanced structural materials in the world. We are the largest
supplier of advanced structural materials to both the commercial and
military aerospace industries. We are the global leader in weaving carbon
fibers. As a result of the Clark-Schwebel acquisition, we are now the
global leader in weaving glass and aramid fibers, with an especially
strong position as the leading worldwide supplier of fiberglass fabrics
used in the manufacture of PCBs. Taken together, our overall size and
leading market positions make us a critical supplier to our customers in
multiple end-use industries.
- VERTICAL INTEGRATION. We believe that our acquisitions since 1996 have
built Hexcel into the most vertically integrated manufacturer of advanced
structural materials in the world. Vertical integration provides us with a
greater ability to control the cost, quality and delivery of our products.
In addition, because we develop, manufacture and sell products from
various points in the manufacturing process, we are able to provide the
broadest possible range of overall materials solutions to our customers.
Currently, we consume internally approximately 42% and 27% of our carbon
fiber and fabric production, respectively, and sell the balance of these
products to our customers.
43
<PAGE>
- MARKET AND GEOGRAPHIC DIVERSITY. Approximately 58% of our pro forma net
sales for the twelve months ended September 30, 1998 was derived from the
commercial aerospace industry; 9% from the space and defense industry; 15%
from the electronics industry; 13% from general industrial markets; and 5%
from recreation products. During the same period, we sold 61%, 33% and 6%
of our products to customers located in North America, Europe and the
Pacific Rim, respectively. We believe that this market and geographic
diversity provides us with growth platforms in a number of global markets
that follow different business cycles.
- BROADEST RANGE OF QUALIFICATIONS IN THE AEROSPACE INDUSTRY. We believe
that our company has the broadest range of product qualifications of any
advanced materials manufacturer in the aerospace industry and has
qualified products for use in virtually all western commercial and
military aircraft programs. Before advanced structural materials may be
utilized in aerospace and military applications, they must be qualified.
All Airbus and Boeing commercial aircraft use Hexcel qualified products,
and our carbon fiber is the only qualified carbon fiber in many U.S.
military aircraft and rocket programs. We believe that our extensive range
of qualifications positions us to remain a leading supplier of advanced
structural materials to the aerospace industry.
- LEADER IN GROWING MULTILAYER PCB MARKET. We are the leading weaver of the
fine, lightweight fiberglass fabrics used in the fabrication of multilayer
PCBs. This position allows us to capitalize on the continuing trend toward
electronics miniaturization, which relies on multilayer PCBs to achieve
smaller size with increased functionality. Multilayer PCBs are the fastest
growing segment of the PCB industry and our fabrics are one of the
enabling technologies for such PCBs. The worldwide PCB market is estimated
at over $30 billion, with multilayer PCBs comprising approximately two-
thirds of the total market. As the leading manufacturer of lightweight
fabrics for multilayer PCBs, we are well positioned to capture a
significant portion of this market growth.
- MANUFACTURING AND TECHNICAL EXPERTISE. We have been a leader in advanced
structural materials technology for over 50 years and a leader in
fiberglass fabrics technology for nearly 40 years. We believe that the
range of technologies and products that we have developed over these
decades gives us a level of manufacturing expertise unsurpassed in our
industry. Our technically oriented sales force works with new and existing
customers to identify and engineer solutions to meet our customers' needs,
particularly by identifying areas where advanced structural materials may
beneficially replace traditional materials.
BUSINESS STRATEGY
Key elements of our strategy include the following:
- MAINTAIN LEADERSHIP POSITION IN COMMERCIAL AEROSPACE INDUSTRY. Commercial
aerospace remains the largest market for advanced structural materials. We
are the leading supplier to this industry, with strong positions at both
Boeing and Airbus. We believe that demand for commercial aircraft, and
therefore advanced structural materials, while leveling off in 1999, will
remain at historically high levels for the next several years as a result
of the following trends that have been identified in industry reports:
- continued growth in air travel over the next ten years;
- the existing broad design and qualification baseline for advanced
structural materials in modern commercial aircraft;
- the acceleration of new aircraft deliveries as a result of government
noise regulations;
- European aviation deregulation;
- continuing airline profitability and balance sheet strength; and
- expected increases in aircraft fleet size during the next decade.
Industry analysts believe combined Boeing and Airbus production will
decline from 1999 peak levels but remain at a historically high level for
the next few years, although relative market shares
44
<PAGE>
may shift. We believe that we are well positioned to capitalize on such
trends by continuing to produce a wide variety of advanced structural
materials for use in the manufacture of virtually every commercial
aircraft in the western world, whether the aircraft is produced by Boeing,
Airbus or regional manufacturers. We continue to pursue the increased use
of advanced structural materials in each new generation of commercial
aircraft. The latest Airbus A340 500/600 models for the first time utilize
advanced structural materials to fabricate the keel beam and the rear
pressure bulkhead. The A3XX, when built, will evidence further penetration
of advanced structural materials as a proportion of total materials used
in the fabrication of the airframe and control surfaces.
- REDUCE PRODUCTION COSTS AND IMPROVE MANUFACTURING EFFICIENCIES. We will
pursue specific initiatives to reduce production costs and capital
expenditures and improve manufacturing efficiencies, including
implementation of our Lean Enterprise program and value chain management
initiatives on a global basis. As has been the case with the program we
initiated in 1996, which we believe has resulted in a reduction of annual
costs in excess of $30 million, these new initiatives are expected to
generate significant improvements in our operating cost structure in 1999
and beyond. The goals of our current programs are to reduce unit product
costs, lower production cycle times, increase throughputs, lower
inventories and improve product quality and customer satisfaction.
- CAPITALIZE ON GROWING MILITARY AEROSPACE MARKETS. We intend to capitalize
on the expected growth of the military market, which uses a higher
percentage of advanced structural materials and higher value products than
the commercial market. We are already qualified to supply materials to a
broad range of military aircraft and helicopters scheduled to enter full
scale production at the start of the next decade. Demand for many of these
aircraft is driven in part by the need to replace aging fighter and
transport aircraft platforms. Some of these programs are currently in the
developmental stage, but in many cases government funding for production
has been approved. These programs include the V-22 Osprey tilt-rotor, F-22
(Raptor), F/A-18E/F (Hornet), C-17 transport, European Fighter Aircraft
(Typhoon), RAH-66 (Comanche) and NH90 helicopter.
- EXPLOIT OPPORTUNITIES FROM THE COMMERCIALIZATION OF SPACE. The rapid
growth in the commercial use of satellites for voice, data and image
communications as well as mapping and weather monitoring is expected to
generate increasing production of satellites, rockets and launch vehicles.
Advanced structural materials should benefit from the growth in
space-related markets because they are well suited to meet severe
environmental conditions during launch and in space and the need to
maximize launch payloads and reduce launch costs. We are currently
developing and positioning our products for the fabrication of satellites
and for the next generation of launch vehicles. Our products are already
qualified for use in programs such as the Delta II, III and IV, Sea Launch
and Ariane rockets.
- GLOBALIZE AND INTEGRATE GLASS FABRICS OPERATIONS. As a result of our
acquisition of Clark-Schwebel and its equity interests in CS-Interglas and
Asahi-Schwebel, we are now the largest supplier of glass fabrics to
producers of PCBs and reinforcements for structural composites worldwide.
We intend to integrate the acquired Clark-Schwebel operations into our own
operations to create a global organization that can exploit best
manufacturing practices and technology, leverage procurement of raw
materials and optimize the utilization of our manufacturing capacity. We
expect that these efforts will significantly reduce costs and broaden our
reach in these key markets.
- EXPAND APPLICATIONS FOR ADVANCED STRUCTURAL MATERIALS. We are committed to
expanding the applications of our advanced materials both within existing
markets and into promising new segments. To date, advanced structural
materials have found their greatest use in aerospace and recreation
applications, where their performance properties have shown the most
demonstrable value. We believe that these materials have significant
potential applications in surface transportation (e.g., high speed and
mass transit railways, cars and trucks, high speed ferries and commercial
shipping), civil engineering (e.g., repair and reinforcement of buildings
and bridges) and energy (e.g., windmill blades and fly wheels). Where
appropriate, we will leverage our development of new applications through
alliances with companies that have strong positions in these markets. For
example, we have
45
<PAGE>
entered into a strategic alliance with Sika Finanz AG, a leading
Swiss-based construction products company, to develop the market for
advanced structural materials in construction and civil engineering
applications.
RECENT ACQUISITION HISTORY
On September 15, 1998, we acquired the industrial fabrics business of
Clark-Schwebel and its subsidiaries for a cash purchase price of approximately
$472 million (including $19 million paid on December 23, 1998). This business is
engaged in the manufacture and sale of high-quality fiberglass fabrics used to
make PCBs for electronics equipment such as computers, cellular telephones,
televisions and automotive components. The business also produces high
performance specialty products for use in insulation, filtration, wall and
facade claddings, ballistics and reinforcements for composite materials. We also
entered into a $50 million lease of property, plant and equipment used in that
business pursuant to a long-term lease that includes purchase options.
The Clark-Schwebel acquisition established our company as a leading global
materials supplier to the electronics industry, which we believe has attractive
long-term growth potential, and further diversified our business beyond the
historically cyclical commercial aerospace market.
The Clark-Schwebel acquisition was our most recent in a series of strategic
acquisitions. On February 29, 1996, we purchased the composites business of
Ciba-Geigy Limited ("CGL") for an aggregate value of approximately $209 million.
This acquisition combined two of the world's leading and most technically
advanced structural materials companies, broadening our range of products and
markets, enhancing our research, development and technological capabilities and
balancing our geographical scope. CGL's composite product lines were highly
complementary to our fabrics, prepregs and honeycomb businesses; furthermore,
CGL composites provided us with manufacturing capabilities in finished and
semi-finished structures and interiors for airframe OEMs. Our overall customer
profiles were similar, but CGL's composites had a stronger presence in Europe,
particularly with members of the Airbus consortium (Aerospatiale, British
Aerospace, CASA and DASA). With equally strong market positions in Europe and
the United States, we benefit from future aircraft orders placed with either
Boeing or Airbus. As a result of the Ciba composites acquisition and the spinoff
of Ciba Specialty Chemical Holding Inc. (a Swiss Corporation formerly an
affiliate of CGL ("Ciba")) from CGL, Ciba has a significant relationship with
our company and now beneficially owns 49.6% of our outstanding common shares.
On June 27, 1996, we acquired Hercules Inc.'s composite products division
for a cash purchase price of approximately $139 million. This acquisition
combined two leading prepreg manufacturers and enabled us to produce a large
portion of a significant raw material, polyacrylonitrile ("PAN") based carbon
fiber. With this acquisition, we became the fourth largest carbon fiber producer
in the world. We are also today the largest consumer of PAN-based carbon fiber
in the world, utilizing approximately 20% of worldwide carbon fiber production.
This has created a hedge against carbon fiber price fluctuations for us because
we both buy and sell this crucial raw material. In addition, the Hercules
acquisition further enhanced our technological and integrated manufacturing
capabilities and provided us with new prepreg products and customer
qualifications both in the United States and Europe, thus strengthening existing
customer relationships.
On September 30, 1997, we acquired the business and certain non-exclusive
worldwide rights to certain prepreg technologies of Fiberite, Inc., which
consisted of intangible assets and inventory, and certain non-exclusive,
worldwide rights to certain prepreg technologies, for $37.0 million in cash. The
Fiberite acquisition expanded our existing role as a supplier of carbon fiber,
prepreg and honeycomb to rocket and space satellite programs, positioned us to
capitalize on the expected growth in commercial satellite activities and
expanded our offering of prepregs for commercial and military applications.
The Clark-Schwebel, Ciba, Hercules and Fiberite acquisitions transformed
Hexcel into what we believe is the most vertically integrated company in the
advanced structural materials industry.
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<PAGE>
CORE BUSINESSES
Hexcel operates in three business segments, each of which focuses on
particular products and markets.
<TABLE>
<CAPTION>
BUSINESS SEGMENTS PRODUCTS PRIMARY END-USE
<S> <C> <C>
FIBERS & FABRICS Carbon Fibers - Raw materials for industrial fabrics
and prepregs; and
- Filament winding for various space,
defense and industrial applications.
Industrial Fabrics - Printed circuit boards;
- Raw materials for prepregs and
honeycomb;
- Various marine applications;
- Window blinds;
- Insulation;
- Metal and fume filtration systems;
- Soft body armor; and
- Civil engineering and construction
applications.
COMPOSITE MATERIALS Prepregs - Raw materials for composite structures
& interiors;
- Semi-finished aircraft components;
- Munitions and defense systems; and
- Skis, snowboards, golf club shafts,
fishing rods and tennis rackets.
Structural Adhesives - Bonding of structural materials and
components, including composite panels.
Honeycomb, Honeycomb - Raw materials for composite structures
Parts & Composite & interiors; and
Panels - Semi-finished aircraft components used
in:
Helicopter blades;
Aircraft surfaces (flaps, wing tips,
elevators and fairings);
High-speed ferries, truck and train
components;
Automotive carburetor components; and
Space shuttle doors.
ENGINEERED PRODUCTS Composite Structures - Aircraft structures and finished
aircraft components, including:
Wing-to-body and flap track fairings;
Radomes;
Engine cowls and inlet ducts;
Wing panels; and
Truck floor panels.
Interiors - OEM and retrofit aircraft interiors,
including:
Overhead stowage compartments;
Lavatories; and
Sidewalls and ceilings.
</TABLE>
47
<PAGE>
FIBERS & FABRICS
The Fibers and Fabrics business segment has worldwide responsibility for
manufacturing and marketing carbon fibers and industrial fabrics.
CARBON FIBERS. Carbon fibers are manufactured for sale to third-party
customers and for use by Hexcel in manufacturing certain industrial fabrics and
composite materials. Carbon fibers are woven into carbon fabrics, used as
reinforcement in conjunction with a resin matrix to produce prepregs, and used
in filament winding and advanced fiber placement to produce various other
composite materials. Key product applications include structural components for
commercial and military aircraft and space launch vehicles, as well as certain
recreational and general industrial products such as golf club shafts and tennis
racquets. On a pro forma basis, for the nine months ended September 30, 1998, we
sold approximately 58% of the carbon fiber that we produced to third-party
customers and used the remainder internally.
INDUSTRIAL FABRICS. Industrial fabrics are made from a variety of fibers,
including several types of fiberglass as well as carbon, aramid, quartz, ceramic
and other specialty reinforcements. On a pro forma basis, for the nine months
ended September 30, 1998, we sold approximately 73% of the industrial fabrics
that we produced to third-party customers for use in a wide range of products,
including PCBs, window coverings and other architectural products, soft body
armor, and a variety of structural materials and components used in aerospace,
marine and rail applications. The remainder was used internally to manufacture
prepregs and other composite materials.
<TABLE>
<CAPTION>
FIBERS & FABRICS
KEY CUSTOMERS MANUFACTURING FACILITIES
<S> <C>
AlliedSignal Anderson, SC
Alliant Techsystems Cleveland, GA
Cytec Fiberite Decatur, AL
IBM Decines, France
Isola Les Avenieres, France
Nelco Salt Lake City, UT
Piad Seguin, TX
Polyclad Statesville, NC
Second Chance Washington, GA
</TABLE>
COMPOSITE MATERIALS
The Composite Materials business unit, which was recently reorganized on a
global basis, has worldwide responsibility for manufacturing and marketing
prepregs, structural adhesives, honeycomb, specially machined honeycomb parts
and composite panels.
PREPREGS AND STRUCTURAL ADHESIVES. We are a worldwide leader in the
production of prepregs and have led the development of applications for prepregs
for nearly thirty years.
Prepregs are manufactured by combining high performance industrial fabrics
or unidirectional fibers with a resin matrix to form a composite material with
exceptional structural properties not present in either of their constituent
materials. Industrial fabrics used in the manufacture of prepregs include
S-2-Registered Trademark- fiberglass, carbon, aramid, quartz, ceramic,
Thorstrand-Registered Trademark-, polyethylene and other specialty
reinforcements. Resin matrices include BMI, cyanates, epoxy, phenolic,
polyester, polyimide and other specialty resins. Prepregs are used to
manufacture other products, including finished components for aircraft
structures and interiors.
48
<PAGE>
Hexcel designs and markets a comprehensive range of
Redux-Registered Trademark- and other film adhesives. These structural
adhesives, which bond a wide range of composite, metallic, and honeycomb
surfaces, are used in a variety of product applications.
HONEYCOMB, HONEYCOMB PARTS AND COMPOSITE PANELS. Honeycomb is a unique,
lightweight, cellular structure composed of hexagonal nested cells. The product
is similar in appearance to a cross-sectional slice of a beehive. The hexagonal
cell design gives honeycomb a high strength-to-weight ratio and a uniform
resistance to crushing. These basic characteristics are combined with the
physical properties of the material from which the honeycomb is made to meet
various engineering requirements.
Hexcel produces honeycomb from a number of metallic and non-metallic
materials. Most metallic honeycomb is made from aluminum and is available in a
selection of alloys, cell sizes and dimensions. Non-metallic honeycomb materials
include fiberglass, carbon, thermoplastics, non-flammable aramid papers and
several other specialty materials.
Hexcel sells honeycomb core material in standard block and sheet form and in
laminated panel form. In the construction of composite panels, sheets of
aluminum, stainless steel, prepreg or other laminates are bonded with adhesives
to each side of a slice of honeycomb core, creating a "sandwich" structure.
Hexcel also possesses advanced processing capabilities which enable us to design
and manufacture complex fabricated honeycomb parts and bonded assemblies to meet
customer specifications. Such parts and assemblies are used as semi-finished
components in the manufacture of composite structures.
The largest market for honeycomb products is the aerospace market. We also
sell honeycomb for non-aerospace applications including high-speed trains and
mass transit vehicles, automotive parts, energy absorption products, marine
vessel compartments, portable shelters, business machine cabinets and other
general industrial uses.
In addition, we produce honeycomb for the Engineered Products business
segment for use in manufacturing finished parts for airframe OEMs.
<TABLE>
<CAPTION>
COMPOSITE MATERIALS
KEY CUSTOMERS MANUFACTURING FACILITIES
<S> <C>
United States United States
Boeing Burlington, WA
CFAN Casa Grande, AZ
Hawker de Havilland Gilbert, AZ
Lockheed Martin Lancaster, OH
Northrop Grumman Livermore, CA
Rohr Pottsville, PA
United Technologies Salt Lake City, UT
Europe Europe
Aerospatiale Dagneux, France
Alenia Duxford, England
British Aerospace Linz, Austria
CASA Parla, Spain
DASA Swindon, England
Welkenraedt, Belgium
</TABLE>
49
<PAGE>
ENGINEERED PRODUCTS
The Engineered Products business unit has worldwide responsibility for
designing, manufacturing and marketing lightweight, high-strength composite
structures and interiors primarily for use in the aerospace industry.
COMPOSITE STRUCTURES. Composite structures, and structural parts, are
manufactured from a variety of composite materials (prepregs, honeycombs and
structural adhesives) using such manufacturing processes as resin transfer
molding, autoclave processing, press laminating, heat forming, resin transfer
molding and other manufacturing techniques. Composite structures include such
items as wing-to-body and flap track fairings, radomes, engine cowls, inlet
ducts, wing panels and other aircraft components. More recently, we have begun
to produce composite structural components used in heavy trucks (such as the cab
floor of the Kenworth T2000 truck) and certain other industrial products.
AIRCRAFT INTERIORS. Hexcel designs and produces innovative, lightweight,
high-strength composite interior systems for aircraft. Aircraft interior
products include overhead stowage bins, lavatories, sidewalls and ceilings. We
sell these products to Boeing and other airframe manufacturers for use in the
production of certain aircraft, and to airlines for replacement of existing
interior components.
<TABLE>
<CAPTION>
ENGINEERED PRODUCTS
KEY CUSTOMERS MANUFACTURING FACILITIES
<S> <C>
Alenia Bellingham, WA
Boeing Brindisi, Italy
Kenworth Kent, WA
Mitsubishi
Northrop Grumman
</TABLE>
JOINT VENTURES
In January 1998, we reached an agreement in principle with Boeing and
Aviation Industries of China to form a joint venture, BHA Aero Composite Parts
Co., Ltd., to manufacture composite parts for secondary structures and interior
applications on commercial aircraft. This joint venture will be located in
Tianjin, China. In February 1998, we signed an agreement with Boeing, Sime Darby
Berhad and Malaysia Helicopter Services (now known as Naluri Berhad) to form
another joint venture, Asian Composite Manufacturing Sdn. Bhd., to manufacture
composite parts for secondary structures on commercial aircraft. This joint
venture will be located in Alor Setar, Malaysia. Products manufactured by both
joint ventures will be shipped to our company's Kent, Washington facility for
final assembly, inspection and shipment to Boeing as well as other customers
worldwide. It is anticipated that the first parts will be delivered to customers
in 2001. Our total estimated financial commitment to both of these joint
ventures will be approximately $31 million, which is expected to be made in
increments through 2001. However, implementation of these projects, including
the related investments, remains subject to certain significant conditions,
including completion of negotiation of relevant contracts and U.S. and foreign
governmental approvals.
We have also formed a global alliance with Sika Finanz AG ("Sika") to
develop and market composite systems for the construction industry. Initial
applications will focus on the strengthening and repair of existing structures
using composite materials. Under the terms of the alliance, Sika will generally
take leadership for the marketing and sale of alliance products under the Sika
Carbodur-Registered Trademark- trade name, and Hexcel will take leadership for
the development and manufacture of advanced structural materials for the
alliance. Sika is a worldwide leader in construction chemicals and structural
adhesives. Sika has extensive experience and expertise in the repair, protection
and strengthening of structures in the construction industry and the use of
elastic bonding technology in the transportation industry.
50
<PAGE>
In addition, we have a 45% equity interest in a joint venture in Japan with
Dainippon Ink and Chemicals ("DIC"). This joint venture, which owns and operates
a manufacturing facility in Komatsu, Japan, was formed in 1990 and produces and
sells prepregs, honeycomb, decorative laminates and bulk molding compounds using
technology licensed from Hexcel and DIC.
As part of the Clark-Schwebel acquisition, we also acquired significant
equity ownership interests in three joint ventures:
- a 43.3% share in Asahi-Schwebel Co., Ltd. ("Asahi-Schwebel"),
headquartered in Japan, which in turn has its own joint venture with
AlliedSignal in Taiwan;
- a 43.6% share in CS-Interglas AG ("CS-Interglas"), together with
fixed-price options to increase this equity interest to approximately 84%;
and
- a 50.0% share in Clark-Schwebel Tech-Fab Company ("CS Tech-Fab"),
headquartered in the U.S.
CS-Interglas and Asahi-Schwebel are fiberglass fabric producers serving the
European and Asian electronics industry. In addition, CS-Interglas and
Asahi-Schwebel have announced plans to build and operate a jointly owned
facility in the Philippines to serve the PCB laminate market in Southeast Asia,
although there can be no assurance that this proposed joint venture will proceed
as originally planned. CS Tech-Fab manufactures non-woven materials for roofing,
construction and other specialty applications.
LEAN ENTERPRISE AND VALUE CHAIN MANAGEMENT PROGRAMS
The Lean Enterprise and value chain management programs are designed to
create a common way of managing our company, with a singular focus on creating
value for our customers and eliminating waste throughout the value chain. This
new management approach targets value creation, and challenges all our employees
to continually reduce cost, improve our operating efficiency and maximize the
quality of our products. Success of the program will depend on training our
employees to eliminate waste and non-value activity while improving business
processes to deliver superior product faster and more efficiently than our
competitors.
The goals of the program are reduced scrap, faster manufacturing cycle
times, shorter equipment set-up and clean-down times, lower manufacturing
rejects and warranty claims, faster processing of customer orders and
deliveries, simplified manufacturing procedures and improved manufacturing
processes. All of these actions, if successful, are expected to result in higher
throughput and greater capacity on existing manufacturing equipment, thereby
reducing both capital expenditures and facility requirements. Improved
efficiency and quality are expected to result in lower unit labor requirements
and thereby lower product costs and lower inventory requirements.
The potential for improvement encompasses our entire vertically integrated
supply chain, including our manufacturing plants, support functions, product
development activities and customers and suppliers. The Lean Enterprise program
is also systematically linked with key initiatives to improve the quality and
effectiveness of our global procurement activities. The results of these
multi-year initiatives will be measured by the satisfaction of our customers and
the progressive improvement in our operating performance.
PRODUCTION SUPPLY CHAIN
As a result of the vertically integrated nature of Hexcel's operations, we
produce several materials used in our manufacture of certain industrial fabrics,
composite materials and engineered products, as well as the PAN used as a
precursor material in our manufacture of carbon fibers. As depicted below, at
each level of the production supply chain Hexcel sells a significant portion of
its products to outside customers, thus exposing each product line to market
forces and stimulating productivity and innovation so that
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<PAGE>
product lines remain cost competitive and at the leading edge of technology.
Currently, we consume internally approximately 42% and 27% of our carbon fiber
and fabric production, respectively.
[LOGO]
Hexcel's production activities are generally based on a combination of
"make-to-order" and "make-to-forecast" production requirements. We coordinate
closely with key suppliers in an effort to avoid raw material shortages and
excess inventories.
RESEARCH AND TECHNOLOGY
Hexcel's research and technology ("R&T") activities support all of our core
businesses worldwide. Through R&T, we maintain expertise in chemical formulation
and curatives, fabric forming and textile architectures, advanced composites
structures, process engineering, analysis and testing of composite materials,
computational design and prediction, and other scientific disciplines related to
our worldwide business base. Additionally, our R&T departments perform a limited
amount of contract research and development in the United States and Europe for
strategically important customers in the areas of ceramics, higher temperature
polymers, advanced textiles and composite structures manufacturing.
Our products rely primarily on our expertise in materials science, textiles,
process engineering and polymer chemistry. Consistent with market demand, we
have been placing more emphasis on cost effective product design and agile
manufacturing in recent years. Towards this end, we have entered into formal and
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<PAGE>
informal partnerships, as well as licensing and teaming arrangements, with
several customers, suppliers, external agencies and laboratories. We believe
that we possess unique capabilities to design, develop and manufacture composite
materials and structures. We own and maintain in excess of 100 patents
worldwide, have licensed many key technologies and have granted technology
licenses and patent rights to several third parties in connection with joint
ventures and joint development programs.
Our company spent $18.4 million for R&T for the year ended December 31, 1997
and $16.9 million for the nine months ended September 30, 1998.
MARKETS AND CUSTOMERS
Our materials are sold for a broad range of end-uses. The following tables
summarize net sales to third-party customers by market and by geography for the
year ended December 31, 1997 and the twelve months ended September 30, 1998 (pro
forma after giving effect to the Clark-Schwebel acquisition).
<TABLE>
<CAPTION>
PRO FORMA TWELVE
YEAR ENDED DECEMBER MONTHS ENDED
31, 1997 SEPTEMBER 30, 1998
------------------- -------------------
<S> <C> <C>
NET SALES BY MARKET
Commercial aerospace.................................................... 67% 58%
Space and defense....................................................... 10 9
Electronics............................................................. 4 15
General industrial...................................................... 13 13
Recreation.............................................................. 6 5
----- -----
Total............................................................... 100% 100%
----- -----
----- -----
NET SALES BY GEOGRAPHY
United States........................................................... 56% 60%
U.S. exports............................................................ 8 8
International........................................................... 36 32
----- -----
Total............................................................... 100% 100%
----- -----
----- -----
</TABLE>
Virtually all of the net sales of the Clark-Schwebel Business (exclusive of
its non-consolidated joint ventures) are to customers located in the United
States. Approximately 65% of net sales of the Clark-Schwebel Business are to
electronics markets, approximately 14% to commercial aerospace markets and 21%
to general industrial markets.
COMMERCIAL AEROSPACE. Historically, the commercial aerospace industry has
led the development of applications for advanced structural materials and
components because it has the strongest need for the performance properties of
these materials, and is well positioned to maximize the economic benefits from
their use. The demand for advanced structural material products, however, is
closely correlated to the demand for commercial aircraft.
Commercial aircraft demand fluctuates in relation to two principal factors.
First, the number of revenue passenger miles flown by the world's airlines
affects the size of the airline fleets and generally follows the level of
overall economic activity. A recent document, published by Boeing, projects that
revenue passenger miles will increase an average of 4.9% per year over the next
decade, providing a source of long-term demand for new commercial aircraft.
However, recent economic events in Asia, Latin America and other parts of the
world may result in difficulties in achieving this projected growth rate,
especially in the near term.
The second demand factor, which is less sensitive to the general economy, is
the replacement and retrofit rates for existing aircraft. These rates, resulting
mainly from obsolescence, are determined in part by the regulatory requirements
established by various civil aviation authorities, and by public concern
53
<PAGE>
regarding aircraft age, safety and noise. These rates may also be affected by
the desire of the various airlines for higher payloads and more fuel efficient
aircraft, which in turn is influenced by the price of fuel.
Reflecting the demand factors noted above, the number of commercial aircraft
delivered by Boeing, including McDonnell Douglas, and Airbus declined by 48%
from 1992 to 1995. At the lowest point during this period, Boeing and Airbus
reported combined deliveries of 380 aircraft. Beginning in 1996, however,
aircraft deliveries by Boeing and Airbus began to rise, growing to a combined
total of 397 in 1996, 557 in 1997, and 788 in 1998. Based on published
projections, including a press release issued by Boeing on December 1, 1998,
combined deliveries are expected to peak at 913 in 1999, before declining to 807
in 2000. Set forth below are historical and projected deliveries as published by
Boeing and Airbus:
<TABLE>
<CAPTION>
1990 1991 1992 1993 1994 1995
----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Boeing/McDonnell Douglas...................... 527 605 573 409 311 256
Airbus........................................ 95 163 157 138 127 124
--- --- --- --- --- ---
Total..................................... 622 768 730 547 438 380
--- --- --- --- --- ---
--- --- --- --- --- ---
<CAPTION>
PROJECTED
------------
1996 1997 1998 1999 2000
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Boeing/McDonnell Douglas...................... 271 375 559 620 490
Airbus........................................ 126 182 229 293 317
--- --- --- --- ---
Total..................................... 397 557 788 913 807
--- --- --- --- ---
--- --- --- --- ---
</TABLE>
Approximately 43% of Hexcel's net sales for the nine months ended September
30, 1998 were to Boeing (including materials for military aircraft and space
programs), Airbus and related subcontractors, compared with 46% in 1997 and 32%
in 1996. This percentage is expected to decline in 1999, as a result of the
projected trends in commercial aircraft deliveries as well as the procurement
and manufacturing trends noted above. In addition, the acquisition of the
Clark-Schwebel Business will increase the proportion of Hexcel's sales to the
electronics market in 1999. On a pro forma basis, Hexcel's net sales for the
twelve months ended September 30, 1998 to Boeing, Airbus and related
subcontractors were approximately 38% of its total net sales.
SPACE AND DEFENSE. The space and defense markets have historically been
innovators in and sources of significant demand for advanced structural
materials. For example, advanced structural materials made a major contribution
to the development of "stealth" aircraft technologies. However, aggregate demand
by space and defense customers is primarily a function of military aircraft
procurement by the U.S. and certain European governments. Consequently, the
space and defense market for advanced structural materials declined
significantly during the early part of this decade, as a result of substantial
decreases in military aircraft procurement that began in the late 1980s.
Presently, there are a number of potentially significant military aircraft
programs in various stages of development or initial production that utilize
advanced structural materials. Hexcel has a number of carbon fiber and composite
material products qualified for use on several of these programs, including the
competing development versions of the Joint Strike Fighter (JSF), the F-22
(Raptor) and F/A-18 E/F (Hornet) aircraft, the European Fighter Aircraft
(Typhoon), the C-17 cargo and V-22 (Osprey) tilt-rotor aircraft, RAH-66
(Comanche) and NH90 helicopter.
ELECTRONICS. The acquisition of the Clark-Schwebel Business provides Hexcel
with a global platform to supply the electronics industry, which we believe has
attractive long-term growth potential. The Clark-Schwebel Business is the
largest producer of fine, lightweight fiberglass fabrics used in the fabrication
of multilayer PCBs, with an estimated 50% market share in the United States. In
addition to its U.S. businesses, it has significant ownership positions in three
joint ventures: CS-Interglas, Asahi-Schwebel and CS Tech-Fab. CS-Interglas and
Asahi-Schwebel are leading fiberglass fabric manufacturers in Europe, Japan and
Southeast Asia with estimated electronics fiberglass fabric market shares of
36%, 38% and 13%, respectively. Fiberglass fabrics are a critical component used
in the production of PCBs, which are integral to most advanced electronics
products, including computers, telecommunications equipment, advanced cable
television equipment, network servers, televisions, automotive equipment and
home appliances.
We believe that we are strategically positioned to capitalize on the
expected growth in worldwide demand for electronics fiberglass fabrics resulting
from:
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<PAGE>
- the development of more complex and sophisticated electronics equipment in
established markets, such as wireless communications and personal
computers;
- the proliferation of computer usage through networking, server and
multi-media systems;
- the increase in global demand for telecommunication infrastructure and
mobile telecommunications services; and
- new applications for electronic systems in automobiles, home appliances
and medical equipment.
The worldwide PCB market is estimated at over $30 billion, with multilayer
PCBs comprising approximately two-thirds of the total market. As the leading
manufacturer of lightweight fabrics for multilayer PCBs, we are well positioned
to capture a significant portion of this market growth.
RECREATION, GENERAL INDUSTRIAL AND OTHER MARKETS. We have focused our
participation in recreation and general industrial markets in areas where the
application of advanced structural material technology offers significant
benefits to the end-user. As a result, we have chosen select opportunities where
high performance is the key product criterion. Accordingly, future opportunities
and growth depend primarily upon the success of the individual programs and
industries in which we have elected to participate. Within the recreation
market, key product applications in which we are involved include skis,
snowboards, golf club shafts, fishing rods, tennis rackets and bicycles. Within
general industrial markets, key applications include surface transportation
(automobiles, trucks, mass transit and high-speed rail and marine applications),
wind energy and civil engineering. Hexcel's participation in these markets is a
valuable complement to our commercial and military aerospace businesses, and we
are committed to the application of advanced structural material technology in
performance-driven recreation and general industrial products.
COMPETITION
In the production and sale of advanced structural materials, Hexcel competes
with numerous United States and international companies on a worldwide basis.
The broad markets for our products are highly competitive and we have focused on
both specific markets and specialty products within markets to obtain market
share. In addition to competing directly with companies offering similar
products, our materials compete with substitute structural materials such as
structural foam, wood, metal and concrete. Depending upon the material and
markets, relevant competitive factors include price, delivery, service, quality
and product performance. See "Risk Factors--Competition."
ENVIRONMENTAL MATTERS
We are subject to numerous federal, state, local and foreign laws and
regulations that impose strict requirements for the control and abatement of
air, water and soil pollutants and the manufacturing, storage, handling and
disposal of hazardous substances and waste. These laws and regulations include
the Federal Comprehensive Environmental Response, Compensation, and Liability
Act ("CERCLA" or "Superfund"), the Clean Air Act, the Clean Water Act and the
Resource Conservation and Recovery Act, and analogous state laws and
regulations. Regulatory standards under these environmental laws and regulations
have tended to become increasingly stringent over time.
We have incurred substantial compliance costs, including capital costs, in
complying with such requirements in the United States and in foreign
jurisdictions. We are currently a party to, or otherwise involved in, legal
proceedings in connection with a number of Superfund sites. Because CERCLA
provides for joint and several liability, we could be responsible for all
remediation costs at such sites, even if we are one of many potentially
responsible parties ("PRPs"). We believe, however, based on our experience with
such matters, the amount and the nature of our waste, and the number of other
financially viable PRPs, that our liability in connection with such matters will
not be material.
55
<PAGE>
In addition, we are currently investigating and remediating on-site areas of
contamination at certain of our current and former facilities. We cannot assure
you that we have identified all off-site liability matters and all on-site
remediation matters involving our current or former facilities for which we may
be responsible or that the cost of such known or unknown remediation matters
will be immaterial. We have established financial reserves in cases where the
amount of environmentally-related expenditures can be reasonably estimated. As
assessments and cleanups proceed, and as additional information becomes
available, we will review and adjust, if necessary, these reserve amounts.
EMPLOYEES
As of September 30, 1998, Hexcel employed 6,875 full-time employees,
compared with 5,597 and 5,013 as of December 31, 1997 and 1996, respectively. As
a result of the acquisition of the Clark-Schwebel Business, we added
approximately 1,300 employees to our workforce.
Approximately 20% of Hexcel's employees have various union affiliations. We
believe that labor relations in our company are generally satisfactory.
PROPERTIES
Hexcel owns manufacturing facilities and leases sales offices located
throughout the United States and in other countries as noted below. Our
corporate offices are located in leased facilities in Stamford, Connecticut and
Pleasanton, California. Our central R&T administration and certain composite
materials laboratories are located in Dublin, California.
The following table lists the manufacturing facilities of Hexcel by
geographic location, approximate square footage, and principal products
manufactured. The following table does not include manufacturing facilities
owned by entities in which we have a joint venture interest.
56
<PAGE>
MANUFACTURING FACILITIES
<TABLE>
<CAPTION>
APPROXIMATE
FACILITY LOCATION SQUARE FOOTAGE PRINCIPAL PRODUCTS
- ---------------------------------------- -------------- -------------------------------------------------------
<S> <C> <C>
UNITED STATES:
Anderson, South Carolina.............. 432,000 Reinforcement fabrics
Bellingham, Washington................ 188,000 Interiors
Burlington, Washington................ 73,000 Honeycomb Parts
Casa Grande, Arizona.................. 307,000 Honeycomb and Honeycomb Parts
Cleveland, Georgia.................... 93,000 Heavyweight electronic fabric
Decatur, Alabama...................... 159,000 PAN Precursor (used to produce Carbon Fibers)
Gilbert, Arizona...................... 30,000 Prepregs
Kent, Washington...................... 883,000 Composite Structures; Interiors
Lancaster, Ohio....................... 49,000 Prepregs
Livermore, California................. 141,000 Prepregs
Pottsville, Pennsylvania.............. 134,000 Honeycomb Parts
Salt Lake City, Utah.................. 371,000 Carbon Fibers; Prepregs
Seguin, Texas......................... 204,000 Reinforcement fabrics
Statesville, North Carolina........... 553,000 Lightweight electronic fabrics; reinforcement fabrics
Washington, Georgia................... 160,000 Midweight electronic fabrics
INTERNATIONAL:
Brindisi, Italy....................... 110,000 Engineered Products
Dagneux, France....................... 130,000 Prepregs
Decines, France....................... 90,000 Reinforcement fabrics
Duxford, United Kingdom............... 440,000 Prepregs; Honeycomb and Honeycomb Parts
Les Avenieres, France................. 476,000 Reinforcement fabrics; Prepregs
Linz, Austria......................... 163,000 Prepregs
Parla, Spain.......................... 43,000 Prepregs
Swindon, United Kingdom............... 20,000 Honeycomb Parts
Welkenraedt, Belgium.................. 223,000 Honeycomb and Honeycomb Parts
</TABLE>
Hexcel leases the facilities located in Anderson, South Carolina;
Washington, Georgia; Statesville, North Carolina; Gilbert, Arizona; and Swindon,
U.K.; and the land on which the Burlington, Washington, facility is located. The
Company also leases portions of the facilities located in Casa Grande, Arizona;
Bellingham and Kent, Washington; Linz, Austria; and Les Avenieres, France.
57
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The Board of Directors of our company (the "Board of Directors" or the
"Board") consists of 10 directors: four directors designated by Ciba (John M.D.
Cheesmond, Stanley Sherman, Joseph T. Sullivan and Hermann Vodicka), the
Chairman of the Board and Chief Executive Officer of Hexcel (John J. Lee), the
President and Chief Operating Officer of Hexcel (Harold E. Kinne) and four
additional independent directors (Marshall S. Geller, Martin L. Solomon, George
S. Springer and Franklin S. Wimer).
The following tables set forth certain information regarding the directors
and certain executive officers of our company as of December 15, 1998. No family
relationship exists between any of our directors and/or executive officers.
DIRECTORS
<TABLE>
<CAPTION>
DIRECTOR
NAME AGE SINCE POSITION(S) WITH HEXCEL
- ------------------------------- --- ----------- ----------------------------------------------------------------
<S> <C> <C> <C>
John J. Lee.................... 62 1993 Chairman of the Board; Chief Executive Officer; Director
Harold E. Kinne................ 59 1998 President and Chief Operating Officer; Director
John M.D. Cheesmond............ 49 1996 Director
Marshall S. Geller............. 59 1994 Director
Stanley Sherman................ 60 1996 Director
Martin L. Solomon.............. 62 1996 Director
George S. Springer............. 65 1993 Director
Joseph T. Sullivan............. 58 1996 Director
Hermann Vodicka................ 56 1996 Director
Franklin S. Wimer.............. 62 1995 Director
</TABLE>
JOHN J. LEE, age 62, has served as Chairman of the Board of Directors of
Hexcel since February 1996, Chief Executive Officer since January 1994, Chairman
and Chief Executive Officer from January 1994 to February 1995, Chairman and
Co-Chief Executive Officer from July 1993 to December 1993 and a director since
May 1993. He also serves as Chairman of the Nominating Committee and is a member
of the Finance Committee of Hexcel. Mr. Lee is a director of Hvide Marine
Incorporated, a marine support and transportation services company. He has
served as Chairman of the Board, President and Chief Executive Officer of Lee
Development Corporation, a merchant banking company, since 1987 and as an
adviser to the Clipper Group, a private investment partnership, since 1993. He
is a trustee of Yale University and is also a director of various privately-held
corporations. Mr. Lee was a director of XTRA Corporation, a transportation
equipment leasing company, from 1990 to 1996 and Chairman of the Board and Chief
Executive Officer of Seminole Corporation, a manufacturer and distributor of
fertilizer, from 1989 to 1993. Mr. Lee also served as a director of Tosco
Corporation, a national refiner and marketer of petroleum products, from 1988 to
1993 and as President and Chief Operating Officer of Tosco Corporation from 1990
through 1993.
HAROLD E. KINNE, age 59, has served as President and Chief Operating Officer
of Hexcel since July 1998. Prior to joining Hexcel, he was President of the
Additives Division, corporate vice president, a member of the corporate
management committee and a director of Ciba Specialty Chemicals Corporation from
1996 to June 1998. Mr. Kinne also held the same positions in Ciba-Geigy
Corporation ("CGC") from 1988 through 1996. Prior to that, Mr. Kinne served as
Vice President, Pigments, for the Plastics & Additives Division of CGC from 1986
to 1988. Mr. Kinne has held various other technical and managerial positions
with CGC from 1965 to 1986.
JOHN M.D. CHEESMOND, age 49, has been a director of Hexcel since February
1996. Mr. Cheesmond also serves as Chairman of the Executive Compensation
Committee, is a member of the
58
<PAGE>
Finance Committee of Hexcel and is Executive Vice President of Ciba Specialty
Chemicals Inc. (Switzerland). Mr. Cheesmond was Senior Vice President and Head
of Regional Finance and Control of Ciba Geigy Limited ("CGL") from 1994 to 1996.
From 1991 to 1993, Mr. Cheesmond served as Group Vice President, Planning,
Information and Control at Ciba Vision Corporation.
MARSHALL S. GELLER, age 59, served as Co-Chairman of the Board of Directors
of Hexcel from February 1995 to February 1996 and has been a director of Hexcel
since August 1994. Mr. Geller also serves as a member of the Audit, Executive
Compensation and Nominating Committees of Hexcel. Mr. Geller has served as
Chairman of the Board, Chief Executive Officer and founding partner at Geller &
Friend Capital Partners, Inc., a merchant banking firm, since 1995. Mr. Geller
was Senior Managing Director of Golenberg & Geller, Inc., a merchant banking
firm, from 1991 to 1995; Vice Chairman of Gruntal & Company, an investment
banking firm, from 1988 to 1990; and a Senior Managing Director of Bear, Stearns
& Co., Inc., an investment banking firm, from 1967 to 1988. Mr. Geller is
currently a director of Ballantyne of Omaha, Inc., Players International, Inc.,
Value Vision International, Inc., iMall, Inc., DataLink Systems Corp., Cabletel
Communications Corp., Stroud's, Inc. and various privately-held corporations and
charitable organizations.
STANLEY SHERMAN, age 60, has been a director of Hexcel since February 1996.
Mr. Sherman also serves as a member of the Executive Compensation and Finance
Committees of Hexcel. Mr. Sherman is President and Chief Executive Officer of
Ciba Specialty Chemicals Corporation (North America) and Chairman of the Board
of Ciba Specialty Chemicals (Canada). Mr. Sherman served as a director and Vice
President and Chief Financial Officer of CGC from 1991 to 1996, and was a member
of the Finance Committee and the Corporate Management Committee of CGC's Board
of Directors. From 1986 to 1991, Mr. Sherman served as Vice President-Corporate
Planning of CGC. Mr. Sherman also serves on the Board of Directors of the
Westchester Educational Coalition.
MARTIN L. SOLOMON, age 62, has been a director of Hexcel since May 1996. Mr.
Solomon serves as Chairman of the Finance Committee and is a member of the Audit
and Executive Compensation Committees of Hexcel. Mr. Solomon has been Chairman
and Chief Executive Officer of American County Holdings, Inc., an insurance
holding company, since 1997 and a self-employed investor since 1990. Mr. Solomon
was a director and Vice Chairman of the Board of Directors of Great Dane
Holdings, Inc., which is engaged in the manufacture of transportation equipment,
automobile stamping, the leasing of taxis and insurance, from 1985 to 1996,
Managing Partner of Value Equity Associates I, L.R., an investment partnership,
from 1988 to 1990, and an investment analyst and portfolio manager of Steinhardt
Partners, an investment partnership, from 1985 to 1987. Mr. Solomon has been a
director of XTRA Corporation since 1990. Mr. Solomon is also a director of
various privately-held corporations and civic organizations.
GEORGE S. SPRINGER, age 65, has been a director of Hexcel since January
1993. Mr. Springer also serves as Chairman of the Technology Committee of
Hexcel. Mr. Springer is the Paul Pigott Professor and Chairman of the Department
of Aeronautics and Astronautics, and by courtesy, Professor of Mechanical
Engineering and Professor of Civil Engineering, at Stanford University. Mr.
Springer joined Stanford University's faculty in 1983.
JOSEPH T. SULLIVAN, age 58, has been a director of Hexcel since February
1996. Mr. Sullivan also serves as a member of the Nominating and Technology
Committees of Hexcel. Mr. Sullivan is the Joseph H. Colic Professor of Chemical
Engineering at Virginia Polytechnic Institute and State University in
Blacksburg, VA, and also works as a consultant. Mr. Sullivan served as a
director and Senior Vice President of CGC from 1986 to 1996.
HERMANN VODICKA, age 56, has been a director of Hexcel since February 1996.
Mr. Vodicka also serves as a member of the Nominating and Technology Committees
of Hexcel. Mr. Vodicka was Chief Executive Officer and a director of Ciba until
December 1998 and President of the Polymers Division and a member of the
Executive Committee of CGL from 1993 to 1996. Mr. Vodicka was the Chairman of
the
59
<PAGE>
Board of Mettler-Toledo, a leading worldwide manufacturer of scales and balances
and a wholly owned subsidiary of CGL, until its sale in 1996. From 1988 to 1993,
Mr. Vodicka was President and Chief Executive Officer of Mettler-Toledo.
FRANKLIN S. WIMER, age 62, was a director of Hexcel from February 1995 to
February 1996 and was reelected in May 1996. Mr. Wimer also serves as Chairman
of the Audit Committee and is a member of the Technology Committee of Hexcel.
Mr. Wimer is President and Principal of UniRock Management Corporation
("UniRock"), a private merchant banking firm based in Denver, Colorado. Mr.
Wimer has been with UniRock since 1987. UniRock acted as strategic planning
consultant to Hexcel from December 1993 through April 1996. Mr. Wimer is
currently Chairman of the Board of Vista Restaurants, Inc., Chairman of the
Board of Colorado Gaming & Entertainment Co. and is a director of the Denver
Paralegal Institute and Foresight Products, Inc.
EXECUTIVE OFFICERS
Set forth below is certain information concerning the executive officers of
Hexcel and all persons chosen to become executive officers of Hexcel as of
December 15, 1998. For additional information concerning Messrs. Lee and Kinne,
see "--Directors and Executive Officers--Directors."
<TABLE>
<CAPTION>
EXECUTIVE
OFFICER
NAME AGE SINCE POSITION(S) WITH HEXCEL
- ----------------------------- --- ----------- ------------------------------------------------------------------
<S> <C> <C> <C>
John J. Lee.................. 62 1993 Chairman of the Board; Chief Executive Officer; Director
Harold E. Kinne.............. 59 1998 President; Chief Operating Officer; Director
Stephen C. Forsyth........... 43 1994 Executive Vice President; Chief Financial Officer
Ira J. Krakower.............. 58 1996 Senior Vice President; General Counsel; Secretary
Wayne C. Pensky.............. 43 1993 Vice President; Corporate Controller; Chief Accounting Officer
Robert A. Petrisko........... 44 1993 Vice President of Research and Technology
Gary L. Sandercock........... 57 1989 Vice President of Manufacturing
Joseph H. Shaulson........... 33 1996 Vice President of Planning and Integration
David M. Wong................ 54 1996 Vice President of Corporate Affairs
Bruce D. Herman.............. 43 1996 Treasurer
William Hunt................. 55 1996 President of the Global Materials Business Unit
William D. Bennison.......... 54 1998 President of the Global Fabrics Business Unit
James N. Burns............... 58 1996 President of the Fibers Business Unit
Justin Taylor................ 45 1996 President of the Structures and Interiors Business Unit
</TABLE>
STEPHEN C. FORSYTH, age 43, has served as Executive Vice President of Hexcel
since June 1998, Chief Financial Officer since November 1996 and Senior Vice
President of Finance and Administration between February 1996 and June 1998. Mr.
Forsyth served as Vice President of International Operations of Hexcel from
October 1994 to February 1996 and General Manager of Hexcel's Resins Business
and Export Marketing from 1989 to 1994, and held other general management
positions with Hexcel from 1980 to 1989. Mr. Forsyth joined Hexcel in 1980.
IRA J. KRAKOWER, age 58, has served as Senior Vice President, General
Counsel and Secretary of Hexcel since September 1996. Prior to joining Hexcel,
Mr. Krakower served as Vice President and General Counsel to Uniroyal Chemical
Corporation from 1986 to August 1996 and served on the Board of Directors of and
as Secretary of Uniroyal Chemical Company, Inc. from 1989 to 1996.
WAYNE C. PENSKY, age 43, has served as Vice President of Hexcel since
December 1998 and as Corporate Controller and Chief Accounting Officer of Hexcel
since July 1993. Prior to joining Hexcel in 1993, Mr. Pensky was a partner at
Arthur Andersen & Co., an accounting firm, where he was employed from 1979 to
1993.
60
<PAGE>
ROBERT A. PETRISKO, age 44, has served as Vice President of Research and
Technology of Hexcel since September 1993. Mr. Petrisko served at Hexcel's
Chandler facility as Manager of the Signature Technology Group from 1989 to
April 1993 and as Director of Aerospace Technology from April 1993 to September
1993. Mr. Petrisko joined Hexcel in 1989 after serving as a Research Specialist
with Dow Corning Corporation from 1985 to 1989.
GARY L. SANDERCOCK, age 57, has served as Vice President of Manufacturing of
Hexcel since October 1996. From February 1996 to October 1996, he served as
President of Hexcel's Special Process business unit. Mr. Sandercock served as
Vice President of Manufacturing of Hexcel from April 1993 to February 1996, Vice
President of the Reinforcement Fabrics business unit of Hexcel from 1989 to 1993
and General Manager of the Trevarno Division of Hexcel from 1985 to 1989, and
held other manufacturing and general management positions from 1967 to 1985. Mr.
Sandercock joined Hexcel in 1967.
JOSEPH H. SHAULSON, age 33, has served as Vice President of Planning and
Integration of Hexcel since November 1998. Mr. Shaulson served as Vice President
of Corporate Development of Hexcel from April 1996 to October 1998. In addition,
Mr. Shaulson served as Acting General Counsel and Acting Secretary of Hexcel
from April 1996 to September 1996. Prior to joining Hexcel, Mr. Shaulson was an
associate in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP, where he
was employed from 1991 to 1996.
DAVID M. WONG, age 54, has served as Vice President of Corporate Affairs of
Hexcel since February 1996. Mr. Wong served as Hexcel's Director of Special
Projects from July 1993 to February 1996 and Corporate Controller and Chief
Accounting Officer of Hexcel from 1983 to 1993, and held other general
management positions from 1979 to 1983. Mr. Wong joined Hexcel in 1979.
BRUCE D. HERMAN, age 43, has served as Treasurer of Hexcel since April 1996.
Prior to joining Hexcel, Mr. Herman served as Vice President of Finance in the
Transportation and Industrial Financing Division of USL Capital Corp. (formerly
U.S. Leasing Inc.) ("USL") from 1993 to 1996, Vice President of Finance in the
Equipment Financing Group of USL from 1991 to 1993 and Vice President of
Corporate Analysis of USL from 1988 to 1991.
WILLIAM HUNT, age 55, has served as President of Hexcel's Global Materials
business unit since November 1998 and as President of the former Hexcel
EuroMaterials business unit since February 1996. Mr. Hunt served as President of
the EuroMaterials unit of the Ciba Composites Business from 1991 to February
1996 and as Managing Director of Ciba-Geigy Plastics ("CGP") from 1990 to 1991.
Prior to joining CGP in 1990, Mr. Hunt held various other technical and
managerial positions, including the position of Managing Director of Illford
Limited (Photographic) Co.
WILLIAM D. BENNISON, age 54, has served as President of Hexcel's Global
Fabrics business unit since November 1998. Prior to joining Hexcel in September
1998, Mr. Bennison was President of Clark-Schwebel, Inc. Mr. Bennison also
serves as President of CS Tech-Fab and as a director of CS-Interglas and
Asahi-Schwebel. Mr. Bennison was President of BGF Industries and its
predecessor, Burlington Glass Fabrics Co., from 1981 to 1989.
JAMES N. BURNS, age 58, has served as President of Hexcel's Fibers business
unit since July 1996. Prior to his employment with Hexcel, Mr. Burns served in a
number of management positions with the Composite Products Division of Hercules
Incorporated, including Business Director from March 1995 to June 1996, Business
Unit Director of Advanced Composite Materials from June 1992 to March 1995 and
Vice President of Marketing from June 1986 to June 1992.
JUSTIN TAYLOR, age 45, has served as President of Hexcel's Structures and
Interiors business unit since April 1996. From July 1995 to April 1996, Mr.
Taylor served as a member of CGLs strategic planning unit. Prior to July 1995,
Mr. Taylor held various management positions in the Heath Tecna Division of CGC.
61
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information as of December 15, 1998
with respect to the ownership by any person (including any "group" as that term
is used in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act")) known to Hexcel to be the beneficial owner of more than
five percent of the issued and outstanding shares of Hexcel's common stock.
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF PERCENT OF
NAME AND ADDRESS COMMON STOCK CLASS
- --------------------------------------------------------------------------------- -------------- ---------------
<S> <C> <C>
Ciba Specialty Chemicals Holding Inc. (a)........................................ 18,021,748 49.6%
Klybeckstrasse 141
CH 4002
Basle, Switzerland
Franklin Resources, Inc. (b)..................................................... 3,627,773 9.8%
Franklin Mutual Advisors, Inc.
51 John F. Kennedy Parkway
Short Hills, NJ 07078
</TABLE>
- ------------------------
(a) Based on information contained in a Statement on Schedule 13D filed with the
SEC on March 18, 1997 on behalf of Ciba and its wholly owned affiliates,
Ciba Specialty Chemicals Corporation ("SCC") and Ciba Specialty Chemicals
Inc. ("SCI"). SCI has sole voting and investment power with respect to
9,204,503 shares and SCC has sole voting and investment power with respect
to 8,817,245 shares of Hexcel's common stock. The shares of Hexcel's common
stock beneficially owned by Ciba are subject to the terms of the Governance
Agreement. See "Certain Relationships and Related Transactions."
(b) Based on information contained in a Statement on Schedule 13G filed with the
SEC on January 29, 1999 on behalf of Franklin Resources, Inc., Franklin
Mutual Advisors, Inc., Rupert H. Johnson, Jr. and Charles B. Johnson, which
parties have sole voting and investment power with respect to all the shares
of Hexcel's common stock held by it.
62
<PAGE>
DESCRIPTION OF CERTAIN INDEBTEDNESS
The following description is only a summary of certain provisions of the
Senior Credit Facility, the Convertible Debentures Indenture, the Convertible
Notes Indenture and the Ciba Notes Indenture and does not purport to be
complete. You may request copies of these agreements at our address set forth
under "Available Information."
In this description, the word "Company" refers only to Hexcel Corporation
and not to any of its subsidiaries.
SENIOR CREDIT FACILITY, AS AMENDED
In connection with the acquisition of the Clark-Schwebel Business on
September 15, 1998, the Company and certain of its foreign subsidiaries (the
"Foreign Subsidiaries") entered into a Second Amended and Restated Credit
Agreement (the "Senior Credit Facility") with certain financial institutions as
lenders, Credit Suisse First Boston ("CSFB"), as the Administrative Agent, and
Citibank, N.A., as Documentation Agent, to: (a) fund the purchase of the
Clark-Schwebel Business; (b) refinance the Company's then existing revolving
credit facility; and (c) provide for ongoing working capital and other financing
requirements of the Company. Simultaneously with the consummation of the private
offering of the Original Notes (the "Private Offering"), the Senior Credit
Facility was amended to, among other things, modify certain financial covenants
and permit the Private Offering.
The Senior Credit Facility (on a pro forma basis after giving effect to the
Private Offering and the application of the proceeds thereof) provides for up to
$671.5 million of aggregate borrowing capacity, consisting of:
- a secured $152.6 million tranche A term loan (the "Tranche A Term Loan");
- a secured $158.9 million tranche B term loan (the "Tranche B Term Loan");
- a secured revolving line of credit in an aggregate amount of $250.0
million in borrowings available to the Company (the "Domestic Revolving
Line of Credit");
- a secured European revolving line of credit in an aggregate amount of
$100.0 million in borrowings available to the Company and the Foreign
Subsidiaries (the "European Revolving Line of Credit"); and
- a secured European overdraft facility in an aggregate amount of $10.0
million in borrowings available to certain of the Foreign Subsidiaries
(the "European Overdraft Facility").
The Domestic Revolving Line of Credit is available to the Company for revolving
loans subject to utilization by the Company of a letter of credit sub-facility
and a swing line sub-facility. The European Revolving Line of Credit is
available to the Company and the Foreign Subsidiaries for revolving loans
subject to utilization by the Company and the Foreign Subsidiaries of a European
letter of credit sub-facility. The European Overdraft Facility is available to
certain of the Foreign Subsidiaries.
As of September 30, 1998 (after giving effect to the Pro Forma
Transactions), there was approximately $412.4 million of aggregate loans
outstanding under the Senior Credit Facility, consisting of $152.6 million of
Tranche A Term Loan, $158.9 million of Tranche B Term Loan, $60.0 million of the
Domestic Revolving Line of Credit, $40.9 million of the European Revolving Line
of Credit and no amounts under the European Overdraft Facility.
The Tranche A Term Loan is subject to certain specified amortization
payments required to be made in quarterly installments commencing in December
1999 until final payment is made in September 2004. The Tranche B Term Loan is
subject to certain specified amortization payments required to be made in
quarterly installments commencing in December 1999 until final payment is made
in September 2005. The Domestic Revolving Line of Credit, the European Revolving
Line of Credit and the European Overdraft
63
<PAGE>
Facility are available until September 14, 2004 unless terminated earlier under
certain circumstances. Additionally, the loans under the Senior Credit Facility
and the aggregate available commitments under the Senior Credit Facility will be
reduced in connection with certain asset and capital stock sales and
dispositions, receipt of certain insurance proceeds, and certain incurrences of
indebtedness.
Borrowings by the Company under the Tranche A Term Loan, Tranche B Term Loan
and Domestic Revolving Line of Credit portions of the Senior Credit Facility and
borrowings in U.S. dollars by the Company under the European Revolving Line of
Credit portion of the Senior Credit Facility bear interest at a rate equal to,
at the option of the Company, either (1) the base rate (which is based on the
prime rate most recently announced by the Agent or the Federal Funds rate plus
one-half of 1%) or (2) the applicable London interbank rate, in each case plus
an applicable margin (determined by reference to the ratio of Indebtedness to
EBITDA (as defined in the Senior Credit Facility)) of the Company and its
subsidiaries; provided that borrowings of swing line loans under the Domestic
Revolving Line of Credit portion of the Senior Credit Facility bear interest at
a rate equal to the base rate plus an applicable margin determined by reference
to the ratio of Indebtedness to EBITDA of the Company and its subsidiaries. All
other borrowings under the European Revolving Line of Credit and the European
Overdraft Facility portions of the Senior Credit Facility bear interest at a
rate equal to the applicable London interbank rate plus an applicable margin
determined by reference to the ratio of Indebtedness to EBITDA of the Company
and its subsidiaries.
The obligations of the Company and the Foreign Subsidiaries under the Senior
Credit Facility are unconditionally guaranteed, jointly and severally, by all
material U.S. subsidiaries of the Company and the obligations of the Foreign
Subsidiaries under the Senior Credit Facility are unconditionally guaranteed by
the Company. The obligations of the Company, the Foreign Subsidiaries and such
guarantors under the Senior Credit Facility are secured primarily by a first
priority pledge of the stock of all material U.S. subsidiaries of the Company,
and a first priority pledge of at least 65% of the capital stock of the
Company's non-U.S. subsidiaries owned directly by the Company or any of the
Company's material U.S. subsidiaries.
The Senior Credit Facility contains, among other things, covenants
restricting the ability of the Company and its subsidiaries to dispose of
assets, merge, pay dividends, repurchase or redeem capital stock and
indebtedness (including the Notes), incur indebtedness and guarantees, create
liens, enter into agreements with negative pledge clauses, make certain
investments or acquisitions, enter into sale and leaseback transactions, enter
into transactions with affiliates, change its fiscal year, change its business
or make fundamental changes, and otherwise restrict corporate activities. The
Senior Credit Facility also contains a number of financial covenants.
In addition, the Senior Credit Facility is subject to (1) a facility fee
determined by reference to the ratio of Indebtedness to EBITDA of the Company
and its subsidiaries, payable in arrears on a quarterly basis, times the daily
average of the Domestic Revolving Line of Credit, European Revolving Line Credit
and European Overdraft Facility commitments and the additional amount that is
available to be borrowed under the Tranche A Term Loan, and (2) letter of credit
fees with respect to each letter of credit outstanding under the Senior Credit
Facility margin based on the applicable margin in effect for London interbank
rate loans under the Senior Credit Facility.
The Senior Credit Facility was filed with the SEC as an exhibit to the
Company's quarterly report on Form 10-Q for the period ended September 30, 1998.
7% CONVERTIBLE SUBORDINATED DEBENTURES DUE 2011
On August 1, 1986, the Company issued $35.0 million aggregate principal
amount of 7% Convertible Subordinated Debentures Due 2011 (the "Convertible
Debentures"), of which $25.6 million aggregate principal amount remains
outstanding. The Convertible Debentures are convertible into common stock of the
Company prior to maturity, unless previously redeemed, at a conversion price of
$30.72 per share.
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Mandatory redemption of the Convertible Debentures is scheduled to begin in 2002
through annual sinking fund requirements of $1.1 million in 2002 and $1.75
million in each year thereafter. The Convertible Debentures are subordinated to
all present and future Senior Indebtedness (as defined in the Convertible
Debentures Indenture) of the Company. The Convertible Debentures Indenture
contains certain covenants that, among other things, limit consolidations,
mergers and certain transfers of assets.
7% CONVERTIBLE SUBORDINATED NOTES DUE 2003
On July 18, 1996, the Company issued $114.5 million aggregate principal
amount of 7% Convertible Subordinated Notes Due 2003 (the "Convertible Notes"),
of which $114.4 million remains outstanding. The Convertible Notes are
convertible into common stock of the Company at any time on or before August 1,
2003, unless previously redeemed, at a conversion price of $15.81 per share. The
Convertible Notes are redeemable, in whole or in part, at the option of the
Company at any time on or after August 9, 1999, at various redemption prices set
forth in the Convertible Notes Indenture, plus accrued interest. Upon a Change
of Control (as defined in the Convertible Notes Indenture), each holder of
Convertible Notes will have the right to require the Company to repurchase any
or all outstanding Convertible Notes by such holder at 100% of their principal
amount plus accrued interest. The Convertible Notes are subordinated to all
present and future Senior Indebtedness (as defined in the Convertible Notes
Indenture) of the Company. The Convertible Notes Indenture contains certain
covenants that, among other things, limit consolidations, mergers and certain
transfers of assets.
SENIOR SUBORDINATED NOTES PAYABLE TO CIBA
In connection with the Ciba acquisition, the Company issued $37.5 million of
aggregate principal amount of senior subordinated notes payable to Ciba. The
Ciba Notes rank PARI PASSU with the Notes and currently bear interest at a rate
of 7.5% per annum. The interest rate on the Ciba Notes is scheduled to increase
to 10.5% per annum on February 28, 1999 and by an additional 0.5% per year on
each February 28 thereafter through maturity in 2003. The Ciba Notes are
redeemable, in whole or in part, at the option of the Company. The Company
expects that, on or before February 28, 1999, it will redeem $12.5 million
aggregate principal amount of the Ciba Notes with borrowings under the Senior
Credit Facility. The Company has various financial and other relationships with
Ciba, the holder of the Ciba Notes. See "Certain Relationships and Related
Transactions."
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DESCRIPTION OF THE NOTES
The form and terms of the Exchange Notes and the Original Notes are
identical in all material respects, except that certain transfer restrictions
and registration rights applicable to the Original Notes do not apply to the
Exchange Notes.
The Original Notes are, and the Exchange Notes will be, issued under an
indenture, dated as of January 21, 1999 (the "Indenture"), between the Company
and The Bank of New York, as trustee (the "Trustee"). References to the Notes
include the Exchange Notes unless the context otherwise requires. The terms of
the Notes include those stated in the Indenture and those made part of the
Indenture by reference to the Trust Indenture Act of 1939 (the "Trust Indenture
Act"). Certain terms used in this section are defined under the caption
"--Certain Definitions." In this section, the word "Company" refers only to
Hexcel Corporation and not to any of its subsidiaries.
The following description is only a summary of the material provisions of
the Indenture. We urge you to read the Indenture because it, and not this
description, defines your rights as holders of the Notes. We have filed a copy
of the Indenture as an exhibit to the Registration Statement which includes this
Prospectus. You may request a copy of the Indenture at our address set forth
under "Available Information."
BRIEF DESCRIPTION OF THE NOTES
These Notes:
- are unsecured senior subordinated obligations of the Company;
- are subordinated in right of payment to all existing and future Senior
Indebtedness of the Company; and
- are senior in right of payment to any future Subordinated Obligations of
the Company.
PRINCIPAL, MATURITY AND INTEREST
The Original Notes are, and the Exchange Notes will be, issued initially in
a maximum aggregate principal amount of $240.0 million. The Original Notes are,
and the Exchange Notes will be, issued in denominations of $1,000 and any
integral multiple of $1,000. The Notes will mature on January 15, 2009. Subject
to our compliance with the covenant described under the caption "--Certain
Covenants-- Limitation on Indebtedness," we are permitted to issue more Notes
under the Indenture in an unlimited principal amount (the "Additional Notes").
Interest on the Notes will accrue at the rate of 9 3/4% per annum and will
be payable semiannually in arrears on January 15 and July 15, commencing on July
15, 1999. The Company will make each interest payment to the holders of record
of the Notes on the immediately preceding January 1 and July 1.
Interest on the Notes will accrue from the date of original issuance or, if
interest has already been paid, from the date it was most recently paid.
Interest on each Exchange Note will accrue from the last interest payment date
on which interest was paid on the Original Note surrendered in exchange therefor
or, if no interest has been paid on such Original Note, from the date of its
original issuance. Holders whose Original Notes are accepted in the Exchange
Offer will be deemed to have waived their right to receive accrued interest on
the Original Notes. Interest will be computed on the basis of a 360-day year
comprised of twelve 30-day months.
Additional interest may accrue on the Notes in certain circumstances
pursuant to the Registration Rights Agreement.
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OPTIONAL REDEMPTION
Except as set forth below, we will not be entitled to redeem the Notes at
our option prior to January 15, 2004.
On and after January 15, 2004, we will be entitled at our option to redeem
all or a portion of these Notes upon not less than 30 nor more than 60 days'
notice, at the redemption prices (expressed as percentages of principal amount)
set forth below plus accrued and unpaid interest thereon, if any, to the
applicable redemption date, if redeemed during the 12-month period beginning on
January 15 in the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- -------------------------------------------------------------------------------------- -----------
<S> <C>
2004.................................................................................. 104.875%
2005.................................................................................. 103.900
2006.................................................................................. 102.925
2007.................................................................................. 101.950
2008.................................................................................. 100.975
2009 and thereafter................................................................... 100.000%
</TABLE>
In addition, before January 15, 2002, we may at our option on one or more
occasions redeem up to 35% of the original aggregate principal amount of Notes
(including the original principal amount of any Additional Notes) at a
redemption price of 109.75% of the principal amount thereof, plus accrued and
unpaid interest to the redemption date, with the net cash proceeds from one or
more Public Equity Offerings following which there is a Public Market; PROVIDED
that
(1) at least 65% of the original aggregate principal amount of Notes
(including the original principal amount of any Additional Notes) remains
outstanding immediately after the occurrence of each such redemption
(other than Notes held, directly or indirectly, by the Company or its
Affiliates); and
(2) each such redemption occurs within 120 days after the date of the
related Public Equity Offering.
SELECTION AND NOTICE OF REDEMPTION
If we are redeeming less than all the Notes at any time, the Trustee will
select Notes on a PRO RATA basis, by lot or by such other method as the Trustee
in its sole discretion shall deem to be fair and appropriate.
We will redeem Notes of $1,000 or less in whole and not in part. We will
cause notices of redemption to be mailed by first-class mail at least 30 but not
more than 60 days before the redemption date to each holder of Notes to be
redeemed at its registered address.
If any Note is to be redeemed in part only, the notice of redemption that
relates to that Note shall state the portion of the principal amount thereof to
be redeemed. We will issue a new Note in principal amount equal to the
unredeemed portion of the original Note in the name of the holder thereof upon
cancelation of the original Note. Notes called for redemption become due on the
date fixed for redemption. On and after the redemption date, interest ceases to
accrue on Notes or portions of them called for redemption.
RANKING
SENIOR INDEBTEDNESS VERSUS NOTES
The payment of the principal of, premium, if any, and interest on the Notes
will be subordinate in right of payment to the prior payment in full of all
Senior Indebtedness, including Hexcel's obligations under the Credit Agreement.
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As of September 30, 1998, after giving effect to the Pro Forma Transactions,
Hexcel's Senior Indebtedness would have been $481.8 million. Although the
Indenture contains limitations on the amount of additional Indebtedness that the
Company may incur, under certain circumstances the amount of such Indebtedness
could be substantial and, in any case, such Indebtedness may be Senior
Indebtedness. See "--Certain Covenants--Limitation on Indebtedness."
LIABILITIES OF SUBSIDIARIES VERSUS NOTES
A portion of Hexcel's operations are conducted through its subsidiaries.
Claims of creditors of such subsidiaries generally will have priority with
respect to the assets and earnings of such subsidiaries over the claims of
creditors of Hexcel, including holders of the Notes. Accordingly, the Notes will
be effectively subordinated to creditors (including trade creditors) and
preferred stockholders, if any, of subsidiaries of the Company.
At September 30, 1998, the total liabilities of Hexcel's subsidiaries were
approximately $245 million, including trade payables. Although the Indenture
limits the incurrence of Indebtedness and preferred stock of certain of Hexcel's
subsidiaries, such limitation is subject to a number of significant
qualifications. Moreover, the Indenture does not impose any limitation on the
incurrence by such subsidiaries of liabilities that are not considered
Indebtedness under the Indenture. See "--Certain Covenants--Limitation on
Indebtedness."
OTHER SENIOR SUBORDINATED INDEBTEDNESS VERSUS NOTES
Only Indebtedness of Hexcel that is Senior Indebtedness will rank senior to
the Notes in accordance with the provisions of the Indenture. The Notes will in
all respects rank PARI PASSU with all other Senior Subordinated Indebtedness of
the Company. As of September 30, 1998, the Company's outstanding Senior
Subordinated Indebtedness was $35.6 million (net of unamortized discount of $1.9
million) and, after giving effect to the Pro Forma Transactions, Hexcel would
have had $25.0 million of Senior Subordinated Indebtedness outstanding, or $23.7
million net of unamortized discount of $1.3 million.
We have agreed in the Indenture that we will not Incur, directly or
indirectly, any Indebtedness that is contractually subordinate or junior in
right of payment to our Senior Indebtedness, unless such Indebtedness is Senior
Subordinated Indebtedness or is expressly subordinated in right of payment to
Senior Subordinated Indebtedness. The Indenture does not treat unsecured
Indebtedness as subordinated or junior to Secured Indebtedness merely because it
is unsecured.
PAYMENT OF NOTES
We are not permitted to pay principal of, premium, if any, or interest on
the Notes or make any deposit pursuant to the provisions described under
"--Defeasance" below and may not repurchase, redeem or otherwise retire any
Notes (collectively, "pay the Notes") if:
(1) any Designated Senior Indebtedness is not paid when due; or
(2) any other default on Designated Senior Indebtedness occurs and the
maturity of such Designated Senior Indebtedness is accelerated in
accordance with its terms;
unless, in either case, the default has been cured or waived and any such
acceleration has been rescinded or such Designated Senior Indebtedness has been
paid in full. Regardless of the foregoing, we are permitted to pay the Notes if
we and the Trustee receive written notice approving such payment from the
Representative of any Designated Senior Indebtedness with respect to which
either of the events set forth in clause (1) or (2) above has occurred and is
continuing.
During the continuance of any default (other than a default described in
clause (1) or (2) above) with respect to any Designated Senior Indebtedness
pursuant to which the maturity thereof may be accelerated
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without further notice (except such notice as may be required to effect such
acceleration) or the expiration of any applicable grace periods, we are not
permitted to pay the Notes for a period (a "Payment Blockage Period") commencing
upon the receipt by the Trustee (with a copy to us) of written notice (a
"Blockage Notice") of such default from the Representative of the holders of
such Designated Senior Indebtedness specifying an election to effect a Payment
Blockage Period and ending 179 days thereafter. The Payment Blockage Period will
end earlier if such Payment Blockage Period is terminated:
(1) by written notice to the Trustee and us from the Person or Persons who
gave such Blockage Notice;
(2) because the default giving rise to such Blockage Notice is cured, waived
or otherwise no longer continuing; or
(3) because such Designated Senior Indebtedness has been discharged or
repaid in full.
Notwithstanding the provisions described above, unless the holders of such
Designated Senior Indebtedness or the Representative of such holders have
accelerated the maturity of such Designated Senior Indebtedness, we are
permitted to resume paying the Notes after the end of such Payment Blockage
Period. The Notes shall not be subject to more than one Payment Blockage Period
in any consecutive 360-day period.
Upon any payment or distribution of the assets of Hexcel upon a total or
partial liquidation or dissolution or reorganization of or similar proceeding
relating to Hexcel or its property:
(1) the holders of Senior Indebtedness will be entitled to receive payment
in full of such Senior Indebtedness before the holders of the Notes are
entitled to receive any payment;
(2) until the Senior Indebtedness is paid in full, any payment or
distribution to which holders of the Notes would be entitled but for the
subordination provisions of the Indenture will be made to holders of such
Senior Indebtedness as their interests may appear, except that holders of
Notes may receive certain Capital Stock and subordinated debt
obligations; and
(3) if a distribution is made to holders of the Notes that, due to the
subordination provisions, should not have been made to them, such holders
of the Notes are required to hold it in trust for the holders of Senior
Indebtedness and pay it over to them as their interests may appear.
If payment of the Notes is accelerated because of an Event of Default,
Hexcel or the Trustee shall promptly notify the holders of Designated Senior
Indebtedness or the Representative of such holders of the acceleration.
By reason of the subordination provisions contained in the Indenture, in the
event of a liquidation or insolvency proceeding, creditors of ours who are
holders of Senior Indebtedness may recover more, ratably, than the holders of
the Notes, and creditors of ours who are not holders of Senior Indebtedness may
recover less, ratably, than holders of Senior Indebtedness and may recover more,
ratably, than the holders of the Notes.
The terms of the subordination provisions described above will not apply to
payments from money or the proceeds of U.S. Government Obligations held in trust
by the Trustee for the payment of principal of and interest on the Notes
pursuant to the provisions described under "--Defeasance."
CHANGE OF CONTROL
Upon the occurrence of any of the following events (each a "Change of
Control"), each holder shall have the right to require that the Company purchase
such holder's Notes at a purchase price in cash equal to 101% of the principal
amount thereof plus accrued and unpaid interest, if any, to the date of purchase
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(subject to the right of holders of record on the relevant record date to
receive interest due on the relevant interest payment date):
(1) any "person" (as such term is used in Sections 13(d) and 14(d) of the
Exchange Act), other than one or more Permitted Holders, becomes the
beneficial owner (as defined in Rules 13d-3 and 13d-5 under the Exchange
Act, except that for purposes of this clause (1), such person shall be
deemed to have "beneficial ownership" of all shares that any such person
has the right to acquire, whether or not such right is exercisable
immediately), directly or indirectly, of more than 40% of the total
voting power of the Voting Stock of the Company; PROVIDED, HOWEVER, that
the Permitted Holders beneficially own (as defined in Rules 13d-3 and
13d-5 under the Exchange Act), directly or indirectly, in the aggregate a
lesser percentage of the total voting power of the Voting Stock of the
Company than such other person and do not have the right or ability by
voting power, contract or otherwise to elect or designate for election a
majority of the Board of Directors;
(2) during any period of two consecutive years, individuals who at the
beginning of such period constituted the Board of Directors (together
with any new directors whose election by such Board of Directors or whose
nomination for election by the stockholders of the Company was approved
pursuant to the Governance Agreement or by a vote of 66 2/3% of the
directors of the Company then still in office who were either directors
at the beginning of such period or whose election or nomination for
election was previously so approved) cease for any reason to constitute a
majority of the Board of Directors then in office; or
(3) the merger or consolidation of the Company with or into another Person
(other than a Permitted Holder) or the merger of another Person (other
than a Permitted Holder) with, or into the Company or the sale of all or
substantially all the assets of the Company to another Person (other than
a Person controlled by the Permitted Holders), and, in the case of any
such merger or consolidation, the securities of the Company that are
outstanding immediately prior to such transaction and that represent 100%
of the aggregate voting power of the Voting Stock of the Company are
changed into or exchanged for cash, securities or property, unless
pursuant to such transaction such securities are changed into or
exchanged for, in addition to any other consideration, securities of the
surviving Person that represent, immediately after such transaction, at
least a majority of the aggregate voting power of the Voting Stock of the
surviving Person or transferee;
PROVIDED, HOWEVER, that if the event described in (1) above occurs as a result
of a transfer of Voting Stock by the Permitted Holders in a single transaction
or a series of related transactions (a "Change of Control Event"), a Change of
Control shall be deemed not to occur unless and until the publicly announced
rating of the Notes by either Rating Agency shall, on or within 90 days after
the date of the occurrence of such Change of Control Event (which period shall
be extended so long as the rating of the Notes is under publicly announced
consideration for possible downgrade by either Rating Agency), be less than the
rating of the Notes by such Rating Agency on the date (the "Rating Date") which
is 90 days before the date of the occurrence of such Change of Control Event;
PROVIDED FURTHER, HOWEVER, that, if on the Rating Date the Notes have an
Investment Grade Rating by both Rating Agencies, a Change of Control shall be
deemed not to occur following a Change of Control Event unless and until the
publicly announced rating of the Notes by either Rating Agency shall, on or
within 90 days after the date of the occurrence of such Change of Control Event
(which period shall be extended so long as the rating of the Notes is under
publicly announced consideration for possible downgrade by either Rating
Agency), be less than an Investment Grade Rating.
Within 30 days after any Change of Control, the Company will mail a notice
to each holder of Notes at its registered address, with a copy to the Trustee
(the "Change of Control Offer") stating:
(1) that a Change of Control has occurred and that such holder has the right
to require us to purchase such holder's Notes at a purchase price in cash
equal to 101% of the principal amount
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thereof plus accrued and unpaid interest, if any, to the date of purchase
(subject to the right of holders of record on the relevant record date to
receive interest on the relevant interest payment date);
(2) the circumstances and relevant facts regarding such Change of Control
(including information with respect to PRO FORMA historical income, cash
flow and capitalization after giving effect to such Change of Control);
(3) the purchase date (which shall be no earlier than 30 days nor later than
60 days from the date such notice is mailed); and
(4) the instructions determined by us, consistent with the covenant
described under this caption, that a holder must follow in order to have
its Notes purchased.
The Company will not be required to make a Change of Control Offer following
a Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set forth
in the Indenture applicable to a Change of Control Offer made by the Company and
purchases all Notes validly tendered and not withdrawn under such Change of
Control Offer.
The Company will comply, to the extent applicable, with the requirements of
Section 14(e) of the Exchange Act and any other securities laws or regulations
in connection with the purchase of Notes as a result of a Change of Control. To
the extent that the provisions of any securities laws or regulations conflict
with the provisions of the covenant described under this caption, we will comply
with the applicable securities laws and regulations and shall not be deemed to
have breached its obligations under the covenant described under this caption by
virtue thereof.
The Change of Control purchase feature of the Notes may in certain
circumstances make more difficult or discourage a sale or takeover of Hexcel
and, thus, the removal of incumbent management. The Change of Control purchase
feature is a result of negotiations between Hexcel and the Initial Purchasers
and is not the result of our knowledge of any specific effort to accumulate
shares of common stock of the Company or to obtain control of Hexcel by means of
a merger, tender offer, solicitation or otherwise, or part of a plan by
management to adopt a series of anti-takeover provisions. We have no present
intention to engage in a transaction involving a Change of Control, although it
is possible that we could decide to do so in the future. Subject to the
limitations discussed below, we could, in the future, enter into certain
transactions, including acquisitions, refinancings or other recapitalizations,
that would not constitute a Change of Control under the Indenture, but that
could increase the amount of Indebtedness outstanding at such time or otherwise
affect our capital structure or credit ratings. Restrictions on our ability to
incur additional Indebtedness are contained in the covenant described under the
caption "--Certain Covenants--Limitation on Indebtedness." Such restrictions can
only be waived with the consent of the holders of a majority in principal amount
of the Notes then outstanding. Except for the limitations contained in such
covenant, however, the Indenture will not contain any covenants or provisions
that may afford holders of the Notes protection in the event of a highly
leveraged transaction.
The Credit Agreement will prohibit us from purchasing any Notes and will
also provide that the occurrence of certain change of control events with
respect to Hexcel would constitute a default thereunder. In the event a change
of control occurs at a time when we are prohibited from purchasing Notes, we may
seek the consent of our lenders to the purchase of Notes or could attempt to
refinance the borrowings that contain such prohibition. If we do not obtain such
a consent or repay such borrowings, we will remain prohibited from purchasing
the Notes. In such case, our failure to purchase tendered Notes would constitute
an Event of Default under the Indenture which would, in turn, constitute a
default under the Credit Agreement. In such circumstances, the subordination
provisions in the Indenture would likely restrict payment to the holders of
Notes.
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Future indebtedness that we may incur may contain prohibitions on the
occurrence of certain events that would constitute a Change of Control or
require us to repurchase such indebtedness upon a Change of Control. Moreover,
the exercise by the holders of Notes of their right to require the Company to
purchase the Notes could cause a default under such indebtedness, even if the
Change of Control itself does not, due to the financial effect of such purchase
on us. Finally, our ability to pay cash to the holders of Notes following the
occurrence of a Change of Control may be limited by our then existing financial
resources. There can be no assurance that sufficient funds will be available
when necessary to make any required repurchases.
The provisions under the Indenture relative to our obligation to make an
offer to purchase the Notes as a result of a Change of Control may be waived or
modified with the written consent of the holders of a majority in principal
amount of the Notes.
CERTAIN COVENANTS
The Indenture contains covenants including, among others, the following:
LIMITATION ON INDEBTEDNESS
(a) The Company will not, and will not permit any Restricted Subsidiary to,
Incur, directly or indirectly, any Indebtedness; PROVIDED, HOWEVER, that the
Company and its Restricted Subsidiaries may Incur Indebtedness if, on the date
of such Incurrence and after giving effect thereto on a PRO FORMA basis, the
Consolidated Coverage Ratio exceeds (x) if on or prior to January 15, 2002, 2.0
to 1.0 and (y) if thereafter, 2.25 to 1.0.
(b) Notwithstanding the foregoing paragraph (a), the Company and the
Restricted Subsidiaries may Incur any or all of the following Indebtedness:
(1) Indebtedness Incurred by the Company or any Restricted Subsidiary
pursuant to the Credit Agreement; PROVIDED, HOWEVER, that, after giving
effect to any such Incurrence, the aggregate principal amount of such
Indebtedness then outstanding does not exceed (A) the greater of (x)
$680.0 million LESS the sum of all term loan principal amortization
payments scheduled to be made (whether or not in fact made) through the
date of such Incurrence pursuant to the Credit Agreement as in effect on
the Issue Date (such amount being the "Maximum Committed Credit Agreement
Amount") and (y) the sum of 50% of the book value of the consolidated
inventory of the Company and its Restricted Subsidiaries and 80% of the
consolidated accounts receivable of the Company and its Restricted
Subsidiaries (such sum being the "Consolidated Working Capital Amount")
LESS the principal amount of any Indebtedness Incurred pursuant to clause
(2) below and then outstanding, LESS (B) the sum of all principal
payments with respect to such Indebtedness made pursuant to paragraph
(a)(3)(A) of the covenant described under the caption "--Limitation on
Asset Dispositions";
(2) Indebtedness Incurred by Foreign Subsidiaries to finance the working
capital requirements of Foreign Subsidiaries; PROVIDED, HOWEVER, that the
aggregate principal amount of such Indebtedness, when added together with
the amount of Indebtedness Incurred by all Foreign Subsidiaries pursuant
to this clause (2) and then outstanding, does not exceed the lesser of
(A) the sum of 50% of the book value of the consolidated inventories of
all Foreign Subsidiaries and 80% of the consolidated accounts receivable
of all Foreign Subsidiaries and (B) the amount by which the greater of
(x) the Consolidated Working Capital Amount and (y) the Maximum Committed
Credit Agreement Amount exceeds the principal amount of Indebtedness
Incurred pursuant to clause (1) above and then outstanding;
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(3) Indebtedness owed to and held by the Company or any Wholly Owned
Subsidiary; PROVIDED, HOWEVER, that (A) any subsequent issuance or
transfer of any Capital Stock which results in any such Wholly Owned
Subsidiary ceasing to be a Wholly Owned Subsidiary or any subsequent
transfer of such Indebtedness (other than to the Company or a Wholly
Owned Subsidiary) shall be deemed, in each case, to constitute the
Incurrence of such Indebtedness and (B) if the Company is the obligor on
such Indebtedness, the payment of such Indebtedness is expressly
subordinate to the prior payment in full in cash of all obligations with
respect to the Notes;
(4) the Notes (other than Additional Notes) and the Exchange Notes;
(5) Indebtedness (other than the Indebtedness described in clauses (1), (2),
(3) or (4) above) outstanding on the Issue Date;
(6) Refinancing Indebtedness in respect of Indebtedness Incurred pursuant to
paragraph (a) above or pursuant to clause (4), (5) or this clause (6);
(7) Hedging Obligations directly related to Indebtedness permitted to be
Incurred by the Company and Restricted Subsidiaries pursuant to the
Indenture or, in the case of a Currency Exchange Protection Agreement,
reasonably related to the ordinary course of business of the Company and
its Restricted Subsidiaries;
(8) Indebtedness, including Capitalized Lease Obligations and purchase money
Indebtedness, Incurred by the Company or its Restricted Subsidiaries to
finance the acquisition of tangible assets or other capital expenditures,
and Indebtedness Incurred by the Company or its Restricted Subsidiaries
to Refinance such Capitalized Lease Obligations and purchase money
Indebtedness, in an aggregate outstanding principal amount which, when
added together with the amount of Indebtedness Incurred pursuant to this
clause (8) and then outstanding, does not exceed $20 million;
(9) Indebtedness in respect of performance, surety or appeal bonds provided
in the ordinary course of the Company and its Restricted Subsidiaries; or
(10) Indebtedness in an aggregate principal amount which, together with all
other Indebtedness of the Company and Restricted Subsidiaries outstanding
on the date of such Incurrence (other than Indebtedness permitted by
clauses (1) through (9) above or paragraph (a)), does not exceed $25.0
million.
(c) Notwithstanding the foregoing, the Company will not Incur any
Indebtedness pursuant to the foregoing paragraph (b) if the proceeds thereof are
used, directly or indirectly, to Refinance any Subordinated Obligations, unless
such Indebtedness shall be subordinated to the Notes to at least the same extent
as such Subordinated Obligations.
(d) For purposes of determining compliance with this covenant, (1) in the
event that an item of Indebtedness meets the criteria of more than one of the
types of Indebtedness described above, the Company, in its sole discretion, will
classify such item of Indebtedness and only be required to include the amount
and type of such Indebtedness in one of the above clauses and (2) an item of
Indebtedness may be divided and classified under more than one of the types of
Indebtedness described above.
(e) Notwithstanding paragraphs (a) and (b) above, the Company will not Incur
(1) any Indebtedness if such Indebtedness is contractually subordinate or junior
in right of payment in any respect to any Senior Indebtedness, unless such
Indebtedness is Senior Subordinated Indebtedness or is expressly subordinated in
right of payment to Senior Subordinated Indebtedness or (2) any Secured
Indebtedness that is not Senior Indebtedness, unless contemporaneously therewith
effective provision is made to secure the Notes equally and ratably with such
Secured Indebtedness for so long as such Secured Indebtedness is secured by a
Lien.
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(f) For the purpose of determining amounts of Indebtedness outstanding under
the covenant described under this caption and for the purpose of avoiding
duplication only, Indebtedness of a Person resulting from the grant by such
Person of security interests with respect to, or from the issuance by such
Person of Guarantees (and security interests with respect thereof) of, or from
the assumption of obligations with respect to letters of credit supporting,
Indebtedness Incurred by such Person pursuant to the Indenture (or Indebtedness
which such Person is otherwise permitted to Incur under the Indenture) shall not
be deemed to be a separate Incurrence of Indebtedness by such Person.
(g) Indebtedness of any Person which is outstanding at the time such Person
becomes a Restricted Subsidiary of the Company (including upon designation of
any Subsidiary or other Person as a Restricted Subsidiary) or is merged with or
into or consolidated with the Company or a Restricted Subsidiary of the Company
shall be deemed to have been Incurred at the time such Person becomes a
Restricted Subsidiary or merged with or into or consolidated with the Company or
a Restricted Subsidiary, as applicable.
LIMITATION ON RESTRICTED PAYMENTS
(a) The Company will not, and will not permit any Restricted Subsidiary,
directly or indirectly, to make a Restricted Payment if at the time the Company
or such Restricted Subsidiary makes such Restricted Payment:
(1) a Default shall have occurred and be continuing (or would result
therefrom);
(2) the Company is not able to Incur an additional $1.00 of Indebtedness
pursuant to paragraph (a) of the covenant described under the caption
"--Limitation on Indebtedness;" or
(3) the aggregate amount of such Restricted Payment and all other Restricted
Payments made since the Issue Date would exceed the sum of (without
duplication):
(A) 50% of the Consolidated Net Income accrued during the period (treated
as one accounting period) from the beginning of the fiscal quarter in
which the Issue Date occurs to the end of the most recent fiscal
quarter ending at least 45 days prior to the date of such Restricted
Payment (or, in case such Consolidated Net Income is a deficit, less
100% of such deficit); PLUS
(B) 100% of the aggregate Net Cash Proceeds received by the Company from
the issuance or sale of its Capital Stock (other than Disqualified
Stock) subsequent to the Issue Date and on or prior to the date of
such Restricted Payment (other than an issuance or sale to a
Subsidiary of the Company or an issuance or sale to an employee stock
ownership plan or to a trust established by the Company or any of its
Subsidiaries for the benefit of their employees); PLUS
(C) the amount by which the Indebtedness of the Company is reduced on the
Company's balance sheet upon the conversion or exchange (other than
by a Subsidiary of the Company) subsequent to the Issue Date and on
or prior to the date of such Restricted Payment of any Indebtedness
of the Company convertible or exchangeable for Capital Stock (other
than Disqualified Stock) of the Company (less the amount of any cash,
or the fair value of any other property, distributed by the Company
upon such conversion or exchange); PLUS
(D) an amount equal to the sum of (x) the net reduction in Investments in
Unrestricted Subsidiaries resulting from dividends, repayments of
loans or advances or other transfers of assets, in each case to the
Company or any Restricted Subsidiary from Unrestricted Subsidiaries,
and (y) the portion (proportionate to the Company's equity interest
in such Subsidiary) of the fair market value of the net assets of an
Unrestricted Subsidiary at the time such Unrestricted Subsidiary is
designated a Restricted Subsidiary; PROVIDED, HOWEVER, that the
foregoing sum shall not exceed, in the case of any Unrestricted
Subsidiary, the amount of
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Investments previously made (and treated as a Restricted Payment) by
the Company or any Restricted Subsidiary in such Unrestricted
Subsidiary.
(b) The preceding provisions will not prohibit:
(1) any acquisition of any Capital Stock of the Company made by exchange
for, or out of the proceeds of the substantially concurrent sale of,
Capital Stock of the Company (other than Disqualified Stock and other
than Capital Stock issued or sold to a Subsidiary of the Company) or
options, warrants or other rights to purchase such Capital Stock;
PROVIDED, HOWEVER, that (A) such purchase or redemption shall be excluded
in the calculation of the amount of Restricted Payments and (B) the Net
Cash Proceeds from such sale shall be excluded from clause (3)(B) of
paragraph (a) above;
(2) any purchase, repurchase, redemption, defeasance or acquisition or
retirement for value of Subordinated Obligations made by exchange for, or
out of the proceeds of the substantially concurrent sale of, Capital
Stock of the Company (other than Disqualified Stock and other than
Capital Stock issued or sold to a Subsidiary of the Company) or options,
warrants or other rights to purchase such Capital Stock; PROVIDED,
HOWEVER, that (A) such purchase, repurchase, redemption, defeasance or
acquisition or retirement for value shall be excluded in the calculation
of the amount of Restricted Payments and (B) the Net Cash Proceeds from
such sale shall be excluded from clause (3)(B) of paragraph (a) above;
(3) any purchase, repurchase, redemption, defeasance or acquisition or
retirement for value of Subordinated Obligations made by exchange for, or
out of the proceeds of the substantially concurrent sale of, Indebtedness
of the Company which is permitted to be Incurred pursuant to the covenant
described under the caption "--Limitation on Indebtedness;" PROVIDED,
HOWEVER, that such Indebtedness (A) shall have a Stated Maturity later
than the Stated Maturity of the Notes and (B) shall have an Average Life
greater than the remaining Average Life of the Notes; PROVIDED FURTHER,
HOWEVER, that such purchase, repurchase, redemption, defeasance or other
acquisition or retirement for value shall be excluded in the calculation
of the amount of Restricted Payments;
(4) any purchase or redemption of Subordinated Obligations from Net
Available Cash after application in accordance with clauses (A), (B) and
(C) of paragraph (a)(3) of the covenant described under the caption
"--Limitation on Asset Dispositions;" PROVIDED, HOWEVER, that such
purchase or redemption shall be excluded in the calculation of the amount
of Restricted Payments;
(5) dividends paid within 60 days after the date of declaration thereof if
at such date of declaration such dividend would have complied with this
covenant; PROVIDED, HOWEVER, that at the time of payment of such
dividend, no other Default shall have occurred and be continuing (or
result therefrom); PROVIDED FURTHER, HOWEVER, that the declaration, but
not the payment, of such dividend shall be included in the calculation of
the amount of Restricted Payments;
(6) so long as no Default shall have occurred and be continuing (or result
therefrom), Investments in Joint Ventures or other Persons engaged in a
Related Business in an aggregate amount which, when added together with
the amount of all other Investments made pursuant to this clause (6)
which at such time have not been repaid through dividends, repayments of
loans or advances or other transfers of assets, does not exceed $60.0
million; PROVIDED, HOWEVER, that the amount of such Investments shall be
excluded in the calculation of Restricted Payments;
(7) so long as no Default shall have occurred and be continuing (or result
therefrom), payments with respect to employee or director stock options,
stock incentive plans or restricted stock plans of the Company, including
any redemption, repurchase, acquisition, cancelation or other retirement
for value of shares of Capital Stock of the Company, restricted stock,
options on any such shares or similar securities held by directors,
officers or employees or former directors, officers or
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employees or by any Plan upon death, disability, retirement or
termination of employment of any such person pursuant to the terms of
such Plan or agreement under which such shares or related rights were
issued or acquired; PROVIDED, HOWEVER, that the amount of any such
payments shall be included in the calculation of Restricted Payments;
(8) so long as no Default shall have occurred and be continuing (or result
therefrom), any purchase or defeasance of Subordinated Obligations upon a
Change of Control to the extent required by the indenture or other
agreement or instrument pursuant to which such Subordinated Obligations
were issued, but only if the Company has first complied with all its
obligations under the provisions described under the caption "--Change of
Control"; PROVIDED, HOWEVER, that the amount of such purchase or
defeasance shall be excluded in the calculation of Restricted Payments;
or
(9) so long as no Default shall have occurred and be continuing (or result
therefrom), Restricted Payments in an aggregate amount which, when added
together with the amount of all other Restricted Payments made pursuant
to this clause (9) which at such time have not been repaid through
dividends, repayments of loans or advances or other transfers of assets,
does not exceed $40.0 million; PROVIDED, HOWEVER, that the amount of such
Restricted Payments shall be included in the calculation of Restricted
Payments.
LIMITATION ON RESTRICTIONS ON DISTRIBUTIONS FROM RESTRICTED SUBSIDIARIES
The Company will not, and will not permit any Restricted Subsidiary to,
create or otherwise cause or permit to exist or become effective any consensual
encumbrance or restriction on the ability of any Restricted Subsidiary to (a)
pay dividends or make any other distributions on its Capital Stock to the
Company or a Restricted Subsidiary or pay any Indebtedness owed to the Company,
(b) make any loans or advances to the Company or any Restricted Subsidiary or
(c) transfer any of its property or assets to the Company or any Restricted
Subsidiary (collectively "Payment Restrictions"), except:
(1) any Payment Restriction imposed pursuant to the Credit Agreement, the
Indenture, Refinancing Indebtedness in respect of the Notes and any
agreement in effect at or entered into on the Issue Date;
(2) any Payment Restriction with respect to a Restricted Subsidiary pursuant
to an agreement relating to any Indebtedness Incurred by such Restricted
Subsidiary on or prior to the date on which such Restricted Subsidiary
was acquired by the Company (other than Indebtedness Incurred as
consideration in, or to provide all or any portion of the funds or credit
support utilized to consummate, the transaction or series of related
transactions pursuant to which such Restricted Subsidiary became a
Restricted Subsidiary of, or was acquired by, the Company) and
outstanding on such date;
(3) any Payment Restriction pursuant to an agreement effecting a Refinancing
of Indebtedness Incurred pursuant to an agreement referred to in clause
(1) or (2) of this covenant or this clause (3) or contained in any
amendment to an agreement referred to in clause (1) or (2) of this
covenant or this clause (3); PROVIDED, HOWEVER, that the Payment
Restrictions with respect to such Restricted Subsidiary contained in any
such refinancing agreement or amendment are no less favorable to the
holders of the Notes than those with respect to such Restricted
Subsidiary contained in such predecessor agreements;
(4) in the case of clause (c) above, any encumbrance or restriction
consisting of customary non-assignment provisions in leases or other
contracts governing leasehold interests to the extent such provisions
restrict the transfer of the lease or the property leased thereunder;
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(5) any restriction with respect to a Restricted Subsidiary imposed pursuant
to an agreement entered into for the sale or disposition of all or
substantially all the Capital Stock or assets of such Restricted
Subsidiary pending the closing of such sale or disposition; and
(6) any encumbrance or restriction contained in the governing documents of
any Joint Venture Subsidiary.
LIMITATION ON ASSET DISPOSITIONS
(a) The Company will not, and will not permit any Restricted Subsidiary to,
make any Asset Disposition unless
(1) the Company or such Restricted Subsidiary receives consideration at the
time of such Asset Disposition at least equal to the fair market value
(including as to the value of all non-cash consideration), as determined
in good faith by the Board of Directors (if the total proceeds of such
sale is greater than $5.0 million), the determination of which shall be
evidenced by a Board Resolution (including as to the value of all
non-cash consideration), of the shares and assets subject to such Asset
Disposition;
(2) at least 75% of the consideration therefor received by the Company or
such Restricted Subsidiary is in the form of cash; and
(3) an amount equal to 100% of the Net Available Cash from such Asset
Disposition is applied by the Company (or such Restricted Subsidiary, as
the case may be)
(A) FIRST, to the extent the Company or such Restricted Subsidiary elects
(or is required by the terms of any Senior Indebtedness or
Indebtedness of such Restricted Subsidiary), to prepay, repay or
purchase Senior Indebtedness or Indebtedness (other than any
Disqualified Stock) of a Restricted Subsidiary (in each case other
than Indebtedness owed to the Company or an Affiliate of the Company)
within one year from the later of the date of such Asset Disposition
or the receipt of such Net Available Cash;
(B) SECOND, to the extent of the balance of such Net Available Cash after
application in accordance with clause (A), to the extent the Company
or such Restricted Subsidiary elects to acquire Additional Assets
within one year from the later of such Asset Disposition or the
receipt of such Net Available Cash;
(C) THIRD, to the extent of the balance of such Net Available Cash after
application in accordance with clauses (A) and (B), to make an offer
to the holders of the Notes (and to holders of other Senior
Subordinated Indebtedness designated by the Company) to purchase
Notes (and such other Senior Subordinated Indebtedness) pursuant to
and subject to the conditions contained in the Indenture; and
(D) FOURTH, to the extent of the balance of such Net Available Cash after
application in accordance with clauses (A), (B) and (C), for any
purpose not prohibited by the terms of the Indenture.
Notwithstanding the foregoing provisions of this paragraph, the Company and
the Restricted Subsidiaries will not be required to apply any Net Available Cash
in accordance with the foregoing paragraph except to the extent that the
aggregate Net Available Cash from all Asset Dispositions which are not applied
with accordance with the foregoing paragraph exceeds $15.0 million. Pending
application of Net Available Cash pursuant to this covenant, such Net Available
Cash will be invested in Temporary Cash Investments.
For the purposes of the covenant described under this caption, the following
shall be deemed to be cash: (x) the assumption of Indebtedness of the Company or
any Restricted Subsidiary and the release of
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the Company or such Restricted Subsidiary from all liability with respect to
such Indebtedness in connection with such Asset Disposition, PROVIDED, HOWEVER,
that the amount of such Indebtedness shall not be deemed to be cash for the
purpose of the term "Net Available Cash;" and (y) securities received by the
Company or any Restricted Subsidiary from the transferee that are promptly
converted by the Company or such Restricted Subsidiary into cash.
(b) In the event of an Asset Disposition that requires the purchase of the
Notes (and other Senior Subordinated Indebtedness) pursuant to clause (a)(3)(C)
above, the Company will purchase Notes tendered pursuant to an offer by the
Company for the Notes (and other Senior Subordinated Indebtedness) at a purchase
price of 100% of their principal amount (without premium) plus accrued but
unpaid interest (or, in respect of such other Senior Subordinated Indebtedness,
such lesser price, if any, as may be provided for by the terms of such Senior
Subordinated Indebtedness) in accordance with the procedures (including
prorating in the event of oversubscription) to be set forth in the Indenture. If
the aggregate purchase price of Notes (and any other Senior Subordinated
Indebtedness) tendered pursuant to such offer is less than the Net Available
Cash allotted to the purchase thereof, the Company will be entitled to apply the
remaining Net Available Cash in accordance with clause (a)(3)(D) above. The
Company shall not be required to make such an offer to purchase Notes (and other
Senior Subordinated Indebtedness) pursuant to the covenant described under this
caption if the Net Available Cash available therefor (after application of Net
Available Cash in accordance with clauses (A) and (B) of paragraph (a) above) is
less than $10.0 million (which lesser amount shall be carried forward for
purposes of determining whether such an offer is required with respect to any
subsequent Asset Disposition).
(c) The Company will comply, to the extent applicable, with the requirements
of Section 14(e) of the Exchange Act and any other securities laws or
regulations in connection with the purchase of the Notes pursuant to this
covenant. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this covenant, the Company will comply
with the applicable securities laws and regulations under this clause by virtue
thereof.
LIMITATION ON AFFILIATE TRANSACTIONS
(a) The Company will not, and will not permit any Restricted Subsidiary to
enter into or permit to exist any transaction (including the purchase, sale,
lease or exchange of any property, employee compensation arrangements or the
rendering of any service) with any Affiliate of the Company (an "Affiliate
Transaction") unless
(1) the Affiliate Transaction is made (A) in good faith and (B) on terms
which are fair and reasonable to the Company or such Restricted
Subsidiary, as the case may be;
(2) if such Affiliate Transaction involves an amount in excess of $5.0
million, the terms of the Affiliate Transaction are set forth in writing
and a majority of the non-employee directors of the Company disinterested
with respect to such Affiliate Transaction have determined in good faith
that the criteria set forth in clause (1)(B) are satisfied and have
approved the relevant Affiliate Transaction as evidenced by a Board
Resolution; and
(3) if such Affiliate Transaction involves an amount in excess of $10.0
million, the Board of Directors shall also have received a written
opinion from an investment banking firm of national prominence that is
not an Affiliate of the Company to the effect that such Affiliate
Transaction is fair, from a financial standpoint, to the Company and its
Restricted Subsidiaries.
(b) The provisions of the foregoing paragraph (a) shall not prohibit:
(1) any Permitted Investment and any Restricted Payment permitted to be paid
pursuant to the covenant described under the caption "--Limitation on
Restricted Payments;"
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(2) any issuance of securities, or other payments, awards or grants in cash,
securities or otherwise pursuant to, or the funding of, employment
arrangements, stock options and stock ownership plans approved by the
Board of Directors;
(3) the payment of reasonable fees to directors of the Company and its
Restricted Subsidiaries;
(4) transactions between the Company or a Restricted Subsidiary and one or
more Restricted Subsidiaries; PROVIDED, HOWEVER, that no Affiliate of the
Company (other than another Restricted Subsidiary) owns, directly or
indirectly, any Capital Stock in any such Restricted Subsidiary;
(5) transactions in the ordinary course of business (including loans,
expense advances and reimbursements) between the Company or any of its
Restricted Subsidiaries, on the one hand, and any employee thereof, on
the other hand;
(6) transactions with Affiliates entered into in the ordinary course of
business of the Company or its Restricted Subsidiaries, on terms which
are, in the opinion of the Company's management or the Board of
Directors, fair and reasonable to the Company or its Restricted
Subsidiaries;
(7) the granting and performance of registration rights for shares of
Capital Stock of the Company under a written registration rights
agreement approved by a majority of directors of the Company that are
disinterested with respect to such transactions;
(8) transactions with Affiliates solely in their capacity as holders of
Indebtedness or Capital Stock of the Company or any of its Subsidiaries,
so long as Indebtedness or Capital Stock of the same class is also held
by Persons that are not Affiliates of the Company and such Affiliates are
treated no more favorably than holders of such Indebtedness or such
Capital Stock generally, and the redemption of the outstanding principal
amount of the Ciba Notes (together with accrued interest at the contract
rate thereon);
(9) transactions in accordance with or as contemplated by the Governance
Agreement, and any amendments to the Governance Agreement that are not
adverse to the interests of the holders of the Notes and which are
approved by a majority of the directors of the Company disinterested with
respect to such amendment; and
(10) any transaction between the Company or any Restricted Subsidiaries and
any of the Existing Joint Ventures pursuant to agreements in effect on
the Issue Date.
LIMITATION ON THE SALE OR ISSUANCE OF CAPITAL STOCK OF RESTRICTED
SUBSIDIARIES
The Company will not sell or otherwise dispose of any shares of Capital
Stock (other than Qualified Preferred Stock) of a Restricted Subsidiary, and
shall not permit any Restricted Subsidiary, directly or indirectly, to issue or
sell or otherwise dispose of any shares of its Capital Stock (other than
Qualified Preferred Stock) except
(1) to the Company or a Wholly Owned Subsidiary;
(2) directors' qualifying shares;
(3) if, immediately after giving effect to such issuance, sale or other
disposition, neither the Company nor any of its Subsidiaries own any
Capital Stock of such Restricted Subsidiary; or
(4) if, immediately after giving effect to such issuance, sale or other
disposition, such Restricted Subsidiary would no longer constitute a
Restricted Subsidiary and any Investment in such Person remaining after
giving effect thereto would have been permitted to be made under the
covenant described under the caption "--Limitation on Restricted
Payments" if made on the date of such issuance, sale or other
disposition.
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Notwithstanding the foregoing, the issuance or sale of shares of Capital
Stock of any Restricted Subsidiary of the Company will not violate the
provisions of the immediately preceding sentence if such shares are issued or
sold in connection with (x) the formation or capitalization of a Restricted
Subsidiary which, at the time of such issuance or sale or immediately
thereafter, is a Joint Venture Subsidiary or (y) a single transaction or a
series of substantially contemporaneous transactions whereby such Restricted
Subsidiary becomes a Restricted Subsidiary of the Company by reason of the
acquisition of securities or assets from another Person.
MERGER AND CONSOLIDATION
The Company will not consolidate with or merge with or into, or convey,
transfer or lease, in one transaction or a series of transactions, all or
substantially all its assets to, any other Person, unless
(1) the resulting, surviving or transferee person (the "Successor Company"),
shall be a Person organized and existing under the laws of the United
States of America, any State thereof or the District of Columbia and the
Successor Company (if other than the Company) shall expressly assume, by
an indenture supplemental thereto, executed and delivered to the Trustee,
in form satisfactory to the Trustee, all the obligations of the Company
under the Notes and the Indenture;
(2) immediately after giving effect to such transaction (and treating any
Indebtedness which becomes an obligation of the Successor Company or any
Restricted Subsidiary as a result of such transaction as having been
Incurred by the Successor Company or such Restricted Subsidiary at the
time of such transaction), no Default shall have occurred and be
continuing;
(3) immediately after giving effect to such transaction, the Successor
Company would be able to Incur an additional $1.00 of Indebtedness
pursuant to paragraph (a) of the covenant described under the caption
"--Limitation on Indebtedness;"
(4) immediately after giving effect to such transaction, the Successor
Company shall have Consolidated Net Worth in an amount that is not less
than the Consolidated Net Worth of the Company prior to such transaction;
and
(5) the Company shall have delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel, each stating that such consolidation, merger
or transfer and such supplemental indenture (if any) comply with the
Indenture.
Nothing contained in the foregoing shall prohibit any Wholly Owned
Subsidiary from consolidating with, merging with or into, or transferring all or
part of its properties and assets to, the Company.
The Successor Company will be the successor to the Company and will succeed
to, and be substituted for and may exercise every right and power of, the
Company under the Indenture, but the predecessor Company in the case of a
conveyance, transfer or lease shall not be released from the obligation to pay
the principal of and interest on the Notes.
LIMITATION ON BUSINESS ACTIVITIES
The Company will not, and will not permit any Restricted Subsidiary to,
engage in any business other than in businesses conducted by the Company and its
Restricted Subsidiaries on the Issue Date and businesses which, in the good
faith determination of the Board of Directors, are reasonably related, ancillary
or complementary thereto.
SEC REPORTS
Whether or not subject to the reporting requirements of Section 13 or 15(d)
of the Exchange Act, the Company will file with the SEC and provide the Trustee
and the holders of the Notes with such annual
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reports and such information, documents and other reports as are specified in
Sections 13 and 15(d) of the Exchange Act and applicable to a U.S. corporation
subject to such Sections.
In addition, whether or not required by the SEC, the Company will file a
copy of all of the information and reports referred to above with the SEC for
public availability within the time periods specified in the SEC's rules and
regulations (unless the SEC will not accept such a filing) and make such
information available to securities analysts and prospective investors upon
request.
DEFAULTS
Each of the following is an Event of Default:
(1) a default for 30 days in the payment when due of interest on the Notes,
whether or not prohibited pursuant to the subordination provisions of the
Indenture;
(2) a default in payment when due of the principal of any Note at its Stated
Maturity, upon optional redemption, upon required repurchase, upon
declaration or otherwise, whether or not prohibited pursuant to the
subordination provisions of the Indenture;
(3) the failure by the Company to comply with its obligations described
under the caption "--Certain Covenants--Merger and Consolidation" above;
(4) the failure by the Company to comply for 30 days after notice with any
of its obligations in the covenants described above under the caption
"--Change of Control" (other than a failure to purchase Notes) or under
the caption "--Certain Covenants--Limitation on Indebtedness,"
"--Limitation on Restricted Payments," "--Limitation on Restrictions on
Distributions from Restricted Subsidiaries," "--Limitation on Asset
Dispositions" (other than a failure to purchase Notes), "--Limitation on
Affiliate Transactions," "--Limitation on the Sale or Issuance of Capital
Stock of Restricted Subsidiaries," "--Limitation on Business Activities"
or "--SEC Reports;"
(5) the failure by the Company to comply for 60 days after notice with any
of the other agreements contained in the Indenture;
(6) Indebtedness of the Company or any Significant Subsidiary is not paid
within any applicable grace period after final maturity or is accelerated
by the holders thereof because of a default and the total amount of such
Indebtedness unpaid or accelerated exceeds $10.0 million (the "cross
acceleration provision");
(7) certain events of bankruptcy, insolvency or reorganization of the
Company or a Significant Subsidiary (the "bankruptcy provisions"); or
(8) any judgment or decree for the payment of money in excess of $10.0
million is entered against the Company or a Significant Subsidiary,
remains outstanding for a period of 60 days following such judgment and
is not discharged, waived or stayed within 10 days after notice (the
"judgment default provision").
However, a default under clauses (4), (5) or (8) will not constitute an
Event of Default until the Trustee or the holders of 25% in principal amount of
the outstanding Notes notify the Company of the default and the Company does not
cure such default within the time specified after receipt of such notice.
If an Event of Default occurs and is continuing, the Trustee or the holders
of at least 25% in principal amount of the outstanding Notes may declare the
principal of and accrued but unpaid interest on all the Notes to be due and
payable. Upon such a declaration, such principal and interest shall be due and
payable immediately. If an Event of Default relating to certain events of
bankruptcy, insolvency or reorganization of the Company occurs and is
continuing, the principal of and interest on all the Notes will IPSO FACTO
become and be immediately due and payable without any declaration or other act
on the part of the
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Trustee or any holders of the Notes. Under certain circumstances, the holders of
a majority in principal amount of the outstanding Notes may rescind any such
acceleration with respect to the Notes and its consequences.
Subject to the provisions of the Indenture relating to the duties of the
Trustee, in case an Event of Default occurs and is continuing, the Trustee will
be under no obligation to exercise any of the rights or powers under the
Indenture at the request or direction of any of the holders of the Notes unless
such holders have offered to the Trustee reasonable indemnity or security
against any loss, liability or expense. Except to enforce the right to receive
payment of principal, premium (if any) or interest when due, no holder of a Note
may pursue any remedy with respect to the Indenture or the Notes unless
(1) such holder has previously given the Trustee notice that an Event of
Default is continuing;
(2) holders of at least 25% in principal amount of the outstanding Notes
have requested the Trustee to pursue the remedy;
(3) such holders have offered the Trustee reasonable security or indemnity
against any loss, liability or expense;
(4) the Trustee has not complied with such request within 60 days after the
receipt thereof and the offer of security or indemnity; and
(5) the holders of a majority in principal amount of the outstanding Notes
have not given the Trustee a direction inconsistent with such request
within such 60-day period.
Subject to certain restrictions, the holders of a majority in principal
amount of the outstanding Notes are given the right to direct the time, method
and place of conducting any proceeding for any remedy available to the Trustee
or of exercising any trust or power conferred on the Trustee. The Trustee,
however, may refuse to follow any direction that conflicts with law or the
Indenture or that the Trustee determines is unduly prejudicial to the rights of
any other holder of a Note or that would involve the Trustee in personal
liability.
The Indenture provides that if a Default occurs and is continuing and is
known to the Trustee, the Trustee must mail to each holder of the Notes notice
of the Default within 90 days after it occurs. Except in the case of a Default
in the payment of principal of or interest on any Note, the Trustee may withhold
notice if and so long as a committee of its trust officers determines that
withholding notice is not opposed to the interest of the holders of the Notes.
In addition, the Company is required to deliver to the Trustee, within 120 days
after the end of each fiscal year, a certificate indicating whether the signers
thereof know of any Default that occurred during the previous year. The Company
also is required to deliver to the Trustee, within 30 days after the occurrence
thereof, written notice of any event which would constitute certain Defaults,
their status and what action the Company is taking or proposes to take in
respect thereof.
AMENDMENTS AND WAIVERS
Subject to certain exceptions, the Indenture may be amended with the consent
of the holders of a majority in principal amount of the Notes then outstanding
(including consents obtained in connection with a tender offer or exchange for
the Notes) and any past default or compliance with any provisions may also be
waived with the consent of the holders of a majority in principal amount of the
Notes then outstanding. However, without the consent of holders of 80% or more
in principal amount of the Notes then outstanding, the Company may not (with
respect to any Notes held by a non-consenting holder) make any change to the
subordination provisions of the Indenture that would adversely affect holders of
the Notes. In addition, without the consent of each holder affected, an
amendment or waiver may not:
(1) reduce the principal amount of Notes whose holders must consent to an
amendment;
(2) reduce the rate of or extend the time for payment of interest on any
Note;
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(3) reduce the principal of or extend the Stated Maturity of any Note;
(4) reduce the amount payable upon the redemption of any Note or change the
time at which any Note may be redeemed as described under "--Optional
Redemption;"
(5) make any Note payable in money other than that stated in the Notes;
(6) impair the right of any holder of the Notes to receive payment of
principal of and interest on such holder's Notes on or after the due
dates therefor or to institute suit for the enforcement of any payment on
or with respect to such holder's Notes; or
(7) make any change in the amendment provisions which require each holder's
consent or in the waiver provisions.
Notwithstanding the preceding, without the consent of any holder of Notes,
the Company and the Trustee may amend or supplement the Indenture or the Notes:
(1) to cure any ambiguity, defect or inconsistency;
(2) to provide for uncertificated Notes in addition to or in place of
certificated Notes (provided that the uncertificated Notes are issued in
registered form for purposes of Section 163(f) of the Code, or in a
manner such that the uncertificated Notes are described in Section
163(f)(2)(B) of the Code);
(3) to provide for the assumption by a successor corporation of the
obligations of the Company under the Indenture;
(4) to add guarantees with respect to the Notes or to secure the Notes;
(5) to add to the covenants of the Company for the benefit of the holders of
the Notes or to surrender any right or power conferred upon the Company;
(6) to make any change that does not adversely affect the rights under the
Indenture of any such holder; or
(7) to comply with requirements of the SEC in order to effect or maintain
the qualification of the Indenture under the Trust Indenture Act.
However, no amendment may be made to the subordination provisions of the
Indenture that adversely affects the rights of any holder of Senior Indebtedness
then outstanding unless the holders of such Senior Indebtedness (or their
Representative) consent to such change.
The consent of the holders of the Notes is not necessary under the Indenture
to approve the particular form of any proposed amendment. It is sufficient if
such consent approves the substance of the proposed amendment.
After an amendment under the Indenture becomes effective, the Company is
required to mail to holders of the Notes a notice briefly describing such
amendment. However, the failure to give such notice to all holders of the Notes,
or any defect therein, will not impair or affect the validity of the amendment.
DEFEASANCE
The Company at any time may terminate all its obligations under the Notes
and the Indenture ("legal defeasance"), except for certain obligations,
including those respecting the defeasance trust and obligations to register the
transfer or exchange of the Notes, to replace mutilated, destroyed, lost or
stolen Notes and to maintain a registrar and paying agent in respect of the
Notes. In addition, the Company at any time may terminate its obligations
described under the caption "--Change of Control" and under the covenants
described under the caption "--Certain Covenants" (other than the covenant
described under the caption "Merger and Consolidation"), the operation of the
cross acceleration provision, the bankruptcy provisions
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with respect to Significant Subsidiaries and the judgment default provision
described under the caption "--Defaults" above and the limitations contained in
clauses (3) and (4) of the covenant described under the caption "--Certain
Covenants--Merger and Consolidation" above ("covenant defeasance").
The Company may exercise its legal defeasance option notwithstanding its
prior exercise of its covenant defeasance option. If the Company exercises its
legal defeasance option, payment of the Notes may not be accelerated because of
an Event of Default with respect thereto. If the Company exercises its covenant
defeasance option, payment of the Notes may not be accelerated because of an
Event of Default specified in clause (4), (6), (7) (with respect only to
Significant Subsidiaries) or (8) under the caption "--Defaults" above or because
of the failure of the Company to comply with clause (3) or (4) of the covenant
described under the caption "--Certain Covenants--Merger and Consolidation"
above.
In order to exercise either legal defeasance or covenant defeasance, the
Company must irrevocably deposit in trust (the "defeasance trust") with the
Trustee money or U.S. Government Obligations for the payment of principal and
interest on the Notes to redemption or maturity, as the case may be, and must
comply with certain other conditions, including delivery to the Trustee of an
Opinion of Counsel to the effect that holders of the Notes will not recognize
income, gain or loss for federal income tax purposes as a result of such deposit
and defeasance and will be subject to federal income tax on the same amount and
in the same manner and at the same times as would have been the case if such
deposit and defeasance had not occurred (and, in the case of legal defeasance
only, such Opinion of Counsel must be based on a ruling of the Internal Revenue
Service or other change in applicable federal income tax law).
CONCERNING THE TRUSTEE
The Bank of New York is to be the Trustee under the Indenture and has been
appointed by the Company as Registrar and Paying Agent with regard to the Notes.
The holders of a majority in principal amount of the then outstanding Notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that in case an Event of Default
shall occur and be continuing, the Trustee will be required, in the exercise of
its power, to use the degree of care of a prudent man in the conduct of his own
affairs. Subject to such provisions, the Trustee will be under no obligation to
exercise any of its rights or powers under the Indenture at the request of any
holder of Notes, unless such holder shall have offered to the Trustee security
and indemnity satisfactory to it against any loss, liability or expense.
GOVERNING LAW
The Indenture provides that it and the Notes will be governed by, and
construed in accordance with, the laws of the State of New York without giving
effect to applicable principles of conflicts of law to the extent that the
application of the law of another jurisdiction would be required thereby.
CERTAIN DEFINITIONS
"ADDITIONAL ASSETS" means any
(1) property or assets (other than Indebtedness and Capital Stock) to be
used by the Company, a Restricted Subsidiary or a Joint Venture;
(2) Capital Stock of a Person that becomes a Restricted Subsidiary as a
result of the acquisition of such Capital Stock by the Company or another
Restricted Subsidiary; or
(3) Capital Stock constituting a minority interest in any Person that at
such time is a Restricted Subsidiary or a Joint Venture;
PROVIDED, HOWEVER, that any such Restricted Subsidiary described in clauses (2)
and (3) is primarily engaged in Related Business.
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"AFFILIATE" of any specified Person means
(1) any other Person, directly or indirectly, controlling or controlled by
or under direct or indirect common control with such specified Person; or
(2) any other Person who is a director or officer (A) of such specified
Person, (B) of any Subsidiary of such specified Person or (C) of any
Person described in clause (1).
For the purposes of this definition, "control" when used with respect to any
Person means the power to direct the management and policies of such Person,
directly or indirectly, whether through the ownership of voting securities, by
contract or otherwise, and the terms "controlling" and "controlled" have
meanings correlative to the foregoing. For purposes of the covenants described
under the captions "--Certain Covenants--Limitation on Affiliate Transactions"
and "--Certain Covenants--Limitation on Asset Dispositions" only, "Affiliate"
shall also mean any beneficial owner of Capital Stock representing 10% or more
of the total voting power of the Voting Stock (on a fully diluted basis) of the
Company or of rights or warrants to purchase such Capital Stock (whether or not
currently exercisable) and any Person who would be an Affiliate of any such
beneficial owner pursuant to the first sentence hereof.
"ASAHI-SCHWEBEL" means Asahi-Schwebel Co., Ltd., a Japanese corporation and
joint venture in which a subsidiary of Hexcel owns a 43.3% equity interest.
"ASAHI-SCHWEBEL (TAIWAN)" means Asahi-Schwebel (Taiwan) Co., Ltd., a joint
venture between Asahi-Schwebel and AlliedSignal.
"ASAHI-SCHWEBEL INTERGLAS (PHILIPPINES)" means Asahi-Schwebel Interglas
Corporation (Philippines), a proposed joint venture between Asahi-Schwebel and
CS Interglas.
"ASIAN COMPOSITE MANUFACTURING" means Asian Composite Manufacturing Sdn.
Bhd., a proposed joint venture among Hexcel, The Boeing Company, Sime Darby
Berhad and Malaysia Helicopter Services.
"ASSET DISPOSITION" means any direct or indirect sale, lease, transfer,
conveyance or other disposition (or series of related sales, leases, transfers,
conveyances or dispositions) of shares of Capital Stock of a Restricted
Subsidiary (other than directors' qualifying shares), property or other assets
(each referred to for the purposes of this definition as a "disposition") by the
Company or any Restricted Subsidiary (including any disposition by means of a
merger, consolidation or similar transaction) involving an amount in excess of
$3.0 million other than
(1) a disposition by a Restricted Subsidiary to the Company, by the Company
or a Restricted Subsidiary to a Restricted Subsidiary or between
Restricted Subsidiaries;
(2) a disposition of property or assets at fair market value in the ordinary
course of business and consistent with past practices of the Company or
any of its Restricted Subsidiaries, as applicable (including sales of
products to customers, disposition of excess inventory and dispositions
of used or replaced equipment);
(3) the disposition or grant of licenses to third parties in respect of
intellectual property;
(4) a sale or disposition of assets for the purpose of forming any Joint
Venture, in exchange for an interest in such Joint Venture;
(5) the sale of Specified Properties;
(6) a disposition by the Company or any Subsidiary of assets within 24
months after such assets were directly or indirectly acquired as part of
an acquisition of other properties or assets (including Capital Stock)
(the "Primary Acquisition"), if the assets being disposed of are
"non-core" assets (as determined in good faith by a majority of the Board
of Directors) or are required to be disposed of pursuant to any law, rule
or regulation or any order of or settlement with any court or
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governmental authority, and the proceeds therefrom are used within 18
months after the date of sale to repay any Indebtedness Incurred in
connection with the Primary Acquisition of such assets; and
(7) for purposes of the covenant described under the caption "--Certain
Covenants--Limitation on Asset Dispositions" only, a disposition that
constitutes a Restricted Payment permitted by the covenant described
under the caption "--Certain Covenants--Limitation on Restricted
Payments;" or
(8) an Asset Disposition that also constitutes a Change of Control;
PROVIDED, HOWEVER, that the Company complies with all its obligations
described under the caption "--Change of Control."
"AVERAGE LIFE" means, as of the date of determination, with respect to any
Indebtedness, the quotient obtained by dividing (x) the sum of the products of
the numbers of years from the date of determination to the date of each
successive scheduled principal payment of such Indebtedness or scheduled
redemption multiplied by the amount of such payment by (y) the sum of all such
payments.
"BANK INDEBTEDNESS" means any and all Indebtedness and other amounts payable
under or in respect of the Credit Agreement including principal, premium (if
any), interest (including interest accruing at the contract rate specified in
the Credit Agreement (including any rate applicable upon default) on or after
the filing of any petition in bankruptcy, or the commencement of any similar
state, federal or foreign reorganization or liquidation proceeding, relating to
the Company and interest that would accrue but for the commencement of such
proceeding whether or not a claim for post-filing interest is allowed in such
proceedings), fees, charges, expenses, reimbursement obligations, guarantees and
all other amounts payable thereunder or in respect thereof.
"BHA AERO COMPOSITE PARTS" means BHA Aero Composite Parts Co., Ltd., a
proposed joint venture among Hexcel, The Boeing Company and Aviation Industries
of China.
"BOARD OF DIRECTORS" means the Board of Directors of the Company or any
committee thereof duly authorized to act on behalf of such Board.
"BOARD RESOLUTION" means a duly adopted resolution of the Board of Directors
in full force and effect at the time of determination and certified as such by
the Secretary or an Assistant Secretary of the Company.
"BUSINESS DAY" means each day other than a Saturday, Sunday or a day on
which commercial banking institutions are authorized or required by law to close
in New York City.
"CAPITAL STOCK" of any Person means any and all shares, interests, rights to
purchase, warrants, options, participations or other equivalents of or interests
(including partnership interests) in (however designated) equity of such Person,
including any Preferred Stock, but excluding any debt securities convertible
into such equity.
"CAPITALIZED LEASE OBLIGATION" means an obligation that is required to be
classified and accounted for as a capitalized lease for financial reporting
purposes in accordance with GAAP. The amount of Indebtedness represented by such
obligation shall be the capitalized amount of such obligation determined in
accordance with GAAP. The Stated Maturity thereof shall be the date of the last
payment of rent or any other amount due under such lease prior to the first date
upon which such lease may be terminated by the lessee without payment of a
penalty.
"CODE" means the Internal Revenue Code of 1986, as amended.
"CONSOLIDATED COVERAGE RATIO" as of any date of determination means the
ratio of (x) the aggregate amount of EBITDA for the most recent four consecutive
fiscal quarters ending at least 45 days prior to the
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date of such determination to (y) Consolidated Interest Expense for such four
fiscal quarters; PROVIDED, HOWEVER, that
(1) if the Company or any Restricted Subsidiary has Incurred any
Indebtedness since the beginning of such period that remains outstanding
on such date of determination or if the transaction giving rise to the
need to calculate the Consolidated Coverage Ratio is an Incurrence of
Indebtedness, or both, EBITDA and Consolidated Interest Expense for such
period shall be calculated after giving effect on a PRO FORMA basis to
(a) such Indebtedness as if such Indebtedness had been Incurred on the
first day of such period and (b) the discharge of any other Indebtedness
repaid, repurchased, defeased or otherwise discharged with the proceeds
of such new Indebtedness as if such discharge had occurred on the first
day of such period;
(2) if the Company or any Restricted Subsidiary has repaid, repurchased,
defeased or otherwise discharged any Indebtedness since the beginning of
such period or if any Indebtedness is to be repaid, repurchased, defeased
or otherwise discharged (in each case other than Indebtedness Incurred
under any revolving credit facility unless such Indebtedness has been
permanently repaid and has not been replaced) on the date of the
transaction giving rise to the need to calculate the Consolidated
Coverage Ratio, EBITDA and Consolidated Interest Expense for such period
shall be calculated on a PRO FORMA basis as if such discharge had
occurred on the first day of such period and as if the Company or such
Restricted Subsidiary has not earned the interest income actually earned
during such period in respect of cash or Temporary Cash Investments used
to repay, repurchase, defease or otherwise discharge such Indebtedness;
(3) if since the beginning of such period the Company or any Restricted
Subsidiary shall have made any Asset Disposition, the EBITDA for such
period shall be reduced by an amount equal to the EBITDA (if positive)
directly attributable to the assets which are the subject of such Asset
Disposition for such period or increased by an amount equal to the EBITDA
(if negative) directly attributable thereto for such period and
Consolidated Interest Expense for such period shall be reduced by an
amount equal to the Consolidated Interest Expense directly attributable
to any Indebtedness of the Company or any Restricted Subsidiary repaid,
repurchased, defeased or otherwise discharged with respect to the Company
and its continuing Restricted Subsidiaries in connection with such Asset
Disposition for such period (or, if the Capital Stock of any Restricted
Subsidiary is sold, the Consolidated Interest Expense for such period
directly attributable to the Indebtedness of such Restricted Subsidiary
to the extent the Company and its continuing Restricted Subsidiaries are
no longer liable for such Indebtedness after such sale);
(4) if since the beginning of such period the Company or any Restricted
Subsidiary (by merger or otherwise) shall have made an Investment in any
Restricted Subsidiary (or any Person which becomes a Restricted
Subsidiary) or an acquisition of assets, including any acquisition of
assets occurring in connection with a transaction causing a calculation
to be made hereunder, EBITDA and Consolidated Interest Expense for such
period shall be calculated after giving PRO FORMA effect thereto
(including the Incurrence of any Indebtedness) as if such Investment or
acquisition occurred on the first day of such period; and
(5) if since the beginning of such period any Person (that subsequently
became a Restricted Subsidiary or was merged with or into the Company or
any Restricted Subsidiary since the beginning of such period) shall have
made any Asset Disposition, any Investment or acquisition of assets
requiring an adjustment pursuant to clause (3) or (4) above if made by
the Company or a Restricted Subsidiary during such period, EBITDA and
Consolidated Interest Expense for such period shall be calculated after
giving PRO FORMA effect thereto as if such Asset Disposition, Investment
or acquisition of assets occurred on the first day of such period.
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For purposes of this definition, whenever PRO FORMA effect is to be given to an
acquisition of assets, the amount of income or earnings relating thereto and the
amount of Consolidated Interest Expense associated with any Indebtedness
Incurred in connection therewith, the PRO FORMA calculations shall be determined
in good faith by a responsible financial or accounting officer of the Company.
If any Indebtedness bears a floating rate of interest and is being given PRO
FORMA effect, the interest expense on such Indebtedness shall be calculated as
if the rate in effect on the date of determination had been the applicable rate
for the entire period (taking into account any Interest Rate Protection
Agreement applicable to such Indebtedness if such Interest Rate Protection
Agreement has a remaining term as at the date of determination in excess of 12
months).
"CONSOLIDATED INTEREST EXPENSE" means, for any period, the sum of, without
duplication,
(a) total interest expense of the Company and its consolidated Restricted
Subsidiaries for such period, including, to the extent not otherwise included in
such interest expense, and to the extent Incurred by the Company or its
Restricted Subsidiaries in such period, without duplication,
(1) interest expense attributable to capital leases;
(2) amortization of debt discount and debt issuance cost;
(3) amortization of capitalized interest;
(4) non-cash interest expense;
(5) accrued interest;
(6) amortization of commissions, discounts and other fees and charges owed
with respect to letters of credit and bankers' acceptance financing;
(7) interest actually paid by the Company or any such Restricted Subsidiary
under any Guarantee of Indebtedness of any other Person;
(8) net payments, if any, made pursuant to Interest Rate Protection
Agreements (including amortization of fees);
(b) Preferred Stock dividends paid during such period in respect of all
Preferred Stock of Restricted Subsidiaries of the Company held by Persons other
than the Company; and
(c) cash contributions made during such period to any employee stock
ownership plan or other trust for the benefit of employees to the extent such
contributions are used by such plan or trust to pay interest or fees to any
Person (other than the Company) in connection with Indebtedness Incurred by such
plan or trust to purchase Capital Stock of the Company.
"CONSOLIDATED NET INCOME" means, for any period, the net income (loss) of
the Company and its consolidated Subsidiaries; PROVIDED, HOWEVER, that there
shall not be included in such Consolidated Net Income
(1) any net income (loss) of any Person if such Person is not a Restricted
Subsidiary, except that
(A) the Company's equity in the net income of any such Person for such
period shall be included in such Consolidated Net Income up to the
aggregate amount of cash that could have been distributed by such
Person during such period to the Company or a Restricted Subsidiary
as a dividend or other distribution (subject, in the case of a
dividend or other distribution to a Restricted Subsidiary, to the
limitations contained in clause (3) below); and
(B) the Company's equity in a net loss of any such Person for such period
shall be included in determining such Consolidated Net Income;
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(2) any net income (loss) of any Person acquired by the Company or a
Subsidiary in a pooling of interests transaction for any period prior to
the date of such acquisition;
(3) any net income (loss) of any Restricted Subsidiary if such Restricted
Subsidiary is subject to restrictions, directly or indirectly, on the
payment of dividends or the making of distributions by such Restricted
Subsidiary, directly or indirectly, to the Company, except that
(A) the Company's equity in the net income of any such Restricted
Subsidiary for such period shall be included in such Consolidated Net
Income up to the aggregate amount of cash that could have been
distributed by such Restricted Subsidiary during such period to the
Company or another Restricted Subsidiary as a dividend or other
distribution (subject, in the case of a dividend to another
Restricted Subsidiary, to the limitation contained in this clause);
and
(B) the Company's equity in a net loss of any such Restricted Subsidiary
for such period shall be included in determining such Consolidated
Net Income;
(4) any gain (but not loss) realized upon the sale or other disposition of
any assets of the Company, its consolidated Subsidiaries or any other
Person which is not sold or otherwise disposed of in the ordinary course
of business and any gain (but not loss) realized upon the sale or other
disposition of any Capital Stock of any Person;
(5) any extraordinary gain or loss;
(6) cumulative effect of a change in accounting principles; and
(7) any non-cash business consolidation and acquisition charges recognized
with respect to the Clark-Schwebel Acquisition (except to the extent such
non-cash charges represent an accrual of or a reserve for cash
expenditures in any future period).
Notwithstanding the foregoing, for the purposes of the covenant described under
the caption "--Certain Covenants--Limitation on Restricted Payments" only, there
shall be excluded from Consolidated Net Income any dividends, repayments of
loans or advances or other transfers of assets from Unrestricted Subsidiaries to
the Company or a Restricted Subsidiary to the extent such dividends, repayments
or transfers increase the amount of Restricted Payments permitted under such
covenant pursuant to clause (a)(3)(D) thereof.
"CONSOLIDATED NET WORTH" means the total of the amounts shown on the balance
sheet of the Company and its consolidated Subsidiaries, determined on a
consolidated basis in accordance with GAAP, as of the end of the most recent
fiscal quarter of the Company ending at least 45 days prior to the taking of any
action for the purpose of which the determination is being made, as the sum of
(1) the par or stated value of all outstanding Capital Stock of the Company;
PLUS
(2) paid-in capital or capital surplus relating to such Capital Stock; PLUS
(3) any retained earnings or earned surplus; LESS
(4) any accumulated deficit; LESS
(5) any amounts attributable to Disqualified Stock.
"CREDIT AGREEMENT" means
(1) one or more credit agreements, loan agreements or similar agreements
providing for working capital advances, term loans, letter of credit
facilities or similar advances, loan or facilities to the Company, any
Restricted Subsidiary, domestic or foreign, or any or all of such
Persons, including the Second Amended and Restated Credit Agreement in
effect on the Issue Date, among the
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Company and certain subsidiaries of the Company, as borrowers, the
lenders party thereto and Credit Suisse First Boston as administrative
agent for the lenders, Citibank, N.A., as documentation agent for the
Lenders, as the same may be amended, modified, restated or supplemented
from time to time, or any other indebtedness referred to in clause (b)(1)
of the covenant described under the caption "--Certain
Covenants--Limitation on Indebtedness;" and
(2) any one or more agreements governing advances, loans or facilities
provided to refund, refinance, replace or renew (including subsequent or
successive refundings, financings, replacements and renewals)
Indebtedness under the agreement or agreements referred to in the
foregoing clause (1), as the same may be amended, modified, restated or
supplemented from time to time.
"CS INTERGLAS" means CS Interglas AG, a German stock corporation in which a
subsidiary of Hexcel owns a 43.6% equity interest.
"CS TECH-FAB" means CS Tech-Fab Company, a New York general partnership and
joint venture in which a subsidiary of Hexcel owns a 50% partnership interest.
"CURRENCY EXCHANGE PROTECTION AGREEMENT" means, in respect of any Person,
any foreign exchange contract, currency swap agreement, currency option or other
similar agreement or arrangement designed to protect such Person against
fluctuations in currency exchange rates.
"DEFAULT" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"DESIGNATED SENIOR INDEBTEDNESS" means
(1) the Bank Indebtedness; and
(2) any other Senior Indebtedness (other than Hedging Obligations) which, at
the date of determination, has an aggregate principal amount outstanding
of, or under which, at the date of determination, the holders thereof are
committed to lend up to, at least $25.0 million and is specifically
designated by the Company in the instrument evidencing or governing such
Senior Indebtedness as "Designated Senior Indebtedness" for purposes of
the Indenture in an Officers' Certificate received by the Trustee.
"DIC" means the joint venture entered into between the Company and Dainippon
Ink & Chemicals, Inc. ("Dainippon"), pursuant to that certain Parent Company
Agreement dated as of April 17, 1990, under which the Company and Dainippon
caused Hexcel Technologies, Inc. and DIC Technologies, Inc. (Wholly Owned
Subsidiaries of the Company and Dainippon Ink & Chemicals, Inc., respectively)
to enter into that certain Participants Agreement dated as of September 14,
1990, pursuant to which Hexcel Technologies, Inc. and DIC Technologies, Inc.
formed Hexcel-DIC Partnership ("HDP") and pursuant to which Hexcel Technologies,
Inc. and DIC Technologies, Inc., caused HDP to form DIC-Hexcel, Ltd. as a wholly
owned subsidiary of HDP.
"DISQUALIFIED STOCK" means, with respect to any Person, any Capital Stock
which by its terms (or by the terms of any security into which it is convertible
or for which it is exchangeable at the option of the holder) or upon the
happening of any event
(1) matures or is mandatorily redeemable pursuant to a sinking fund
obligation or otherwise;
(2) is convertible or exchangeable at the option of the holder for
Indebtedness or Disqualified Stock; or
(3) is mandatorily redeemable or must be purchased, upon the occurrence of
certain events or otherwise, in whole or in part;
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in each case on or prior to the first anniversary of the Stated Maturity of the
Notes; PROVIDED, HOWEVER, that any Capital Stock that would not constitute
Disqualified Stock but for provisions thereof giving holders thereof the right
to require such Person to purchase or redeem such Capital Stock upon the
occurrence of an "asset sale" or "change of control" occurring prior to the
first anniversary of the Stated Maturity of the Notes shall not constitute
Disqualified Stock if
(1) the "asset sale" or "change of control" provisions applicable to such
Capital Stock are not more favorable to the holders of such Capital Stock
than the terms applicable to the Notes and described under the captions
"--Certain Covenants--Limitation on Asset Dispositions" and "--Change of
Control"; and
(2) any such requirement only becomes operative after compliance with such
terms applicable to the Notes, including the purchase of any Notes
tendered pursuant thereto.
"EBITDA" for any period means the sum of Consolidated Net Income plus,
without duplication, the following to the extent deducted in calculating such
Consolidated Net Income:
(1) all income tax expense of the Company and its consolidated Restricted
Subsidiaries for such period;
(2) Consolidated Interest Expense for such period;
(3) depreciation expense and amortization expense of the Company and its
consolidated Restricted Subsidiaries for such period (excluding
amortization expense attributable to a prepaid cash item that was paid in
a prior period);
(4) all other non-cash items of the Company and its consolidated Restricted
Subsidiaries for such period (excluding any such non-cash charge to the
extent that it represents an accrual of or reserve for cash expenditures
in any future period) reducing Consolidated Net Income LESS all non-cash
items increasing Consolidated Net Income for such period; and
(5) business consolidation and acquisition charges recognized for such
period to the extent recognized during or prior to the fiscal year ended
December 31, 2000; PROVIDED, HOWEVER, that the aggregate amount of the
charges described in this clause (5) through the end of such fiscal year
shall not exceed $25.0 million.
Notwithstanding the foregoing, the provision for taxes based on the income or
profits of, and the depreciation and amortization of, a Restricted Subsidiary
shall be added to Consolidated Net Income to compute EBITDA only to the extent
(and in the same proportion) that the net income of such Restricted Subsidiary
was included in calculating Consolidated Net Income and only if a corresponding
amount would be permitted at the date of determination to be dividended to the
Company by such Restricted Subsidiary without prior approval (that has not been
obtained), pursuant to the terms of its charter and all agreements, instruments,
judgments, decrees, orders, statutes, rules and governmental regulations
applicable to such Restricted Subsidiary or its stockholders.
"EXISTING JOINT VENTURES" means (1) Asahi-Schwebel, (2) Asahi-Schwebel
(Taiwan), (3) Asahi-Schwebel Interglas (Philippines), (4) CS Tech-Fab, (5) CS
Interglas, (6) Asian Composite Manufacturing, (7) BHA Aero Composite Parts and
(8) DIC.
"FOREIGN SUBSIDIARY" means a Subsidiary that is incorporated in a
jurisdiction other than, and the majority of the assets of which are located
outside of, the United States, a State thereof and the District of Columbia.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect as of the Issue Date set forth in the opinions and
pronouncements of the Accounting Principles Board of the American Institute of
Certified Public Accountants and statements and pronouncements of the
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Financial Accounting Standards Board or in such other statements by such other
entity as approved by a significant segment of the accounting profession.
"GOVERNANCE AGREEMENT" means the Governance Agreement dated as of February
29, 1996, between Ciba Specialty Chemicals Holding Inc. and the Company.
"GUARANTEE" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness of any other Person and any
obligation, direct or indirect, contingent or otherwise, of such Person
(1) to purchase or pay (or advance or supply funds for the purchase or
payment of) such Indebtedness of such other Person (whether arising by
virtue of partnership arrangements, or by agreements to keep-well, to
purchase assets, goods, securities or services, to take-or-pay or to
maintain financial statement conditions or otherwise); or
(2) entered into for purposes of assuring in any other manner the obligee of
such Indebtedness of the payment thereof or to protect such obligee
against loss in respect thereof (in whole or in part);
PROVIDED, HOWEVER, that the term "Guarantee" shall not include
(1) endorsements for collection or deposit in the ordinary course of
business; or
(2) obligations, warranties and indemnities, not with respect to
Indebtedness of any Person, that have been or are undertaken or made in
the ordinary course of business or in connection with any Asset
Disposition permitted by the covenant described under the caption
"--Certain Covenants--Limitation on Asset Dispositions" and not for the
benefit of or in favor of an Affiliate of the Company or any of its
Subsidiaries.
The term "Guarantee" used as a verb has a corresponding meaning.
"HEDGING OBLIGATIONS" of any Person means the obligations of such Person
pursuant to any Interest Rate Protection Agreement or Currency Exchange
Protection Agreement or other similar agreement or arrangement involving
interest rates, currencies, commodities or otherwise.
"INCUR" means issue, assume, Guarantee, incur or otherwise become liable
for; PROVIDED, HOWEVER, that any Indebtedness or Capital Stock of a Person
existing at the time such Person becomes a Restricted Subsidiary (whether by
merger, consolidation, acquisition or otherwise) shall be deemed to be Incurred
by such Restricted Subsidiary at the time it becomes a Restricted Subsidiary;
PROVIDED, FURTHER, that any amendment, modification or waiver of any provision
of any document pursuant to which Indebtedness was previously Incurred shall not
be deemed to be an Incurrence of Indebtedness as long as such amendment,
modification or waiver does not
(1) increase the principal or premium thereof or interest rate thereon;
(2) change to an earlier date the Stated Maturity thereof or the date of any
scheduled or required principal payment thereon or the time or
circumstances under which such Indebtedness may or shall be redeemed; or
(3) if such Indebtedness is contractually subordinated in right of payment
to the Notes, modify or affect, in any manner adverse to the holders,
such subordination.
The term "Incurrence" when used as a noun shall have a correlative meaning. The
accretion of principal of a non-interest bearing or other discount security
shall not be deemed the Incurrence of Indebtedness.
"INDEBTEDNESS" means, with respect to any Person on any date of
determination (without duplication):
(1) the principal of and premium (if any such premium is then due and owing)
in respect of
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(A) indebtedness of such Person for money borrowed; and
(B) indebtedness evidenced by notes, debentures, bonds or other similar
instruments for the payment of which such Person is responsible or
liable;
(2) all Capitalized Lease Obligations of such Person;
(3) all obligations of such Person issued or assumed as the deferred
purchase price of property, all conditional sale obligations of such
Person and all obligations of such Person under any title retention
agreement (but excluding trade accounts payable arising in the ordinary
course of business);
(4) all obligations of such Person for the reimbursement of any obligor on
any letter of credit, banker's acceptance or similar credit transaction
(other than obligations with respect to letters of credit securing
obligations (other than obligations described in (1) through (3) above)
entered into in the ordinary course of business of such Person to the
extent such letters of credit are not drawn upon or, if and to the extent
drawn upon, such drawing is reimbursed no later than the tenth Business
Day following receipt by such Person of a demand for reimbursement
following payment on the letter of credit);
(5) the amount of all obligations of such Person with respect to the
redemption, repayment or other repurchase of any Disqualified Stock of
such Person, or with respect to any Subsidiary of such Person, the
liquidation preference with respect to any Preferred Stock (but
excluding, in each case, any accrued dividends);
(6) all obligations of the type referred to in clauses (1) through (5) of
other Persons and all dividends of other Persons for the payment of
which, in either case, such Person is responsible or liable, directly or
indirectly, as obligor, guarantor or otherwise, including by means of any
Guarantee;
(7) all obligations of the type referred to in clauses (1) through (6) of
other Persons secured by any Lien on any property or asset of such Person
(whether or not such obligation is assumed by such Person), the amount of
such obligation being deemed to be the lesser of the value of such
property or assets or the amount of the obligation so secured; and
(8) to the extent not otherwise included in this definition, Hedging
Obligations of such Person.
For purposes of this definition, the obligation of such Person with respect to
the redemption, repayment or repurchase price of any Disqualified Stock that
does not have a fixed redemption, repayment or repurchase price shall be
calculated in accordance with the terms of such Stock as if such Stock were
redeemed, repaid or repurchased on any date on which Indebtedness shall be
required to be determined pursuant to the Indenture; PROVIDED, HOWEVER, that if
such Stock is not then permitted to be redeemed, repaid or repurchased, the
redemption, repayment or repurchase price shall be the book value of such Stock
as reflected in the most recent financial statements of such Person. The amount
of Indebtedness of any Person at any date shall be the outstanding balance at
such date of all unconditional obligations as described above and, with respect
to contingent obligations, the amount of liability required by GAAP to be
accrued or reflected on the most recently published balance sheet of such
Person; PROVIDED, HOWEVER, that
(1) the amount outstanding at any time of any Indebtedness issued with
original issue discount is the face amount of such indebtedness less the
remaining unamortized portion of the original issue discount of such
Indebtedness at such time as determined in conformity with GAAP; and
(2) Indebtedness shall not include any liability for federal, state, local
or other taxes.
"INTEREST RATE PROTECTION AGREEMENT" means, in respect of any Person, any
interest rate swap agreement, interest rate option agreement, interest rate cap
agreement, interest rate collar agreement, interest rate floor agreement or
other similar agreement or arrangement designed to protect such Person against
fluctuations in interest rates.
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"INVESTMENT" by any Person in any other Person means any direct or indirect
advance, loan (other than advances to customers or suppliers in the ordinary
course of business that are recorded as accounts receivable on the balance sheet
of such former Person) or other extension of credit (including by way of
Guarantee or similar arrangement) or capital contribution to (by means of any
transfer of cash or other property to others or any payment for property or
services for the account or use of others), or any purchase or acquisition of
Capital Stock, Indebtedness or other similar instruments issued by such latter
Person that are or would be classified as investments on a balance sheet of such
former Person prepared in accordance with GAAP. In determining the amount of any
Investment in respect of any property or assets other than cash, such property
or asset shall be valued at its fair market value at the time of such Investment
(unless otherwise specified in this definition), as determined in good faith by
the Board of Directors. For purposes of the definition of "Unrestricted
Subsidiary", the definition of "Restricted Payment" and the covenant described
under the caption "--Certain Covenants--Limitation on Restricted Payments,"
(1) "Investment" shall include the portion (proportionate to the Company's
equity interest in such Subsidiary) of the fair market value of the net
assets of any Subsidiary of the Company at the time that such Subsidiary
is designated an Unrestricted Subsidiary; PROVIDED, HOWEVER, that upon a
redesignation of such Subsidiary as a Restricted Subsidiary, the Company
shall be deemed to continue to have a permanent "Investment" in an
Unrestricted Subsidiary equal to an amount (if positive) equal to (x) the
Company's "Investment" in such Subsidiary at the time of such
redesignation less (y) the portion (proportionate to the Company's equity
interest in such Subsidiary) of the fair market value of the net assets
of such Subsidiary at the time of such redesignation; and
(2) any property transferred to or from an Unrestricted Subsidiary shall be
valued at its fair market value at the time of such transfer, in each
case as determined in good faith by the Board of Directors.
"INVESTMENT GRADE RATING" means a rating of BBB- or higher by Standard &
Poor's Ratings Group, Inc. and Baa3 or higher by Moody's Investors Service, Inc.
or the equivalent of such ratings by Standard & Poor's Ratings Group, Inc. or
Moody's Investors Service, Inc. or by any other Rating Agency selected as
provided in the definition of Rating Agency.
"ISSUE DATE" means the date on which the Notes are originally issued.
"JOINT VENTURE" means the Existing Joint Ventures, and any other joint
venture, partnership or other similar arrangement whether in corporate,
partnership or other legal form which is formed by the Company or any Restricted
Subsidiary and one or more Persons which own, operate or service a Related
Business.
"JOINT VENTURE SUBSIDIARY" means a Restricted Subsidiary formed by the
Company or any Restricted Subsidiary and one or more Persons which own, operate
or service a Related Business.
"LENDERS" has the meaning specified in the Credit Agreement.
"LIEN" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including any conditional sale or other title retention
agreement or lease in the nature thereof).
"NET AVAILABLE CASH" from an Asset Disposition means the aggregate amount of
cash received in respect of an Asset Disposition (including any cash payments
received by way of deferred payment of principal pursuant to a note or
installment receivable or otherwise, but only as and when received, but
excluding any other consideration received in the form of assumption by the
acquiring Person of Indebtedness or other obligations relating to such
properties or assets or received in any other noncash form) therefrom, in each
case net of
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(1) all legal, accounting, title and recording tax expenses, commissions and
other fees and expenses incurred, and all federal, state, provincial,
foreign and local taxes required to be paid or accrued as a liability
under GAAP as a consequence of such Asset Disposition;
(2) all payments made on any Indebtedness which is secured by any assets
subject to such Asset Disposition, in accordance with the terms of any
Lien upon such assets, or which must by its terms, or in order to obtain
a necessary consent to such Asset Disposition, or by applicable law, be
repaid out of the proceeds from such Asset Disposition;
(3) all distributions and other payments required to be made to minority
interest holders in Restricted Subsidiaries or Joint Ventures as a result
of such Asset Disposition;
(4) any amount of cash required to be placed in escrow by one or more
parties to a transaction relating to contingent liabilities associated
with an Asset Disposition until such cash is released to the Company or a
Restricted Subsidiary; and
(5) the deduction of appropriate amounts to be provided by the seller as a
reserve, in accordance with GAAP, against any liabilities associated with
the assets disposed of in such Asset Disposition, including pension and
other post-employment benefit liabilities, liabilities related to
environmental matters and liabilities under any indemnification
obligations associated with such Asset Dispositions, all as determined in
conformity with GAAP, retained by the Company or any Restricted
Subsidiary after such Asset Disposition.
"NET CASH PROCEEDS," with respect to any issuance or sale of Capital Stock,
means the cash proceeds of such issuance or sale net of attorneys' fees,
accountants' fees, printing costs, underwriters' or placement agents' fees,
discounts or commissions and brokerage stock exchange listing fees, consultant
and other fees actually incurred in connection with such issuance or sale and
net of taxes paid or payable as a result thereof.
"OFFICER'S CERTIFICATE" means a certificate signed by the Chairman of the
Board, the President, an Executive Vice President, a Senior Vice President or a
Vice President, and by the Treasurer, an Assistant Treasurer, the Secretary or
an Assistant Secretary, of the Company and delivered to the Trustee.
"OPINION OF COUNSEL" means a written opinion of counsel reasonably
acceptable to the Trustee, which may be an employee of or counsel for the
Company.
"PERMITTED HOLDERS" means,
(1) Ciba Specialty Chemicals Holding Inc. and its Affiliates;
(2) any Person succeeding to the business of Ciba Specialty Chemicals
Holding Inc., including pursuant to any merger or combination of one or
more businesses that includes the business of Ciba Specialty Chemicals
Holding Inc.; and
(3) any Affiliate of any Person described in clause (2).
"PERMITTED INVESTMENT" means an Investment
(1) in the Company or a Restricted Subsidiary or a Person which will, upon
the making of such Investment, become a Restricted Subsidiary; PROVIDED,
HOWEVER, that the primary business of such Restricted Subsidiary is a
Related Business;
(2) in another Person, if as a result of such Investment such other Person
is merged or consolidated with or into, or transfers or conveys all or
substantially all its assets to, the Company or a Restricted Subsidiary;
PROVIDED, HOWEVER, that such Person's primary business is a Related
Business;
(3) in Temporary Cash Investments;
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(4) in receivables owing to the Company or any Restricted Subsidiary if
created or acquired in the ordinary course of business and payable or
dischargeable in accordance with customary trade terms; PROVIDED,
HOWEVER, that such trade terms may include such concessionary trade terms
as the Company or any such Restricted Subsidiary deems reasonable under
the circumstances;
(5) in loans or advances to officers, directors or employees of the Company
or any of its Subsidiaries for travel, transportation, entertainment, and
moving and other relocation expenses and other business expenses that are
expected at the time of such advances ultimately to be treated as
expenses for accounting purposes and that are made in the ordinary course
of business;
(6) in loans or advances to employees made in the ordinary course of
business consistent with past practices of the Company or such
Subsidiary, as the case may be;
(7) in stock, obligations or securities received
(A) in settlement of debts created in the ordinary course of business and
owing to the Company or any Subsidiary;
(B) in satisfaction of judgments; or
(C) as consideration in connection with an Asset Disposition permitted
pursuant to the covenant described under the caption "--Certain
Covenants--Limitation on Asset Dispositions;" and
(8) deemed to have been made as a result of the acquisition of a Person that
at the time of such acquisition held instruments constituting Investments
that were not acquired in contemplation of the acquisition of such
Person.
"PERSON" means any individual, corporation, partnership, limited liability
company, joint venture, association, joint-stock company, trust, unincorporated
organization, government or any agency or political subdivision thereof or any
other entity.
"PLANS" means any employee benefit plan, retirement plan, deferred
compensation plan, restricted stock plan, health, life, disability or other
insurance plan or program, employee stock purchase plan, employee stock
ownership plan, pension plan, stock option plan or similar plan or arrangement
of the Company or any Subsidiary, or any successor thereof and "Plan" shall have
a correlative meaning.
"PREFERRED STOCK," as applied to the Capital Stock of any Person, means
Capital Stock of any class or classes (however designated) which is preferred as
to the payment of dividends, or as to the distribution of assets upon any
voluntary or involuntary liquidation or dissolution of such Person, over shares
of Capital Stock of any other class of such Person.
"PRINCIPAL" of a Note means the principal of the Note plus the premium, if
any, payable on the Note which is due or overdue or is to become due at the
relevant time.
"PUBLIC EQUITY OFFERING" means an underwritten primary public offering of
common stock of the Company pursuant to an effective registration statement
under the Securities Act.
"PUBLIC MARKET" means any time after (x) a Public Equity Offering has been
consummated and (y) at least 15% of the total issued and outstanding common
stock of the Company has been distributed by means of an effective registration
statement under the Securities Act or sales pursuant to Rule 144 under the
Securities Act.
"QUALIFIED PREFERRED STOCK" of a Restricted Subsidiary means a series of
Preferred Stock of such Restricted Subsidiary which (1) has a fixed liquidation
preference that is no greater in the aggregate than the sum of (x) the fair
market value (as determined in good faith by the Board of Directors at the time
of the issuance of such series of Preferred Stock) of the consideration received
by such Restricted Subsidiary for the issuance of such series of Preferred Stock
and (y) accrued and unpaid dividends to the date of liquidation, (2) has a fixed
annual dividend and has no right to share in any dividend or other distributions
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based on the financial or other similar performance of such Restricted
Subsidiary and (3) does not entitle the holders thereof to vote in the election
of directors, managers or trustees of such Restricted Subsidiary unless such
Restricted Subsidiary has failed to pay dividends on such series of Preferred
Stock for a period of at least 12 consecutive calendar months.
"RATING AGENCY" means Standard & Poor's Ratings Group, Inc. and Moody's
Investors Service, Inc. or if Standard & Poor's Ratings Group, Inc. or Moody's
Investors Service, Inc. or both shall not make a rating on the Notes publicly
available, a nationally recognized statistical rating agency or agencies, as the
case may be, selected by the Company (as certified by a resolution of the Board
of Directors) which shall be substituted for Standard & Poor's Ratings Group,
Inc. or Moody's Investors Service, Inc. or both, as the case may be.
"REFINANCING INDEBTEDNESS" means Indebtedness that refunds, refinances,
replaces, renews, repays or extends (including pursuant to any defeasance or
discharge mechanism) (collectively, "refinances," and "refinanced" shall have a
correlative meaning) any Indebtedness or Incurred in compliance with the
Indenture (including Indebtedness of the Company that refinances Indebtedness of
any Restricted Subsidiary and Indebtedness of any Restricted Subsidiary that
refinances Indebtedness of another Restricted Subsidiary) including Indebtedness
that refinances Refinancing Indebtedness; PROVIDED, HOWEVER, that
(1) the Refinancing Indebtedness has Stated Maturity no earlier than any
Stated Maturity of the Indebtedness being refinanced;
(2) the Refinancing Indebtedness has an Average Life at the time such
Refinancing Indebtedness is Incurred that is equal to or greater than the
Average Life of the Indebtedness being refinanced; and
(3) such Refinancing Indebtedness is Incurred in an aggregate principal
amount (or if issued with original issue discount, an aggregate issue
price) that is equal to or less than the sum of (x) either the aggregate
principal amount (or if issued with original issue discount, the
aggregate accreted value) of the Indebtedness being refinanced
(including, with respect to both the Refinancing Indebtedness and the
Indebtedness being refinanced, amounts then outstanding and amounts
available thereunder) or, if the Indebtedness being refinanced is the
Capitalized Lease Obligation entered into on or about September 15, 1998,
the aggregate purchase price of the property subject thereto, PLUS (y)
unpaid interest, prepayment penalties, redemption premiums, defeasance
costs, fees, expenses and other amounts owing with respect thereto, plus
reasonable financing fees and other reasonable out-of-pocket expenses
incurred in connection therewith;
PROVIDED FURTHER, HOWEVER, that Refinancing Indebtedness shall not include
Indebtedness of a Subsidiary that refinances Indebtedness of the Company.
"REGISTRATION RIGHTS AGREEMENT" means the Registration Rights Agreement
dated January 21, 1999, between the Company and Credit Suisse First Boston
Corporation and Salomon Smith Barney Inc.
"RELATED BUSINESS" means any business conducted by the Company and its
Restricted Subsidiaries on the Issue Date and any business related, ancillary or
complementary to the business of the Company and its Restricted Subsidiaries on
the Issue Date.
"REPRESENTATIVE" means the trustee, agent or other representative (if any)
for an issue of Senior Indebtedness.
"RESTRICTED PAYMENT" with respect to any Person means
(1) the declaration or payment of any dividends or any other distributions
of any sort in respect of its Capital Stock (including any payment in
connection with any merger or consolidation involving such Person) or
similar payment to the direct or indirect holders of its Capital Stock
(other than
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dividends or distributions payable solely in its Capital Stock (other
than Disqualified Stock) and dividends or distributions payable solely to
the Company or a Restricted Subsidiary, and other PRO RATA dividends or
other distributions made by a Subsidiary that is not a Wholly Owned
Subsidiary to minority stockholders (or owners of an equivalent interest
in the case of a Subsidiary that is an entity other than a corporation));
(2) the purchase, redemption or other acquisition or retirement for value of
any Capital Stock of the Company held by any Person or of any Capital
Stock of the Restricted Subsidiary held by any Affiliate of the Company
(other than a Restricted Subsidiary), including the exercise of any
option to exchange any Capital Stock (other than into Capital Stock of
the Company that is not Disqualified Stock);
(3) the purchase, repurchase, redemption, defeasance or other acquisition or
retirement for value, prior to scheduled maturity, scheduled repayment or
scheduled sinking fund payment of any Subordinated Obligations (other
than the purchase, repurchase, or other acquisition of Subordinated
Obligations purchased in anticipation of satisfying a sinking fund
obligation, principal installment or final maturity, in each case due
within one year of the date of acquisition); or
(4) the making of any Investment (other than a Permitted Investment) in any
Person.
"RESTRICTED SUBSIDIARY" means any Subsidiary of the Company that is not an
Unrestricted Subsidiary.
"SECURED INDEBTEDNESS" means any Indebtedness of the Company secured by a
Lien.
"SENIOR INDEBTEDNESS" means
(1) all Bank Indebtedness; and
(2) all other Indebtedness of the Company, including interest (including
interest accruing at the contract rate specified in the Credit Agreement
or the documentation governing such other Indebtedness, as applicable
(including any rate applicable upon default) on or after the filing of
any petition in bankruptcy, or the commencement of any similar state,
federal or foreign reorganization or liquidation proceeding, relating to
the Company, whether or not allowed as a claim against the Company in any
such proceeding) and fees thereon, whether outstanding on the Issue Date
or thereafter issued or Incurred, unless in the instrument creating or
evidencing the same or pursuant to which the same is outstanding it is
provided that such obligations are not superior in right of payment to
the Notes;
PROVIDED, HOWEVER, that Senior Indebtedness shall not include
(1) any liability for federal, state, local or other taxes owed or owing by
the Company;
(2) any accounts payable or other liabilities to trade creditors arising in
the ordinary course of business (including guarantees thereof or
instruments evidencing such liabilities);
(3) any Indebtedness, Guarantee or obligation of the Company which is
subordinate or junior in any respect to any other Indebtedness, Guarantee
or obligation of the Company, including any Senior Subordinated
Indebtedness and any Subordinated Obligations; and
(4) any obligations with respect to any Capital Stock.
"SENIOR SUBORDINATED INDEBTEDNESS" means the Notes and any other
Indebtedness of the Company that specifically provides that such Indebtedness is
to rank PARI PASSU with the Notes in right of payment and is not subordinated by
its terms in right of payment to any Indebtedness or other obligation of the
Company which is not Senior Indebtedness.
"SIGNIFICANT SUBSIDIARY" means a Restricted Subsidiary that is a
"significant subsidiary" as defined in Rule 1-02 of Regulation S-X promulgated
under the Securities Act and the Exchange Act.
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"SPECIFIED PROPERTIES" shall mean the Company's manufacturing plants located
in Lancaster, Ohio, Welkenraedt, Belgium, Brindisi, Italy and Lodi, New Jersey,
and certain real property adjacent to the Company's manufacturing plant in
Livermore, California.
"STATED MATURITY" means, with respect to any security, the date specified in
such security as the fixed date on which the payment of principal of such
security is due and payable, including pursuant to any mandatory redemption
provision (but excluding any provision providing for the repurchase of such
security at the option of the holder thereof upon the happening of any
contingency beyond the control of the issuer unless such contingency has
occurred).
"SUBORDINATED OBLIGATION" means any Indebtedness of the Company (whether
outstanding on the Issue Date or thereafter incurred) that is contractually
subordinated or junior in right of payment to the Notes pursuant to a written
agreement, including the Convertible Notes and the Convertible Debentures.
"SUBSIDIARY" of any Person means any corporation, association, partnership
or other business entity of which more than 50% of the total voting power of
shares of Voting Stock is at the time owned or controlled, directly or
indirectly, by
(1) such Person,
(2) such Person and one or more Subsidiaries of such Person or
(3) one or more Subsidiaries of such Person.
Unless the context requires otherwise, "Subsidiary" shall refer to a Subsidiary
of the Company.
"TEMPORARY CASH INVESTMENTS" means any of the following:
(1) investments in U.S. Government Obligations;
(2) investments in time deposit accounts, certificates of deposit and money
market deposits maturing within 180 days of the date of acquisition
thereof issued by a bank of trust company which is organized under the
laws of the United States of America, any State thereof or any foreign
country recognized by the United States of America having capital,
surplus and undivided profits aggregating in excess of $50.0 million (or
the U.S. dollar equivalent thereof) and whose long-term debt is rated
"A-" or higher (or such equivalent rating) by at least one "nationally
recognized statistical rating organization" (as defined in Rule 436 under
the Securities Act);
(3) repurchase obligations with a term of not more than 30 days for
underlying securities of the types described in clause (1) above entered
into with a bank meeting the qualifications described in clause (2)
above;
(4) investments in commercial paper, maturing not more than 90 days after
the date of acquisition, issued by a corporation (other than an Affiliate
of the Company) organized and in existence under the laws of the United
States of America or any foreign country recognized by the United States
of America with a rating at the time as of which any investment therein
is made of "P-1" (or higher) according to Moody's Investors Service, Inc.
or "A-1" (or higher) according to Standard & Poor's Ratings Group; and
(5) investments in securities with maturities of six months or less from the
date of acquisition issued or fully guaranteed by any state, commonwealth
or territory of the United States of America, or by any political
subdivision or taxing authority thereof, and rated at least "A" by
Standard & Poors Ratings Group or "A" by Moody's Investors Service, Inc.
"UNRESTRICTED SUBSIDIARY" means
(1) any Subsidiary of the Company that at the time of determination shall be
designated an Unrestricted Subsidiary by the Board of Directors in the
manner provided below; and
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(2) any Subsidiary of an Unrestricted Subsidiary.
The Board of Directors may designate any Subsidiary of the Company
(including any newly acquired or newly formed Subsidiary) to be an Unrestricted
Subsidiary unless such Subsidiary or any of its Subsidiaries owns any Capital
Stock or Indebtedness of, or holds any Lien on any property of, the Company or
any other Subsidiary of the Company that is not a Subsidiary of the Subsidiary
to be so designated; PROVIDED, HOWEVER, that either (A) the Subsidiary to be so
designated has total assets of $1,000 or less or (B) if such Subsidiary has
assets greater than $1,000, such designation would be permitted under the
covenant described under the caption "--Certain Covenants--Limitation on
Restricted Payments."
The Board of Directors may designate any Unrestricted Subsidiary to be a
Restricted Subsidiary; PROVIDED, HOWEVER, that immediately after giving effect
to such designation (x) the Company could Incur $1.00 of additional Indebtedness
under paragraph (a) of the covenant described under the caption "--Certain
Covenants--Limitation on Indebtedness" and (y) no Default shall have occurred
and be continuing. Any such designation by the Board of Directors shall be
evidenced to the Trustee by promptly filing with the Trustee a copy of the
resolution of the Board of Directors giving effect to such designation and an
Officers' Certificate certifying that such designation complied with the
foregoing provisions.
"U.S. GOVERNMENT OBLIGATIONS" means direct obligations (or certificates
representing an ownership interest in such obligations) of the United States of
America (including any agency or instrumentality thereof) for the payment of
which the full faith and credit of the United States of America is pledged and
which are not callable at the issuer's option.
"VOTING STOCK" of a Person means all classes of Capital Stock or other
interests (including partnership interests) of such Person then outstanding and
normally entitled (without regard to the occurrence of any contingency) to vote
in the election of directors, managers or trustees thereof.
"WHOLLY OWNED SUBSIDIARY" means a Restricted Subsidiary all the Capital
Stock of which (other than Qualified Preferred Stock and directors' qualifying
shares) is owned by the Company or another Wholly Owned Subsidiary.
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BOOK-ENTRY; DELIVERY AND FORM
The certificates representing the Exchange Notes will be issued in fully
registered form. Except as described below, the Exchange Notes initially will be
represented by one or more global notes, in definitive, fully registered form
without interest coupons (each a "Global Note") and will be deposited with the
Trustee as custodian for DTC and registered in the name of Cede & Co. or such
other nominee as DTC may designate.
DTC has advised the Company as follows.
- DTC is a limited purpose trust company organized under the laws of the
State of New York, a "banking organization" within the meaning of the New
York Banking Law, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the Uniform Commercial Code and a
"clearing agency" registered pursuant to the provision of Section 17A of
the Exchange Act.
- DTC was created to hold securities for its participants and to facilitate
the clearance and settlement of securities transactions between
participants through electronic book-entry changes in accounts of its
participants, thereby eliminating the need for physical movement of
certificates. Participants include securities brokers and dealers, banks,
trust companies and clearing corporations and certain other organizations.
Indirect access to the DTC system is available to others such as banks,
brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a participant, either directly or indirectly
("indirect participants").
- Upon the issuance of the Global Notes, DTC or its custodian will credit,
on its internal system, the respective principal amounts of the Exchange
Notes represented by such Global Notes to the accounts of persons who have
accounts with DTC. Ownership of beneficial interests in the Global Notes
will be limited to persons who have accounts with DTC ("participants") or
persons who hold interests through participants. Ownership of beneficial
interests in the Global Notes will be shown on, and the transfer of that
ownership will be effected only through, records maintained by DTC or its
nominee, with respect to interests of participants, and the records of
participants, with respect to interests of persons other than
participants.
So long as DTC or its nominee is the registered owner or holder of the
Global Notes, DTC or such nominee, as the case may be, will be considered the
sole record owner or holder of the Exchange Notes represented by such Global
Notes for all purposes under the Indenture and the Exchange Notes. No beneficial
owners of an interest in the Global Notes will be able to transfer that interest
except in accordance with DTC's applicable procedures, in addition to those
provided for under the Indenture. Owners of beneficial interests in the Global
Notes will not (1) be entitled to have the Exchange Notes represented by such
Global Notes registered in their names, (2) receive or be entitled to receive
physical delivery of certificated Notes in definitive form and (3) be considered
to be the owners or holders of any Exchange Notes under the Global Notes.
Accordingly, each person owning a beneficial interest in the Global Notes must
rely on the procedures of DTC and, if such person is not a participant, on the
procedures of the participant through which such person owns its interests, to
exercise any right of a holder of Exchange Notes under the Global Notes. We
understand that under existing industry practice, in the event an owner of a
beneficial interest in the Global Notes desires to take any action that DTC, as
the holder of the Global Notes, is entitled to take, DTC would authorize the
participants to take such action, and that the participants would authorize
beneficial owners owning through such participants to take such action or would
otherwise act upon the instructions of beneficial owners owning through them.
Payments of the principal of, premium, if any, and interest on the Exchange
Notes represented by the Global Notes will be made to DTC or its nominee, as the
case may be, as the registered owner of the Global Notes. Neither we, the
Trustee, nor any paying agent will have any responsibility or liability for any
aspect of the records relating to or payments made on account of beneficial
ownership interests in the
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Global Notes or for maintaining, supervising or reviewing any records relating
to such beneficial ownership interests.
We expect that DTC or its nominee, upon receipt of any payment of principal
of, premium, if any, or interest in respect of the Global Notes will credit
participants' accounts with payments in amounts proportionate to their
respective beneficial ownership interests in the principal amount of such Global
Notes, as shown on the records of DTC or its nominee. We also expect that
payments by participants to owners of beneficial interests in such Global Notes
held through such participants will be governed by standing instructions and
customary practices, as is now the case with securities held for the accounts of
customers registered in the names of nominees for such customers. Such payments
will be the responsibility of such participants.
Transfer between participants in DTC will be effected in the ordinary way in
accordance with DTC rules. If a holder requires physical delivery of Notes in
certificated form ("Certificated Notes") for any reason, including to sell Notes
to persons in states which require such delivery of such Notes or to pledge such
Notes, such holder must transfer its interest in the Global Notes, in accordance
with the normal procedures of DTC and the procedures set forth in the Indenture.
Unless and until they are exchanged in whole or in part for certificated
Exchange Notes in definitive form, the Global Notes may not be transferred
except as a whole by DTC to a nominee of DTC or by a nominee of DTC to DTC or
another nominee of DTC.
Beneficial owners of Exchange Notes registered in the name of DTC or its
nominee will be entitled to be issued, upon request, Exchange Notes in
definitive certificated form.
DTC has advised us that DTC will take any action permitted to be taken by a
holder of Notes, including the presentation of Notes for exchange as described
below-only at the direction of one or more participants to whose account the DTC
interests in the Global Notes are credited, and only in respect of such portion
of the aggregate principal amount of Notes as to which such participant or
participants has or have given such direction.
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of interests in the Global Notes among participants of DTC, it is
under no obligation to perform such procedures, and such procedures may be
discontinued at any time. Neither we nor the Trustee will have any
responsibility for the performance by DTC or its participants or indirect
participants of their respective obligations under the rules and procedures
governing their operations.
Subject to certain conditions, any person having a beneficial interest in
the Global Notes may, upon request to the Trustee, exchange such beneficial
interest for Exchange Notes in the form of Certificated Notes. Upon any such
issuance, the Trustee is required to register such Certificated Notes in the
name of, and cause the same to be delivered to, such person or persons, or the
nominee of any such persons. In addition, if DTC is at any time unwilling or
unable to continue as a depositary for the Global Notes, and a successor
depositary is not appointed by us within 90 days, we will issue Certificated
Notes in exchange for the Global Notes.
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EXCHANGE OFFER; REGISTRATION RIGHTS
In connection with the sale of the Original Notes to Credit Suisse First
Boston Corporation and Salomon Smith Barney Inc. (collectively, the "Initial
Purchasers") pursuant to the Purchase Agreement, dated January 15, 1999, among
the Company and the Initial Purchasers, the holders of the Original Notes became
entitled to the benefits of the registration rights agreement, dated as of
January 21, 1999 (the "Registration Rights Agreement") by and among the Company
and the Initial Purchasers.
Under the Registration Rights Agreement, we have agreed to use our best
efforts:
- to file a Registration Statement (the "Exchange Offer Registration
Statement") with the Securities and Exchange Commission (the "SEC") in
connection with a registered offer (the "Exchange Offer") to exchange the
Original Notes for new 9 3/4% Senior Subordinated Notes due 2009 (the
"Exchange Notes"), having terms substantially identical in all material
respects to the Original Notes (except that the Exchange Notes will not
contain terms with respect to transfer restrictions), within 90 days after
January 21, 1999, the date the Original Notes were issued (the "Issue
Date");
- to cause the registration statement Exchange Offer Registration Statement
to become effective within 180 days after the Issue Date;
- to offer the Exchange Notes in exchange for surrender of the Original
Notes, as soon as practicable after the effectiveness of the Exchange
Offer Registration Statement;
- to keep the Exchange Offer open for not less than 30 days (or longer if
required by applicable law) after the date notice of the Exchange Offer is
mailed to the holders of the Original Notes.
The Exchange Offer being made hereby, if consummated within the required
time periods, will satisfy our obligations under the Registration Rights
Agreement. We understand that there are approximately 30 beneficial owners of
such Original Notes. This Prospectus, together with the Letter of Transmittal,
is being sent to all such beneficial holders known to us. For each Original Note
validly tendered to us pursuant to the Exchange Offer and not withdrawn by the
holder of such Original Note, such holder will receive a Exchange Note having a
principal amount equal to that of the tendered Original Note. Interest on each
Exchange Note will accrue from the last interest payment date on which interest
was paid on the tendered Original Note in exchange for an Exchange Note or, if
no interest has been paid on such Original Note, from the date of the original
issue of the Original Note.
Based on an interpretation of the Securities Act by the Staff of the SEC set
forth in several no-action letters to third parties, and subject to the
immediately following sentence, we believe that the Exchange Notes issued
pursuant to the Exchange Offer may be offered for resale, resold and otherwise
transferred by holders of such Exchange Notes without further compliance with
the registration and Prospectus delivery provisions of the Securities Act.
However, any purchaser of Original Notes who is an "affiliate" of ours or who
intends to participate in the Exchange Offer for the purpose of distributing the
Exchange Notes (1) will not be able to rely on the interpretation by the staff
of the SEC set forth in the above referenced no-action letters, (2) will not be
able to tender Original Notes in the Exchange Offer and (3) must comply with the
registration and Prospectus delivery requirements of the Securities Act in
connection with any sale or transfer of the Notes, unless such sale or transfer
is made pursuant to an exemption from such requirements.
Each holder of the Original Notes who wishes to exchange Original Notes for
Exchange Notes in the Exchange Offer will be required to make certain
representations, including that
- it is neither our affiliate nor a broker-dealer tendering Notes acquired
directly from us for its own account;
- any Exchange Notes to be received by it were acquired in the ordinary
course of its business; and
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- at the time of commencement of the Exchange Offer, it has no arrangement
with any person to participate in the distribution (within the meaning of
the Securities Act) of the Exchange Notes.
In addition, in connection with any resales of Exchange Notes, any
participating broker-dealer who acquired the Exchange Notes for its own account
as a result of market-making activities or other trading activities must deliver
a Prospectus meeting the requirements of the Securities Act. The SEC has taken
the position that participating broker-dealers may fulfill their Prospectus
delivery requirements with respect to the Exchange Notes, other than a resale of
an unsold allotment from the original sale of the Original Notes, with the
Prospectus contained in the Exchange Offer Registration Statement. Under the
Registration Rights Agreement, we are required to allow participating
broker-dealers and other persons, if any, subject to similar Prospectus delivery
requirements to use the Prospectus contained in the Exchange Offer Registration
Statement in connection with the resale of such Exchange Notes.
In the event that applicable interpretations of the staff of the SEC do not
permit us to effect the Exchange Offer, or if for any other reason we do not
consummate the Exchange Offer within 180 days of the date of the Registration
Rights Agreement, or if an Initial Purchaser notifies us within 10 business days
following consummation of the Exchange Offer that Notes held by it are not
eligible for exchange in the Exchange Offer, or if any holder notifies us that
it (1) is prohibited by law or SEC policy from participating in the Exchange
Offer; (2) may not resell the Exchange Notes acquired in the Exchange Offer to
the public without delivering a prospectus and this Prospectus is not
appropriate or available for such resales by such holder; or (3) is a
broker-dealer and holds Notes that are part of an unsold allotment from the
original sale of the Notes, then, we have agreed:
- to file a shelf registration statement (the "Shelf Registration
Statement") as promptly as practicable, covering resales of the Original
Notes or the Exchange Notes, as the case may be;
- to use our best efforts to cause the Shelf Registration Statement to be
declared effective under the Securities Act; and
- to keep the Shelf Registration Statement effective until the earliest of
(A) the time when the Notes covered by the Shelf Registration Statement
can be sold pursuant to Rule 144 without any limitations under clauses
(c), (e), (f) and (h) of Rule 144, (B) two years from the effective date
and (C) the date on which all Notes registered thereunder are disposed of
in accordance therewith.
We have agreed to pay additional cash interest on the Notes if (1) by April
21, 1999 (90 days after the Issue Date), neither the Exchange Offer Registration
Statement nor the Shelf Registration Statement is filed with the SEC; (2) by
July 20, 1999 (180 days after the Issue Date), the Exchange Offer is not
consummated and, if applicable, the Shelf Registration Statement is not declared
effective; or (3) after either the Exchange Offer Registration Statement or the
Shelf Registration Statement is declared effective, such Registration Statement
thereafter ceases to be effective or usable (subject to certain exceptions). The
rate of the additional interest will be 0.50% per annum following the occurrence
of such Registration Default, until all Registration Defaults have been cured
(subject to certain exceptions).
Interest on each Exchange Note will accrue from January 21, 1999 or from the
most recent interest payment date to which interest was paid on the Original
Note surrendered in exchange for the Exchange Note or on the Exchange Note, as
the case may be. The Exchange Notes will bear interest at 9 3/4% per annum,
except that, if any interest accrues on the Exchange Notes in respect of any
period prior to their issuance, such interest will accrue at the rate or rates
borne by the Notes from time to time during such period. If we effect the
Exchange Offer, we will be entitled to close the Exchange Offer 30 days after
the commencement thereof provided that we have accepted all Notes validly
tendered in accordance with the terms of the Exchange Offer.
The summary in this Prospectus of certain provisions of the Registration
Rights Agreement does not purport to be complete and is subject to, and is
qualified in its entirety by reference to, all the provisions of the
Registration Rights Agreement, which is filed as an exhibit to the Registration
Statement to which this Prospectus forms a part.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On February 29, 1996, Hexcel consummated certain transactions with CGL
whereby Hexcel acquired the Ciba Composites Business (the "Ciba Acquisition")
pursuant to the terms and conditions of the Strategic Alliance Agreement, the
Governance Agreement, a Registration Rights Agreement, a Distribution Agreement
and other agreements (collectively, the "Agreements").
On December 20, 1996, CGL and Sandoz Limited effected a business
combination, forming Novartis Inc., a Swiss corporation. Prior to the business
combination, CGL formed a new subsidiary, Ciba. On March 13, 1997, all direct
and indirect interests in Hexcel previously held by CGL were transferred to
Ciba, including without limitation, all of its direct or indirect interest in
Hexcel's common stock, the Ciba Senior Subordinated Debt (as defined below) and
all of its rights and obligations under the Agreements. In the Hexcel Consent
Letter, Hexcel acknowledged Ciba as the successor to the rights and obligations
of CGL and CGC under the Agreements.
THE STRATEGIC ALLIANCE AGREEMENT
Under the Strategic Alliance Agreement, Hexcel acquired the assets
(including the capital stock of certain non-U.S. subsidiaries) and assumed the
liabilities of the Ciba Composites Business, other than certain excluded assets
and liabilities, in exchange for (i) 18.0 million newly issued shares of
Hexcel's common stock (representing beneficial ownership of approximately 49.6%
of Hexcel's outstanding common stock), (ii) $25.0 million in cash, (iii) the
Ciba Notes, and (iv) senior demand notes in an aggregate principal amount of
$5.3 million. The aggregate purchase price for the net assets acquired in 1996
was $208.7 million.
THE GOVERNANCE AGREEMENT
Pursuant to the Governance Agreement, Hexcel's Board of Directors was
reconstituted. In addition, certain key employees of the Ciba Composites
Business, including William Hunt, became executive officers of Hexcel effective
as of the closing of the Ciba Acquisition (the "Closing").
CORPORATE GOVERNANCE
Pursuant to the Governance Agreement, Hexcel has agreed to exercise all
authority under applicable law to cause any slate of nominees presented to
stockholders for election to the Board of Directors to consist of certain
specified numbers of Ciba Nominees and Independent Nominees, in addition to the
Chairman and the President. The precise number of Ciba Nominees and Independent
Nominees to be included in any slate of nominees varies based on Ciba's
percentage ownership of the voting securities of Hexcel. The Governance
Agreement further provides that (i) for so long as Ciba beneficially owns voting
securities representing 40% or more of the total voting power of Hexcel, each
committee of the Board of Directors shall consist of an equal number of Ciba
Directors and Independent Directors and (ii) at all other times, each committee
shall be comprised such that Ciba's representation is at least proportionate to
its representation on the Board of Directors, unless the committee is comprised
of three members or less, in which case at least one Ciba Director shall serve.
Pursuant to the Governance Agreement, new directors chosen to fill vacancies
on the Board of Directors shall be selected as follows: (i) if the new director
is to be a Ciba Director, then Ciba shall designate the new director; (ii) if
the former director was the Chairman or President, the replacement Chairman or
President, respectively, shall be the replacement director; and (iii) if the new
director is to be an Independent Director (other than the Chairman or the
President), the remaining Independent Directors (including the Chairman and the
President if he or she is an Independent Director) shall designate the new
director.
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If at any time the percentage of the total voting power of Hexcel
beneficially owned by Ciba decreases to a point at which the number of Ciba
Directors would decrease, the Governance Agreement generally requires Ciba to
cause a sufficient number of Ciba Directors to resign from the Board of
Directors so that the number of Ciba Directors on the Board of Directors after
such resignation(s) equals the number of Ciba Nominees that Ciba would have been
entitled to designate had an election of directors taken place at such time. Any
vacancies created by such resignations would be filled by Independent Directors.
CERTAIN APPROVALS
Under the Governance Agreement, so long as Ciba beneficially owns voting
securities representing 40% or more of the total voting power of Hexcel, neither
the Board of Directors nor any committee thereof shall take any action,
including the approval, authorization or ratification of any action or inaction
by officers, agents or employees of Hexcel, without the affirmative vote of at
least one Ciba Director and one Independent Director. In addition, the
Governance Agreement generally provides that for so long as Ciba beneficially
owns voting securities representing at least 33% of the total voting power of
Hexcel, the Board of Directors shall not authorize, approve or ratify any of the
following actions without the approval of a majority of the Ciba Directors: (i)
any merger, consolidation, acquisition or other business combination involving
Hexcel or any subsidiary of Hexcel if the value of the consideration paid or
received by Hexcel in such individual transaction or the aggregate consideration
paid or received by Hexcel in all such transactions approved by the Board of
Directors during the prior 12 months exceeds the greater of $75 million or 11%
of Hexcel's total consolidated assets; (ii) any sale, transfer, conveyance,
lease or other disposition or series of related dispositions of assets, business
or operations of Hexcel or any of its subsidiaries, if the value of the assets,
business or operations so disposed exceeds the greater of $75 million or 11% of
Hexcel's total consolidated assets; (iii) any issuance by Hexcel or any
significant subsidiary of Hexcel of equity securities (other than pursuant to
customary employee or director stock option or incentive compensation or similar
plans and other than transactions solely among Hexcel and its subsidiaries) or
any other bonds, debentures, notes or securities convertible into, exchangeable
for or exercisable for equity securities if the aggregate net proceeds to Hexcel
of such issuance or of such issuance when added to the aggregate net proceeds to
Hexcel of all such issuances approved by the Board of Directors during the prior
12 months exceeds the greater of $75 million or 11% of Hexcel's total
consolidated assets; and (iv) any new capital expenditure program or any capital
expenditure that is not part of a capital expenditure program previously
approved by the Board of Directors, if the amount or anticipated amount of such
program or expenditure or of such program or expenditure when added to the
aggregate amount of capital expenditures not so approved by the Board of
Directors during the prior 12 months exceeds the greater of $50 million or 7% of
Hexcel's total consolidated assets.
In addition, the Company's Bylaws, which include certain provisions of the
Governance Agreement, provide that, for so long as Ciba beneficially owns 33% or
more of the total voting power of the Company, the Board of Directors shall not
authorize, approve or ratify certain mergers, consolidations, acquisitions,
business combinations, sales or transfers of assets, issuances of equity
securities or capital expenditures without the prior approval of a majority of
the directors of the Company designated by Ciba.
Under the terms of the Governance Agreement, Ciba has agreed that, until the
percentage of the total voting power of Hexcel beneficially owned by Ciba falls
below either (i) 15% if and so long as there is on file with the SEC any
statement showing beneficial ownership by any person other than Ciba of 10% or
more of the total voting power of Hexcel or (ii) 10% in all other cases, in any
election of directors or any meeting of stockholders of Hexcel called expressly
for the removal of directors, so long as the Board of Directors includes (and
will include after any such removal) the requisite number of Ciba Directors,
each of Ciba and any subsidiary of Ciba that holds voting securities of Hexcel
(each, a "Ciba Entity") will be present for purposes of establishing a quorum
and will vote all of its voting securities of Hexcel (x) in favor of any nominee
or director selected in accordance with the terms of the Governance Agreement
and (y) otherwise against the removal of any director designated in accordance
with the terms of the
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Governance Agreement. In any other matter submitted to a vote of the
stockholders of Hexcel, Ciba and each Ciba Entity will be present for purposes
of establishing a quorum and will vote all of its voting securities of Hexcel
either, at the discretion of Ciba, (i) as recommended by the Board of Directors
or (ii) in proportion to the votes cast with respect to the voting securities of
Hexcel not beneficially owned by Ciba or the Ciba Entities, except that Ciba and
each Ciba Entity will be free to vote all of its voting securities entitled to
vote in its sole discretion on the following matters submitted to stockholders
so long as such matters were not submitted to stockholders at the request of
Ciba or any of its affiliates (other than Hexcel): (A) any amendment to the
Certificate of Incorporation of Hexcel; (B) any merger, consolidation,
acquisition or other business combination involving Hexcel or any of its
subsidiaries; (C) any sale, lease, transfer or other disposition of the business
operations or assets of Hexcel; (D) any recapitalization, restructuring or
similar transaction or series of transactions involving Hexcel or any
significant subsidiary of Hexcel; (E) any dissolution or complete or partial
liquidation or similar arrangement of Hexcel or any significant subsidiary of
Hexcel, subject to certain exceptions; (F) certain issuances of equity
securities or securities convertible into or exchangeable or exercisable for
equity securities; and (G) entering into any material joint venture,
collaboration or partnership by Hexcel or any of its subsidiaries.
STANDSTILL
Under the terms of the Governance Agreement, Ciba has agreed, subject to
certain specified exceptions, that it will not, directly or indirectly, (i)
purchase or otherwise acquire any beneficial ownership of voting securities of
Hexcel; (ii) enter into, propose to enter into, solicit or support any merger or
business combination or similar transaction involving Hexcel or any of its
subsidiaries or purchase, acquire, propose to purchase or acquire or solicit or
support the purchase or acquisition of any portion of the business or assets of
Hexcel or any significant subsidiary of Hexcel (except in the ordinary course of
business or in nonmaterial amounts); (iii) initiate or propose any security
holder proposal without the approval of the Board of Directors or make, or in
any way participate in, any "solicitation" of "proxies" (as such terms are used
in Section 14 of the Exchange Act) to vote or seek to advise or influence any
person or entity with respect to the voting of any voting securities of Hexcel
or request or take any action to obtain any list of security holders for such
purposes with respect to any matter other than those with respect to which Ciba
or the Ciba Entities may vote in their sole discretion under the Governance
Agreement (or, as to such matters, solicit any person in a manner that would
require the filing of a proxy statement under Regulation 14A of the Exchange
Act); (iv) form, join or otherwise participate in a group formed for the purpose
of acquiring, holding, voting, disposing of or taking any action with respect to
Hexcel's voting securities that would be required under Section 13(d) of the
Exchange Act to file a statement on Schedule 13D with the SEC; (v) deposit any
voting securities of Hexcel in a voting trust or enter into any voting agreement
with respect thereto (other than the Governance Agreement); (vi) seek
representation on the Board of Directors, remove a director or seek a change in
the size or composition of the Board of Directors; (vii) make any request to
amend or waive the provisions of the Governance Agreement referred to in this
paragraph that would require public disclosure; (viii) disclose any intent,
purpose, plan, arrangement or proposal inconsistent with the foregoing
(including any such intent, purpose, plan, arrangement or proposal that is
conditioned on or would require the waiver, amendment, nullification or
invalidation of any of the foregoing) or take any action that would require
public disclosure of any such intent, purpose, plan, arrangement or proposal;
(ix) take any action challenging the validity or enforceability of the
foregoing; or (x) assist, advise, encourage or negotiate with respect to or seek
to do any of the foregoing.
The Governance Agreement permits Ciba to purchase or otherwise acquire
beneficial ownership of Hexcel's voting securities in open market purchases so
long as after giving effect to such purchases or acquisitions the percentage of
the total voting power of Hexcel beneficially owned by Ciba does not exceed the
greater of (i) 49.9% until February 28, 1999 or 57.5% thereafter and (ii) the
highest percentage of the total voting power of Hexcel beneficially owned by
Ciba immediately following any action by Hexcel that
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increases the percentage of the total voting power of Hexcel beneficially owned
by Ciba due to a reduction in the amount of voting securities of Hexcel
outstanding as a result of such action.
BUYOUT TRANSACTIONS
The Governance Agreement provides that, notwithstanding the standstill
provisions described above, at any time after February 28, 2001, Ciba may
propose, participate in, support or cause the consummation of a tender offer,
merger or sale of substantially all of Hexcel's assets or similar transaction (a
"Buyout Transaction"), including a Buyout Transaction with Ciba or any of its
affiliates, if each stockholder other than Ciba and the Ciba Entities (the
"Other Holders") is entitled to receive upon consummation of such Buyout
Transaction consideration that is (i) approved by (x) a majority of the
Independent Directors acting solely in the interests of the Other Holders after
the receipt of an opinion of an independent nationally recognized investment
banking firm retained by them or (y) a majority in interest of the Other Holders
by means of a stockholder vote solicited pursuant to a proxy statement
containing the information required by Schedule 14A under the Exchange Act (it
being understood that the Independent Directors will, consistent with their
fiduciary duties, be free to include in such proxy statement, if applicable, the
reasons underlying any failure by them to approve a Buyout Transaction by the
requisite vote, including whether a fairness opinion was sought by the
Independent Directors and any opinions or recommendations expressed in
connection therewith) and (ii) fair from a financial point of view to the Other
Holders in the opinion of an independent nationally recognized investment
banking firm (including such a firm retained by Ciba).
ISSUANCE OF ADDITIONAL SECURITIES
If, at any time after the Closing for so long as Ciba is entitled to
designate one or more nominees for election to the Board of Directors, Hexcel
issues any additional voting securities for cash (other than issuances of voting
securities in connection with employee or director stock option or incentive
compensation or similar plans), Ciba will, pursuant to the Governance Agreement,
have the option to purchase, for the same consideration and otherwise on the
same terms as are applicable to such issuance by Hexcel, an amount of such
voting securities that would allow Ciba to beneficially own the same percentage
of the total voting power of Hexcel after such issuance as Ciba beneficially
owned immediately prior to such issuance.
THIRD PARTY OFFERS
In the event that Hexcel becomes the subject of a bona fide offer to enter
into a Buyout Transaction by a person other than Ciba or any of its affiliates
or any other person acting on behalf of Ciba or any of its affiliates (a "Third
Party Offer") that is made after February 28, 1999 and that is approved by
two-thirds of the Independent Directors, Ciba will, within ten days after
receipt of notice of such event, either (i) offer to acquire the voting
securities of Hexcel held by the Other Holders (the "Other Shares") on terms at
least as favorable to the Other Holders as those contemplated by such Third
Party Offer or (ii) support such Third Party Offer (or an alternative Third
Party Offer providing greater value to the Other Holders) by voting and causing
each Ciba Entity to vote all its voting securities of Hexcel eligible to vote
thereon in favor of such Third Party Offer or, if applicable, tendering or
selling and causing each Ciba Entity to tender or sell all its voting securities
of Hexcel to the person making such Third Party Offer. In the event that Hexcel
becomes the subject of a Third Party Offer, neither Ciba nor any of the Ciba
Entities may support or vote in favor of such Third Party Offer or tender or
sell its voting securities of Hexcel to the person making such Third Party Offer
unless such Third Party Offer is approved by (i) a majority of the Independent
Directors acting solely in the interests of the Other Holders or (ii) a majority
in interest of the Other Holders in a stockholder vote solicited pursuant to a
proxy statement containing the information required by Schedule 14A under the
Exchange Act (it being understood that the Independent Directors will,
consistent with their fiduciary duties, be free to include in such proxy
statement, if applicable, the reasons underlying any failure by them to approve
a Buyout Transaction by the requisite vote, including whether a fairness opinion
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was sought by the Independent Directors and any opinions or recommendations
expressed in connection therewith).
TRANSFER RESTRICTIONS
Except in connection with a Third Party Offer that has been approved by the
Independent Directors or the Other Holders in accordance with the Governance
Agreement, Ciba and the Ciba Entities are not permitted to sell, transfer or
otherwise dispose of any voting securities of Hexcel except (i) transfers solely
among Ciba and its wholly owned subsidiaries, (ii) in accordance with the volume
and manner-of-sale limitations of Rule 144 under the Securities Act, and
otherwise subject to compliance with the Securities Act or (iii) in a registered
public offering or a non-registered offering subject to an applicable exemption
from the registration requirements of the Securities Act, and in the case of
clauses (ii) and (iii), in a manner calculated to achieve a Broad Distribution
(as defined in the Governance Agreement).
In addition, the Governance Agreement provides that Ciba will not (i) permit
any subsidiary of Ciba that is not wholly owned to become a Ciba Entity or (ii)
dispose of any of the capital stock of any Ciba Entity except to another direct
or indirect wholly owned subsidiary of Ciba. This provision does not, however,
prohibit Ciba from effecting (i) a pro rata distribution to Ciba's stockholders
or (ii) a sale in a manner calculated to achieve a Broad Distribution of up to
20%, in each case, of the equity securities of a Ciba Entity if (x) such
distribution or sale has a bona fide business purpose (other than the sale or
distribution of such voting securities), (y) the voting securities of Hexcel
beneficially owned by such Ciba Entity do not constitute a material portion of
the total assets of such Ciba Entity and (z) in the case of a pro rata
distribution to Ciba's stockholders, such Ciba Entity agrees in writing to be
bound by the terms and provisions of the Governance Agreement to the same extent
that Ciba would be if it beneficially owned the voting securities of Hexcel
beneficially owned by such Ciba Entity.
TERMINATION; EXTENSION
On February 28, 2006, or at the end of any subsequent renewal period, if the
percentage of the total voting power of Hexcel beneficially owned by Ciba is
greater than 10% but less than 100%, Ciba will have the option to (i) extend the
Governance Agreement for an additional two year period, in which case so long as
Ciba beneficially owns voting securities of Hexcel representing 25% or more of
the total voting power of Hexcel, on one occasion during such two-year period
Ciba may require Hexcel to solicit in good faith a Buyout Transaction in which
Ciba, the Ciba Entities and the Other Holders receive the same consideration per
voting security of Hexcel (in which event the provisions of the Governance
Agreement will continue in full force and effect until the consummation of such
Buyout Transaction) or (ii) undertake to sell a sufficient number of voting
securities of Hexcel so that the percentage of total voting power of Hexcel
beneficially owned by Ciba falls below 10% during the subsequent 18 months
pursuant to one or more registered or non-registered offerings calculated to
achieve a Broad Distribution (in which event the provisions of the Governance
Agreement will continue in full force and effect until Ciba's percentage
ownership of the total voting power of Hexcel falls below 10%). If Ciba
exercises its option to require Hexcel to solicit a Buyout Transaction as
described above, Ciba and the Ciba Entities may vote in favor of or tender or
sell their voting securities pursuant to any Third Party Offer made as a result
of or during such solicitation so long as the Third Party Offer offers the same
consideration to the Other Holders. Unless Hexcel has accepted another Third
Party Offer providing at least equivalent value to all Hexcel stockholders,
Hexcel will not take any action to interfere with Ciba's right to vote in favor
of or tender into such a Third Party Offer, provided, however, that Hexcel will
remain free to pursue alternative Third Party Offers that provide for at least
equivalent currently realizable value to all Hexcel stockholders (including Ciba
and the Ciba Entities) as such previously proposed Third Party Offer.
The Governance Agreement will automatically terminate at any time that Ciba
beneficially owns voting securities of Hexcel representing either 100% or less
than 10% of the total voting power of Hexcel.
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THE DISTRIBUTION AGREEMENT
In accordance with the terms of the Strategic Alliance Agreement, Hexcel and
CGL entered into the Distribution Agreement, which was assigned to Ciba in
accordance with the Hexcel Consent Letter (as so assigned, the "Distribution
Agreement"). Pursuant to the Strategic Alliance Agreement and the Distribution
Agreement, certain subsidiaries of CGL continued to act as distributors for
Hexcel through February 28, 1997. In accordance with these agreements, Hexcel
acquired certain assets (primarily inventory and certain fixed assets) of these
distributors from time to time during the year following the Closing for an
aggregate purchase price of approximately $2.5 million, to be paid in senior
subordinated notes. Pursuant to the Distribution Agreement, sales to CGL
subsidiaries were approximately $5.6 million in 1997.
THE REGISTRATION RIGHTS AGREEMENT
In connection with the Acquisition, Hexcel and CGL entered into a
registration rights agreement, which was assigned to Ciba in accordance with the
Hexcel Consent Letter (as so assigned and amended, the "Ciba Registration Rights
Agreement"). The Ciba Registration Rights Agreement provides that Hexcel will
prepare and, not later than 60 days after a request from Ciba, file with the SEC
a "shelf" registration statement covering the shares of Hexcel Common
beneficially owned by Ciba and the Ciba Entities. Ciba's shares of Hexcel Common
will generally become eligible for sale under the Ciba Registration Rights
Agreement in four equal annual installments commencing on March 1, 1998. The
shares eligible for sale under the Ciba Registration Rights Agreement in any
year that are not sold in such year will continue to be eligible for sale under
the Ciba Registration Rights Agreement in subsequent years. Under the Ciba
Registration Rights Agreement, Ciba also has the right, subject to certain
restrictions, to include its shares of Hexcel Common eligible for sale under the
Ciba Registration Rights Agreement in certain equity offerings of Hexcel. The
Ciba Registration Rights Agreement also contains certain provisions relating to
blackout periods (during which Ciba would not be permitted to sell shares of
Hexcel Common otherwise eligible for sale under the Ciba Registration Rights
Agreement), payment of expenses, selection of underwriters and indemnification.
THE SUPPLY AND MANUFACTURING AGREEMENTS
Hexcel and CGL have entered into various agreements and purchase orders,
some of which were entered into in connection with the Ciba Acquisition,
pursuant to which Hexcel and CGL have purchased certain products from each
other; Ciba has assumed these obligations. Sales to CGL and Ciba under such
agreements were approximately $5.6 million on a worldwide basis in 1997. Sales
to Hexcel under such agreements were approximately $34.3 million on a worldwide
basis in 1997.
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CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following is a general discussion of certain United States federal
income tax consequences associated with the exchange of the Original Notes for
the Exchange Notes pursuant to the Exchange Offer and the ownership and
disposition of the Exchange Notes. This summary applies only to a holder of an
Exchange Note who acquired an Original Note at the initial offering from an
Initial Purchaser for the original offering price thereof and who acquires the
Exchange Note pursuant to the Exchange Offer. This discussion is based on
provisions of the Internal Revenue Code of 1986, as amended (the "Code"),
Treasury regulations promulgated thereunder, and administrative and judicial
interpretations thereof, all as in effect on the date hereof and all of which
are subject to change, possibly with retroactive effect. This discussion does
not address the tax consequences to subsequent purchasers of the Exchange Notes
and is limited to investors who hold the Exchange Notes as capital assets. The
tax treatment of the holders of the Notes may vary depending upon their
particular situations. In addition, certain holders (including insurance
companies, tax exempt organizations, financial institutions and broker-dealers)
may be subject to special rules not discussed below. EACH HOLDER SHOULD CONSULT
ITS TAX ADVISOR REGARDING THE PARTICULAR TAX CONSEQUENCES TO SUCH HOLDER OF THE
EXCHANGE OF THE ORIGINAL NOTES FOR THE EXCHANGE NOTES PURSUANT TO THE EXCHANGE
OFFER AND THE OWNERSHIP DISPOSITION OF THE EXCHANGE NOTES, AS WELL AS ANY TAX
CONSEQUENCES THAT MAY ARISE UNDER THE LAWS OF ANY RELEVANT FOREIGN, STATE, LOCAL
OR OTHER TAXING JURISDICTION.
UNITED STATES TAXATION OF UNITED STATES HOLDERS
As used herein, (A) the term "United States Holder" means a holder of an
Exchange Note that is, for United States federal income tax purposes, (i) a
citizen or resident of the United States, (ii) a corporation or partnership
created or organized in or under the laws of the United States or of any
political subdivision thereof, (iii) an estate the income of which is subject to
United States federal income taxation regardless of its source and (iv) a trust
if a United States court is able to exercise primary supervision over the
administration of such trust and one or more United States persons have the
authority to control all substantial decisions of such trust and (B) the term
"Non-U.S. Holder" means a holder of an Exchange Note that is not a United States
Holder.
EXCHANGE OFFER
The exchange of an Original Note for a Exchange Note pursuant to the
Exchange Offer will not constitute a "significant modification" of the Original
Note for United States federal income tax purposes and, accordingly, the
Exchange Note received will be treated as a continuation of the Original Note in
the hands of such holder. As a result, there will be no United States federal
income tax consequences to a United States Holder who exchanges an Original Note
for a Exchange Note pursuant to the Exchange Offer and any such holder will have
the same adjusted tax basis and holding period in the Exchange Note as it had in
the Original Note immediately before the exchange.
STATED INTEREST
Stated interest payable on a Exchange Note generally will be included in the
gross income of a United States Holder as ordinary interest income at the time
accrued or received, in accordance with such United States Holder's method of
accounting for United States federal income tax purposes.
DISPOSITION OF THE EXCHANGE NOTES
Upon the sale, exchange, retirement at maturity or other taxable disposition
of a Exchange Note (collectively, a "disposition"), a United States Holder
generally will recognize capital gain or loss equal to the difference between
the amount realized by such holder (except to the extent such amount is
attributable to accrued interest, which will be treated as ordinary interest
income) and such holder's adjusted tax basis in the Exchange Note. Such capital
gain or loss will be long-term capital gain or loss if
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such United States Holder's holding period for the Exchange Note exceeds one
year at the time of the disposition.
UNITED STATES TAXATION OF NON-U.S. HOLDERS
STATED INTEREST
In general, payments of interest received by a Non-U.S. Holder will not be
subject to United States federal withholding tax, provided that (i)(a) the
Non-U.S. Holder does not actually or constructively own 10% or more of the total
combined voting power of all classes of stock of the Company entitled to vote,
(b) the Non-U.S. Holder is not a controlled foreign corporation that is related
to the Company actually or constructively through stock ownership, and (c) the
beneficial owner of the Exchange Note, under penalty of perjury, either directly
or through a financial institution which holds the Exchange Note on behalf of
the Non-U.S. Holder and holds customers' securities in the ordinary course of
its trade or business, provides The Company or its agent with the beneficial
owner's name and address and certifies, under penalty of perjury, that it is not
a United States Holder, (ii) the interest received on the Exchange Note is
effectively connected with the conduct by the Non-U.S. Holder of a trade or
business within the United States and the Non-U.S. Holder complies with certain
reporting requirement; or (iii) the Non-U.S. Holder is entitled to the benefits
of an income tax treaty under which the interest is exempt from United States
withholding tax and the Non-U.S. Holder complies with certain reporting
requirement. Payments of interest not exempt from United States federal
withholding tax as described above will be subject to such withholding tax at
the rate of 30% (subject to reduction under an applicable income tax treaty).
GAIN ON DISPOSITION
A Non-U.S. Holder generally will not be subject to U.S. federal income tax
with respect to gain recognized on a sale, redemption or other disposition of an
Exchange Note unless (i) the gain is effectively connected with the conduct of a
trade or business within the United States by the Non-U.S. Holder or (ii) in the
case of a Non-U.S. Holder who is a nonresident alien individual, such holder is
present in the United States for 183 or more days in the taxable year and
certain other requirements are met. In addition, an exchange of an Original Note
for a Exchange Note pursuant to the Exchange Offer will not constitute a taxable
exchange of the Original Note for Non-U.S. Holders. See "United States Taxation
of United States Holders--Exchange Offer."
INFORMATION REPORTING AND BACKUP WITHHOLDING
Certain non-corporate United States Holders may be subject to backup
withholding at a rate of 31% on payments of principal, premium (if any) and
interest on, and the proceeds of the disposition of, the Notes. In general,
backup withholding will be imposed if the United States Holder (i) fails to
furnish its taxpayer identification number ("TIN"), which, for an individual,
would be such holder's Social Security number, (ii) furnishes an incorrect TIN,
(iii) is notified by the IRS that such holder has failed to report payments of
interest or dividends of (iv) under certain circumstances, fails to certify,
under penalty of perjury, that such holder has furnished a correct TIN and has
been notified by the IRS that such holder is subject to backup withholding tax
for failure to report interest or dividend payments. In addition, such payments
of principal premium and interest to United States Holders will generally be
subject to information reporting. United States Holders should consult their tax
advisors regarding their qualification for exemption from backup withholding and
the procedure for obtaining such an exemption, if applicable.
Backup withholding generally will not apply to payments made to a Non-U.S.
Holder of a Exchange Note who provides the certification described under "United
States Taxation of Non-U.S. Holders--Stated Interest" or otherwise establishes
an exemption from backup withholding. Payments by a United States office of a
broker of the proceeds of a disposition of the Exchange Notes generally will be
subject to
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backup withholding at a rate of 31% unless the Non-United States Holder
certifies it is a Non-U.S. Holder under penalties of perjury or otherwise
establishes an exemption.
Backup withholding is not an additional tax. Any amounts withheld under the
backup withholding rules may be refunded or credited against the holder's U.S.
federal income tax liability, provided that the required information is
furnished to the IRS.
NEW TREASURY REGULATIONS
New final Treasury regulations governing information reporting and the
certification procedures regarding withholding and backup withholding on certain
amounts paid to Non-U.S. Holders after December 31, 1999 generally would not
alter the treatment of Non-U.S. Holders described above. The new Treasury
regulations would alter the procedures for claiming the benefits of an income
tax treaty and may change the certification procedures relating to the receipt
by intermediaries of payments on behalf of a Non-U.S. Holder of an Exchange
Note. Holders should consult their tax advisors concerning the effect, if any,
of such new Treasury regulations on an investment in the Exchange Notes.
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PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Notes for its own account pursuant
to the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Notes. This Prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of Exchange Notes received in exchange for Original
Notes where such Original Notes were acquired as a result of market-making
activities or other trading activities. The Company has agreed that, for a
period of 180 days after the Expiration Date, it will make this Prospectus, as
amended or supplemented, available to any broker-dealer for use in connection
with any such resale. In addition, until July 20, 1999, all dealers effecting
transactions in the Exchange Notes may be required to deliver a prospectus.
The Company will not receive any proceeds from any sale of Exchange Notes by
broker-dealers. Exchange Notes received by broker-dealers for their own account
pursuant to the Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the Exchange Notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or negotiated prices. Any such resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer or the purchasers of any such Exchange Notes. Any broker-dealer
that resells Exchange Notes that were received by it for its own account
pursuant to the Exchange Offer and any broker or dealer that participates in a
distribution of such Exchange Notes may be deemed to be an "underwriter" within
the meaning of the Securities Act and any profit on any such resale of Exchange
Notes and any commission or concessions received by any such persons may be
deemed to be underwriting compensation under the Securities Act. The Letter of
Transmittal states that, by acknowledging that it will deliver and by delivering
a prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
For a period of 180 days after the Expiration Date, the Company will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such documents
in the Letter of Transmittal. The Company has agreed to pay all expenses
incident to the Exchange Offer (including the expenses of one counsel for the
holders of the Notes) other than commissions or concessions of any brokers or
dealers and will indemnify the holders of the Notes (including any
broker-dealers) against certain liabilities, including liabilities under the
Securities Act.
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LEGAL MATTERS
Certain legal matters with respect to the Exchange Notes offered hereby will
be passed upon for us by Skadden, Arps, Slate, Meagher & Flom LLP, New York, New
York.
EXPERTS
The consolidated financial statements of Hexcel Corporation as of and for
the year ended December 31, 1997 included in this Prospectus have been so
included in reliance on the report of PricewaterhouseCoopers LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
The consolidated financial statements of Hexcel Corporation as of December
31, 1996 and for each of the two years in the period ended December 31, 1996
included in this Prospectus have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their report appearing herein, and are
included in reliance upon the reports of such firm given upon their authority as
experts in accounting and auditing.
The consolidated financial statements of Clark-Schwebel Holdings, Inc. as of
and for the years ended December 28, 1996 and January 3, 1998, included in this
Prospectus, were audited by Arthur Andersen LLP, independent accountants, as
stated in their report appearing herein, and are included in reliance upon the
reports of such firm given upon their authority as experts in accounting and
auditing. The consolidated financial statements of Clark-Schwebel Holdings, Inc.
for the year ended December 30, 1995, included in this Prospectus, were audited
by Deloitte & Touche LLP, independent auditors, as stated in their report
appearing herein, and are included in reliance upon the report of such firm
given upon their authority as experts in accounting and auditing.
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"SEC") a Registration Statement on Form S-4 under the Securities Act of 1933, as
amended, covering the notes to be issued in the Exchange Offer. This Prospectus
does not contain all of the information included in the Registration Statement.
Any statement made in this Prospectus concerning the contents of any contract,
agreement or other document is not necessarily complete. If we have filed any
such contract, agreement or other document as an exhibit to the Registration
Statement, you should read the exhibit for a more complete understanding of the
document or matter involved. Each statement regarding a contract, agreement or
other document is qualified in its entirety by reference to the actual document.
Hexcel Corporation files annual, quarterly and special reports, proxy
statements and other information with the SEC. You may read and copy the
Registration Statement, including the attached Exhibits, and any reports,
statements or other information filed by us at the SEC's public reference room
at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549.
Please call the SEC at 1-800-SEC-0330 for further information on the public
reference room. Our filings with the SEC are also available to the public from
commercial document retrieval services and at the SEC's Web site at
"http://www.sec.gov."
This Prospectus incorporates by reference the following documents filed by
Hexcel Corporation with the SEC:
- Annual Report on Form 10-K for the fiscal year ended December 31, 1997;
- Quarterly Reports on Form 10-Q for the fiscal quarters ended March 31,
1998, June 30, 1998 and September 30, 1998; and
- Current Reports on Form 8-K dated July 30, 1998, August 11, 1998,
September 24, 1998, October 9, 1998, October 22, 1998, November 12, 1998,
December 29, 1998, January 4, 1999 and January 25, 1999.
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In addition, all reports and other documents we subsequently file pursuant
to Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act shall be deemed to be
incorporated by reference into this Prospectus and to be part of this Prospectus
from the date we subsequently file such reports and documents.
Any statement contained in a document incorporated or deemed to be
incorporated by reference into this prospectus are deemed to be modified or
superseded for purposes of this prospectus to the extent modified or superseded
by another statement contained in any subsequently filed document also
incorporated by reference in this prospectus. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute part of this prospectus.
You may also access copies of these filings at our website at
"http://www.Hexcel.com." In addition, you may request a copy of any of these
filings, at no cost, by writing or telephoning us at the following address or
phone number:
Hexcel Corporation
Two Stamford Plaza
281 Tresser Blvd.
Stamford, Connecticut 06901
(203) 969-0666
Attention: Investor Relations
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GLOSSARY OF TERMS
ADHESIVES--A thermoset resin (e.g., epoxy, phenolic or BMI) in the form of a
thin film or paste, cured under heat and pressure to bond a wide range of
composite, metallic and honeycomb surfaces.
ARAMID--A high strength, high stiffness fiber derived from polyamide
(Nylon). Kevlar-Registered Trademark- and Nomex-Registered Trademark- are
examples of aramids. Woven Aramid fabrics are used in both ballistic and
composite materials applications.
CARBON FIBER--Fiber produced by heat treating precursor fibers, such as PAN
(Polyacrylonitrile), rayon and pitch, to drive off non-carbon atoms. The term is
often used interchangeably with graphite; however, carbon fibers and graphite
fibers differ. The basic differences lie in the temperatures at which the fibers
are made and heat treated, and in the resultant carbon content.
COMPOSITE MATERIALS--Product made from combining two or more materials such
that the resultant product has exceptional structural properties not present in
either of the constituent materials.
COWLS OR COWLING--The outside protective shell of a jet engine traditionally
made out of metal. Cowls mainly provides the engine with protection from the
elements and structural support.
FAIRINGS--A secondary structure of an airplane providing enhanced
aerodynamics. Typically, fairings are found where the wing meets the body or at
various locations on the leading or trailing edge of the wing.
FIBER PLACEMENT--Fabrication of complex shaped components using computer or
numerically controlled machines to place impregnated fiber tows in a
predetermined pattern.
FIBERGLASS--An individual filament made by drawing molten glass. As a
composite materials reinforcement, it is a major material used to reinforce
plastic.
FILAMENT WINDING--A process to manufacture composite materials components
such as mirole and rocket casings and cylinders. Fiber filaments are dipped in a
resin matrix and then wound in a predetermined pattern over a form of the
desired component that is mounted on a mandrel.
FINISHED PARTS--Completed components that typically contain prepregs,
honeycomb, adhesive and assembled hardware. These parts are ready for direct
attachment to a structure (e.g., aircraft) or to sub-assemblies.
HONEYCOMB--A unique, lightweight, cellular structure made from either
metallic sheet material or non-metallic materials (e.g., resin-impregnated paper
or woven fabric) and formed into hexagonal nestled cells, similar in appearance
to a cross-sectional slice of a beehive.
INLET DUCTS--Intake passages or tubes that confine and conduct air. They are
usually located at the upstream end of an airplane engine on the engine cowling
and aid in both propulsion and engine cooling. Inlet ducts are also used to
improve aerodynamics of fighter planes and for this purpose are usually located
on the fuselage near the wings.
INTERIORS--Finished internal aircraft components, such as overhead stowage
compartments, lavatories, sidewalls, floor panels and ceilings.
KOREX-REGISTERED TRADEMARK---DuPont's registered trademark for honeycomb
made from high temperature resistant Kevlar-Registered Trademark- aramid papers.
NOMEX-REGISTERED TRADEMARK---DuPont's registered trademark for its
high-temperature-resistant aramid papers, pressboard, staple fibers and filament
yarns. Type 412 Nomex-Registered Trademark- aramid paper is used in the
manufacture of honeycomb due to its unique combination of physical and thermal
properties.
PCBS--Printed circuit boards (also known as printed wiring boards) contain
high pressure laminates derived from fiberglass fabric on which are mounted and
interconnected semiconductors, passive electronic devices and other electronic
components.
PAN (POLYACRYLONITRILE)--A material used as a base or precursor material in
the manufacture of certain carbon fibers.
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POLYETHYLENE--A common plastic made by polymerizing ethylene which is used
widely in packaging and consumer products.
PRECURSOR--For carbon or graphite, the PAN, rayon or pitch fibers from which
carbon or graphite fibers are derived.
PREPREGS (PRE-IMPREGNATED)--A composite material made from combining high
performance reinforcement fibers or fabrics with a thermoset or thermoplastic
resin matrix. The prepreg has exceptional structural properties not present in
either of the constituent materials.
PRIMARY STRUCTURE--A critical load bearing structure on an aircraft. If this
structure is severely damaged, the aircraft cannot fly.
QUALIFIED AND QUALIFICATIONS--The testing and manufacturing protocols in
aerospace and military applications by which materials, such as composite
materials, are approved for production supply. To qualify a product requires the
creation of a technical database which records the performance of a product
against certain customer specifications, and the documentation of the
manufacturing equipment and process steps for production of the product. The
performance database for the product forms a basis upon which engineers can
design components and against which the manufacturer must test all future
production to ensure that the product performance is replicated consistently.
The manufacturing process and equipment documentation ensure that the future
manufacture of the product replicates product performance. Once a product is
qualified, changes to the product composition, manufacturing process or
manufacturing location and equipment can only be made with customer approval
after further testing has demonstrated that the original product performance
will be replicated. By their nature, these qualification protocols are expensive
and time consuming.
RADOMES--The housing which protects the aircraft radar system from the
elements while allowing transmission of radar signals. Often the radome is in
the nose of an aircraft but can be found at other locations on the aircraft as
well.
REDUX-REGISTERED TRADEMARK---A registered trademark exclusively licensed by
Hexcel for one of Hexcel's lines of adhesives and primers.
REINFORCEMENTS--A strong material incorporated into a matrix to improve its
mechanical properties. Reinforcements are usually long continuous fibers, which
may be woven. Fiberglass, aramid and carbon fibers are typical reinforcements.
REINFORCEMENT FABRICS--Woven fiberglass, carbon or aramid fabrics used in
later production of prepregs and honeycomb.
RESIN MATRIX--In reinforced fiber composites, a polymeric substrate
material, such as epoxy or phenolic resin, is used to bind together the
reinforcement material.
S-2-REGISTERED TRADEMARK- FIBERGLASS--A type of high modulus glass fiber.
SECONDARY STRUCTURE--A non-critical structure on an aircraft. If damaged,
the aircraft can still fly. Fairings, access doors and some flight control
surfaces are examples of secondary structures.
SPECIAL PROCESS--The forming, shaping, machining or bonding of sheets or
blocks of honeycomb into profiled and complex shapes to ready for use as
semi-finished components in the fabrication of composite parts and structures.
STRUCTURES--Finished components for aircraft, truck or other vehicles
constructed from composite materials. For aircraft, these may be for Primary and
Secondary Structures or Interiors. Truck applications include chassis fairings
and floors.
THORSTRAND-REGISTERED TRADEMARK---A family of electrically conductive
fabrics woven by Hexcel from metallized yarns.
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INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
CONSOLIDATED FINANCIAL STATEMENTS OF HEXCEL CORPORATION
Report of Independent Accountants.......................................................................... F-2
Independent Auditors' Report............................................................................... F-3
Consolidated Financial Statements:
Consolidated Balance Sheets as of December 31, 1997 and 1996............................................. F-4
Consolidated Statements of Operations for the three years ended December 31, 1997........................ F-5
Consolidated Statements of Stockholders' Equity for the three years ended December 31, 1997.............. F-6
Consolidated Statements of Cash Flows for the three years ended December 31, 1997........................ F-7
Notes to the Consolidated Financial Statements........................................................... F-8
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF HEXCEL CORPORATION
Condensed Consolidated Balance Sheets--September 30, 1998 (unaudited) and December 31, 1997................ F-39
Condensed Consolidated Statements of Operations (unaudited)--The Nine-Months Ended September 30, 1998 and
1997..................................................................................................... F-40
Condensed Consolidated Statements of Cash Flows (unaudited)--The Nine-Months Ended September 30, 1998 and
1997..................................................................................................... F-41
Notes to Condensed Consolidated Financial Statements....................................................... F-42
CONSOLIDATED FINANCIAL STATEMENTS OF CLARK-SCHWEBEL HOLDINGS, INC.
Report of Independent Public Accountants................................................................... F-49
Independent Auditors' Report............................................................................... F-50
Consolidated Balance Sheets as of December 28, 1996, and January 3, 1998................................... F-51
Consolidated Statements of Income for the year ended December 30, 1995, the two periods in the year ended
December 28, 1996 and the year ended January 3, 1998..................................................... F-52
Consolidated Statements of Cash Flows for the year ended December 30, 1995, the two periods in the year
ended December 28, 1996 and the year ended January 3, 1998............................................... F-53
Notes to Consolidated Financial Statements................................................................. F-54
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF CLARK-SCHWEBEL HOLDINGS, INC.
Consolidated Balance Sheets as of January 3, 1998 and July 4, 1998 (unaudited)............................. F-70
Consolidated Statements of Income for the Six months ended June 28, 1997 (unaudited) and July 4, 1998
(unaudited).............................................................................................. F-71
Consolidated Statements of Stockholders' Equity and Comprehensive Income as of January 3, 1998 and July 4,
1998 (unaudited)......................................................................................... F-72
Consolidated Statements of Cash Flows for the Six Months ended June 28, 1997 (unaudited) and July 4, 1998
(unaudited).............................................................................................. F-73
Notes to Condensed and Consolidated Financial Statements................................................... F-74
</TABLE>
F-1
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REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of Hexcel Corporation:
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of stockholders' equity and of cash flows
present fairly, in all material respects, the financial position of Hexcel
Corporation and its subsidiaries at December 31, 1997, and the results of their
operations and their cash flows for the year in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audit. We conducted our audit
of these statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above.
The financial statements of Hexcel Corporation for the years ended December
31, 1996 and 1995 were audited by other independent accountants whose report
dated February 28, 1997 expressed an unqualified opinion on those statements.
/S/ PRICEWATERHOUSECOOPERS LLP
PRICEWATERHOUSECOOPERS LLP
San Jose, California
January 28, 1998, except as to
Aggregate Maturities of Notes
Payable in Note 7, which is as
of March 5, 1998
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and
Stockholders of Hexcel Corporation:
We have audited the accompanying consolidated balance sheet of Hexcel
Corporation and subsidiaries as of December 31, 1996, and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the two years in the period ended December 31, 1996. These financial
statements are the responsibility of Hexcel's management. Our responsibility is
to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Hexcel Corporation and
subsidiaries at December 31, 1996, and the results of their operations and their
cash flows for each of the two years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles.
/S/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
Oakland, California
February 28, 1997
F-3
<PAGE>
HEXCEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
(IN THOUSANDS)
ASSETS
Current assets:
Cash and cash equivalents.......................................................... $ 9,033 $ 7,975
Accounts receivable................................................................ 181,192 151,263
Inventories........................................................................ 165,321 145,884
Prepaid expenses and other assets.................................................. 6,665 11,809
Deferred tax asset................................................................. 24,839 --
------------ ------------
Total current assets............................................................... 387,050 316,931
------------ ------------
Property, plant and equipment........................................................ 488,916 468,173
Less accumulated depreciation........................................................ (157,439) (141,390)
------------ ------------
Net property, plant and equipment.................................................. 331,477 326,783
Intangibles and other assets......................................................... 93,059 58,022
------------ ------------
Total assets....................................................................... $ 811,586 $ 701,736
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and current maturities of long-term liabilities...................... $ 13,858 $ 23,835
Accounts payable................................................................... 70,011 73,117
Accrued compensation and benefits.................................................. 37,306 30,969
Other accrued liabilities.......................................................... 65,181 60,891
------------ ------------
Total current liabilities.......................................................... 186,356 188,812
------------ ------------
Long-term notes payable and capital lease obligations................................ 304,546 254,919
Indebtedness to related parties...................................................... 34,967 32,262
Other non-current liabilities........................................................ 35,816 46,414
Stockholders' equity:
Preferred stock, no par value, 20,000 shares authorized, no shares issued or
outstanding in 1997 and 1996..................................................... -- --
Common stock, $0.01 par value, 100,000 shares authorized, shares issued and
outstanding of 36,856 in 1997 and 36,561 in 1996................................. 369 366
Additional paid-in capital......................................................... 266,177 259,592
Accumulated deficit................................................................ (15,541) (89,171)
Cumulative currency translation adjustment......................................... (1,104) 8,542
------------ ------------
Total stockholders' equity......................................................... 249,901 179,329
------------ ------------
Total liabilities and stockholders' equity......................................... $ 811,586 $ 701,736
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
HEXCEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE
DATA)
Net sales.................................................................... $ 936,855 $ 695,251 $ 350,238
Cost of sales................................................................ 714,223 553,942 283,148
---------- ---------- ----------
Gross margin................................................................. 222,632 141,309 67,090
Selling, general and administrative expenses................................. 102,449 79,408 41,706
Research and technology expenses............................................. 18,383 16,742 7,618
Business acquisition and consolidation expenses.............................. 25,343 42,370 --
---------- ---------- ----------
Operating income............................................................. 76,457 2,789 17,766
Interest expense............................................................. 25,705 21,537 8,682
Other income, net............................................................ -- (2,994) (791)
Bankruptcy reorganization expenses........................................... -- -- 3,361
---------- ---------- ----------
Income (loss) from continuing operations before income taxes................. 50,752 (15,754) 6,514
(Benefit) provision for income taxes......................................... (22,878) 3,436 3,313
---------- ---------- ----------
Income (loss) from continuing operations..................................... 73,630 (19,190) 3,201
Discontinued operations:
Losses during phase-out period............................................. -- -- 468
---------- ---------- ----------
Net income (loss)........................................................ $ 73,630 $ (19,190) $ 2,733
---------- ---------- ----------
---------- ---------- ----------
Net income (loss) per share:
Basic
Continuing operations...................................................... $ 2.00 $ (0.58) $ 0.21
Discontinued operations.................................................... -- -- (0.03)
---------- ---------- ----------
Net income (loss).......................................................... $ 2.00 $ (0.58) $ 0.18
Diluted
Continuing operations...................................................... $ 1.74 $ (0.58) $ 0.20
Discontinued operations.................................................... -- -- (0.03)
---------- ---------- ----------
Net income (loss).......................................................... $ 1.74 $ (0.58) $ 0.17
Weighted average shares:
Basic...................................................................... 36,748 33,351 15,605
Diluted.................................................................... 45,997 33,351 15,742
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
HEXCEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK MINIMUM CUMULATIVE
OUTSTANDING ADDITIONAL PENSION CURRENCY TOTAL
---------------------- PAID-IN ACCUMULATED OBLIGATION TRANSLATION STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT ADJUSTMENT ADJUSTMENT EQUITY
--------- ----------- ---------- ------------ ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS)
BALANCE, JANUARY 1, 1995............ 7,301 $ 73 $ 62,626 $ (72,714) $ (137) $ 4,267 $ (5,885)
Net income........................ 2,733 2,733
Sale of new common stock under
standby purchase commitment and
subscription rights offering.... 10,800 108 48,631 48,739
Activity under stock plans........ (10) 2 2
Pension obligation adjustment..... (398) (398)
Currency translation adjustment... 3,183 3,183
--------- ----- ---------- ------------ ----- ----------- -------------
BALANCE, DECEMBER 31, 1995.......... 18,091 181 111,259 (69,981) (535) 7,450 48,374
Net loss.......................... (19,190) (19,190)
Issuance of shares to Ciba, net of
issuance costs of $2,993........ 18,022 180 141,001 141,181
Activity under stock plans........ 408 4 7,133 7,137
Other issuance of shares.......... 40 1 199 200
Pension obligation adjustment..... 535 535
Currency translation adjustment... 1,092 1,092
--------- ----- ---------- ------------ ----- ----------- -------------
BALANCE, DECEMBER 31, 1996.......... 36,561 366 259,592 (89,171) -- 8,542 179,329
Net income........................ 73,630 73,630
Activity under stock plans........ 292 3 6,535 6,538
Conversion of Subordinated
Notes........................... 3 50 50
Currency translation adjustment... (9,646) (9,646)
--------- ----- ---------- ------------ ----- ----------- -------------
BALANCE, DECEMBER 31, 1997.......... 36,856 $ 369 $ 266,177 $ (15,541) $ -- $ (1,104) $ 249,901
--------- ----- ---------- ------------ ----- ----------- -------------
--------- ----- ---------- ------------ ----- ----------- -------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
HEXCEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1997 1996 1995
--------- ---------- ---------
<S> <C> <C> <C>
(IN THOUSANDS)
CASH FLOWS FROM OPERATING ACTIVITIES
Income (loss) from continuing operations........................................ $ 73,630 $ (19,190) $ 3,201
Reconciliation to net cash provided (used) by continuing operations:
Depreciation and amortization................................................. 35,797 26,730 11,623
Deferred income taxes......................................................... (33,203) (520) (329)
Write-off of purchased in-process technologies................................ 8,000 -- --
Accrued business acquisition and consolidation expenses....................... 25,343 42,370 --
Business acquisition and consolidation payments............................... (33,595) (11,579) --
Other income.................................................................. -- (1,560) (600)
Changes in assets and liabilities, net of effects of acquisitions:
Increase in accounts receivable............................................. (37,557) (14,695) (1,752)
Increase in inventories..................................................... (23,797) (5,072) (8,111)
Decrease (increase) in prepaid expenses and other assets.................... 1,667 (1,430) 718
Increase (decrease) in accounts payable and accrued liabilities............. 23,567 15,549 (10,090)
Changes in other non-current assets and long-term liabilities............... (13,878) (4,096) 2,346
--------- ---------- ---------
Net cash provided (used) by continuing operations............................. 25,974 26,507 (2,994)
Net cash provided by discontinued operations.................................. -- -- 486
--------- ---------- ---------
Net cash provided (used) by operating activities.............................. 25,974 26,507 (2,508)
--------- ---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures.......................................................... (57,369) (43,569) (12,144)
Cash paid for business acquisitions........................................... (37,000) (164,400) (4,150)
Proceeds from sale of certain manufacturing facilities and an interest in a
joint venture............................................................... 13,500 1,560 27,294
Proceeds from sale of discontinued resins business............................ -- -- 4,648
Other......................................................................... (2,000) -- 17
--------- ---------- ---------
Net cash provided (used) by investing activities............................ (82,869) (206,409) 15,665
--------- ---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of long-term debt...................................... 3,199 286,974 4,317
Repayments of long-term debt.................................................. (9,679) (124,288) (5,402)
Proceeds from the revolving credit facility and short-term debt, net.......... 57,186 15,319 20,923
Proceeds from issuance of common stock........................................ 6,538 3,702 48,741
Payments of allowed claims pursuant to the Reorganization Plan................ -- -- (78,144)
--------- ---------- ---------
Net cash provided (used) by financing activities............................ 57,244 181,707 (9,565)
--------- ---------- ---------
Effect of exchange rate changes on cash and cash equivalents.................... 709 2,341 (694)
--------- ---------- ---------
Net increase in cash and cash equivalents....................................... 1,058 4,146 2,898
Cash and cash equivalents at beginning of year.................................. 7,975 3,829 931
--------- ---------- ---------
Cash and cash equivalents at end of year........................................ $ 9,033 $ 7,975 $ 3,829
--------- ---------- ---------
--------- ---------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE>
HEXCEL CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS AND BASIS OF ACCOUNTING
The accompanying consolidated financial statements include the accounts of
Hexcel Corporation and subsidiaries ("Hexcel" or the "Company"), after
elimination of intercompany transactions and accounts. Hexcel is a leading
international developer and manufacturer of carbon fibers, reinforcement
fabrics, and lightweight, high-performance composite materials, parts and
structures for use in the commercial aerospace, space and defense, recreation,
and general industrial markets. The Company serves international markets through
manufacturing and marketing facilities located in the United States and Europe,
as well as sales offices in Asia, Australia and South America. The Company is
also a partner in a joint venture that manufactures and markets composite
materials in Asia.
As discussed in Note 2, Hexcel acquired the worldwide composites division of
Ciba-Geigy Limited, a Swiss corporation ("CGL"), and Ciba-Geigy Corporation, a
New York corporation ("CGC" and together with CGL, "Ciba"), including most of
Ciba's composite materials, parts and structures businesses, on February 29,
1996. The Company subsequently acquired Ciba's Austrian composites business on
May 30, 1996, and various remaining assets of Ciba's worldwide composites
division at various dates through February 28, 1997 (the "Acquired Ciba
Business"). As also discussed in Note 2, Hexcel acquired the composite products
division of Hercules Incorporated ("Hercules"), including Hercules' carbon
fibers and prepreg businesses (the "Acquired Hercules Business"), on June 27,
1996, and the satellite business and rights to certain technologies from
Fiberite, Inc. ("Fiberite") on September 30, 1997. Accordingly, the accompanying
consolidated balance sheets, statements of operations, stockholders' equity and
cash flows include the financial position, results of operations and cash flows,
of the businesses acquired from Ciba, Hercules and Fiberite as of such dates and
for such periods that these businesses were owned by the Company.
ESTIMATES AND ASSUMPTIONS
The accompanying consolidated financial statements and related notes reflect
numerous estimates and assumptions made by the management of Hexcel. These
estimates and assumptions affect the reported amounts of assets and liabilities,
the disclosures with respect to contingent assets and liabilities, and the
reported amounts of revenues and expenses. Although management believes that the
estimates and assumptions used in preparing the accompanying consolidated
financial statements and related notes are reasonable in light of known facts
and circumstances, actual results could differ from the estimates used.
CASH AND CASH EQUIVALENTS
Hexcel invests excess cash in investments with original maturities of less
than three months. The investments consist primarily of Eurodollar time deposits
and are stated at cost, which approximates fair value. The Company considers
such investments to be cash equivalents for purposes of the statements of cash
flows.
ACCOUNTS RECEIVABLE
Accounts receivable are net of reserves for doubtful accounts of $6,641 and
$6,625 as of December 31, 1997 and 1996, respectively.
F-8
<PAGE>
HEXCEL CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVENTORIES
Inventories are valued at the lower of cost or market, with cost determined
using the first-in, first-out and average cost methods.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are recorded at cost. Repairs and maintenance
are charged to expense as incurred; replacements and betterments are
capitalized.
The Company depreciates property, plant and equipment over estimated useful
lives. Accelerated and straight-line methods are used for financial statement
purposes. The estimated useful lives range from 10 to 40 years for buildings and
improvements and from 3 to 20 years for machinery and equipment.
INTANGIBLES AND OTHER ASSETS
Goodwill and other purchased intangibles are included in "intangibles and
other assets" at cost, less accumulated amortization (see Note 6). Amortization
is provided on a straight-line basis over estimated economic lives which range
from 10 to 20 years.
The Company periodically reviews the recoverability of long-term assets
whenever events or changes in circumstances indicate that the carrying amount of
an asset might not be recoverable.
CURRENCY TRANSLATION
The assets and liabilities of European subsidiaries are translated into U.S.
dollars at year-end exchange rates, and revenues and expenses are translated at
average exchange rates during the year. Cumulative currency translation
adjustments are included in stockholders' equity. Realized gains and losses from
currency exchange transactions are recorded in "selling, general and
administrative expenses" in the accompanying consolidated statements of
operations and were not material to the Company's consolidated results of
operations in 1997, 1996 or 1995.
REVENUE RECOGNITION
Product sales are recognized on the date of shipment.
EARNINGS PER SHARE
The Financial Accounting Standards Board issued Statement No. 128, "Earnings
Per Share" ("SFAS 128"), in March 1997, which is effective for reporting periods
ending after December 15, 1997. The Company adopted SFAS 128 in the fourth
quarter of 1997. SFAS 128 requires the presentation of "Basic" earnings per
share which represents net earnings divided by the weighted average shares
outstanding excluding all potential common shares. A dual presentation of
"Diluted" earnings per share reflecting the dilutive effects of all potential
common shares, is also required. The Diluted presentation is similar to fully
diluted earnings per share under the prior accounting standard (see Note 15).
F-9
<PAGE>
HEXCEL CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
STOCK-BASED COMPENSATION
In 1996, Hexcel adopted the disclosure requirements of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"), which provides for the disclosure of pro forma net
earnings and earnings per share as if the fair value method were used to account
for stock-based employee compensation plans (see Note 14). Pursuant to SFAS 123,
the Company has elected to continue to use the intrinsic value method to account
for such plans in the accompanying consolidated financial statements, in
accordance with Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees".
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist primarily of trade accounts receivable.
The Company's sales to two customers and their related subcontractors accounted
for approximately 46% and 32% of the Company's 1997 and 1996 net sales,
respectively (see Note 17). The Company performs on-going credit evaluations of
its customers' financial condition but generally does not require collateral or
other security to support customer receivables. The Company establishes an
allowance for doubtful accounts based upon factors surrounding the credit risk
of specific customers, historical trends and other financial information.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board issued Statement No.
130, "Reporting Comprehensive Income" ("SFAS 130"). Hexcel is required to adopt
SFAS 130 in the first quarter of 1998. SFAS 130 establishes standards for
reporting comprehensive income and its components in a full set of general
purpose financial statements. Management does not anticipate that the adoption
of SFAS 130 will have a significant impact on the consolidated financial
statements.
In June 1997, the Financial Accounting Standards Board also issued Statement
No. 131, "Disclosures About Segments of an Enterprise and Related Information"
("SFAS 131"). Hexcel is required to adopt SFAS 131 in its annual consolidated
financial statements covering the year ending December 31, 1998. SFAS 131
establishes standards for the way business enterprises report information about
operating segments in annual financial statements. Beginning in 1999, the
Company will also be required to report selected information about operating
segments in its interim financial reports to stockholders. The Company has not
yet determined the impact, if any, that the adoption of SFAS 131 will have on
the consolidated financial statements.
RECLASSIFICATIONS
Certain prior year amounts in the accompanying consolidated financial
statements and related notes have been reclassified to conform to the 1997
presentation.
F-10
<PAGE>
HEXCEL CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 2--BUSINESS ACQUISITIONS
ACQUIRED CIBA BUSINESS
Hexcel acquired most of Ciba's composite materials, parts and structures
businesses on February 29, 1996, Ciba's Austrian composites business on May 30,
1996, and various remaining assets of Ciba's worldwide composites division at
various dates through February 28, 1997. The Acquired Ciba Business is engaged
in the manufacture and marketing of reinforcement fabrics and lightweight,
high-performance composite materials, parts and structures for commercial
aerospace, space and defense, recreation, and general industrial markets.
Product lines include reinforcement fabrics, pre-impregnated fabrics
("prepregs"), structural adhesives, honeycomb core, sandwich panels and
fabricated components, as well as composite structures and interiors primarily
for the commercial and military aerospace markets.
The acquisition of the Acquired Ciba Business was consummated pursuant to a
Strategic Alliance Agreement dated as of September 29, 1995, among Ciba and
Hexcel, as amended (the "Strategic Alliance Agreement"). Under the Strategic
Alliance Agreement, the Company acquired the assets (including the capital stock
of certain non-U.S. subsidiaries) and assumed the liabilities of the Acquired
Ciba Business, (other than certain excluded assets and liabilities), in exchange
for: (a) 18,022 newly issued shares of Hexcel common stock; (b) $25,000 in cash;
(c) senior subordinated notes in an aggregate principal amount of $34,928,
subject to certain adjustments (the "Senior Subordinated Notes"); and (d) senior
demand notes in an aggregate principal amount equal to the cash on hand at
certain of the non-U.S. subsidiaries included in the Acquired Ciba Business (the
"Senior Demand Notes"). In exchange for assets acquired between January 1, 1997
and February 28, 1997, from Ciba affiliates that continued to act as
distributors for the Acquired Ciba Business (the "Ciba Distributors") throughout
1996, Hexcel undertook to deliver additional Senior Subordinated Notes to Ciba
Specialty Chemicals Holding Inc., a Swiss Corporation ("CSCH"), as successor to
Ciba in an aggregate principal amount of approximately $2,300 which was accrued
in 1997. The aggregate purchase price for the net assets acquired was
approximately $208,700.
ACQUIRED HERCULES BUSINESS
Hexcel acquired the assets of the composite products division of Hercules
(the "Acquired Hercules Business") on June 27, 1996. The Acquired Hercules
Business, which manufactures carbon fibers and prepregs for commercial
aerospace, space and defense, recreation, and general industrial markets, was
purchased for $139,400 in cash.
In connection with the purchase of the Acquired Hercules Business, Hexcel
obtained a new revolving credit facility (the "Revolving Credit Facility"). As
discussed in Note 7, the Revolving Credit Facility was obtained to: (a)
refinance outstanding indebtedness under a senior secured credit facility; (b)
finance the purchase of the Acquired Hercules Business; and (c) provide for the
ongoing working capital and other financing requirements of the Company,
including business consolidation activities, on a worldwide basis (see Note 3).
ACQUIRED FIBERITE ASSETS
On September 30, 1997, the Company acquired from Fiberite its satellite
business consisting of intangible assets and inventory, and certain
non-exclusive worldwide rights to other prepreg technologies, for $37,000 in
cash. The acquisition was substantially downsized from the original agreement
whereby the Company had, subject to certain terms and conditions, committed to
purchase selected assets and
F-11
<PAGE>
HEXCEL CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 2--BUSINESS ACQUISITIONS (CONTINUED)
businesses of Fiberite for approximately $300,000. As a result of the downsized
transaction, the Company wrote-off $4,973 of acquisition and financing costs to
business acquisition and consolidation expenses. In addition, the Company
expensed $8,000 of acquired in-process research and technology purchased from
Fiberite which is also included in business acquisition and consolidation
expenses.
The acquisition of the satellite business and certain technologies from
Fiberite on September 30, 1997 was accounted for using the purchase method, in
accordance with Accounting Principles Board Opinion No. 16, "Business
Combinations" ("APBO No. 16"). Under this method, substantially all of the
$37,000 purchase price, less the $8,000 write-off of the acquired in-process
research and technology expenses, was allocated to intangible assets.
Transaction costs in relation to the downsized transaction were not material.
ASSETS ACQUIRED AND LIABILITIES ASSUMED OR INCURRED
The acquisitions of the Acquired Ciba Business and the Acquired Hercules
Business (collectively, the "Acquired Businesses"), have been accounted for
using the purchase method, in accordance with APBO No. 16. The assets acquired
and the liabilities assumed or incurred in 1996 were:
<TABLE>
<CAPTION>
ACQUIRED ACQUIRED TOTAL
CIBA HERCULES ACQUIRED
BUSINESS BUSINESS BUSINESSES
---------- ---------- ----------
<S> <C> <C> <C>
Estimated fair values of assets acquired:
Accounts receivable...................................... $ 53,861 $ 16,819 $ 70,680
Inventories.............................................. 63,048 22,289 85,337
Property, plant and equipment............................ 119,446 110,611 230,057
Goodwill and other purchased intangibles................. 48,539 -- 48,539
Other assets............................................. 3,069 642 3,711
---------- ---------- ----------
Total assets acquired.................................... 287,963 150,361 438,324
---------- ---------- ----------
---------- ---------- ----------
Estimated fair values of liabilities assumed or incurred:
Accounts payable and accrued liabilities................. 62,582 7,688 70,270
Notes payable and capital lease obligations.............. 4,743 2,774 7,517
Deferred liabilities..................................... 14,233 499 14,732
---------- ---------- ----------
Total liabilities assumed or incurred.................... 81,558 10,961 92,519
---------- ---------- ----------
Estimated fair values of net assets acquired............. $ 206,405 $ 139,400 $ 345,805
---------- ---------- ----------
---------- ---------- ----------
Purchase price:
Cash..................................................... $ 25,000 $ 139,400 $ 164,400
Senior Subordinated Notes issued to Ciba, at aggregate
fair value............................................. 31,902 -- 31,902
Senior Demand Notes issued to Ciba....................... 5,329 -- 5,329
Hexcel common stock issued to Ciba, valued at $8 per
share.................................................. 144,174 -- 144,174
---------- ---------- ----------
Aggregate purchase price................................. $ 206,405 $ 139,400 $ 345,805
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
F-12
<PAGE>
HEXCEL CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 2--BUSINESS ACQUISITIONS (CONTINUED)
The acquisitions of the Acquired Businesses were subject to certain
post-closing adjustments, including the adjustment to the Senior Subordinated
Notes discussed above and the pension adjustment discussed in Note 6.
PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
The pro forma net sales, net loss and net loss per share of Hexcel for the
years ended December 31, 1996 and 1995, giving effect to the acquisitions of the
Acquired Businesses and the related issuance of the Convertible Subordinated
Notes (see Note 7) as if those transactions had occurred at the beginning of the
periods presented, were:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Pro forma net sales................................................... $ 798,515 $ 771,325
Pro forma net loss.................................................... (21,191) (10,189)
Pro forma basic and diluted net loss per share........................ (0.59) (0.30)
---------- ----------
---------- ----------
Shares used in computing pro forma basic and diluted net loss per
share............................................................... 36,003 33,614
---------- ----------
---------- ----------
</TABLE>
Pro forma adjustments giving effect to the Fiberite transaction as if it
occurred at the beginning of 1997 and 1996 would not have had a material effect
to the Company's consolidated financial statements.
NOTE 3--BUSINESS CONSOLIDATION
In May of 1996, Hexcel announced the commencement of a plan to consolidate
the Company's operations over a period of three years. In December of 1996, the
Company announced the commencement of further consolidation activities
identified during the ongoing integration of the Acquired Businesses. The total
expense of the business consolidation program was estimated to be approximately
$58,000. Total expenses through December 31, 1997 were $54,700, excluding costs
associated with the Fiberite transaction which were not included in the original
program. The Company does not expect to incur any further significant additional
expenses in relation to this program. As of December 31, 1997, cash expenditures
remaining to complete this program are estimated at $12,000, which approximates
amounts accrued. Thus, when the program is complete, the Company expects that
cash expenditures (for expenses and capital, net of estimated proceeds from
asset sales) necessary to complete the program will approximate the initial
estimate of $51,000.
The objective of the business consolidation program is 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. The business consolidation is also intended to eliminate excess
manufacturing capacity and redundant administrative functions. Specific actions
of the consolidation program included the closure of the Anaheim, California
facility acquired in connection with the purchase of the Acquired Ciba Business,
the reorganization of the Company's manufacturing operations in Europe, the
consolidation of the Company's U.S. special process manufacturing activities,
and the integration of sales, marketing and administrative resources.
F-13
<PAGE>
HEXCEL CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 3--BUSINESS CONSOLIDATION (CONTINUED)
As of December 31, 1997, the primary remaining activities of the business
consolidation program relate to the European operations and the installation and
customer qualifications of equipment transferred from the Anaheim facility to
other U.S. locations. These qualification requirements increase the complexity,
cost and time of moving equipment and rationalizing manufacturing activities. As
a result, the Company continues to expect that the business consolidation
program will take to the end of 1998 to complete.
After closing the Anaheim facility on schedule in the third quarter of 1997,
the Company completed the sale of the facility on October 30, 1997. Net cash
proceeds from the sale were approximately $8,500, which approximated book value.
Total accrued business acquisition and consolidation expenses at December
31, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
EMPLOYEE FACILITY
SEVERANCE CLOSURE &
AND EQUIPMENT FIBERITE
RELOCATION RELOCATION OTHER TRANSACTION TOTAL
----------- ----------- --------- ----------- ----------
<S> <C> <C> <C> <C> <C>
BALANCE AS OF
JANUARY 1, 1996................ -- -- -- -- --
Business acquisition and
consolidation expenses......... $ 17,285 $ 10,488 $ 14,597 $ -- $ 42,370
Liabilities assumed or incurred
in business acquisitions....... 7,104 2,497 -- -- 9,601
Cash expenditures................ (5,306) (1,109) (5,164) -- (11,579)
Non-cash usage, including asset
write-downs.................... -- (6,678) (8,357) -- (15,035)
----------- ----------- --------- ----------- ----------
BALANCE AS OF
DECEMBER 31, 1996.............. 19,083 5,198 1,076 -- 25,357
Business acquisition and
consolidation expenses......... (25) 7,651 4,744 12,973 25,343
Cash expenditures................ (6,644) (8,771) (5,207) (12,973) (33,595)
Non-cash usage, including asset
write-downs, currency
translation effects and
reclassifications.............. (2,759) (2,068) (105) -- (4,932)
----------- ----------- --------- ----------- ----------
BALANCE AS OF
DECEMBER 31, 1997.............. $ 9,655 $ 2,010 $ 508 $ -- $ 12,173
----------- ----------- --------- ----------- ----------
----------- ----------- --------- ----------- ----------
</TABLE>
The consolidation program calls for the elimination of approximately 345
manufacturing, marketing and administrative positions at certain locations,
partially offset by the addition of new positions at other locations. As of
December 31, 1997, approximately 245 positions have been eliminated.
F-14
<PAGE>
HEXCEL CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 3--BUSINESS CONSOLIDATION (CONTINUED)
Accrued business consolidation costs of $12,173 as of December 31, 1997 were
included in "other accrued liabilities," and $21,780 and $3,577 as of December
31, 1996 were included in "other accrued liabilities" and "other non-current
liabilities," respectively, in the accompanying consolidated balance sheets.
During 1997 and 1996, business consolidation activities were financed with
operating cash flows and borrowings under the Revolving Credit Facility.
NOTE 4--INVENTORIES
Inventories as of December 31, 1997 and 1996 were:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Raw materials......................................................... $ 90,429 $ 66,055
Work in progress...................................................... 47,953 45,469
Finished goods........................................................ 26,939 34,360
---------- ----------
Inventories........................................................... $ 165,321 $ 145,884
---------- ----------
---------- ----------
</TABLE>
NOTE 5--PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment as of December 31, 1997 and 1996 were:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Land................................................................ $ 13,729 $ 19,253
Buildings........................................................... 206,900 127,863
Equipment........................................................... 268,287 321,057
----------- -----------
Property, plant and equipment....................................... 488,916 468,173
Less accumulated depreciation....................................... (157,439) (141,390)
----------- -----------
Net property, plant and equipment................................... $ 331,477 $ 326,783
----------- -----------
----------- -----------
</TABLE>
Depreciation expense for the years ended December 31, 1997, 1996 and 1995
was $33,214, $24,656 and $11,623, respectively.
F-15
<PAGE>
HEXCEL CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 6--INTANGIBLES AND OTHER ASSETS
Intangibles and other assets as of December 31, 1997 and 1996, were:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Goodwill and other purchased intangibles, net of accumulated
amortization of $4,657 and $2,074, as of December 31, 1997 and 1996,
respectively.......................................................... $ 67,237 $ 47,692
Debt financing costs, net of accumulated amortization of $2,487 and $877
as of December 31, 1997 and 1996, respectively........................ 4,030 5,915
Prepaid pension asset................................................... 8,619 --
Deferred income taxes................................................... 9,901 --
Investments in joint ventures........................................... -- 1,450
Other assets............................................................ 3,272 2,965
--------- ---------
Intangibles and other assets............................................ $ 93,059 $ 58,022
--------- ---------
--------- ---------
</TABLE>
GOODWILL AND OTHER PURCHASED INTANGIBLES
Goodwill and other purchased intangibles include certain intellectual
property acquired in connection with the purchases of the Acquired Ciba
Business, the Fiberite assets and the Hexcel-Fyfe joint venture (see below).
Amortization expense for these assets for the years ended December 31, 1997 and
1996, was $2,583 and $2,074, respectively.
DEBT FINANCING COSTS
Debt financing costs are deferred and amortized over the life of the related
debt. Unamortized debt financing costs relate to the Revolving Credit Facility
obtained in June of 1996, and to the Convertible Subordinated Notes issued in
July of 1996 (see Notes 2 and 7).
INVESTMENTS IN JOINT VENTURES
Investments in joint ventures are accounted for by the equity method. Equity
in the earnings of joint ventures were not material to Hexcel's consolidated
results of operations for 1997, 1996 or 1995.
As of December 31, 1997 and 1996, Hexcel owned a 45% and 43% equity
interest, respectively, in DIC-Hexcel Limited ("DHL"), a joint venture with
Dainippon Ink and Chemicals, Inc. ("DIC"). On August 12, 1997, the Company sold
its 40% equity interest in Hexcel-Fyfe, LLC, to its joint venture partner, Fyfe
Associates Corporation, for net cash proceeds and the receipt of rights to
certain intangible assets that approximated the Company's investment. On
December 31, 1996, the Company sold its 50% equity interest in Knytex Company,
LLC to the joint venture partner, Owens Corning Corporation, for net cash
proceeds that approximated the Company's investment.
The DHL joint venture, which owns and operates a manufacturing facility in
Komatsu, Japan, was formed in 1990 for the production and sale of Nomex
honeycomb, prepregs and decorative laminates for the Japanese market. In
December of 1996, Hexcel and DIC reached an agreement in principle to continue
the DHL joint venture and expand its operations. The Company and DIC agreed to
fund the joint venture's operations through 1998 by each contributing an
additional $3,250 in cash, payable in
F-16
<PAGE>
HEXCEL CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 6--INTANGIBLES AND OTHER ASSETS (CONTINUED)
installments through 1998. Of this amount, $2,000 was paid in 1997. As of
December 31, 1997 and 1996, the Company's liability with respect to funding the
venture's activities, has been accrued for in the accompanying consolidated
balance sheets. In addition, the Company and DIC agreed to contribute certain
additional technology and product manufacturing rights to DHL. Under the terms
of the agreement in principle, the Company remains contingently liable to pay
DIC up to $4,500 with respect to DHL's bank debt, but the possibility that such
repayment will be required has diminished as a result of the improvement in the
venture's business prospects.
PREPAID PENSION ASSET
As part of the Acquired Ciba Business, the Company acquired a net pension
asset from a defined benefit plan covering employees of a United Kingdom
subsidiary. Pursuant to the terms of the purchase agreement, these employees
continued to participate in a defined benefit retirement plan sponsored by Ciba
up to January 1, 1997, at which time, the net pension asset was valued at $8,688
and was transferred to a newly created plan sponsored by the Company.
Accordingly, the Company recorded the $8,688 as a prepaid pension asset with a
corresponding reduction in goodwill. As of December 31, 1997, the prepaid
pension asset was $8,619, reflecting the net change for the year.
NOTE 7--NOTES PAYABLE
Notes payable, capital lease obligations and indebtedness to related parties
as of December 31, 1997 and 1996, were:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Revolving Credit Facility............................................. $ 158,267 $ 98,656
European Credit and Overdraft Facilities.............................. 13,909 23,405
Convertible Subordinated Notes Due 2003............................... 114,450 114,500
Convertible Subordinated Debentures Due 2011.......................... 25,625 25,625
Obligations Under IDRB Variable Rate Demand Notes..................... -- 8,450
Various notes payable................................................. 680 1,212
---------- ----------
Total notes payable................................................... 312,931 271,848
Capital lease obligations (see Note 8)................................ 5,473 6,906
Senior Subordinated Notes Payable to CSC, net of unamortized discount
of $2,233 and $2,666 as of December 31, 1997 and 1996,
respectively........................................................ 34,967 32,262
---------- ----------
Total notes payable, capital lease obligations and indebtedness to
related parties..................................................... $ 353,371 $ 311,016
---------- ----------
---------- ----------
Notes payable and current maturities of long-term liabilities......... $ 13,858 $ 23,835
Long-term notes payable and capital lease obligations, less current
maturities.......................................................... 304,546 254,919
Indebtedness to related parties....................................... 34,967 32,262
---------- ----------
Total notes payable, capital lease obligations and indebtedness to
related parties..................................................... $ 353,371 $ 311,016
---------- ----------
---------- ----------
</TABLE>
F-17
<PAGE>
HEXCEL CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 7--NOTES PAYABLE (CONTINUED)
REVOLVING CREDIT FACILITY
In connection with the acquisition of the Acquired Hercules Business on June
27, 1996, Hexcel obtained the Revolving Credit Facility to: (a) refinance
outstanding indebtedness under its current credit facility; (b) finance the
purchase of the Acquired Hercules Business; and (c) provide for the ongoing
working capital and other financing requirements of the Company, including
business consolidation activities, on a worldwide basis. The Revolving Credit
Facility provided for up to $254,600 of borrowing capacity and would have
expired in February 1999. As discussed in Note 24, the Revolving Credit Facility
was amended and restated in March 1998.
Interest on outstanding borrowings under the Revolving Credit Facility was
computed at an annual rate of 0.4% in excess of the applicable London interbank
rate or, at the option of Hexcel, at the base rate of the administrative agent
for the lenders. In addition, the Revolving Credit Facility was subject to a
commitment fee of approximately 0.2% per annum on the unused portion of the
facility. As of December 31, 1997, letters of credit with an aggregate face
amount of $3,700 were outstanding under the Revolving Credit Facility.
The Revolving Credit Facility was secured by a pledge of stock of certain of
Hexcel's subsidiaries. In addition, the Company was subject to various financial
covenants and restrictions under the Revolving Credit Facility, and was
generally prohibited from paying dividends or redeeming capital stock.
As a result of obtaining the Revolving Credit Facility and the corresponding
extinguishment of certain of the Company's credit facilities, Hexcel wrote off
$3,400 of capitalized debt financing costs in 1996. This amount is included in
"interest expense" in the accompanying consolidated statement of operations for
1996.
EUROPEAN CREDIT AND OVERDRAFT FACILITIES
In addition to the Revolving Credit Facility, certain of Hexcel's European
subsidiaries have access to limited credit and overdraft facilities provided by
various local lenders. These credit and overdraft facilities, which are only
available to finance certain activities by specific subsidiaries, are primarily
uncommitted facilities that are terminable at the discretion of the lenders. The
credit and overdraft facilities in use by the Company's European subsidiaries as
of December 31, 1997 and 1996, other than the Revolving Credit Facility, bear
interest at rates between 2.5% and 7.7% per year.
CONVERTIBLE SUBORDINATED NOTES, DUE 2003
In July of 1996, Hexcel completed an offering of $114,500 in convertible
subordinated notes due 2003 (the "Convertible Subordinated Notes"). The
Convertible Subordinated Notes carry an annual interest rate of 7% and are
convertible into Hexcel common stock at a conversion price of $15.81 per share,
subject to adjustment under certain conditions. Net proceeds of $111,351 from
this offering were used to repay outstanding borrowings under the Revolving
Credit Facility.
The Convertible Subordinated Notes are redeemable beginning in August of
1999, in whole or in part, at the option of Hexcel. The redemption prices range
from 103.5% to 100.0% of the outstanding principal amount, depending on the
period in which redemption occurs. As of December 31, 1997, $50 of the
Convertible Subordinated Notes had been converted resulting in the issuance of 3
shares of common stock.
F-18
<PAGE>
HEXCEL CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 7--NOTES PAYABLE (CONTINUED)
CONVERTIBLE SUBORDINATED DEBENTURES, DUE 2011
The 7% convertible subordinated debentures, due 2011, are redeemable by
Hexcel under certain provisions, although any such redemption is restricted by
the terms of the Revolving Credit Facility. Mandatory redemption is scheduled to
begin in 2002 through annual sinking fund requirements. The debentures are
convertible prior to maturity into common stock of the Company at $30.72 per
share, subject to adjustment under certain conditions.
OBLIGATIONS UNDER IDRB VARIABLE RATE DEMAND NOTES
In 1997, Hexcel repaid in full various industrial development revenue bonds
("IDRBs") to obtain the benefit of reduced administration costs. The IDRBs had
original maturity dates after 2001 and were guaranteed by bank letters of credit
issued under the Revolving Credit Facility. The interest rates on the IDRBs were
variable and averaged 4.0% in 1997, 4.2% in 1996 and 6.2% in 1995.
SENIOR SUBORDINATED NOTES PAYABLE TO CSC
In connection with the purchase of the Acquired Ciba Business, Hexcel
delivered Senior Subordinated Notes to Ciba in an aggregate principal amount of
$34,928. Hexcel has also consented to an assignment by Ciba of Ciba's rights and
obligations under the Alliance Agreement to CSCH, and Ciba Specialty Chemicals
Corporation, a Delaware corporation (collectively "CSC"). In connection with the
assignment of these rights and obligations, the Senior Subordinated Notes that
were previously payable to Ciba are now payable to CSC. In accordance with the
terms of the amended Strategic Alliance Agreement, Hexcel acquired certain
assets of the Ciba Distributors between January 1, 1997 and February 28, 1997,
in exchange for an undertaking to deliver additional Senior Subordinated Notes
in an aggregate principal amount of approximately $2,300. Upon delivery of these
additional Senior Subordinated Notes, the total aggregate principal amount of
Senior Subordinated Notes payable to CSC will be approximately $37,200.
At the date of issue, the aggregate fair value of the Senior Subordinated
Notes was $31,902, or $3,026 less than the aggregate principal amount. The
original discount of $3,026 reflects the absence of certain call protection
provisions from the terms of the Senior Subordinated Notes and the difference
between the stated interest rate on the Senior Subordinated Notes and the
estimated market rate for debt obligations of comparable quality and maturity.
This discount, which is amortized over the life of the Senior Subordinated
Notes, had an unamortized balance of $2,233 and $2,666 as of December 31, 1997
and 1996, respectively.
The Senior Subordinated Notes are general unsecured obligations of Hexcel
that bear interest for three years at a rate of 7.5% per annum, payable
semiannually from February 29, 1996. The interest rate will increase to 10.5%
per annum on the third anniversary of the purchase of the Acquired Ciba Business
(February 28, 1999), and by an additional 0.5% per year thereafter until the
Senior Subordinated Notes mature in the year 2003.
As discussed in Note 9, Hexcel has various financial and other relationships
with CSC. Accordingly, the Company's net indebtedness to CSC under the Senior
Subordinated Notes has been classified as "indebtedness to related parties" in
the accompanying consolidated balance sheets.
F-19
<PAGE>
HEXCEL CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 7--NOTES PAYABLE (CONTINUED)
AGGREGATE MATURITIES OF NOTES PAYABLE
Aggregate maturities of notes payable, excluding capital lease obligations
(see Note 8), as of December 31, 1997, were:
<TABLE>
<CAPTION>
PAYABLE DURING YEARS ENDING DECEMBER 31:
- ----------------------------------------------------------------------------------
<S> <C>
1998.............................................................................. $ 13,511
1999.............................................................................. 672
2000.............................................................................. 147
2001.............................................................................. 154
2002.............................................................................. 1,856
2003 and thereafter............................................................... 331,558
----------
Total notes payable............................................................... $ 347,898
----------
----------
</TABLE>
At December 31, 1997, amounts owed under the Revolving Credit Facility
totaled $158,267. As discussed in Note 24, the Revolving Credit Facility was
amended and restated in March 1998. Under the amended terms, the facility was
extended to 2003, and accordingly, the above table reflects the amended due
date.
ESTIMATED FAIR VALUES OF NOTES PAYABLE
The Revolving Credit Facility, and substantially all of the various European
credit facilities and other notes payable outstanding as of December 31, 1997
and 1996, are variable-rate debt obligations. Accordingly, management believes
that the estimated fair value of each of these debt obligations approximates the
respective book value.
The aggregate fair values of the Convertible Subordinated Notes, due 2003,
and the Convertible Subordinated Debentures, due 2011, are estimated on the
basis of quoted market prices, although trading in these debt securities is
limited and may not reflect fair value. The aggregate fair value of the
Convertible Subordinated Notes, due 2003, was approximately $196,000 and
$141,700 as of December 31, 1997 and 1996, respectively. The aggregate fair
value of the Convertible Subordinated Debentures, due 2011, was approximately
$25,500 and $24,000 as of December 31, 1997 and 1996, respectively.
NOTE 8--LEASING ARRANGEMENTS
Assets, accumulated depreciation and related liability balances under
capital leasing arrangements as of December 31, 1997 and 1996, were:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Property, plant and equipment........................................... $ 10,197 $ 11,572
Less accumulated depreciation........................................... (3,593) (2,927)
--------- ---------
Net property, plant and equipment....................................... $ 6,604 $ 8,645
--------- ---------
--------- ---------
Capital lease obligations............................................... $ 5,473 $ 6,906
less current maturities................................................. (347) (768)
--------- ---------
Long-term capital lease obligations, net................................ $ 5,126 $ 6,138
--------- ---------
--------- ---------
</TABLE>
F-20
<PAGE>
HEXCEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 8--LEASING ARRANGEMENTS (CONTINUED)
Certain sales and administrative offices, data processing equipment, and
manufacturing facilities are leased under operating leases. Rental expense under
operating leases was $4,559 in 1997, $4,623 in 1996 and $2,871 in 1995.
Future minimum lease payments as of December 31, 1997, were:
<TABLE>
<CAPTION>
TYPE OF LEASE
----------------------
PAYABLE DURING YEARS ENDING DECEMBER 31: CAPITAL OPERATING
- --------------------------------------------------------- --------- -----------
<S> <C> <C>
1998..................................................... $ 858 $ 3,935
1999..................................................... 858 3,304
2000..................................................... 783 1,987
2001..................................................... 512 714
2002..................................................... 512 233
2003 and thereafter...................................... 5,948 1,402
--------- -----------
Total minimum lease payments........................... $ 9,471 $ 11,575
--------- -----------
--------- -----------
</TABLE>
Total minimum capital lease payments include $3,999 of imputed interest.
NOTE 9--RELATED PARTIES
In connection with the purchase of the Acquired Ciba Business, Hexcel
delivered 18,022 newly issued shares of Hexcel common stock to Ciba,
representing 49.9% of the Hexcel common stock issued and outstanding at that
date. In addition, the Company and Ciba entered into the Alliance Agreement
which currently provides for, among other things, the designation by Ciba of
four of the Company's ten directors, and the approval of a majority of these
four designated directors for the taking of certain significant actions by the
Company. On February 21, 1997, the Company consented to an assignment by Ciba of
Ciba's rights and obligations under the Alliance Agreement to CSC. In connection
with the assignment of these rights and obligations, all of the Hexcel common
stock previously held by Ciba is now held by CSC.
As discussed in Notes 2 and 7, Hexcel has delivered Senior Subordinated
Notes in an aggregate principal amount of $34,928 to Ciba in connection with the
purchase of the Acquired Ciba Business and has undertaken to deliver
approximately $2,300 additional Senior Subordinated Notes in connection with the
acquisition of certain assets of the Ciba Distributors. In connection with the
assignment of Ciba's rights and obligations under the Alliance Agreement, the
Senior Subordinated Notes that were previously payable to Ciba will be payable
to CSC. During 1996, the Company also delivered Senior Demand Notes to Ciba in
an aggregate principle amount of $5,329. The Senior Demand Notes were presented
for payment and paid in full prior to December 31, 1996. Aggregate interest
expense on the Senior Subordinated Notes in 1997 and 1996 was $2,762 and $2,715,
respectively.
Hexcel purchases certain raw materials from various CSC subsidiaries, as
successor to Ciba subsidiaries. In addition, the Company sells certain finished
products to various CSC subsidiaries, including the Ciba Distributors. The
Company's aggregate purchases from CSC subsidiaries and their predecessor Ciba
subsidiaries for 1997 and for the period from March 1, 1996 through December 31,
1996, were $34,255 and $15,116, respectively. The Company's aggregate sales to
CSC subsidiaries and their Ciba subsidiaries for the same periods were $5,620
and $32,408, respectively. These sales were primarily to the Ciba Distributors
F-21
<PAGE>
HEXCEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 9--RELATED PARTIES (CONTINUED)
pursuant to a distribution agreement, which expired February 28, 1997. In
addition, in 1997 and 1996 the Company incurred $1,234 and $214, respectively,
of expenses related to the Acquired Ciba Business that are subject to
reimbursement by CSC as successor to Ciba under the terms of the Strategic
Alliance Agreement. As of December 31, 1997 and 1996, aggregate receivables from
CSC or CSC subsidiaries and their Ciba predecessors included in "accounts
receivable" in the accompanying consolidated balance sheets were $400 and
$5,951, respectively. Aggregate payables to CSC or CSC subsidiaries and their
Ciba predecessors included in "accounts payable" and "accrued liabilities" as of
the same dates were $1,196 and $1,812, respectively.
NOTE 10--OTHER NON-CURRENT LIABILITIES
Other non-current liabilities as of December 31, 1997 and 1996, were:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Postretirement benefit liability (see Note 12).......................... $ 14,066 $ 13,726
Liability for environmental remediation activities...................... 5,080 7,070
Liability for business consolidation activities (see Note 3)............ -- 3,577
Liability for DIC-Hexcel Limited (see Note 6)........................... -- 3,250
Pension and retirement liability (see Note 11).......................... 2,702 2,206
Deferred tax liability (see Note 13).................................... 2,970 1,433
Other................................................................... 10,998 15,152
--------- ---------
Other non-current liabilities........................................... $ 35,816 $ 46,414
--------- ---------
--------- ---------
</TABLE>
NOTE 11--RETIREMENT PLANS
Hexcel maintains a retirement savings and contribution plan and a defined
benefit retirement plan covering most U.S. employees, except for certain
employees with union affiliations. In addition, the Company maintains a separate
retirement savings plan available to certain U.S. employees with union
affiliations, and contributes to a union sponsored multi-employer pension plan
covering these same employees. The Company also maintains various retirement
plans covering certain European employees, as well as defined benefit
supplemental retirement plans for eligible senior executives. The net expense to
the Company of all of these retirement plans was $11,500 in 1997, $9,107 in 1996
and $2,768 in 1995.
Under the U.S. retirement savings and contribution plan, eligible employees
may contribute up to 16% of their compensation to an individual retirement
savings account. Hexcel makes matching contributions to individual retirement
savings accounts equal to 50% of employee contributions, not to exceed 3% of
employee compensation. Furthermore, the Company makes profit sharing
contributions of up to an additional 4% of employee compensation when the
Company meets or exceeds certain annual performance targets. Matching
contributions to the U.S. retirement savings and contribution plan were $2,309
for 1997, $2,160 for 1996 and $1,290 for 1995. The profit sharing contributions
were $3,648 for 1997 and $3,236 for 1996. There was no profit sharing
contribution for 1995.
F-22
<PAGE>
HEXCEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 11--RETIREMENT PLANS (CONTINUED)
The U.S. defined benefit retirement plan is a career average pension plan
covering both hourly and salaried employees. Benefits are based on years of
service and the annual compensation of the employee. Hexcel's funding policy is
to contribute the minimum amount required by applicable regulations.
Hexcel maintains a separate retirement savings plan available to certain
U.S. employees with union affiliations of the composite structures business
acquired from Ciba on February 29, 1996. Under this plan, employees may
contribute up to 14% of their compensation to an individual retirement savings
account. There are no matching or profit sharing contributions. In addition, the
Company participates in a union sponsored multi-employer pension plan covering
these same employees. The Company's contributions to this plan were $1,326 for
1997 and $731 for 1996.
As part of the Acquired Ciba Business, the Company acquired a net pension
asset from a defined benefit retirement plan covering employees of a United
Kingdom subsidiary. Pursuant to the terms of the purchase agreement, these
employees continued to participate in a defined benefit retirement plan
sponsored by Ciba up to January 1, 1997, at which time, the accumulated benefit
obligation and net pension asset was valued and transferred to a newly created
plan sponsored by the Company.
The net periodic cost of Hexcel's defined benefit retirement plans for the
years ended December 31, 1997, 1996 and 1995, were:
<TABLE>
<CAPTION>
U.S. PLANS EUROPEAN PLANS
------------------------------- --------------------
1997 1996 1995 1997 1996
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Service cost--benefits earned during the year...... $ 2,310 $ 2,365 $ 661 $ 1,933 $ 150
Interest cost on projected benefit obligation...... 817 646 660 2,168 132
Return on plan assets--actual...................... (739) (477) (1,103) (6,799) (109)
Net amortization and deferral...................... 265 273 1,260 4,002 --
--------- --------- --------- --------- ---------
Net periodic pension cost.......................... $ 2,653 $ 2,807 $ 1,478 $ 1,304 $ 173
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
The following table sets forth the funded status of the plans as of December
31, 1997 and 1996:
<TABLE>
<CAPTION>
U.S. PLANS EUROPEAN PLANS
---------------------- --------------------
1997 1996 1997 1996
--------- ----------- --------- ---------
<S> <C> <C> <C> <C>
Actuarial present value of benefit obligations--
Vested benefit obligation............................... $ 12,424 $ 9,082 $ 22,813 $ 2,760
Non-vested benefit obligation........................... 613 473 -- --
--------- ----------- --------- ---------
Accumulated benefit obligation.......................... $ 13,037 $ 9,555 $ 22,813 $ 2,760
--------- ----------- --------- ---------
--------- ----------- --------- ---------
Projected benefit obligation............................ $ 14,910 $ 11,070 $ 32,627 $ 3,494
Plan assets at fair value............................... 8,343 5,974 44,557 2,405
--------- ----------- --------- ---------
Plan assets more (less) than projected benefit
obligation............................................ (6,567) (5,096) 11,930 (1,089)
Unrecognized net (gain) loss............................ 1,436 157 (3,311) --
Unrecognized net transition obligation.................. 169 212 -- --
Unrecognized prior service cost......................... 4 32 -- 1,183
--------- ----------- --------- ---------
Prepaid (accrued) pension liability..................... (4,958) (4,695) 8,619 94
--------- ----------- --------- ---------
less current portion.................................. 2,256 2,395 -- --
--------- ----------- --------- ---------
Long-term portion prepaid (accrued) pension liability... $ (2,702) $ (2,300) $ 8,619 $ 94
--------- ----------- --------- ---------
--------- ----------- --------- ---------
</TABLE>
F-23
<PAGE>
HEXCEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 11--RETIREMENT PLANS (CONTINUED)
Assumptions used to estimate the actuarial present value of benefit
obligations as of December 31, 1997, 1996 and 1995, were:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
U.S. defined benefit retirement plans:
Discount rate.................................................. 7.5% 7.5% 7.0%
Rate of increase in compensation............................... 4.5% 4.5% 4.0%
Expected long-term rate of return on plan assets............... 9.0% 9.0% 9.5%
</TABLE>
<TABLE>
<CAPTION>
1997 1996
-------------- --------------
<S> <C> <C>
European defined benefit retirement plans:
Discount rates.......................................... 6.5% - 7.0% 6.5% - 7.5%
Rates of increase in compensation....................... 2.0% - 5.0% 2.0% - 4.5%
Expected long-term rates of return on plan assets....... 6.5% - 7.5% 6.5% - 9.0%
</TABLE>
NOTE 12--POSTRETIREMENT HEALTH CARE AND LIFE INSURANCE BENEFITS
Hexcel provides certain postretirement health care and life insurance
benefits to eligible retirees. Substantially all U.S. employees hired on or
before December 31, 1995, are eligible for benefits, as well as certain U.S.
employees hired on February 29, 1996, in connection with the purchase of the
Acquired Ciba Business, and on June 27, 1996, in connection with the purchase of
the Acquired Hercules Business. Effective January 1, 1996, the Company amended
its postretirement benefit program to eliminate any benefits for employees hired
after December 31, 1995, other than senior executives and certain employees
hired in connection with business acquisitions.
Benefits are available to eligible employees who retire on or after age 58
after rendering at least 15 years of service to Hexcel, including years of
service rendered to the Acquired Ciba Business or the Acquired Hercules Business
prior to the dates of acquisition. Benefits consist of coverage of up to 50% of
the annual cost of certain health insurance plans, as well as annual life
insurance coverage equal to 65% of the final base pay of the retiree until the
age of 70. Upon reaching 70 years of age, life insurance coverage is reduced.
Effective January 1, 1996, Hexcel amended its postretirement benefit program to
limit health care benefit coverage to selected health insurance plans for the
majority of active employees.
Hexcel funds postretirement health care and life insurance benefit costs on
a pay-as-you-go basis and, for 1997, 1996 and 1995, made benefit payments of
approximately $750, $400 and $600, respectively. Net defined postretirement
benefit costs for the years ended December 31, 1997, 1996 and 1995, were:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Service cost--benefits earned during the year....................... $ 91 $ 80 $ 279
Interest cost on accumulated postretirement
benefit obligation................................................ 752 701 780
Net amortization and deferral....................................... (213) (222) (201)
--------- --------- ---------
Net periodic postretirement benefit cost............................ $ 630 $ 559 $ 858
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-24
<PAGE>
HEXCEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 12--POSTRETIREMENT HEALTH CARE AND LIFE INSURANCE BENEFITS (CONTINUED)
Defined postretirement benefit liabilities as of December 31, 1997 and 1996,
were:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees................................................................ $ 7,483 $ 7,302
Fully eligible active plan participants................................. 1,897 1,658
Other active plan participants.......................................... 1,456 1,031
--------- ---------
10,836 9,991
Unrecognized prior service credit....................................... 556 890
Unrecognized net gain................................................... 3,210 3,567
--------- ---------
Defined postretirement benefit liability................................ 14,602 14,448
less current portion of postretirement benefit liability.............. (536) (722)
--------- ---------
Deferred postretirement benefit liability (see Note 10)................. $ 14,066 $ 13,726
--------- ---------
--------- ---------
</TABLE>
Two health care cost trend rates were used in measuring the accumulated
postretirement benefit obligation. For indemnity health care costs, the assumed
cost trend in 1997 was 10.0% for participants less than 65 years of age and 6.0%
for participants 65 years of age and older, gradually declining to 5.0% for both
age groups in the year 2002. For Health Maintenance Organization health care
costs, the assumed cost trend in 1997 was 7.0% for participants less than 65
years of age and 4.0% for participants 65 years of age and older, gradually
declining to 5.0% and 4.0%, respectively, in the year 1999.
The weighted average discount rate used in determining the accumulated
postretirement benefit obligation was 7.0% in 1997 and 7.5% in 1996. The rate of
increase in compensation used in determining the obligation was 4.5% in 1997 and
1996 and 4.0% in 1995.
If the health care cost trend rate assumptions were increased by 1.0%, the
accumulated postretirement benefit obligation as of December 31, 1997 would be
increased by 6.1%. The effect of this change on the sum of the service cost and
interest cost would be an increase of 5.6%.
F-25
<PAGE>
HEXCEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 13--INCOME TAXES
PROVISION FOR INCOME TAXES
Income (loss) before income taxes and the (benefit) provision for income
taxes from continuing operations for the years ended December 31, 1997, 1996 and
1995, were:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ---------
<S> <C> <C> <C>
Income (loss) before income taxes:
U.S. ..................................................... $ 24,197 $ (11,956) $ (1,027)
International............................................. 26,555 (3,798) 7,541
---------- ---------- ---------
Total income (loss) before income taxes............... $ 50,752 $ (15,754) $ 6,514
---------- ---------- ---------
---------- ---------- ---------
Provision (benefit) for income taxes:
Current:
U.S. ..................................................... $ 798 $ (1,600) $ 197
International............................................. 9,527 5,556 3,445
---------- ---------- ---------
Current provision for income taxes.......................... 10,325 3,956 3,642
---------- ---------- ---------
Deferred:
U.S. ..................................................... (33,935) -- --
International............................................. 732 (520) (329)
---------- ---------- ---------
Deferred benefit for income taxes........................... (33,203) (520) (329)
---------- ---------- ---------
Total (benefit) provision for income taxes............ $ (22,878) $ 3,436 $ 3,313
---------- ---------- ---------
---------- ---------- ---------
</TABLE>
A reconciliation of the (benefit) provision to the U.S. federal statutory
income tax rate of 35%, 34% and 34% for the years ended December 31, 1997, 1996
and 1995, is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---------- --------- ---------
<S> <C> <C> <C>
Provision (benefit) at U.S. federal statutory rate............ $ 17,763 $ (5,356) $ 2,215
U.S. state taxes, less federal tax benefit.................... 519 21 (254)
Impact of different international tax rates, adjustments to
income tax accruals and other............................... 18,773 (9,656) 492
Valuation allowance........................................... (59,933) 18,427 860
---------- --------- ---------
Total (benefit) provision for income taxes.............. $ (22,878) $ 3,436 $ 3,313
---------- --------- ---------
---------- --------- ---------
</TABLE>
In accordance with Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" ("SFAS 109"), in 1996 and 1995 the Company had
fully provided valuation allowance reserves against its net deferred tax assets
primarily in the U.S. and Belgium where there were uncertainties in generating
sufficient future taxable income. In 1997, the Company reversed $59.9 million of
its valuation allowance reserve as follows: $17.0 million due to current year
profitable U.S. operations, $39.0 million due to the Company's assessment that
the realization of the remaining U.S. net deferred tax assets is more likely
than not, and $3.9 million in Belgium due to a gain on sale of certain tangible
and intangible assets to other Hexcel subsidiaries. The Company continues to
reserve the balance of the net deferred tax asset related to its Belgium
operations.
F-26
<PAGE>
HEXCEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 13--INCOME TAXES (CONTINUED)
The Company has made no U.S. income tax provision for approximately $46,000
of undistributed earnings of international subsidiaries as of December 31, 1997.
Such earnings are considered to be permanently reinvested. The additional U.S.
income tax on these earnings, if repatriated, would be offset in part by foreign
tax credits.
DEFERRED INCOME TAXES
Deferred income taxes result from temporary differences between the
recognition of items for income tax purposes and financial reporting purposes.
Principal temporary differences as of December 31, 1997 and 1996, were:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Net operating loss carryforwards........................................ $ 21,000 $ 33,922
Reserves and other, net................................................. 31,580 37,596
Accrued business acquisition and consolidation expenses................. 4,380 9,128
Accelerated depreciation and amortization............................... (16,690) (13,646)
Valuation allowance..................................................... (8,500) (68,433)
--------- ---------
Net deferred tax asset (liability)...................................... $ 31,770 $ (1,433)
--------- ---------
--------- ---------
</TABLE>
NET OPERATING LOSS CARRYFORWARDS
As of December 31, 1997, Hexcel had net operating loss ("NOL") carryforwards
for U.S. federal and Belgium income tax purposes of approximately $53,000 and
$5,000, respectively. The U.S. NOL carryforwards, which are available to offset
future taxable income, expire at various dates through the year 2010. As a
result of the ownership change, which occurred in connection with the purchase
of the Acquired Ciba Business, the Company has a limitation on the utilization
of U.S. NOL carryforwards of approximately $12,000 per year.
NOTE 14--STOCK-BASED INCENTIVE PLANS
The Hexcel Corporation Incentive Stock Plan as amended and restated
("Incentive Stock Plan"), authorizes the use of Hexcel common stock for
providing a variety of stock-based incentive awards to eligible employees,
officers, directors and consultants. The Incentive Stock Plan provides for
grants of stock options, stock appreciation rights, restricted stock and
restricted stock units, and other stock-based awards. In May 1997, Hexcel's
stockholders increased the aggregate number of shares of Hexcel common stock
available for use under the Incentive Stock Plan by 3,850 to 4,013. As of
December 31, 1997, 1,193 options were vested.
As of December 31, 1997 and 1996, the Company had outstanding a total of 352
and 286, respectively, of performance accelerated restricted stock units
("PARS"). Subject to certain conditions of employment, PARS vest in increments
through 2004, subject to accelerated vesting under certain circumstances, and
are convertible into an equal number of shares of Hexcel common stock. As of
December 31, 1997, no PARS were vested.
F-27
<PAGE>
HEXCEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 14--STOCK-BASED INCENTIVE PLANS (CONTINUED)
In May 1997, Hexcel's stockholders approved the Management Stock Purchase
Plan (the "MSPP"). The MSPP authorizes an aggregate of 150 shares of Hexcel
common stock for use by the Company in providing stock-based incentive awards to
senior executives and certain key management employees. Eligible executives and
employees may purchase Restricted Stock Units ("Units") for up to 50% of their
annual bonus pursuant to an irrevocable election made previously. Each Unit is
purchased at 80% of the fair market value (as defined in the MSPP) of the
Company's common stock at the date the bonus becomes available and is restricted
for a period of three years. Subject to certain conditions of employment, the
Units vest equally over a period of three years, and upon expiration of the
restricted period are convertible on a one-to-one basis for shares of Hexcel
common stock. No Units had been purchased as of December 31, 1997.
In December 1997, the Board of Directors resolved to permit non-employee
directors to elect to receive a portion or all of their annual retainer fees in
the form of non-qualified stock options issued under the Incentive Stock Plan.
These options may be used to purchase common stock of the Company at a price of
50% of the fair market value at the date of grant. Options vest proportionately
over a period of one year from the date of grant. No such options had been
granted as of December 31, 1997.
Stock option data for the three years ended December 31, 1997, 1996 and
1995, were:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER OF EXERCISE
SHARES PRICE
----------- -----------
<S> <C> <C>
Options outstanding at January 1, 1995................................. 468 $ 12.37
Options granted........................................................ 787 $ 5.63
Options exercised...................................................... (1) $ 7.56
Options expired or canceled............................................ (240) $ 11.80
----- -----------
Options outstanding at December 31, 1995............................... 1,014 $ 7.27
Options granted........................................................ 1,577 $ 12.69
Options exercised...................................................... (447) $ 9.40
Options expired or canceled............................................ (85) $ 11.45
----- -----------
Options outstanding at December 31, 1996............................... 2,059 $ 10.36
Options granted........................................................ 3,094 $ 18.24
Options exercised...................................................... (289) $ 9.64
Options expired or canceled............................................ (25) $ 15.51
----- -----------
Options outstanding at December 31, 1997............................... 4,839 $ 15.39
----- -----------
----- -----------
</TABLE>
F-28
<PAGE>
HEXCEL CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 14--STOCK-BASED INCENTIVE PLANS (CONTINUED)
The following table summarizes information about stock options outstanding
at December 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------ ------------------------
WEIGHTED WEIGHTED WEIGHTED
NUMBER OF AVERAGE AVERAGE NUMBER OF AVERAGE
RANGE OF OPTIONS REMAINING EXERCISE OPTIONS EXERCISE
EXERCISE PRICES OUTSTANDING LIFE (IN YEARS) PRICE EXERCISABLE PRICE
- ------------------------ ------------- --------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
$ 4.75- 5.00............ 160 7.3 $ 4.75 160 $ 4.75
$ 5.01-10.00............ 373 5.5 $ 5.99 335 $ 6.10
$10.01-15.00............ 1,211 8.0 $ 12.43 648 $ 12.42
$15.01-20.00............ 3,058 9.1 $ 18.13 49 $ 16.71
$20.01-25.00............ 15 9.2 $ 20.13 -- --
$25.01-30.00............ 20 9.6 $ 27.39 1 $ 29.38
$30.01-32.06............ 2 9.2 $ 30.49 -- $ 32.06
--
----- ----------- ----- -----------
$ 4.75-32.06............ 4,839 8.5 $ 15.39 1,193 $ 9.80
--
--
----- ----------- ----- -----------
----- ----------- ----- -----------
</TABLE>
EMPLOYEE STOCK PURCHASE PLAN ("ESPP")
In July 1997, the Company established an ESPP to provide eligible employees
an additional opportunity to share in the ownership of Hexcel. The maximum
number of shares of common stock reserved for issuance under the ESPP is 200.
Under the ESPP, eligible employees may contribute up to 10% of their base
earnings toward the quarterly purchase of the Company's common stock at a
purchase price equal to 85% of the fair market value of the common stock on the
purchase date. During 1997, approximately 3 shares of common stock were issued
under the ESPP.
PRO FORMA DISCLOSURES
In 1996, Hexcel adopted the disclosure requirements of SFAS 123, which
provide for the disclosure of pro forma net earnings and net earnings per share
as if the fair value method were used to account for stock-based employee
incentive plans. Pursuant to SFAS 123, the Company has elected to continue to
use the intrinsic value method to account for its stock option plans in the
accompanying consolidated financial statements, in accordance with APBO No. 25.
F-29
<PAGE>
HEXCEL CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 14--STOCK-BASED INCENTIVE PLANS (CONTINUED)
If compensation expense had been determined for stock options granted in
1997, 1996 and 1995 using the fair value method at the date of grant, consistent
with the provisions of SFAS 123, Hexcel's pro forma net income (loss) and
diluted income (loss) per share would have been as follows:
<TABLE>
<CAPTION>
1997 1996 1995
--------- ---------- ---------
<S> <C> <C> <C>
Net income (loss), as reported............................... $ 73,630 $ (19,190) $ 2,733
Pro forma compensation adjustment............................ (6,275) (43) (1,029)
--------- ---------- ---------
Pro forma net income (loss).................................. $ 67,355 $ (19,233) $ 1,704
--------- ---------- ---------
--------- ---------- ---------
Diluted net income (loss) per share, as reported............. $ 1.74 $ (0.58) $ 0.20
Pro forma compensation adjustment............................ (0.14) 0.02 (0.06)
--------- ---------- ---------
Pro forma diluted net income (loss) per share................ $ 1.60 $ (0.56) $ 0.14
--------- ---------- ---------
--------- ---------- ---------
</TABLE>
The weighted average fair value of options granted during 1997, 1996 and
1995 were $18.24, $12.75 and $5.63, respectively. The following ranges of
assumptions were used in the Black-Scholes pricing models for options granted in
1997, 1996 and 1995: risk-free interest of 5.6% to 6.2%, estimated volatility of
40% to 49%, and an expected life of 3.6 years to 4.7.
During 1996, the Company recognized $3,635 of compensation expense under the
intrinsic value method resulting from stock options which vested in connection
with the purchase of the Acquired Ciba Business. This compensation expense was
based on the difference between the exercise price of the stock options granted
and the market price of Hexcel common stock on the date that the Company's
stockholders approved the Incentive Stock Plan under which these options were
granted. The recognition of compensation expense in connection with these stock
options resulted in a corresponding $3,635 increase in the additional paid-in
capital of the Company.
NOTE 15--EARNINGS PER SHARE
In the fourth quarter of 1997, Hexcel adopted SFAS 128. SFAS 128 requires
the presentation of "Basic" earnings per share which represents net earnings
divided by the weighted average shares outstanding excluding all potential
common shares. A dual presentation of "Diluted" earnings per share reflecting
the dilutive effects of all potential common shares is also required. The
Diluted presentation is similar to fully diluted earnings per share under the
prior accounting standard.
F-30
<PAGE>
HEXCEL CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 15--EARNINGS PER SHARE (CONTINUED)
Computations of basic and diluted earnings (loss) per share for the years
ended December 31, 1997, 1996 and 1995, are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
--------- ---------- ---------
<S> <C> <C> <C>
Basic earnings (loss) per share:
Net income (loss) from continuing operations................ $ 73,630 $ (19,190) $ 3,201
--------- ---------- ---------
Weighted average common shares outstanding.................. 36,748 33,351 15,605
--------- ---------- ---------
Basic earnings (loss) per share............................. $ 2.00 $ (0.58) $ 0.21
--------- ---------- ---------
--------- ---------- ---------
Diluted earnings (loss) per share:
Net income (loss) from continuing operations................ $ 73,630 $ (19,190) $ 3,201
Effect of dilutive securities--
Senior Subordinated Notes, due 2003....................... 5,087 -- --
Senior Subordinated Debentures, due 2011.................. 1,111 -- --
--------- ---------- ---------
Adjusted net income (loss) from continuing operations....... $ 79,828 $ (19,190) $ 3,201
--------- ---------- ---------
Weighted average common shares outstanding.................. 36,748 33,351 15,605
Effect of dilutive securities--
Stock options............................................. 1,176 -- 137
Senior Subordinated Notes, due 2003....................... 7,239 -- --
Senior Subordinated Debentures, due 2011.................. 834 -- --
--------- ---------- ---------
Adjusted weighted average common shares outstanding......... 45,997 33,351 15,742
--------- ---------- ---------
Diluted earnings (loss) per share........................... $ 1.74 $ (0.58) $ 0.20
--------- ---------- ---------
--------- ---------- ---------
</TABLE>
The Convertible Subordinated Notes, due 2003, which were issued in 1996, and
the Convertible Subordinated Debentures, due 2011, were excluded from the 1996
and 1995 computations of diluted earnings (loss) per share, as applicable, as
they were antidilutive. Substantially all of the Company's stock options were
included in the calculation of diluted earnings per share for the year ended
December 31, 1997.
NOTE 16--CONTINGENCIES
Hexcel is involved in litigation, investigations and claims arising out of
the conduct of its business, including those relating to government contracts,
commercial transactions, and environmental, health and safety matters. The
Company estimates its liabilities resulting from such matters based on a variety
of factors, including outstanding legal claims and proposed settlements,
assessments by internal and external counsel of pending or threatened
litigation, and assessments by environmental engineers and consultants of
potential environmental liabilities and remediation costs. Such estimates
exclude counterclaims against other third parties. Such estimates are not
discounted to reflect the time value of money due to the uncertainty in
estimating the timing of the expenditures, which may extend over several years.
Although it is impossible to determine the level of future expenditures for
legal, environmental and related matters with any degree of certainty, it is the
Company's opinion, based on available information, that it is unlikely
F-31
<PAGE>
HEXCEL CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 16--CONTINGENCIES (CONTINUED)
that these matters, individually or in the aggregate, will have a material
adverse effect on the consolidated financial position, results of operations or
cash flows of the Company.
LEGAL AND ENVIRONMENTAL CLAIMS AND PROCEEDINGS
Hexcel has been named as a potentially responsible party with respect to
several hazardous waste disposal sites that it does not own or possess which are
included on the Superfund National Priority List of the U.S. Environmental
Protection Agency or on equivalent lists of various state governments. The
Company believes that its liability with respect to these sites is not material.
Pursuant to the New Jersey Environmental Responsibility and Clean-Up Act,
Hexcel signed an administrative consent order to pay for the environmental
remediation of a manufacturing facility it owns and formerly operated in Lodi,
New Jersey. The Company's estimate of the remaining cost to satisfy this consent
order is accrued in the accompanying consolidated balance sheets. The ultimate
cost of remediating the Lodi site will depend on developing circumstances.
In connection with the purchase of the Acquired Ciba Business, Hexcel
assumed various liabilities including a liability with respect to certain
environmental remediation activities at an acquired facility in Kent,
Washington. The Company is a party to a cost sharing agreement regarding the
operation of certain environmental remediation systems necessary to satisfy a
post-closure care permit issued to a previous owner of the Kent site by the U.S.
Environmental Protection Agency. Under the terms of the cost sharing agreement,
the Company is obligated to reimburse the previous owner for a portion of the
cost of the required remediation activities. The Company's estimate of its share
of the cost is accrued in the accompanying consolidated balance sheets as of
December 31, 1997 and 1996.
PRODUCT CLAIMS
In 1993, Hexcel became aware of an aluminum honeycomb sandwich panel
delamination problem with panels produced by its wholly-owned Belgium
subsidiary, Hexcel Composites S.A., and installed in rail cars in France and
Spain. Certain customers have alleged that Hexcel Composites S.A. is responsible
for the problem. The Company and its insurer continue to investigate these
claims. The Company is also working with the customers to repair or replace
panels when necessary, with certain costs to be allocated upon determination of
responsibility for the delamination. Two customers in France requested that a
court appoint experts to investigate the claims; to date, the experts have not
reported any conclusions. The Company's primary insurer for this matter has
agreed to fund legal representation and to provide coverage of the claim to the
extent of the policy limit. The Company believes that, based on available
information, it is unlikely that these claims will have a material adverse
effect on the consolidated financial position, results of operations or cash
flows of the Company.
U.S. GOVERNMENT CLAIMS
Hexcel, as a defense subcontractor, is subject to U.S. government audits and
reviews of negotiations, performance, cost classifications, accounting and
general practices relating to government contracts. Under the direction of the
Corporate Administrative Contracting Officer ("CACO"), the Defense Contract
Audit Agency ("DCAA") reviews cost accounting and business practices of
government contractors and subcontractors, including the Company. In 1996, the
Company was engaged in discussions with
F-32
<PAGE>
HEXCEL CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 16--CONTINGENCIES (CONTINUED)
the CACO and the DCAA regarding a number of cost accounting issues identified
during the course of various audits performed by the DCAA. The Company reached
an agreement with the CACO and the DCAA that resolved the primary issues
identified during the course of these audits. Under the terms of the agreement,
the Company paid the U.S. federal government $1,314 in exchange for the
irrevocable discharge of any claims with respect to the issues that were
resolved.
NOTE 17--RAW MATERIALS, SIGNIFICANT CUSTOMERS AND MARKETS
Hexcel purchases most of the raw materials used in production. Several key
materials are available from relatively few sources, and in many cases the cost
of product qualification makes it impractical to develop multiple sources of
supply. The unavailability of these materials, which the Company does not
anticipate, could have a material adverse effect on sales and earnings.
The Boeing Company ("Boeing") and Boeing subcontractors accounted for
approximately 36% of 1997 sales, 22% of 1996 sales and 21% of 1995 sales. The
Airbus Industrie ("Airbus") consortium and Airbus subcontractors accounted for
approximately 10% of 1997 and 1996 sales, and less than 10% of 1995 sales. The
loss of all or a significant portion of the business with Boeing or Airbus,
which Hexcel does not anticipate, could have a material adverse effect on sales
and earnings.
Net sales by market for the years ended December 31, 1997, 1996 and 1995,
were:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Commercial aerospace......................................... 64% 56% 45%
Space and defense............................................ 9 11 11
Recreation................................................... 7 10 9
General industrial and other................................. 20 23 35
--------- --------- ---------
Net sales.................................................... 100% 100% 100%
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-33
<PAGE>
HEXCEL CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 18--BUSINESS SEGMENT DATA
Hexcel operates within a single business segment: Advanced Structural
Materials. The following table summarizes certain financial data for continuing
operations by geographic area as of December 31, 1997, 1996 and 1995, and for
the years then ended:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Net sales to non-affiliates:
U.S.................................................... $ 598,555 $ 394,524 $ 197,665
International.......................................... 338,300 300,727 152,573
---------- ---------- ----------
Consolidated........................................... $ 936,855 $ 695,251 $ 350,238
---------- ---------- ----------
---------- ---------- ----------
Income (loss) before income taxes:
U.S.................................................... $ 34,684 $ (2,934) $ 2,912
International.......................................... 16,068 (12,820) 3,602
---------- ---------- ----------
Consolidated........................................... $ 50,752 $ (15,754) $ 6,514
---------- ---------- ----------
---------- ---------- ----------
Total assets:
U.S.................................................... $ 547,471 $ 429,025 $ 134,972
International.......................................... 264,115 272,711 95,630
---------- ---------- ----------
Consolidated........................................... $ 811,586 $ 701,736 $ 230,602
---------- ---------- ----------
---------- ---------- ----------
Capital expenditures:
U.S.................................................... $ 40,667 $ 27,217 $ 7,729
International.......................................... 16,702 16,352 4,415
---------- ---------- ----------
Consolidated........................................... $ 57,369 $ 43,569 $ 12,144
---------- ---------- ----------
---------- ---------- ----------
Depreciation and amortization:
U.S.................................................... $ 22,348 $ 15,239 $ 6,528
International.......................................... 13,449 11,491 5,095
---------- ---------- ----------
Consolidated........................................... $ 35,797 $ 26,730 $ 11,623
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The international segment is comprised primarily of operations in Western
Europe conducted by various European subsidiaries. International net sales
consist of the net sales of these European subsidiaries, sold primarily in
Europe.
U.S. net sales include U.S. exports to non-affiliates of $70,875 in 1997,
$53,333 in 1996 and $18,092 in 1995. Transfers from the Company's U.S.
subsidiaries to its international subsidiaries for the years ended December 31,
1997, 1996 and 1995 were $44,650, $30,390 and $18,590, respectively. Transfers
from the Company's international subsidiaries to its U.S. subsidiaries for the
years ended December 31, 1997, 1996 and 1995 were $22,700, $11,480 and $4,380,
respectively. Transfers between geographic areas are recorded on the basis of
arm's length prices established by the Company.
To compute income (loss) before income taxes, Hexcel allocated
administrative expenses to the international segment of $10,487 in 1997, $9,022
in 1996 and $3,939 in 1995.
F-34
<PAGE>
HEXCEL CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 19--SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental cash flow information, including non-cash financing and
investing activities, for the years ended December 31, 1997, 1996 and 1995,
consist of the following:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Cash paid for:
Interest...................................................... $ 22,300 $ 14,061 $ 8,345
Taxes......................................................... 3,929 8,911 3,864
Non-cash items:
Debt issued in connection with Ciba acquisition............... -- 37,231 --
Common stock issued in connection with Ciba Acquisition....... -- 144,174 --
Conversion of Senior Subordinated Notes....................... 50 -- --
Compensation expense in connection with the issuance of common
stock (see Note 14)......................................... -- 3,635 --
</TABLE>
NOTE 20--OTHER INCOME, NET
Other income of $2,994 recognized in 1996 is largely attributable to the
receipt of an additional $1,560 of cash in connection with the disposition of
the Chandler, Arizona manufacturing facility and certain related assets in 1994,
and to the receipt of $1,054 in partial settlement of a claim arising from the
sale of certain assets in 1991.
Other income of $791 recognized in 1995 is largely attributable to the
receipt of an additional $600 of cash in connection with the disposition of the
Chandler, Arizona manufacturing facility and certain related assets in 1994.
Hexcel sold its Chandler, Arizona manufacturing facility and certain related
assets, including technology, to Northrop Grumman Corporation ("Northrop") in
1994. Under the terms of the Chandler transaction, Hexcel retained a
royalty-free, non-exclusive license to use the technology sold to Northrop in
non-military applications. In addition, the Company will receive royalties from
Northrop on certain applications of the technology by Northrop. The Company
received net cash proceeds of $1,560 and $27,294 in relation to this sale in
1996 and 1995, respectively.
NOTE 21--BANKRUPTCY REORGANIZATION
On January 12, 1995, the U.S. Bankruptcy Court for the Northern District of
California ("the Bankruptcy Court") entered an order dated January 10, 1995,
confirming the First Amended Plan of Reorganization (the "Reorganization Plan")
proposed by Hexcel and the Official Committee of Equity Security Holders (the
"Equity Committee"). On February 9, 1995, the Reorganization Plan became
effective and Hexcel Corporation (a Delaware corporation) emerged from the
bankruptcy reorganization proceedings which had begun on December 6, 1993, when
Hexcel filed a voluntary petition for relief under the provisions of Chapter 11
of the federal bankruptcy laws.
The Reorganization Plan which became effective on February 9, 1995 provided
for, among other things: (a) the completion of the first closing under a standby
purchase commitment whereby Mutual
F-35
<PAGE>
HEXCEL CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 21--BANKRUPTCY REORGANIZATION (CONTINUED)
Series Fund Inc. ("Mutual Series") purchased 1,946 shares of newly issued Hexcel
common stock for $9,000 and loaned the Company $41,000 as an advance against the
proceeds of a subscription rights offering for additional shares of Hexcel
common stock; and (b) the reinstatement or payment in full, with interest, of
all allowed claims, including prepetition accounts payable and notes payable.
The subscription rights offering concluded on March 27, 1995, with the issuance
of an additional 7,156 shares of Hexcel common stock. The resulting cash
proceeds of $33,098 were used to reduce the outstanding balance of the loan from
Mutual Series. The second closing under the standby purchase agreement was
completed on April 6, 1995, with the issuance of an additional 1,590 shares of
Hexcel common stock to Mutual Series, the issuance of an additional 108 shares
of Hexcel common stock to John J. Lee, the Company's Chief Executive Officer,
and the retirement of the remaining balance of the Mutual Series loan.
The Reorganization Plan provided for the reinstatement or payment in full,
with interest, of all allowed claims, including prepetition accounts payable and
notes payable. On February 9, 1995, Hexcel paid $78,144 in prepetition claims
and interest, and reinstated another $60,575 in prepetition liabilities. The
payment of claims and interest on February 9, 1995 was financed with: (a) cash
proceeds of $26,694 received in the first quarter of 1995 from the sale of the
Company's Chandler, Arizona manufacturing facility and certain related assets
(see Note 20); (b) the $50,000 in cash received from Mutual Series in connection
with the standby purchase agreement; and (c) borrowings under a $45,000 U.S.
credit facility obtained on February 9, 1995. This $45,000 U.S. credit facility
was subsequently replaced by a secured credit facility on February 29, 1996,
which in turn was replaced by the Revolving Credit Facility on June 27, 1996
(see Notes 2 and 7).
Professional fees and other costs directly related to bankruptcy proceedings
were expensed as incurred, and have been reflected in the accompanying
consolidated statements of operations as "bankruptcy reorganization expenses."
Bankruptcy reorganization expenses consisted primarily of professional fees paid
to legal and financial advisors of Hexcel, the Equity Committee and the Official
Committee of Unsecured Creditors. In addition, these expenses included
incentives for employees to remain with the Company for the duration of
bankruptcy proceedings and the write-off of previously capitalized costs related
to the issuance of prepetition debt.
NOTE 22--DISCONTINUED OPERATIONS
In October of 1995, the Company sold its U.S. resins operations for net cash
proceeds that approximated the net book value of the assets sold. This sale,
which completed the divestiture of the Company's resins business, has been
accounted for as a discontinued operation in the accompanying consolidated
statements of operations and cash flows for 1995. The net sales of the
discontinued resins business were $6,944 in 1995.
F-36
<PAGE>
HEXCEL CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 23--QUARTERLY FINANCIAL DATA (UNAUDITED)
Quarterly financial data for the years ended December 31, 1997 and 1996,
were:
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
1997
Net sales.................................... $ 214,009 $ 241,629 $ 226,611 $ 254,606
Gross margin................................. 46,889 57,818 54,967 62,958
Business acquisition and consolidation
expenses................................... (2,899) (2,818) (15,433) (4,193)
Operating income............................. 16,384 24,516 9,331 26,226
Net income................................... 8,226 15,135 37,948 12,321
Earnings per share
Basic...................................... $ 0.22 $ 0.41 $ 1.03 $ 0.33
Diluted.................................... 0.22 0.38 0.87 0.30
Dividends per share.......................... -- -- -- --
Market price:
High....................................... $ 21.38 $ 20.00 $ 30.25 $ 31.75
Low........................................ 16.00 16.38 18.75 22.25
1996
Net sales.................................... $ 126,418 $ 166,770 $ 189,542 $ 212,521
Gross margin................................. 26,783 35,188 35,813 43,525
Business acquisition and consolidation
expenses................................... (5,211) (29,209) (1,382) (6,568)
Operating income (loss)...................... 4,090 (17,900) 8,789 7,810
Net income (loss)............................ 1,848 (23,667) 346 2,283
Basic and diluted net income (loss) per
share...................................... $ 0.07 $ (0.65) $ 0.01 $ 0.06
Dividends per share.......................... -- -- -- --
Market price:
High....................................... $ 13.13 $ 16.00 $ 20.00 $ 19.88
Low........................................ 10.63 11.50 12.75 15.75
</TABLE>
For the nine months ended September 30, 1997 and for the year ended December
31, 1996, except for the $39,000 reversal of the U.S. tax valuation allowance
reserve on September 30, 1997, there was no net federal tax provision recorded
on the Company's U.S. income (loss). Third quarter 1997 results include both the
$39,000 reversal of the U.S. tax valuation allowance reserve and an additional
charge of $13,000 to business acquisition and consolidation expenses in
connection with the Company's acquisition of the Fiberite assets. In addition,
first quarter 1996 results include other income of $2,697 (see Note 20).
F-37
<PAGE>
HEXCEL CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 24--SUBSEQUENT EVENTS (UNAUDITED)
REVOLVING CREDIT FACILITY
On March 5, 1998, the Company amended and restated its Revolving Credit
Facility (the "Amended Facility"). The Amended Facility provides for borrowing
capacity of up to $355,000 and extends the expiration date to March 2003.
Depending on certain predetermined ratios and other conditions, interest on
outstanding borrowings under the Amended Facility is computed at an annual rate
ranging from 0.313 to 1.125% in excess of the applicable London interbank rate
or, at the option of Hexcel, at the base rate of the administrative agent for
the lenders. In addition, the Amended Facility is subject to a commitment fee
ranging from approximately 0.188 to 0.375% per annum of the total facility.
The Amended Facility is secured by a pledge of stock of certain of Hexcel's
subsidiaries. In addition, the Company continues to be subject to various
financial covenants and restrictions, and is generally prohibited from paying
dividends or redeeming capital stock.
JOINT VENTURES
In January 1998, the Company reached an agreement in principle with Boeing
and Aviation Industries of China to form a joint venture, BHA Aero Composite
Parts Co., Ltd., to manufacture composite parts for secondary structures and
interior applications on commercial aircraft. This joint venture will be located
in Tianjin, China. In February 1998, the Company signed an agreement with
Boeing, Sime Darby Berhad and Malaysia Helicopter Services to form another joint
venture, Asian Composite Manufacturing Sdn. Bhd., to manufacture composite parts
for secondary structures for commercial aircraft. This joint venture will be
located in Alor Setar, Malaysia. Products manufactured by both joint ventures
will be shipped to the Company's Kent, Washington facility for final assembly,
inspection and shipment to Boeing as well as other customers worldwide. It is
anticipated that the first parts will be delivered to customers in 2000. The
Company's total estimated financial commitment to both of these joint ventures
will be approximately $31,000, which is expected to be made in increments
through 2000. However, completion of these projects and related investments
remain subject to certain significant conditions, including U.S. and foreign
government approvals.
STOCK-BASED INCENTIVE PLAN
On February 5, 1998, the Company adopted the 1998 Broad Based Stock
Incentive Plan (the "Broad Based Plan"), which authorizes the use of Hexcel
common stock for providing a variety of stock-based incentive awards to eligible
employees and consultants (but not to directors, officers and related
consultants). The Broad Based Plan provides for grants of stock options, stock
appreciation rights, restricted stock and restricted stock units, and other
stock-based awards. The aggregate number of shares of Hexcel common stock
available under the Broad Based Plan is 500.
F-38
<PAGE>
HEXCEL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER DECEMBER
30, 31,
1998 1997
----------- -----------
UNAUDITED
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................................... $ 3,870 $ 9,033
Accounts receivable............................................... 206,591 181,192
Inventories....................................................... 224,683 165,321
Prepaid expenses and other assets................................. 7,551 6,665
Deferred tax asset................................................ 16,955 24,839
----------- -----------
Total current assets.............................................. 459,650 387,050
----------- -----------
Property, plant and equipment....................................... 607,546 488,916
Less accumulated depreciation....................................... (185,971) (157,439)
----------- -----------
Net property, plant and equipment................................. 421,575 331,477
Intangibles and other assets........................................ 513,313 93,059
----------- -----------
Total assets........................................................ $1,394,538 $ 811,586
----------- -----------
----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable and current maturities of long-term liabilities..... $ 18,185 $ 13,858
Accounts payable.................................................. 83,009 70,011
Accrued liabilities............................................... 108,791 102,487
----------- -----------
Total current liabilities......................................... 209,985 186,356
----------- -----------
Long-term notes payable and capital lease obligations............... 803,195 304,546
Indebtedness to related parties..................................... 35,567 34,967
Other non-current liabilities....................................... 45,529 35,816
----------- -----------
Total liabilities................................................... 1,094,276 561,685
----------- -----------
Shareholders' equity:
Preferred stock, no par value, 20,000 shares authorized, no shares
issued or outstanding in 1998 and 1997............................ -- --
Common stock, $0.01 par value, 100,000 shares authorized, shares
issued and outstanding of 37,135 in 1998 and 36,891 in 1997....... 371 369
Additional paid-in capital.......................................... 270,879 266,830
Retained earnings (accumulated deficit)............................. 33,005 (15,541)
Cumulative currency translation adjustment.......................... 6,660 (1,104)
----------- -----------
310,915 250,554
Less-treasury stock, at cost, 847 shares in 1998, 35 shares in
1997.............................................................. (10,653) (653)
----------- -----------
Total shareholders' equity.......................................... 300,262 249,901
----------- -----------
Total liabilities and shareholders' equity.......................... $1,394,538 $ 811,586
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
F-39
<PAGE>
HEXCEL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------
1998 1997
---------- ----------
<S> <C> <C>
UNAUDITED
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
Net sales............................................................................... $ 785,581 $ 682,249
Cost of sales........................................................................... 586,417 522,577
---------- ----------
Gross margin............................................................................ 199,164 159,672
Selling, general and administrative expenses............................................ 82,092 74,769
Research and technology expenses........................................................ 16,906 13,524
Business acquisition and consolidation expenses......................................... 711 21,150
---------- ----------
Operating income........................................................................ 99,455 50,229
Interest expense........................................................................ 23,167 18,288
---------- ----------
Income before income taxes.............................................................. 76,288 31,941
Provision (benefit) for income taxes.................................................... 27,742 (29,366)
---------- ----------
Net income.............................................................................. $ 48,546 $ 61,307
---------- ----------
---------- ----------
Net income per share:
Basic................................................................................. $ 1.32 $ 1.67
Diluted............................................................................... 1.15 1.48
Weighted average shares:
Basic................................................................................. 36,800 36,711
Diluted............................................................................... 46,134 45,474
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
F-40
<PAGE>
HEXCEL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------
1998 1997
--------- ---------
UNAUDITED
(IN THOUSANDS)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income............................................................. $ 48,546 $ 61,307
Reconciliation to net cash provided (used) by operations:
Depreciation and amortization........................................ 30,932 28,011
Deferred income taxes................................................ 7,475 (39,000)
Write-off of purchased in-process technologies....................... -- 8,000
Business acquisition and consolidation payments...................... (6,929) (27,342)
Accrued business acquisition and consolidation expenses.............. 711 21,150
Working capital changes and other.................................... (32,649) (71,185)
--------- ---------
Net cash provided (used) by operating activities....................... 48,086 (19,059)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures................................................... (41,703) (31,695)
Cash paid for the Clark-Schwebel Business, net of $5,049 of acquired
cash................................................................. (453,027) --
Cash paid for the Acquired Fiberite Assets............................. -- (37,000)
Proceeds from sale of an interest in a joint venture................... -- 5,000
Other.................................................................. (1,250) (2,000)
--------- ---------
Net cash used by investing activities.................................. (495,980) (65,695)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from the senior and revolving credit facilities, and
short-term debt, net................................................. 442,343 80,085
Proceeds (repayments) on long-term debt, net........................... 554 (6,746)
Purchase of treasury stock............................................. (10,000) --
Activity under stock plans............................................. 4,051 4,938
--------- ---------
Net cash provided by financing activities.............................. 436,948 78,277
--------- ---------
Effect of exchange rate changes on cash and cash equivalents............. 5,783 1,643
--------- ---------
Net decrease in cash and cash equivalents................................ (5,163) (4,834)
Cash and cash equivalents at beginning of year........................... 9,033 7,975
--------- ---------
Cash and cash equivalents at end of period............................... $ 3,870 $ 3,141
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
F-41
<PAGE>
HEXCEL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
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 September 30, 1998, and
the results of operations for the nine months ended September 30, 1998 and 1997,
and the cash flows for the nine months ended September 30, 1998 and 1997. The
condensed consolidated balance sheet of the Company as of December 31, 1997 was
derived from the audited 1997 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 period amounts in the condensed consolidated financial
statements and notes have been reclassified to conform to the 1998 presentation.
These condensed consolidated financial statements should be read in conjunction
with the consolidated financial statements and notes thereto included in the
Company's 1997 Annual Report on Form 10-K.
As discussed in Note 2, Hexcel acquired from Clark-Schwebel, Inc. and its
subsidiaries (collectively "C-S") certain assets and assumed certain operating
liabilities of its industrial fabrics business (the "Clark-Schwebel Business")
on September 15, 1998. Accordingly, the condensed consolidated balance sheet as
of September 30, 1998 includes the financial position of the Clark-Schwebel
Business as of that date, and the condensed consolidated statements of
operations and cash flows include the results of operations and cash flows of
the Clark-Schwebel Business since the date of acquisition.
NOTE 2--BUSINESS ACQUISITION
On September 15, 1998, the Company acquired certain assets and assumed
certain operating liabilities from C-S. The Clark-Schwebel Business is engaged
in the manufacturing and sale of high-quality fiberglass fabrics, which are used
in printed circuit boards found in electronic products, including computers,
cellular telephones, televisions, automobiles and home appliances. The
Clark-Schwebel Business also produces high performance specialty products for
use in insulation, filtration, wall and facade claddings, ballistics and
reinforcements for composite materials. The Clark-Schwebel Business operates
four manufacturing facilities in the southeastern U.S. and has approximately
1,300 full time employees. As part of its purchase of the Clark-Schwebel
Business, Hexcel also acquired from C-S significant equity ownership interests
in two joint ventures:
- a 43.3% share in Asahi-Schwebel Co., Ltd. ("Asahi-Schwebel"),
headquartered in Japan, which in turn has its own joint venture with
Allied Signal in Taiwan; and
- a 50% share in Clark-Schwebel Tech-Fab Company, headquartered in the U.S.
In addition, Hexcel has a contractual agreement to purchase a 43.6% share in
CS-Interglas AG ("CS-Interglas"), together with fixed-price options to increase
this equity interest to 84%. Hexcel's purchase of this joint venture interest
will be consummated when German regulatory approval is obtained.
CS-Interglas and Asahi-Schwebel are fiberglass fabric producers serving the
European and Asian electronics and telecommunications industries. In addition,
CS-Interglas and Asahi-Schwebel have announced plans to build and operate a
jointly owned facility in the Philippines to serve the printed circuit board
laminating market in Southeast Asia. Clark-Schwebel Tech-Fab manufactures
non-woven materials for roofing, construction and other specialty applications.
F-42
<PAGE>
HEXCEL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 2--BUSINESS ACQUISITION (CONTINUED)
The acquisition of the 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 C-S (the "Asset Purchase Agreement"). Under
the Asset Purchase Agreement, Hexcel acquired the net assets of the
Clark-Schwebel Business other than certain excluded assets and liabilities, in
exchange for approximately $453,000 in cash, subject to certain potential
adjustments. Hexcel also agreed to lease $50,000 of property, plant and
equipment used in the Clark-Schwebel Business from an affiliate of C-S, pursuant
to a long-term lease with purchase options. The Company has accounted for the
acquisition of the Clark-Schwebel Business using the purchase method of
accounting.
C-S currently owns 43.6% of the outstanding common stock of C-S Interglas
and has options to purchase up to an additional 40% of the common stock in C-S
Interglas. As part of the acquisition of the Clark-Schwebel Business, the
Company paid $11,000 as a prepayment for the acquisition of C-S's interest in
C-S Interglas. The Company has also agreed to pay an additional $19,000 to
purchase the interest in C-S Interglas upon approval of the German Federal
Cartel Commission. If such approval is not received on or before January 24,
1999, either the Company or C-S may terminate the Company's obligation to
acquire the joint venture interest, in which case the Company's commitment to
pay the additional $19,000 will be extinguished and the Company will be entitled
to receive a share of the sales proceeds resulting from the disposition of the
joint venture interest by C-S.
In connection with the acquisition of the Clark-Schwebel Business, the
Company obtained a new global credit facility (the "Senior Credit Facility")
that provides for up to $910,000 of borrowing capacity. Borrowings under the
Senior Credit Facility were used to: (a) fund the cash purchase price of
approximately $453,000; (b) refinance the Company's previous revolving credit
facility; and (c) provide for ongoing working capital and other financing
requirements of the Company.
HISTORICAL AND PRO FORMA FINANCIAL INFORMATION
The assets acquired and the liabilities assumed or incurred in connection
with the acquisition of the Clark-Schwebel Business were:
<TABLE>
<S> <C>
Estimated fair value of assets acquired:
Cash............................................................ $ 5,049
Accounts receivable............................................. 20,249
Inventories..................................................... 39,582
Net property, plant and equipment............................... 70,000
Investments in joint ventures, intangibles and other assets..... 49,389
Goodwill........................................................ 360,469
---------
Total assets acquired......................................... 544,738
---------
Estimated fair value of liabilities assumed or incurred:
Accounts payable and accrued liabilities........................ 32,523
Capital lease obligations....................................... 50,000
Other non-current liabilities................................... 4,139
---------
Total liabilities assumed or incurred......................... 86,662
---------
Estimated fair value of net assets acquired....................... $ 458,076
---------
---------
Less- cash acquired............................................... (5,049)
---------
Net cash paid for the Clark-Schwebel Business..................... $ 453,027
---------
---------
</TABLE>
F-43
<PAGE>
HEXCEL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 2--BUSINESS ACQUISITION (CONTINUED)
The allocations of purchase price to the assets acquired and liabilities
assumed or incurred in connection with the purchase of the Clark-Schwebel
Business are based on current estimates of fair values, and are subject to
change until September 15, 1999. The estimated fair value of net assets acquired
does not include the additional $19,000 needed to acquire the 43.6% C-S
Interglas joint venture interest.
The pro forma net sales, net income and diluted earnings per share of Hexcel
for the nine months periods ended September 30, 1998 and 1997, giving effect to
the acquisition of the Clark-Schwebel Business as if the acquisition had
occurred at the beginning of the periods presented, were:
<TABLE>
<CAPTION>
THE NINE MONTHS ENDED SEPTEMBER 30,
------------------------------------------
1998 1997
------------------ -----------------
<S> <C> <C>
Pro forma net sales.................................... $931,309 $862,655
Pro forma net income................................... 48,434 61,854
Pro forma diluted earnings per share................... $ 1.15 $ 1.49
</TABLE>
NOTE 3--INVENTORIES
Inventories as of September 30, 1998 and December 31, 1997 were:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998 DECEMBER 31, 1997
------------------ -----------------
<S> <C> <C>
Raw materials.......................................... $ 111,296 $ 90,429
Work in progress....................................... 63,625 47,953
Finished goods......................................... 49,762 26,939
-------- --------
Total inventories...................................... $ 224,683 $ 165,321
-------- --------
-------- --------
</TABLE>
Inventories as of September 30, 1998, include $40,061 from the
Clark-Schwebel Business
F-44
<PAGE>
HEXCEL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 4--NOTES PAYABLE, CAPITAL LEASE OBLIGATIONS AND INDEBTEDNESS TO RELATED
PARTIES
Notes payable, capital lease obligations and indebtedness to related parties
as of September 30, 1998 and December 31, 1997 were:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998 DECEMBER 31, 1997
------------------ -----------------
<S> <C> <C>
Senior credit facility..................................................... $ 611,916 $ --
Revolving credit facility.................................................. -- 158,267
European credit and overdraft facilities................................... 13,620 13,909
Convertible subordinated notes, due 2003................................... 114,435 114,450
Convertible subordinated debentures, due 2011.............................. 25,625 25,625
Various notes payable...................................................... 548 680
-------- --------
Total notes payable........................................................ 766,144 312,931
Capital lease obligations.................................................. 55,236 5,473
Senior subordinated notes payable to various wholly-owned subsidiaries of
Ciba Specialty Chemicals Corp., who beneficially owns 49.7% of the
Company's outstanding stock, net of unamortized discount of $1,909 and
$2,233 as of September 30, 1998 and December 31, 1997, respectively...... 35,567 34,967
-------- --------
Total notes payable, capital lease obligations and indebtedness to
related parties.......................................................... $ 856,947 $ 353,371
-------- --------
-------- --------
Notes payable and current maturities of long-term liabilities.............. $ 18,185 $ 13,858
Long-term notes payable and capital lease obligations, less current
maturities............................................................... 803,195 304,546
Indebtedness to related parties............................................ 35,567 34,967
-------- --------
Total notes payable, capital lease obligations and indebtedness to
related parties.......................................................... $ 856,947 $ 353,371
-------- --------
-------- --------
</TABLE>
SENIOR CREDIT FACILITY
In connection with the acquisition of the Clark-Schwebel Business (see Note
2) on September 15, 1998, Hexcel obtained the Senior Credit Facility to: (a)
fund the purchase of the Clark-Schwebel Business; (b) refinance the Company's
then existing revolving credit facility; and (c) provide for ongoing working
capital and other financing requirements of the Company. The Senior Credit
Facility provides for up to $910,000 of borrowing capacity.
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
certain commitments under the facility.
The Senior Credit Facility is secured by a pledge of stock of certain of
Hexcel's subsidiaries. In addition, the Company is subject to various financial
covenants and restrictions under the Senior Credit
F-45
<PAGE>
HEXCEL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 4--NOTES PAYABLE, CAPITAL LEASE OBLIGATIONS AND INDEBTEDNESS TO RELATED
PARTIES (CONTINUED)
Facility, and is generally prohibited from paying dividends or redeeming capital
stock beyond certain specified limits. Approximately $690,000 of the Senior
Credit Facility expires by September 2004, with the balance expiring in
September 2005, in each case unless terminated earlier under certain
circumstances.
The Senior Credit Facility replaced the Company's previous revolving credit
facility, which had provided up to $355,000 of borrowing capacity. Interest on
outstanding borrowings depended upon certain predetermined ratios and other
conditions and was computed at an annual rate ranging from approximately 0.3% to
1.1% in excess of the applicable London interbank rate or, at the option of
Hexcel, at an annual rate ranging from approximately 0 to .13% in excess of the
base rate of the administrative agent for the lenders. In addition, the
revolving credit facility was subject to a commitment fee ranging from
approximately 0.19 to 0.38% per annum of the total facility. The revolving
credit facility, prior to its replacement, would have expired in March 2003,
unless terminated earlier under certain circumstances.
CAPITAL LEASE OBLIGATION
Hexcel also entered into a $50,000 capital lease for property, plant and
equipment used in the Clark-Schwebel Business (see Note 2). The lease expires in
September 2006 and includes various purchase options.
NOTE 5--BUSINESS ACQUISITION AND CONSOLIDATION EXPENSES
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. The business consolidation program was also intended to eliminate
excess manufacturing capacity and redundant administrative functions.
As of September 30, 1998, the primary remaining activities of the business
consolidation program relate to the Company's European operations and certain
customer qualifications of equipment transferred within the U.S. These
qualification requirements increase the complexity, cost and time of moving
equipment and rationalizing manufacturing activities. As a result, the Company
continues to expect that the business consolidation program will take to the end
of 1998 to complete. Total expenses for the business consolidation program,
which remains unchanged since December 31, 1997, were $54,700. The Company
anticipates no significant additional expenses in relation to this program. As
of December 31, 1997 and September 30, 1998, accrued business consolidation
costs, representing estimated cash expenditures remaining to complete the
program, were approximately $12,000 and $7,900 respectively.
This business consolidation program does not include any activities that may
result from the integration of the Company's Clark-Schwebel Business. As of
September 30, 1998, the Company wrote off $711 of business acquisition and
consolidation expenses relating to transaction costs for a proposed acquisition
that was not consummated.
NOTE 6--PROVISION FOR INCOME TAXES
The effective income tax rate for the nine months ended September 30, 1998
was 36%. For the nine months ended September 30, 1997, the benefit for income
taxes was $29,366, which included a $39,000 reversal of a U.S. tax valuation
allowance.
F-46
<PAGE>
HEXCEL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 6--PROVISION FOR INCOME TAXES (CONTINUED)
Prior to September 30, 1997, the Company had fully provided valuation
allowances against its U.S. net deferred tax assets as there were uncertainties
in generating sufficient future taxable income to realize these net deferred tax
assets. On September 30, 1997, the Company reversed its U.S. tax valuation
allowance as it was more likely than not that these tax assets would be
realized. As a result, excluding the $39,000 U.S. valuation allowance reversal,
no provision for U.S. federal income taxes had been recorded for the nine months
ended September 30, 1997 due to the utilization of net operating loss
carryforwards. Since September 30, 1997, U.S. federal income taxes have been
provided at approximately the statutory rate.
NOTE 7--EARNINGS PER SHARE
Computations of basic and diluted earnings per share are as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------
1998 1997
--------- ---------
<S> <C> <C>
Basic earnings per share:
Net income................................................................ $ 48,546 $ 61,307
Weighted average common shares outstanding................................ 36,800 36,711
--------- ---------
Basic earnings per share.................................................. $ 1.32 $ 1.67
--------- ---------
--------- ---------
</TABLE>
<TABLE>
<CAPTION>
Diluted earnings per share:
<S> <C> <C>
Net income................................................................ $ 48,546 $ 61,307
Effect of dilutive securities -
Senior Subordinated Notes, due 2003..................................... 3,845 5,994
Senior Subordinated Debentures, due 2011................................ 861 --
--------- ---------
Adjusted net income....................................................... $ 53,252 $ 67,301
--------- ---------
Weighted average common shares outstanding................................ 36,800 36,711
Effect of dilutive securities -
Stock options........................................................... 1,262 1,522
Senior Subordinated Notes, due 2003..................................... 7,238 7,241
Senior Subordinated Notes, due 2011..................................... 834 --
--------- ---------
Adjusted weighted average common shares outstanding....................... 46,134 45,474
--------- ---------
Diluted earnings per share................................................ $ 1.15 $ 1.48
--------- ---------
--------- ---------
</TABLE>
The Convertible Subordinated Debentures, due 2011, were excluded from the
nine months ended September 30, 1997 computation of diluted earnings per share,
as they were antidilutive. For the nine months ended September 30, 1997, the net
income effect of the Senior Subordinated Notes, due 2003, was not tax effected
as a provision for U.S. income taxes was not recorded during these periods.
F-47
<PAGE>
HEXCEL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 8--COMPREHENSIVE INCOME
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130").
SFAS 130 establishes standards for reporting comprehensive income and its
components, including presentation in an annual financial statement that is
displayed with the same prominence as other annual financial statements. Various
components of comprehensive income may, for example, consist of foreign currency
items, minimum pension liability adjustments and unrealized gains and losses on
certain investments classified as available-for-sale.
The Company's total comprehensive income was as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------
1998 1997
--------- ---------
<S> <C> <C>
Net income................................................................ $ 48,546 $ 61,307
Currency translation adjustment........................................... 7,764 (11,016)
--------- ---------
Total comprehensive income................................................ $ 56,310 $ 50,291
--------- ---------
--------- ---------
</TABLE>
F-48
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Clark-Schwebel Holdings, Inc.:
We have audited the accompanying consolidated balance sheets of
Clark-Schwebel Holdings, Inc. (a Delaware corporation) and subsidiaries as of
December 28, 1996, and January 3, 1998, and the related consolidated statements
of income and cash flows for each of the two periods in the year ending December
28, 1996, and the fiscal year ending January 3, 1998. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosure in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Clark-Schwebel Holdings,
Inc. and subsidiaries as of December 28, 1996, and January 3, 1998, and the
results of their operations and their cash flows for each of the two periods in
the year ended December 28, 1996, and the fiscal year ending January 3, 1998, in
conformity with generally accepted accounting principles.
Arthur Andersen LLP
Columbia, South Carolina
February 12, 1998 (except with respect to the matters discussed
in Note 17 as to which the date is September 15, 1998)
F-49
<PAGE>
INDEPENDENT AUDITORS' REPORT
We have audited the accompanying statements of income and cash flows of Fort
Mill A Inc. (the "Predecessor") (a wholly owned subsidiary of Springs
Industries, Inc.) for the fiscal year ended December 30, 1995. These financial
statements are the responsibility of the Predecessor's management, our
responsibility is to express an opinion on the financial statements based on our
audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the results of operations and cash flows of Fort Mill A Inc. for the
fiscal year ended December 30, 1995 in conformity with generally accepted
accounting principles.
DELOITTE & TOUCHE LLP
Charlotte, North Carolina
February 9, 1996
(February 24, 1996 as to Note 2)
F-50
<PAGE>
CLARK-SCHWEBEL HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 28, 1996 AND JANUARY 3, 1998
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 28, JANUARY 3,
1996 1998
--------------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents........................................................ $ 4,064 $ 147
Accounts receivable, net......................................................... 25,794 28,527
Inventories, net................................................................. 33,625 34,897
Other............................................................................ 592 235
--------------- ------------
Total current assets........................................................... 64,075 63,806
--------------- ------------
PROPERTY, PLANT AND EQUIPMENT...................................................... 67,936 72,133
Accumulated depreciation......................................................... (5,841) (12,540)
--------------- ------------
Property, plant and equipment, net............................................. 62,095 59,593
--------------- ------------
EQUITY INVESTMENTS................................................................. 63,426 65,411
GOODWILL........................................................................... 44,333 43,205
OTHER ASSETS....................................................................... 6,808 5,702
--------------- ------------
TOTAL ASSETS....................................................................... $ 240,737 $ 237,717
--------------- ------------
--------------- ------------
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Accounts payable................................................................. $ 21,448 $ 19,806
Accrued liabilities.............................................................. 15,330 16,706
Deferred tax liabilities--current................................................ 2,056 2,370
Current maturities of long-term debt............................................. 51 --
--------------- ------------
Total current liabilities...................................................... 38,885 38,882
LONG-TERM DEBT..................................................................... 123,440 155,994
DEFERRED TAX LIABILITIES........................................................... 21,458 20,575
LONG-TERM BENEFIT PLANS AND OTHER.................................................. 7,121 4,139
COMMITMENTS AND CONTINGENCIES
--------------- ------------
TOTAL LIABILITIES.................................................................. 190,904 219,590
--------------- ------------
EQUITY:
Preferred stock (par value per share--$.01)--12.5% participating, 10,000 shares
authorized, 1,000 and 0 shares issued and outstanding, respectively.............. 35,000 --
Common stock (par value per share--$.01)--100,000 shares authorized, 9,000 shares
issued and outstanding, less management loans of $822 and $0, respectively....... 9,178 9,000
Retained earnings................................................................ 7,005 13,664
Cumulative translation adjustment................................................ (1,350) (4,537)
--------------- ------------
Total equity................................................................... 49,833 18,127
--------------- ------------
TOTAL LIABILITIES AND EQUITY....................................................... $ 240,737 $ 237,717
--------------- ------------
--------------- ------------
</TABLE>
See notes to consolidated financial statements.
F-51
<PAGE>
CLARK-SCHWEBEL HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 30, 1995, DECEMBER 28, 1996 AND JANUARY 3, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER DECEMBER
31, APRIL 18-- 29,
1995-- DECEMBER 1996--
APRIL 17, 28, JANUARY 3,
1995 1996 1996 1998
--------- ----------- ----------- -----------
(PREDECESSOR BASIS) (SUCCESSOR BASIS)
<S> <C> <C> <C> <C>
Net sales................................... $ 231,306 $ 68,911 $ 152,003 $ 240,204
Cost of goods sold.......................... 191,978 54,958 118,605 184,901
--------- ----------- ----------- -----------
Gross profit................................ 39,328 13,953 33,398 55,303
Selling, general and adminstrative
expenses.................................. 17,750 4,812 10,418 15,987
--------- ----------- ----------- -----------
Operating income.......................... 21,578 9,141 22,980 39,316
Other income (expense):
Interest expense.......................... (401) (148) (10,061) (15,176)
Other, net................................ 12 (5) 50 35
--------- ----------- ----------- -----------
Income before income taxes.................. 21,189 8,988 12,969 24,175
Provision for income tax.................... (8,444) (3,595) (5,460) (9,657)
Income from equity investees, net........... 2,553 1,174 2,633 3,997
--------- ----------- ----------- -----------
Income from continuing operations........... 15,298 6,567 10,142 18,515
Discontinued operations:
Income from discontinued operations,
net..................................... 111 -- -- --
--------- ----------- ----------- -----------
Net income.................................. $ 15,409 $ 6,567 10,142 18,515
--------- -----------
--------- -----------
Accrued dividends on preferred stock........ (3,137) (2,856)
----------- -----------
Net income applicable to common shares.... $ 7,005 $ 15,659
----------- -----------
----------- -----------
</TABLE>
See notes to consolidated financial statements.
F-52
<PAGE>
CLARK-SCHWEBEL HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 30, 1995, DECEMBER 28, 1996 AND JANUARY 3, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER DECEMBER
31, APRIL 18-- 29,
1995-- DECEMBER 1996--
APRIL 17, 28, JANUARY 3,
1995 1996 1996 1998
--------- ----------- ----------- -----------
(PREDECESSOR BASIS) (SUCCESSOR BASIS)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income................................. $ 15,409 $ 6,567 $ 10,142 $ 18,515
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization of goodwill
and unearned revenue................... 11,128 3,526 6,683 9,385
Amortization of deferred financing
cost................................... -- 0 601 1,106
Deferred tax provision................... 176 1,404 (1,128) (1,369)
Income from equity investments, net...... (2,553) (1,174) (2,633) (3,997)
Income from discontinued operations,
net.................................... (111) -- -- --
Loss on sale of equipment................ -- -- -- 42
Changes in assets and liabilities, net of
the effects of the purchase of the
company:
Accounts receivable.................... (8,244) 1,832 3,811 (2,733)
Inventories............................ (2,931) (2,883) 3,323 (1,272)
Prepaid expenses and other............. 1,465 (187) 1,399 890
Accounts payable....................... 3,181 (697) 14,011 (1,642)
Accrued liabilities.................... 367 (289) 5,076 2,377
Other.................................... 124 (131) (455) 342
--------- ----------- ----------- -----------
Net cash provided by operating
activities........................... 18,011 7,968 40,830 21,644
--------- ----------- ----------- -----------
INVESTING ACTIVITIES:
Purchases of equipment and other assets.... (8,429) (1,603) (2,035) (11,019)
Proceeds from sale of assets............... 42 -- -- 1,511
Payment for purchase of company............ -- -- (192,895) --
--------- ----------- ----------- -----------
Net cash used in investing
activities........................... (8,387) (1,603) (194,930) (9,508)
--------- ----------- ----------- -----------
FINANCING ACTIVITIES:
Investment by Springs...................... (8,982) (10,955) -- --
Transfer of assets retained by Springs..... -- 4,461 -- --
Proceeds from issuance of stock............ -- -- 45,000 --
Payment of acquisition fees, net........... -- -- (10,128) --
Loans to management investors.............. -- -- (822) --
Proceeds from long-term borrowings......... -- -- 160,000 45,994
Principal payments under long-term debt and
capital lease obligations................ (87) (29) (36,616) (13,491)
Redemption of preferred stock, net......... -- -- -- (50,172)
Dividends received from ASCO............... -- -- 304 1,616
--------- ----------- ----------- -----------
Net cash provided by (used in)
financing activities................. (9,069) (6,523) 157,738 (16,053)
--------- ----------- ----------- -----------
NET CHANGE IN CASH........................... 555 (158) 3,638 (3,917)
CASH, BEGINNING OF PERIOD / YEAR............. 29 584 426 4,064
--------- ----------- ----------- -----------
CASH, END OF PERIOD / YEAR................... $ 584 $ 426 $ 4,064 $ 147
--------- ----------- ----------- -----------
--------- ----------- ----------- -----------
CASH PAID FOR INTEREST....................... $ 401 $ 120 $ 7,081 $ 12,263
--------- ----------- ----------- -----------
--------- ----------- ----------- -----------
CASH PAID FOR TAXES.......................... $ -- $ -- $ 7,546 $ 10,488
--------- ----------- ----------- -----------
--------- ----------- ----------- -----------
</TABLE>
See notes to consolidated financial statements.
F-53
<PAGE>
CLARK-SCHWEBEL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
1. BASIS OF PRESENTATION
The accompanying consolidated financial statements include the assets,
liabilities and results of operations of Clark-Schwebel Holdings, Inc. the
successor company ("Company"), following the change in ownership (See Note 2),
for the following periods: as of and for the period ended January 3, 1998, and
as of December 28, 1996 and for the period from April 18, 1996 to December 28,
1996. The Company's primary asset is the capital stock of Clark-Schwebel, Inc.
its operating company. The statements also include the assets, liabilities, and
results of operations as of and for the period ended December 30, 1995, and for
the period from December 31, 1995 to April 17, 1996 of Fort Mill A Inc., the
predecessor company ("Predecessor Company"), prior to the change in ownership.
The statements of the Predecessor Company include certain liabilities and
expenses that historically were accounted for only at the Springs Industries,
Inc. ("Springs")--parent company level. The financial statements of the
Predecessor Company and Successor Company are not comparable in certain respects
due to differences between the costs bases of certain assets and liabilities and
the impact of interest expense on the Successor Company (see Note 2).
SUMMARIZED FINANCIAL INFORMATION--The following table provides summarized
financial information for Clark-Schwebel, Inc., the operating company, on a
stand alone basis. Clark-Schwebel, Inc. is a wholly owned subsidiary of
Clark-Schwebel Holdings, Inc. and its separate financial statements are not
included or filed separately because management has determined that they would
not be material to investors. The 1996 balance sheet information is as of
December 28, 1996 and the 1996 income statement information is for the period
from April 18, 1996 through December 28, 1996. The 1997 balance sheet
information is as of January 3, 1998 and the 1997 income statement information
is for the period from December 29, 1996 to January 3, 1998.
<TABLE>
<CAPTION>
1996 1997
---------- ----------
<S> <C> <C>
Current assets........................................................ $ 64,038 $ 63,806
Noncurrent assets..................................................... 176,662 173,911
---------- ----------
Total assets.................................................... $ 240,700 $ 237,717
---------- ----------
---------- ----------
Current liabilities................................................... $ 38,885 $ 36,706
Noncurrent liabilities................................................ 148,878 135,097
Equity................................................................ 52,937 65,914
---------- ----------
Total liabilities and equity.................................... $ 240,700 $ 237,717
---------- ----------
---------- ----------
Net sales............................................................. $ 152,003 $ 240,204
Gross profit.......................................................... 33,398 55,303
Income from continuing operations..................................... 10,135 19,816
Net income............................................................ $ 10,135 $ 19,816
---------- ----------
---------- ----------
Dividends to Clark-Schwebel Holdings, Inc............................. $ -- $ 5,000
---------- ----------
---------- ----------
</TABLE>
All assets of Clark-Schwebel, Inc. represent restricted net assets with the
exception of the foreign equity investments and distributions received from the
foreign equity investments. Except in limited circumstances, Clark-Schwebel,
Inc. is prohibited from transferring restricted net assets to Clark-Schwebel
Holdings, Inc. in the form of cash dividends, loans, or advances without the
consent of a third party lender. The amount of unrestricted net assets at
January 3, 1998 is $62,257, which represents the book value of the
F-54
<PAGE>
CLARK-SCHWEBEL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
1. BASIS OF PRESENTATION (CONTINUED)
foreign equity investments ($61,254) and distributions received in the form of
cash from the foreign equity investments ($1,003).
OPERATIONS--The Company consists primarily of the operations, assets, and
liabilities of manufacturing facilities located in Anderson, SC, Statesville,
NC, Cleveland, GA, and Washington, GA, which produce woven fiber glass and
aramid fabrics. The Company's products are used in electronic circuit boards,
coated and laminated composites, aircraft construction and protective apparel
such as anti-ballistic vests and helmets.
2. PURCHASE TRANSACTION
On February 24, 1996, the Company, Springs and affiliates of Vestar Equity
Partners, L.P. (Vestar), entered into an Agreement and Plan of Merger
(Agreement) whereby affiliates of Vestar would acquire the Company. Pursuant to
the Agreement, on April 17, 1996 (Closing Date), Vestar/CS Holding Company, LLC
(Vestar/CS) purchased all of the issued and outstanding capital stock of Fort
Mill A Inc. from Springs for approximately $192,895. The sources of cash for
this purchase included $110,000 of senior notes, an equity contribution of
$45,000 and bank debt. On the day following the Closing Date, Vestar/CS had an
82% common equity interest and management investors had an 18% common equity
interest in the Company.
Under the Agreement, Springs agreed to (i) assume responsibility for
repayment of the Industrial Revenue Bonds payable in 2010 and related accrued
interest, (ii) pay $959 in certain accrued employee benefits, (iii) provide
indemnification for certain environmental, tax and other matters (including the
environmental matter described in Note 14 for which $175 was accrued at December
30, 1995), (iv) retain the accounts receivable from one customer (which totaled
$2,782 as of December 30, 1995) and related $1,400 reserve, and (v) retain the
$99 accrued obligation related to the Company's Long-Term Disability Plan. At
the Closing Date, all payable and receivable accounts between the Company and
Springs were canceled.
The acquisition was accounted for as a purchase business combination. The
adjustment to net assets represents the step-up to fair value of the net assets
acquired as follows:
<TABLE>
<S> <C>
Purchase price.................................................... $ 192,895
Nonfinancing portion of fees and expenses......................... 2,780
---------
Total purchase price........................................ 195,675
Less fair value of net assets acquired............................ (150,547)
---------
Excess of purchase price over fair value of net assets acquired... $ 45,128
---------
---------
</TABLE>
F-55
<PAGE>
CLARK-SCHWEBEL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
2. PURCHASE TRANSACTION (CONTINUED)
The fair values of Clark-Schwebel, Inc.'s assets and liabilities at the date
of acquisition are presented below:
<TABLE>
<S> <C>
Current assets.................................................... $ 68,410
Property, plant and equipment..................................... 66,391
Equity investments................................................ 62,314
Current liabilities............................................... (20,282)
Other liabilities................................................. (26,286)
---------
Net assets acquired............................................... $ 150,547
---------
---------
</TABLE>
Following the acquisition, the purchase cost (including the fees and
expenses related thereto) was allocated to the tangible and intangible assets
and liabilities of the Company based upon their respective fair values. This
resulted in a step-up in the basis of inventory of $5,274 and property, plant
and equipment of $15,000. The excess of the purchase price over the fair value
of net assets acquired of $45,128 was recorded as goodwill, and is being
amortized on a straight-line basis over a period of 40 years.
Additional agreements include Transition Agreements for specified periods in
which Springs would be compensated for certain services provided to the Company,
and a Management Agreement that specifies services to be provided to the Company
by Vestar.
In accordance with agreements related to the change of ownership
transaction, certain assets totaling $4,461 were transferred to Springs in the
first quarter of 1996. This balance has been separately disclosed on the face of
the accompanying 1996 statements of cash flows.
3. PREFERRED STOCK REDEMPTION AND ISSUANCE OF SENIOR DEBENTURES
On July 14, 1997, the Company amended the terms of its outstanding
participating preferred stock (the "Preferred Stock") by amending and restating
its certificate of incorporation (the "Certificate") to allow the Company to
redeem such Preferred Stock. On August 14, 1997 the Company issued $46,000 in
12.5% Senior Debentures due 2007 (the "Senior Debentures") and paid $5,000 in
cash in exchange for and redemption of the Preferred Stock. The $51,000
redemption price was established as follows:
<TABLE>
<S> <C>
Book value of Preferred Stock...................................... $ 35,000
Accrued Preferred Stock dividends.................................. 6,000
Common equity component of Preferred Stock......................... 10,000
---------
Total........................................................ $ 51,000
---------
---------
</TABLE>
Vestar/CS-Holding paid $1,000 for the common equity component of the
Preferred Stock at the time of the Acquisition. The common equity component was
purchased for $10,000 on the redemption date.
Vestar/CS-Holding sold the Preferred Stock on July 14, 1997 and
simultaneously purchased 10% of the outstanding Common Stock of the Company from
the management investors on a pro rata basis. Upon the consummation of that
transaction, all of the Company's outstanding loans to management were repaid in
full.
F-56
<PAGE>
CLARK-SCHWEBEL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
3. PREFERRED STOCK REDEMPTION AND ISSUANCE OF SENIOR DEBENTURES (CONTINUED)
The overall net impact of the Preferred Stock redemption and issuance of
Senior Debentures was a reduction of equity by $44,200, an increase in debt by
$46,000, a reduction of "long-term benefit plans and other" liabilities by
$6,000, and a decrease in cash by $4,200.
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Following is a summary of the significant accounting policies used in the
preparation of the financial statements of the Company.
BASIS OF CONSOLIDATION--The consolidated financial statements include the
accounts of the Company and its subsidiaries. All material intercompany amounts
and transactions have been eliminated.
FISCAL YEAR--The Company's operations are based on a fifty-two or
fifty-three week fiscal year ending on the Saturday closest to December 31. The
fiscal years ended December 30, 1995, December 28, 1996 and January 3, 1998 are
referred to herein as 1995, 1996 and 1997, respectively. The 1995 and 1996
fiscal years each consisted of 52 weeks, while the 1997 fiscal year consisted of
53 weeks. Due to the purchase transaction on April 17, 1996, the 52 week fiscal
year in 1996 is comprised of the operations of the Predecessor Company and the
Successor Company.
USE OF ESTIMATES--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. These estimates include the allowance for doubtful accounts
receivable and the liabilities for certain long-term benefit plans. Actual
results could differ from such estimates.
REVENUE RECOGNITION--Revenue from product sales is recognized at the time
ownership of the goods transfers to the customer and the earnings process is
complete. This generally occurs when the goods are shipped.
CASH AND CASH EQUIVALENTS--Cash and cash equivalents include cash on hand
and in the bank as well as short term investments held for the purpose of
general liquidity. Such investments normally mature within three months from the
date of acquisition.
ACCOUNTS RECEIVABLE--The Company establishes an allowance for doubtful
accounts based upon factors including the credit risk of specific customers,
historical trends and other information. The Company performs ongoing credit
evaluations of its customers' financial condition and generally requires no
collateral. The reserve for doubtful accounts was $853 at December 28, 1996 and
$1,100 at January 3, 1998. The provision for uncollectible amounts was $1,842,
($84), $160 and $189 for fiscal 1995, 1996 (Predecessor), 1996 (Successor) and
1997 (Successor), respectively. Net write-offs (recoveries) were $349, ($6),
($38) and ($58), respectively, for the same periods.
INVENTORIES--Inventories are valued at the lower of cost or market. Cost is
determined using the last-in, first-out (LIFO) method for substantially all
inventories.
F-57
<PAGE>
CLARK-SCHWEBEL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY, PLANT, AND EQUIPMENT--Property, plant, and equipment is recorded
at cost and depreciation is computed on a straight-line basis over the estimated
useful lives of the related assets. Estimated useful lives are as follows:
<TABLE>
<S> <C>
10 to 20
Land improvements............................................ years
20 to 40
Buildings and improvements................................... years
Machinery and equipment...................................... 3 to 11 years
</TABLE>
EQUITY INVESTMENTS--The company owns equity interests in CS-Interglas AG
(headquartered in Germany), Asahi-Schwebel Co., Ltd. (headquartered in Japan)
and Clark Schwebel Tech-Fab Company (located in Anderson, SC), which are
accounted for using the equity method of accounting.
FOREIGN CURRENCY--The foreign equity investments are translated at year-end
exchange rates. Equity income and losses are translated at the average rate
during the year. Cumulative translation adjustments are reflected as a separate
component of stockholders' equity.
POSTRETIREMENT BENEFITS--Postretirement benefits are accounted for pursuant
to Statement of Financial Accounting Standards ("SFAS") No. 106, EMPLOYERS
ACCOUNTING FOR POSTRETIREMENT BENEFITS OTHER THAN PENSIONS. SFAS No. 106
requires that the projected future cost of providing postretirement benefits,
such as health care and life insurance, be recognized as an expense as employees
render service rather than when claims are incurred.
INCOME TAXES--Income taxes are accounted for pursuant to SFAS 109,
ACCOUNTING FOR INCOME TAXES. Under SFAS No. 109, deferred income tax assets and
liabilities represent the future income tax effect of temporary differences
between the book and tax bases of assets and liabilities assuming they will be
realized and settled at the amounts reported in the financial statements. The
provision for income taxes included in the accompanying financial statements is
computed in a manner consistent with SFAS No. 109.
CERTAIN COMPENSATION PLANS--Certain key employees of the Company were
granted stock options and certain types of deferred compensation related to
Springs common stock under Springs' executive plans. Compensation expense
allocated from Springs for these grants for 1995, 1996 (Predecessor), 1996
Successor) and 1997 (Successor) was approximately $145, $418, $0 and $0,
respectively.
NEW ACCOUNTING STANDARD--During 1997, the FASB issued SFAS No. 130,
"Comprehensive Income", that is not effective until 1998. SFAS No. 130 applies
to the Company and will be adopted in the first quarter of 1998. Comprehensive
income is defined as essentially all changes in shareholders' equity exclusive
of transactions with owners, such as translation adjustments on investments in
foreign subsidiaries. Comprehensive income includes net income (loss) plus
changes in certain assets and liabilities that are reported directly in equity,
referred to as "Other Comprehensive Income." The adoption of SFAS No. 130 is not
expected to have a material impact on the consolidated financial statements of
the Company.
F-58
<PAGE>
CLARK-SCHWEBEL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
5. LONG-TERM DEBT
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
1996 1997
---------- ----------
<S> <C> <C>
Senior Notes, payable in 2006, interest at 10.5%...................... $ 110,000 $ 110,000
Senior Debentures, payable in 2007, interest at 12.5%................. -- 45,994
Term Loan payable in quarterly installments; paid in July 1997........ 13,440 --
Revolving Credit Agreement, due 2002, interest at
variable rates...................................................... -- --
Capitalized lease obligation payable in equal monthly
Installments of $7, through June 1997............................... 51 --
---------- ----------
Total........................................................... 123,491 155,994
Less current maturities............................................... (51) --
---------- ----------
Long-term debt........................................................ $ 123,440 $ 155,994
---------- ----------
---------- ----------
</TABLE>
The Senior Notes accrue interest at a fixed rate of 10.5% per annum, with
interest payable semiannually in arrears on April 15 and October 15. The Senior
Notes are not redeemable at the option of the Company prior to April 15, 2001,
except in the event of a public equity offering of the Company, at which time a
portion of the Senior Notes would be redeemable. Management estimates that the
fair value of the Senior Notes is $120,450 at January 3, 1998, based on the
estimated market trading price for the Senior Notes as of January 3, 1998.
The Senior Debentures accrue interest at a fixed rate of 12.5% per annum
with interest payable semiannually in arrears on January 15 and July 15 to the
extent permitted by the Credit Agreement and the indenture governing the Senior
Notes. If the Company is unable to pay interest in cash due to the prohibitions
contained in the Credit Agreement or such indenture, interest on the Senior
Debentures would be payable in additional Senior Debentures. Under the terms of
the indenture, Clark-Schwebel, Inc., the operating company, must maintain a
minimum fixed charge coverage ratio in order to pay dividends. At January 3,
1998, the indenture allowed the operating company to pay $8,700 in dividends to
the Company. The Senior Debentures will not be redeemable at the Company's
option prior to July 15, 2002, except in the event of a public equity offering
of the Company, or a change of control or subsidiary change of control after
January 15, 1998. Management estimates that the fair value of the Senior
Debentures is $49,214 at January 3, 1998, based on the estimated market trading
price for the Senior Debentures as of January 3, 1998.
On July 14, 1997, the Company prepaid all of its outstanding indebtedness
under the Term Loan and amended the Credit Agreement to provide, among other
things, that the Company may, subject to certain conditions, pay up to $5,000 in
cash and issue Senior Debentures in a redemption of the Preferred Stock, and
make semi-annual interest payments in cash on the Senior Debentures. The
Revolving Credit Facility under the Credit Agreement was also amended to
increase the aggregate amount of commitments thereunder to $65,000.
The Company pays a quarterly commitment fee equal to 0.25% on the unused
portion of the Revolving Credit Facility which was $65,000 at January 3, 1998.
F-59
<PAGE>
CLARK-SCHWEBEL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
5. LONG-TERM DEBT (CONTINUED)
The Revolving Credit Facility, the Senior Notes, and the Senior Debentures
contain certain restrictive covenants which provide limitations on the Company
with respect to restricted payments, indebtedness, liens, investments,
dividends, distributions, transactions with affiliates, debt repayments, capital
expenditures, mergers, and consolidations. The bank facility covenants also
require maintenance of certain financial ratios. At January 3, 1998, the Company
was in compliance with such covenants. With the exception of the Senior
Debentures, which are obligations of Clark-Schwebel Holdings, Inc., all other
debt is incurred at the Clark-Schwebel, Inc., operating company level.
Substantially all of the assets of Clark-Schwebel, Inc., the operating company,
are subject to liens in favor of the Revolving Credit Facility lenders.
No principal payments are required on any long-term debt in the next five
years due to the payment of the term loan in July 1997.
6. INVENTORIES
Inventories consisted of the following:
<TABLE>
<CAPTION>
1996 1997
--------- ---------
<S> <C> <C>
Finished goods.......................................................... $ 10,256 $ 12,301
Raw material and supplies............................................... 9,254 8,854
In process.............................................................. 15,215 15,317
--------- ---------
Total at standard cost (which approximates average cost)................ 34,725 36,472
Less LIFO reserve....................................................... (1,100) (1,575)
--------- ---------
Inventories, net........................................................ $ 33,625 $ 34,897
--------- ---------
--------- ---------
</TABLE>
7. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following:
<TABLE>
<CAPTION>
1996 1997
--------- ---------
<S> <C> <C>
Land..................................................................... $ 1,875 $ 1,875
Buildings and improvements............................................... 19,381 20,714
Machinery and equipment.................................................. 43,113 47,061
Construction in progress................................................. 3,567 2,483
--------- ---------
Total.................................................................... 67,936 72,133
Less accumulated depreciation............................................ (5,841) (12,540)
--------- ---------
Property, plant and equipment, net....................................... $ 62,095 $ 59,593
--------- ---------
--------- ---------
</TABLE>
F-60
<PAGE>
CLARK-SCHWEBEL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
8. OTHER CURRENT LIABILITIES
Accrued liabilities consisted of the following:
<TABLE>
<CAPTION>
1996 1997
--------- ---------
<S> <C> <C>
Accrued retirement and incentive........................................ $ 3,841 $ 4,711
Employee benefit accruals............................................... 3,017 2,935
Accrued payroll......................................................... 2,759 2,235
Accrued interest........................................................ 2,477 4,576
Other accrued liabilities............................................... 2,235 2,249
Unearned revenue........................................................ 1,001 0
--------- ---------
Total accrued liabilities............................................... $ 15,330 $ 16,706
--------- ---------
--------- ---------
</TABLE>
9. STOCKHOLDERS' EQUITY
Changes in stockholders' equity on a successor basis for the periods of
April 18, 1996 through December 28, 1996, and December 29, 1996 through January
3, 1998, respectively, consisted of the following (in thousands, except share
amounts):
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK CUMULATIVE
-------------------- -------------------- RETAINED TRANSLATION
SHARES AMOUNT SHARES AMOUNT EARNINGS ADJUSTMENT
--------- --------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Preferred stock issued on April 17, 1996................ 1,000 $ 35,000
Common stock issued on April 17, 1996................... 9,000 $ 10,000
Management loans (see Note 16).......................... (822)
Net income.............................................. $ 10,142
Accrued preferred stock dividend........................ (3,137)
Cumulative translation adjustment....................... ($ 1,350)
--------- --------- --------- --------- --------- -----------
Balance at December 28, 1996............................ 1,000 $ 35,000 9,000 $ 9,178 $ 7,005 ($ 1,350)
--------- --------- --------- --------- --------- -----------
--------- --------- --------- --------- --------- -----------
Repayment of management loans
(See Notes 3 and 16).................................. 822
Net income.............................................. 18,515
Accrued preferred stock dividend........................ (2,856)
Redemption of preferred stock (see Note 3).............. (1,000) (35,000) (1,000) (9,000)
Cummulative translation adjustment...................... (3,187)
--------- --------- --------- --------- --------- -----------
Balance at January 3, 1998.............................. -- $ -- 9,000 $ 9,000 $ 13,664 ($ 4,537)
--------- --------- --------- --------- --------- -----------
--------- --------- --------- --------- --------- -----------
</TABLE>
10. EMPLOYEE BENEFIT PLANS
EMPLOYEES PROFIT SHARING/RETIREMENT PLANS
Substantially all associates of the Company are covered by defined
contribution plans. In 1995 and 1996 (Predecessor Company) the plan was provided
by Springs. The 1996 Successor Company plan operates substantially the same as
the Springs plan. The Company makes contributions to a defined contribution
Profit Sharing Plan annually based upon the profitability of the Company. The
contribution is
F-61
<PAGE>
CLARK-SCHWEBEL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
10. EMPLOYEE BENEFIT PLANS (CONTINUED)
allocated to participant accounts based upon participant compensation. The
amount of the Company contribution is subject to approval by the Board of
Directors.
In addition, associates are allowed to contribute a percentage of their
compensation to a defined contribution plan and the Company will match a portion
of their contribution. This plan, available to substantially all associates,
contains a matched savings provision that permits pre-tax employee
contributions. Participants can contribute from 1% to 12% of their compensation
and receive a 50% matching employer contribution on up to 4% of the
participant's contribution.
Defined contribution plan expense for 1995, 1996 (Predecessor), and 1996
(Successor) and 1997 (Successor) was $1,810, $964, $1,655 and $3,116,
respectively.
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The Company participates in a defined benefit postretirement medical plan
which covers substantially all salaried and nonsalaried employees. In 1995 and
1996 (Predecessor Company) the plan was provided by Springs. The benefit cost
and benefit obligation for these periods was allocated by Springs to the
Predecessor Company. The 1996 Successor Company and 1997 plan operated
identically to the Springs plan, but was a separate plan on a stand alone
company basis. The plan provides medical coverage to age 65 for employees who
retire at age 62 or later, have at least 25 years of service and participated in
the plan prior to retirement. The plan is funded on a "pay-as-you-go" basis and
is contributory, with retiree contributions adjusted periodically.
Postretirement benefit cost consisted of the following components:
<TABLE>
<CAPTION>
1995 1996 1996 1997
--------- --------- --------- ---------
(PREDECESSOR) (SUCCESSOR)
<S> <C> <C> <C> <C>
Service cost.................................... $ 138 $ 41 $ 71 $ 127
Interest cost................................... 278 83 229 283
--------- --------- --------- ---------
$ 416 $ 124 $ 300 $ 410
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
Management believes that the 1995 and 1996 (Predecessor) allocated amounts
are reasonable and approximate the amounts that would have resulted from a SFAS
106 calculation of postretirement benefit cost on a separate company basis. The
1996 Successor and 1997 amounts were determined on a stand alone company basis.
The Company has assumed responsibility for the accrued benefits attributable
to employees of the Company. Pursuant to the Agreement, the Company established
employee benefit plans which are substantially similar to Springs' employee
benefit plans.
F-62
<PAGE>
CLARK-SCHWEBEL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
10. EMPLOYEE BENEFIT PLANS (CONTINUED)
The following table sets forth the status of the Company's obligation under
SFAS No. 106 at the end of 1996 and 1997:
<TABLE>
<CAPTION>
Accumulated postretirement benefit obligation ("APBO") 1996 1997
--------- ---------
<S> <C> <C>
Retirees.................................................... $ 1,473 $ 1,416
Fully eligible active plan participants..................... 393 261
Other active participants................................... 2,145 2,583
--------- ---------
Accumulated postretirement benefit obligation............... $ 4,011 $ 4,260
Unrecognized gain/(loss).................................... (27) (121)
--------- ---------
Total recorded obligation................................... $ 3,984 $ 4,139
--------- ---------
--------- ---------
</TABLE>
The 1996 and 1997 balance sheets include a liability of $3,984 and $4,139,
respectively, which is classified in "Long-Term Benefit Plans and Other."
For measurement purposes, a 10.8% annual rate of increase in the per capita
cost of covered health care benefits was assumed. This 10.8% rate is assumed to
decrease gradually to 6.3% in the year 2006 and remain at that level thereafter.
If the health care cost trend rate was increased by one percent, the APBO would
increase by 12.6% and postretirement benefit cost would increase by
approximately 14.6%. The discount rate used in determining the APBO at January
3, 1998 was 7.25%.
11. INCOME TAXES
The following tables present the components of the provision for income
taxes, a reconciliation of the statutory U.S. income tax rate to the effective
income tax rate, and the principal items of deferred income tax assets and
liabilities at the end of 1995, 1996 (Predecessor), 1996 (Successor), and 1997
(Successor).
Components of the total income tax provision were as follows:
<TABLE>
<CAPTION>
1995 1996 1996 1997
--------- --------- --------- ---------
(PREDECESSOR) (SUCCESSOR)
<S> <C> <C> <C> <C>
Current federal......................... $ 8,622 $ 3,739 $ 6,011 $ 9,906
Current state........................... 1,297 563 1,096 1,955
--------- --------- --------- ---------
Total current........................... 9,919 4,302 7,107 11,861
--------- --------- --------- ---------
Deferred federal........................ 129 56 (18) 543
Deferred state.......................... 47 20 (3) 107
--------- --------- --------- ---------
Total deferred.......................... 176 76 (21) 650
--------- --------- --------- ---------
Total provision......................... $ 10,095 $ 4,378 $ 7,086 $ 12,511
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
F-63
<PAGE>
CLARK-SCHWEBEL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
11. INCOME TAXES (CONTINUED)
The total provision is included in the statements of income as follows:
<TABLE>
<CAPTION>
1995 1996 1996 1997
--------- --------- --------- ---------
(PREDECESSOR) (SUCCESSOR)
<S> <C> <C> <C> <C>
Provision on income before income
taxes................................. $ 8,444 $ 3,595 $ 5,460 $ 9,657
Income from equity investees............ 1,582 783 1,626 2,854
Income of discontinued operations....... 69 0 0 0
--------- --------- --------- ---------
Total provision......................... $ 10,095 $ 4,378 $ 7,086 $ 12,511
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
The difference between the federal statutory tax rate and the effective tax
rate on income before income taxes was as follows:
<TABLE>
<CAPTION>
1995 1996 1996 1997
--------- --------- --------- ---------
(PREDECESSOR) (SUCCESSOR)
<S> <C> <C> <C> <C>
Provision at federal statutory tax rate....... 35.0% 35.0% 35.0% 35.0%
State income tax, net of federal tax effect... 3.4 3.4 4.2 4.2
Amortization of acquisition price not
deductible for tax purposes................. 0.7 0.7 2.1 1.6
Other......................................... 0.8 0.9 (0.2) (0.5)
--- --- --- ---
Effective tax rate............................ 39.9% 40.0% 41.1% 40.3%
--- --- --- ---
--- --- --- ---
</TABLE>
Temporary differences and the related balances of deferred tax assets and
liabilities were as follows:
<TABLE>
<CAPTION>
1996 1997
--------- ---------
<S> <C> <C>
Employee benefit accruals............................................... $ 3,356 $ 2,865
Equity investments...................................................... 2,376 3,519
Other items............................................................. 419 1,176
--------- ---------
Total deferred tax assets............................................... 6,151 7,561
--------- ---------
Property................................................................ 11,920 11,114
Equity investments...................................................... 12,551 13,339
Inventories............................................................. 4,362 4,786
Other items............................................................. 832 1,267
--------- ---------
Total deferred tax liabilities.......................................... 29,665 30,506
--------- ---------
Net deferred tax liabilities............................................ $ 23,514 $ 22,945
--------- ---------
--------- ---------
</TABLE>
12. EQUITY INVESTMENTS
CS-INTERGLAS AG ("INTERGLAS")--In March 1993, the Company contributed two
European subsidiaries and $8.8 million to Interglas, a company which
manufactures fiber glass, aramid and carbon fabrics, in exchange for a 24.9%
common stock interest and convertible notes with a face value of 20 million
Deutsche marks (the "Convertible Notes"). No gain or loss was recognized as a
result of this exchange.
F-64
<PAGE>
CLARK-SCHWEBEL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
12. EQUITY INVESTMENTS (CONTINUED)
The Company's common stock investment in Interglas had a carrying value of
$14,282 and $13,107 at December 28, 1996 and January 3,1998, respectively.
The Convertible Notes, which had a carrying value of $13,037 and $11,344 at
December 28, 1996 and January 3, 1998, respectively, are convertible into common
stock of Interglas. At the Company's option, conversion would result in the
Company owning a total of 42% of the outstanding common stock of Interglas as of
January 3, 1998. Interest on the Convertible Notes, which is included in income
from equity investees, is at 8% through December 31, 1996 and 5% thereafter.
Interest income in 1995, 1996 and 1997 was recognized on an accrual basis. If
Convertible Notes are not converted, the principal balance plus outstanding
interest becomes due on June 30, 2007.
ASAHI-SCHWEBEL CO. LTD. ("ASCO")--On October 1, 1997, the Company purchased
an additional 4.3% common equity interest in ASCO, which increased the Company's
ownership percentage from 39.0% to 43.3%. ASCO, a company which manufactures
fiber glass fabric, operates a facility in Japan and, in 1996, acquired a
majority interest in a fiber glass manufacturer located in Taiwan. The Company's
investment in ASCO had a carrying value of $32,586 and $36,803 at December 28,
1996 and January 3, 1998, respectively. The carrying value at January 3, 1998
exceeds 43.3% of ASCO's total equity by approximately $1.7 million, which is
being amortized on a straight-line basis through 2008.
CLARK-SCHWEBEL TECH-FAB COMPANY ("TECH-FAB")--The Company owns a 50%
partnership interest in Tech-Fab, a joint venture which manufactures nonwoven
fabrics using fiber glass and other synthetic materials. The Company's
investment in Tech-Fab had a carrying value of $3,521 and $4,156 at December 28,
1996 and January 3, 1998, respectively.
COMBINED SUMMARIZED FINANCIAL INFORMATION--The following table provides
combined summarized balance sheet information for these investees as of December
28, 1996 and January 3, 1998:
<TABLE>
<CAPTION>
1996 1997
---------- ----------
<S> <C> <C>
Current assets........................................................ $ 165,715 $ 178,573
Noncurrent assets..................................................... 125,597 118,694
---------- ----------
Total assets.......................................................... $ 291,312 $ 297,267
---------- ----------
---------- ----------
Current liabilities................................................... $ 54,303 $ 64,879
Noncurrent liabilities................................................ 89,279 77,036
Minority interest..................................................... 9,715 11,712
Redeemable equity instrument.......................................... 21,341 19,853
Equity................................................................ 116,675 123,787
---------- ----------
Total liabilities and equity.......................................... $ 291,312 $ 297,267
---------- ----------
---------- ----------
</TABLE>
F-65
<PAGE>
CLARK-SCHWEBEL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
12. EQUITY INVESTMENTS (CONTINUED)
The following table provides combined summarized income statement
information for these investees for the years ended December 30, 1995, December
28,1996, and January 3, 1998:
<TABLE>
<CAPTION>
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
Net sales................................................ $ 328,145 $ 317,918 $ 328,122
Operating income......................................... 20,761 35,163 36,739
Net income............................................... 13,207 16,643 17,783
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
13. MAJOR CUSTOMERS, CERTAIN CONCENTRATIONS, AND FAIR VALUE OF FINANCIAL
INSTRUMENTS
Sales to two customers exceeded 10% of net sales during fiscal 1995, 1996,
and 1997. Sales to the two customers represented as a percentage of net sales
29.1% and 13.2% in 1995, 29.9% and 13.5% in 1996 (Predecessor), 29.1% and 14.1%
in 1996 (Successor), and 28.7% and 15.9% in 1997 (Successor), respectively.
Accounts receivable due from these two customers as a percent of total accounts
receivable was 38.0% and 19.8% at December 28, 1996 and 27.1% and 25.2% at
January 3, 1998. Although the Company's exposure to credit risk could be
affected by conditions or occurrences within these customers' industry, no
indication of such adverse circumstances existed at January 3, 1998.
The Company currently buys substantially all of its fiber glass yarn, an
important component of its products, from two suppliers and substantially all of
its aramid yarn from one supplier. There are a limited number of manufacturers
of fiber glass yarn and aramid yarn.
The Company's financial instruments include cash, short term investments,
accounts receivable, Convertible Notes, accounts payable and long-term debt.
Management estimates that the carrying value of such instruments approximates
fair value, with the exception of the Senior Notes and Senior Debentures (see
Note 5).
14. COMMITMENTS AND CONTINGENCIES
The Company leases certain machinery and equipment under noncancelable
operating leases. Rent expense attributed to such leases was $384, $177, $314,
and $563 in 1995, 1996 (Predecessor), 1996 (Successor), and 1997 (Successor),
respectively.
Future minimum payments under the non-cancelable operating leases as of
January 3, 1998 were as follows:
<TABLE>
<S> <C>
1998................................................ $ 497
1999................................................ 360
2000................................................ 316
2001................................................ 258
2002................................................ 258
---------
$ 1,689
---------
---------
</TABLE>
F-66
<PAGE>
CLARK-SCHWEBEL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
14. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Prior to the Closing Date of the Acquisition, the Company was involved in
administrative proceedings under environmental laws and regulations, including
proceedings under the Comprehensive Environmental Response, Compensation and
Liability Act. On the closing date, Springs assumed all liabilities related to
the costs associated with these environmental matters. There was no material
provision for environmental matters in 1995, 1996 or 1997.
The Company is subject to legal proceedings and claims which arise in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not materially affect the Company's financial
position or results of operations.
15. DISCONTINUED OPERATIONS
In January 1996, the Company sold its equity investment in a company engaged
in a separate line of business for an amount which approximated book value. The
proceeds received were distributed to Springs. The equity earnings from this
investment are included in Discontinued Operations in the Company's financial
statements.
16. RELATED PARTY TRANSACTIONS
In connection with the Acquisition, certain members of management (the
"Management Investors") made equity contributions to the Company pursuant to a
Management Subscription Agreement which provided the terms under which the
Management Investors could purchase shares in the Company. The Management
Subscription Agreement set forth the share price, vesting provisions,
disposition of shares upon termination of employment, and certain other rights
of the Management Investors with respect to the shares.
The Management Investors purchased $1,800, or 18%, of the common equity in
the Company. Approximately $800 of the purchase price was financed by the
Company through a promissory note (the "Note") which carried an interest rate of
6.51% annually. As described in Note 3, the notes were paid in full during 1997
in connection with the Preferred Stock Redemption.
The Management Investors have entered into a Securityholders Agreement with
the Company and Vestar/CS Holding which contains certain agreements among such
parties with respect to the capital stock and corporate governance of the
Company. The Securityholders Agreement gives Vestar/CS Holding the right to
appoint all members to the Board of Directors of the Company. Additionally, the
Securityholders Agreement restricts the ability of Management Investors to
transfer their equity interest except upon (A) the exercise of their tag along
rights, which allows Management Investors to sell their equity interest when
Vestar/CS Holding sells its equity interest in the Company; (B) a sale of the
Company; (C) the exercise of certain put and call options under the Management
Subscription Agreement; (D) a public sale of the Company's common stock.
The Management Investors have entered into a Voting Trust Agreement with the
Company and Vestar/CS Holding which requires Management Investors to vote all of
their common stock as directed by Vestar/CS Holding for the approval of any of
the following: amendment to the Company's Certificate of Incorporation, merger,
share exchange, combination or consolidation of the Company with any other
person, the sale, lease or exchange of all or substantially all of the property
and assets of the Company, or the reorganization, recapitalization, liquidation,
or dissolution of the Company.
F-67
<PAGE>
CLARK-SCHWEBEL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
16. RELATED PARTY TRANSACTIONS (CONTINUED)
Pursuant to a Management Advisory Agreement (the "Management Agreement"),
Vestar Capital Partners will receive an annual fee and reimbursement of
out-of-pocket expenses for management and financial consulting services provided
to the Company. Such services include advising the Company on the establishment
of effective banking, legal and other business relationships, and assisting
management in developing and implementing strategies for improving the
operational, marketing and financial performance of the Company. The management
advisory fees to be paid per annum will equal the greater of (i) 1.0% of the
consolidated earnings of the Company before interest, taxes, depreciation and
amortization or (ii) $350. Expenses pursuant to the Management Agreement were
approximately $485 in 1997 and $258 for the period from April 18, 1996 to
December 28, 1996 (Successor Company).
Upon consummation of the Acquisition, the Company paid to Vestar Capital
Partners an investment banking fee of approximately $1,500 plus out-of-pocket
expenses for its services in structuring the transaction and providing financial
advice in connection therewith. Additionally, a member of the Company's Board of
Directors received a fee of approximately $600 for his consulting services in
connection with the Acquisition.
17. SUBSEQUENT EVENTS
HEXCEL CORPORATION ACQUIRES ASSETS OF CLARK-SCHWEBEL
On September 15, 1998, Hexcel Corporation ("Hexcel") acquired certain assets
and operating liabilities of Clark-Schwebel, Inc. In the first transaction,
Vestar Capital Partners and Management Investors sold the stock of the
Clark-Schwebel Holdings, Inc. ("Holdings") to Stamford C-S Acquisition Corp.
("Stamford") for an enterprise value of approximately $488,000, less debt and
transaction expenses. Stamford then immediately sold certain assets and
operating liabilities of Clark-Schwebel, Inc. and its subsidiaries (the
"Company") to Hexcel for $453,600. Stamford will retain $50,000 of property,
plant and equipment to be leased to Hexcel under a long-term capital lease.
CLARK-SCHWEBEL AND PARENT COMPANY LAUNCH CASH TENDER OFFERS AND CONSENT
SOLICITATIONS FOR NOTES AND DEBENTURES
As part of the sale described above, the Company and Holdings launched cash
tender offers and consent solicitations for their notes and debentures.
Pursuant to the tender offers, the Company and Holdings, respectively, have
repurchased:
1. All $110,000 of the 10 1/2% Senior Notes of the Company due 2006. The
purchase price offered for each $1 principal amount tendered is based on a
fixed spread of 50 basis points over the yield of the 6 1/4% U.S. Treasury
Notes due March 31, 2001, plus accrued unpaid interest on the notes, minus
the consent payment described below.
2. All $45,994 of the 12 1/2% Senior Debentures of Holdings due 2007.
The purchase price offered for each $1 principal amount tendered is $1.06750
plus accrued unpaid interest on the debentures, minus the consent payment
described below.
Concurrent with the tender offers, the issuers obtained consents to
eliminate or modify substantially all of the convenants in the indentures
governing the notes and the debentures. Holders who tender their notes and
debentures were required to consent to the proposed amendments.
F-68
<PAGE>
CLARK-SCHWEBEL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
17. SUBSEQUENT EVENTS (CONTINUED)
The Company offered to make consent payments of $.025 per $1 principal
amount to the holders of the notes and debentures who tender their securities
and deliver their consents at or prior to 5:00 p.m. New York City time on the
consent date.
The Company and Holdings purchased the tendered notes and debentures with
borrowings under proceeds from stock sale.
F-69
<PAGE>
CLARK-SCHWEBEL HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
JANUARY 3, 1998 AND JULY 4, 1998
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
JANUARY 3, JULY 4,
1998 1998
------------ -----------
<S> <C> <C>
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents........................................................ $ 147 $ 14,175
Accounts receivable, net......................................................... 28,527 22,153
Inventories, net................................................................. 34,897 35,799
Other............................................................................ 235 615
------------ -----------
Total current assets......................................................... 63,806 72,742
------------ -----------
PROPERTY, PLANT AND EQUIPMENT.......................................................... 72,133 74,565
Accumulated depreciation........................................................... (12,540) (16,623)
------------ -----------
Property, plant and equipment, net............................................... 59,593 57,942
------------ -----------
EQUITY INVESTMENTS..................................................................... 65,411 65,341
GOODWILL............................................................................... 43,205 42,641
OTHER ASSETS........................................................................... 5,702 5,327
------------ -----------
TOTAL ASSETS........................................................................... $ 237,717 $ 243,993
------------ -----------
------------ -----------
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Accounts payable................................................................. $ 19,806 $ 22 994
Accrued liabilities.............................................................. 16,706 15,261
Deferred tax liabilities--current................................................ 2,370 2,370
------------ -----------
Total current liabilities.................................................... 38,882 40,625
------------ -----------
LONG-TERM DEBT......................................................................... 155,994 155,994
DEFERRED TAX LIABILITIES............................................................... 20,575 19,578
LONG-TERM BENEFIT PLANS AND OTHER...................................................... 4,139 4,139
COMMITMENTS AND CONTINGENCIES
------------ -----------
TOTAL LIABILITIES...................................................................... 219,590 220,336
------------ -----------
EQUITY:
Common stock (par value per share--$.01)--100,000 shares authorized, 9,000 shares
issued and outstanding........................................................... 9,000 9,000
Retained earnings................................................................ 13,664 22,310
Cumulative translation adjustment................................................ (4,537) (7,653)
------------ -----------
Total equity................................................................. 18,127 23,657
------------ -----------
TOTAL LIABILITIES AND EQUITY........................................................... $ 237,717 $ 243,993
------------ -----------
------------ -----------
</TABLE>
See notes to condensed and consolidated financial statements.
F-70
<PAGE>
CLARK-SCHWEBEL HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED--DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
--------------------
JUNE 28, JULY 4,
1997 1998
--------- ---------
<S> <C> <C>
Net sales............................................................... $ 123,299 $ 111,664
Cost of goods sold...................................................... 95,851 84,546
--------- ---------
Gross profit............................................................ 27,448 27,118
Selling, general and administrative expenses............................ 7,727 8,016
--------- ---------
Operating income.................................................... 19,721 19,102
Other income (expense):
Interest expense.................................................... (6,427) (8,885)
Other, net.......................................................... (3) (2)
--------- ---------
Income before income taxes.............................................. 13,291 10,215
Provision for income tax................................................ (5,475) (4,090)
Income from equity investees, net....................................... 1,582 2,521
--------- ---------
Net income.............................................................. 9,398 8,646
Accrued dividends on preferred stock.................................... (2,416) 0
--------- ---------
Net income applicable to common shares.............................. $ 6,982 $ 8,646
--------- ---------
--------- ---------
</TABLE>
See notes to condensed and consolidated financial statements.
F-71
<PAGE>
CLARK-SCHWEBEL HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND
COMPREHENSIVE INCOME
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK CUMULATIVE
-------------------- -------------------- RETAINED TRANSLATION COMPREHENSIVE
SHARES AMOUNT SHARES AMOUNT EARNINGS ADJUSTMENT TOTAL INCOME
--------- --------- --------- --------- --------- ----------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 28, 1996..... 1,000 $ 35,000 9,000 $ 9,178 $ 7,005 $ (1,350) $ 49,833 $ 8,792
Repayment of management loans.... 822 822
Net income....................... 18,515 18,515 18,515
Accrued preferred stock
dividend....................... (2,856) (2,856)
Redemption of preferred stock.... (1,000) (35,000) (1,000) (9,000) (45,000)
Cumulative translation
adjustment..................... (3,187) (3,187) (3,187)
--------- --------- --------- --------- --------- ----------- ---------- -------
Balance at January 3, 1998....... 0 $ 0 9,000 $ 9,000 $ 13,664 $ (4,537) $ 18,127 $ 24,120
--------- --------- --------- --------- --------- ----------- ---------- -------
--------- --------- --------- --------- --------- ----------- ---------- -------
Net income (Unaudited)........... 4,791 4,791 4,791
Cumulative translation adjustment
(Unaudited).................... (2,175) (2,175) (2,175)
--------- --------- --------- --------- --------- ----------- ---------- -------
Balance at April 4, 1998
(Unaudited).................... 0 $ 0 9,000 $ 9,000 $ 18,455 $ (6,712) $ 20,743 $ 26,736
--------- --------- --------- --------- --------- ----------- ---------- -------
--------- --------- --------- --------- --------- ----------- ---------- -------
Net Income (Unaudited)........... 3,855 3,855 3,855
Cumulative translation adjustment
(Unaudited).................... (941) (941) (941)
--------- --------- --------- --------- --------- ----------- ---------- -------
Balance at July 4, 1998
(Unaudited).................... 0 $ 0 9,000 $ 9,000 $ 22,310 $ (7,653) $ 23,657 $ 29,650
--------- --------- --------- --------- --------- ----------- ---------- -------
--------- --------- --------- --------- --------- ----------- ---------- -------
</TABLE>
See notes to condensed and consolidated financial statements.
F-72
<PAGE>
CLARK-SCHWEBEL HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED--DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
----------------------
JUNE 28, JULY 4,
1997 1998
----------- ---------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income........................................................... $ 9,398 $ 8,646
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization of goodwill and unearned revenue..... 4,562 4,906
Amortization of deferred financing cost............................ 417 404
Deferred tax provision............................................. (595) (676)
Income from equity investments, net................................ (1,540) (2,521)
Loss on sale of equipment.......................................... 11 7
Changes in assets and liabilities, net of the effects of the
purchase of the company:
Accounts receivable.............................................. (557) 6,374
Inventories...................................................... (4,130) (902)
Prepaid expenses and other....................................... 98 (320)
Accounts payable................................................. 7,525 3,188
Accrued liabilities.............................................. (570) (1,445)
Other.............................................................. (6) (1)
----------- ---------
Net cash provided by operating activities...................... 14,613 17,660
----------- ---------
INVESTING ACTIVITIES:
Purchases of equipment............................................... (3,541) (2,723)
Proceeds from sale of equipment...................................... 1,494 25
Additional investment in CS-Interglas................................ 0 (2,643)
----------- ---------
Net cash used in investing activities.......................... (2,047) (5,341)
----------- ---------
FINANCING ACTIVITIES:
Principal payments under long-term debt and capital lease
obligations.......................................................... (2,301) 0
Proceeds from repayment of loans to management Investor.............. 23 0
Dividends received from ASCO......................................... 0 1,709
----------- ---------
Net cash (used in) provided by financing activities............ (2,278) 1,709
----------- ---------
NET CHANGE IN CASH....................................................... 10,288 14,028
CASH, BEGINNING OF PERIOD................................................ 4,064 147
----------- ---------
CASH, END OF PERIOD...................................................... $ 14,352 $ 14,175
----------- ---------
----------- ---------
CASH PAID FOR INTEREST................................................... $ 6,030 $ 8,269
----------- ---------
----------- ---------
CASH PAID FOR TAXES...................................................... $ 6,372 $ 4,914
----------- ---------
----------- ---------
</TABLE>
Noncash Transaction: The company accrued dividends on preferred stock of $2,416
for the period of December 29, 1996--June 28, 1997.
See notes to condensed and consolidated financial statements.
F-73
<PAGE>
CLARK-SCHWEBEL HOLDINGS, INC.
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
1. BASIS OF PRESENTATION
The accompanying consolidated financial statements include the assets,
liabilities and results of operations as of July 4, 1998 and for the period from
January 4, 1998 to July 4, 1998 of Clark-Schwebel Holdings, Inc. The Company's
primary asset is all of the capital stock of Clark-Schwebel, Inc., its operating
company. The statements also include the assets and liabilities of the Company
as of January 3, 1998, and the Company's results of operations for the period
from December 29, 1996 to June 28, 1997.
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Article
10 of Regulation S-X of the Securities and Exchange Commission (SEC).
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
All significant intercompany balances and transactions have been eliminated. The
balance sheet at January 3, 1998 has been derived from the audited financial
statements at that date. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Results of operations for interim periods are
not necessarily indicative of results for the entire year. For further
information, refer to the Company's consolidated financial statements and
footnotes for the year ended January 3, 1998 included in the Company's Form 10-K
for the year then ended.
SUMMARIZED FINANCIAL INFORMATION--The following table provides summarized
financial information for Clark-Schwebel, Inc., the operating company, on a
stand-alone basis. Clark-Schwebel, Inc. is a wholly owned subsidiary of
Clark-Schwebel Holdings, Inc. and its separate financial statements are not
included or filed separately because management has determined that they would
not be material to investors. The balance sheet information is as of July 4,
1998 and the income statement information is for the six months ended July 4,
1998.
<TABLE>
<S> <C>
Current assets.................................................................... $ 72,742
Noncurrent assets................................................................. 171,251
---------
Total assets...................................................................... $ 243,993
---------
---------
Current liabilities............................................................... $ 37,986
Noncurrent liabilities............................................................ 135,189
Equity............................................................................ 70,818
---------
Total liabilities and equity...................................................... $ 243,993
---------
---------
Net sales......................................................................... $ 111,664
Gross profit...................................................................... 27,118
Income from continuing operations................................................. 10,431
Net income........................................................................ $ 10,431
---------
---------
Dividends paid to Clark-Schwebel Holdings, Inc.................................... $ 2,411
---------
---------
</TABLE>
All assets of Clark-Schwebel, Inc. represent restricted net assets with the
exception of the foreign equity investments and distributions received from the
foreign equity investments. Except in limited circumstances, Clark-Schwebel,
Inc. is prohibited from transferring restricted net assets to Clark-Schwebel
Holdings, Inc. in the form of cash dividends, loans, or advances without the
consent of the lenders under
F-74
<PAGE>
CLARK-SCHWEBEL HOLDINGS, INC.
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
1. BASIS OF PRESENTATION (CONTINUED)
the Credit Agreement. The amount of unrestricted net assets at July 4, 1998 was
$61,295, which represents the book value of the foreign equity investments
($61,225) and distributions received in the form of cash from the foreign equity
investments, net of restricted payments to increase equity ownership in foreign
equity investments ($70).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Following is a summary of the significant accounting policies used in the
preparation of the financial statements of the Company.
BASIS OF CONSOLIDATION--The consolidated financial statements include the
accounts of the Company and its operating company and wholly-owned subsidiary,
Clark-Schwebel, Inc. All material intercompany amounts and transactions have
been eliminated.
FISCAL YEAR--The Company's operations are based on a fifty-two or
fifty-three week fiscal year ending on the Saturday closest to December 31.
Accordingly, the interim periods will also be reported on the Saturday closest
to the calendar quarter end. The fiscal year ended January 2, 1999 is referred
to herein as 1998. The fiscal year ended January 3, 1998 is referred to herein
as 1997. The 1998 fiscal year consists of 52 weeks, while the 1997 fiscal year
consisted of 53 weeks.
USE OF ESTIMATES--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. These estimates include the allowance for doubtful accounts
receivable and the liabilities for certain long-term benefit plans. Actual
results could differ from such estimates.
REVENUE RECOGNITION--Revenue from product sales is recognized at the time
ownership of the goods transfers to the customer and the earnings process is
complete. This generally occurs when the goods are shipped.
CASH AND CASH EQUIVALENTS--Cash and cash equivalents include cash on hand
and in the bank as well as short term investments held for the purpose of
general liquidity. Such investments normally mature within three months from the
date of acquisition.
ACCOUNTS RECEIVABLE--The Company establishes an allowance for doubtful
accounts based upon factors including the credit risk of specific customers,
historical trends and other information. The Company performs ongoing credit
evaluations of its customers' financial condition and generally requires no
collateral.
INVENTORIES--Inventories are valued at the lower of cost or market. Cost is
determined using the last-in, first-out (LIFO) method for substantially all
inventories.
F-75
<PAGE>
CLARK-SCHWEBEL HOLDINGS, INC.
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY, PLANT, AND EQUIPMENT--Property, plant, and equipment is recorded
at cost and depreciation is computed on a straight-line basis over the estimated
useful lives of the related assets. Estimated useful lives are as follows:
<TABLE>
<S> <C>
10 to 20
Land improvements............................................ years
20 to 40
Buildings and improvements................................... years
Machinery and equipment...................................... 3 to 11 years
</TABLE>
EQUITY INVESTMENTS--The company owns equity interests in CS-Interglas AG
(headquartered in Germany), Asahi-Schwebel Co., Ltd. (headquartered in Japan)
and Clark Schwebel Tech-Fab Company (located in Anderson, SC), which are
accounted for using the equity method of accounting.
FOREIGN CURRENCY--The foreign equity investments are translated at year-end
exchange rates. Equity income and losses are translated at the average rate
during the year. Cumulative translation adjustments are reflected as a separate
component of stockholders' equity.
POSTRETIREMENT BENEFITS--Postretirement benefits are accounted for pursuant
to Statement of Financial Accounting Standards ("SFAS") No. 106, EMPLOYERS
ACCOUNTING FOR POSTRETIREMENT BENEFITS OTHER THAN PENSIONS. SFAS No. 106
requires that the projected future cost of providing postretirement benefits,
such as health care and life insurance, be recognized as an expense as employees
render service rather than when claims are incurred.
INCOME TAXES--Income taxes are accounted for pursuant to SFAS 109,
ACCOUNTING FOR INCOME TAXES. Under SFAS No. 109, deferred income tax assets and
liabilities represent the future income tax effect of temporary differences
between the book and tax bases of assets and liabilities assuming they will be
realized and settled at the amounts reported in the financial statements. The
provision for income taxes included in the accompanying financial statements is
computed in a manner consistent with SFAS No. 109.
GOODWILL--Goodwill represents the excess of the purchase price over the fair
value of the net assets acquired in the Acquisition of the Company from Springs
Industries in April 1996. Goodwill recorded from the Acquisition was $45,128,
and is being amortized on a straight-line basis over a period of 40 years.
3. LONG-TERM DEBT
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
JANUARY 3, JULY 4,
1998 1998
---------- ----------
<S> <C> <C>
Senior Notes, payable in 2006, interest at 10.5%...................... $ 110,000 $ 110,000
Senior Debentures, payable in 2007, interest at 12.5%................. 45,994 45,994
Revolving Credit Agreement, due 2002, interest at
variable rates...................................................... 0 0
---------- ----------
Total................................................................. 155,994 155,994
Less current maturities............................................... 0 0
---------- ----------
Long-term debt........................................................ $ 155,994 $ 155,994
---------- ----------
---------- ----------
</TABLE>
F-76
<PAGE>
CLARK-SCHWEBEL HOLDINGS, INC.
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
3. LONG-TERM DEBT (CONTINUED)
The Senior Notes accrue interest at a fixed rate of 10.5% per annum, with
interest payable semiannually in arrears on April 15 and October 15. The Senior
Notes are not redeemable at the option of the Company prior to April 15, 2001,
except in the event of a public equity offering of the Company, at which time a
portion of the Senior Notes would be redeemable.
The Senior Debentures accrue interest at a fixed rate of 12.5% per annum
with interest payable semiannually in arrears on January 15 and July 15 to the
extent permitted by the Credit Agreement and the indenture governing the Senior
Notes. If the Company is unable to pay interest in cash due to the prohibitions
contained in the Credit Agreement or such indenture, interest on the Senior
Debentures would be payable in additional Senior Debentures. The Senior
Debentures will not be redeemable at the Company's option prior to July 15,
2002, except in the event of a public equity offering of the Company, or a
change of control or subsidiary change of control after January 15, 1998. See
Note 6.
The Company has a $65,000 Revolving Credit Facility under the Credit
Agreement. The Company pays a quarterly commitment fee equal to 0.25% on the
unused portion of the Revolving Credit Facility, which was $65,000 at July 4,
1998.
The Revolving Credit Facility, the Senior Notes, and the Senior Debentures
contain certain restrictive covenants which provide limitations on the Company
with respect to restricted payments, indebtedness, liens, investments,
dividends, distributions, transactions with affiliates, debt repayments, capital
expenditures, mergers, and consolidations. The bank facility covenants also
require maintenance of certain financial ratios. At July 4, 1998, the Company
was in compliance with such covenants. With the exception of the Senior
Debentures, which are obligations of Clark-Schwebel Holdings, Inc., all other
long-term debt is owed at the Clark-Schwebel, Inc., operating company level, and
guaranteed by Clark-Schwebel Holdings, Inc.
No principal payments are required on any long-term debt in the next five
years.
4. INVENTORIES
Inventories consisted of the following:
<TABLE>
<CAPTION>
JANUARY 3, JULY 4,
1998 1998
----------- ---------
<S> <C> <C>
Finished goods......................................................... $ 12,301 $ 11,511
Raw material and supplies.............................................. 8,854 10,384
In process............................................................. 15,317 15,853
----------- ---------
Total at standard cost (which approximates average cost)............... 36,472 37,748
Less LIFO reserve...................................................... (1,575) (1,949)
----------- ---------
Inventories, net....................................................... $ 34,897 $ 35,799
----------- ---------
----------- ---------
</TABLE>
F-77
<PAGE>
CLARK-SCHWEBEL HOLDINGS, INC.
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
5. CONVERSION OF CS-INTERGLAS AG ("INTERGLAS") NOTE RECEIVABLE AND OPTION TO
PURCHASE A CONTROLLING INTEREST IN INTERGLAS
On March 31, 1998, the Company notified CS-Interglas of its intent to
convert its 20 million Deutsche mark convertible notes (the "Convertible Notes")
into CS-Interglas common stock. Effective June 30, 1998, the conversion
increased the Company's ownership of the outstanding common stock of Interglas
from 24.9% to 41.9%. The conversion was approved by the German Merger Control
Authorities. Interglas manufactures fiber glass, aramid and carbon fabrics in
Europe, with plants in Germany, Belgium, England and France. CS-Interglas sales
for the fiscal year ended June 30, 1997 were $154,000.
On March 31, 1998, the Company also entered into an agreement (the
"Interglas Purchase Agreement") with the Deschler-Group, the Company's joint
venture partner in Interglas who, following the Company's Convertible Notes
conversion described above, owns 41.9% of the outstanding common stock of
Interglas. Under the Interglas Purchase Agreement, the Company purchased 1.7% of
Interglas' common stock from the Deschler-Group for 4.75 million Deutsche marks
(approximately $2,600) on June 30, 1998. This purchase increased the Company's
ownership in Interglas from 41.9% to 43.6%. The Company's purchase of additional
shares in CS-Interglas was approved by the German Merger Control Authorities.
Additionally, pursuant to the Interglas Purchase Agreement, the Company obtained
two options from the Deschler-Group to purchase additional shares of Interglas
held by the Deschler-Group. The first option allows the Company to purchase an
additional 6.4% of Interglas' common stock from the Deschler-Group on or before
January 10, 1999, which, if exercised, will give the Company control of
Interglas. The second option allows the Company to purchase the remaining shares
of Interglas held by the Deschler-Group at any time through December 31, 1999.
6. SUBSEQUENT EVENTS
HEXCEL CORPORATION ACQUIRES ASSETS OF CLARK-SCHWEBEL
On September 15, 1998, Hexcel Corporation ("Hexcel") acquired certain assets
and operating liabilities of Clark-Schwebel, Inc. In the first transaction,
Vestar Capital Partners and Management Investors sold the stock of the
Clark-Schwebel Holdings, Inc. ("Holdings") to Stamford C-S Acquisition Corp.
("Stamford") for an enterprise value of approximately $488,000, less debt and
transaction expenses. Stamford then immediately sold certain assets and
operating liabilities of Clark-Schwebel, Inc. and its subsidiaries (the
"Company") to Hexcel for $453,600. Stamford will retain $50,000 of property,
plant and equipment to be leased to Hexcel under a long-term capital lease.
CLARK-SCHWEBEL AND PARENT COMPANY LAUNCH CASH TENDER OFFERS AND CONSENT
SOLICITATIONS FOR NOTES AND DEBENTURES
As part of the sale described above, the Company and Holdings launched cash
tender offers and consent solicitations for their notes and debentures.
Pursuant to the tender offers, the Company and Holdings, respectively, have
repurchased:
1. all $110,000 of the 10 1/2% Senior Notes of the Company due 2006. The
purchase price offered for each $1 principal amount tendered is based on a
fixed spread of 50 basis points over the yield of the 6 1/4% U.S. Treasury
Notes due March 31, 2001, plus accrued unpaid interest on the notes, minus
the consent payment described below.
F-78
<PAGE>
CLARK-SCHWEBEL HOLDINGS, INC.
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
6. SUBSEQUENT EVENTS (CONTINUED)
2. all $45,994 of the 12 1/2% Senior Debentures of Holdings due 2007.
The purchase price offered for each $1 principal amount tendered is $1.0675
plus accrued unpaid interest on the debentures, minus the consent payment
described below.
Concurrent with the tender offers, the issuers obtained consents to
eliminate or modify substantially all of the convenants in the indentures
governing the notes and the debentures. Holders who tender their notes and
debentures were required to consent to the proposed amendments.
The Company offered to make consent payments of $.025 per $1 principal
amount to the holders of the notes and debentures who tender their securities
and deliver their consents at or prior to 5:00 p.m. New York City time on the
consent date.
The Company and Holdings purchased the tendered notes and debentures with
borrowings under proceeds from stock sale.
F-79
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WE HAVE NOT AUTHORIZED ANY DEALER, SALESPERSON OR OTHER PERSON TO GIVE ANY
INFORMATION OR REPRESENT ANYTHING NOT CONTAINED IN THIS PROSPECTUS. YOU MUST NOT
RELY ON UNAUTHORIZED INFORMATION. THIS PROSPECTUS DOES NOT OFFER TO SELL OR BUY
ANY SHARES IN ANY JURISDICTION WHERE IT IS UNLAWFUL. THE INFORMATION IN THIS
PROSPECTUS IS CURRENT AS OF , 1999. HOWEVER, YOU SHOULD REALIZE THAT
OUR AFFAIRS MAY HAVE CHANGED SINCE THE DATE OF THIS PROSPECTUS.
------------------------
TABLE OF CONTENTS
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<CAPTION>
PAGE
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<S> <C>
Forward-Looking Statements................................................ ii
Prospectus Summary........................................................ 1
Risk Factors.............................................................. 12
Use of Proceeds........................................................... 19
Capitalization............................................................ 20
Pro Forma Financial Information........................................... 21
Selected Consolidated Financial Information............................... 26
The Exchange Offer........................................................ 27
Management's Discussion and Analysis of Financial Condition and Results of
Operations.............................................................. 35
Business.................................................................. 43
Management................................................................ 58
Security Ownership of Certain Beneficial Owners........................... 62
Description of Certain Indebtedness....................................... 63
Description of the Notes.................................................. 66
Book-Entry; Delivery and Form............................................. 101
Exchange Offer; Registration Rights....................................... 103
Certain Relationships and Related Transactions............................ 105
Certain United States Federal Income Tax Considerations................... 111
Plan of Distribution...................................................... 114
Legal Matters............................................................. 115
Experts................................................................... 115
Available Information..................................................... 115
Glossary of Terms......................................................... 117
Index to Financial Statements............................................. F-1
</TABLE>
$240,000,000
[LOGO]
9 3/4% SENIOR SUBORDINATED
NOTES DUE 2009
---------------------------
PROSPECTUS
---------------------------
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<PAGE>
, 1999
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Set forth below is a description of certain provisions of the Delaware
General Corporation Law (the "DGCL"), the Certificate of Incorporation of the
Company, the Strategic Alliance Agreement dated as of September 29, 1995 among
Ciba-Geigy Limited, Ciba-Geigy Corporation and the Company, as amended December
12, 1995 (the "Strategic Alliance Agreement") and the Hexcel Corporation
Incentive Stock Plan, as amended and restated January 30, 1997 and further
amended December 10, 1997 and the Hexcel Corporation 1998 Broad Based Incentive
Stock Plan (together, the "Incentive Stock Plans"), as such provisions relate to
the indemnification of the directors and officers of the Company. This
description is intended only as a summary and is qualified in its entirety by
reference to the applicable provisions of the DGCL, the Certificate of
Incorporation of the Company, the Bylaws of the Company, the Strategic Alliance
Agreement and the Incentive Stock Plans, which are incorporated herein by
reference.
Section 145 of the DGCL provides that a corporation may indemnify any person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed legal action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of such
corporation) by reason of the fact that such person is or was a director,
officer, employee or agent of the corporation, or is or was serving at its
request in such capacity at another corporation or business organization,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by such person in connection with
such action, suit or proceeding, provided that such person acted in good faith
and in a manner he reasonably believed to be in or not opposed to the best
interest of the corporation, and, with respect to any criminal proceeding, had
no reasonable cause to believe that such person's conduct was unlawful. A
Delaware corporation may indemnify officers and directors against expenses
(including attorneys' fees) in an action by or in the right of the corporation
under the same conditions, except that no indemnification is permitted without
judicial approval if the officer or director is adjudged to be liable to the
corporation. Where an officer or director is successful on the merits or
otherwise in the defense of any action referred to above, the corporation must
indemnify him against the expenses that such officer or director actually and
reasonably incurred.
Section 102(b)(7) of the DGCL permits a corporation to provide in its
certificate of incorporation that a director of a corporation shall not be
personally liable to the corporation or its stockholders for monetary damages
for breach of his fiduciary duty as a director; provided, however, that such
clause shall not apply to any liability of a director (i) for any breach of the
director's duty of loyalty to the corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the DGCL (Liability of
Directors for Unlawful Payment of Dividend or Unlawful Stock Purchase or
Redemption) or (iv) for any transaction from which the director derived an
improper personal benefit.
The Company's Certificate of Incorporation provides for the elimination of
personal liability of a director for breach of fiduciary duty, to the full
extent permitted by the DGCL. The Company's Certificate of Incorporation also
provides that the Company shall indemnify its directors and officers to the full
extent permitted by the DGCL; provided, however, that the Company shall
indemnify any such person seeking indemnification in connection with a
proceeding initiated by such person only if such proceeding was authorized by
the Board of Directors of the Company. The Certificate of Incorporation further
provides that the Company may, to the extent authorized from time to time by the
Board of Directors, provide rights to indemnification similar to those provided
to the directors and officers of the Company to the employees and agents of the
Company who are not directors or officers of the Company.
The Strategic Alliance Agreement provides that the Company's Certificate of
Incorporation and Bylaws will continue to contain the provisions with respect to
indemnification of directors and officers as of
II-1
<PAGE>
September 29, 1995, which provisions will not be amended, repealed or otherwise
modified for a period of six years following the Closing contemplated by the
Strategic Alliance Agreement (the "Ciba Closing") in any manner that would
adversely affect the rights of individuals who at any time prior to the Ciba
Closing were directors or officers of the Company in respect of actions or
omissions occurring at or prior to the Ciba Closing, except for such
modifications as are required by applicable law. In addition, the Strategic
Alliance Agreement generally requires the Company to indemnify, to the fullest
extent permitted under the DGCL, its officers and directors as of September 29,
1995 against all losses, expense, claims, damages, liabilities, costs or
expenses (including reasonable fees and expenses of counsel) arising out of any
claim, action, suit, proceeding or investigation based in whole or in part on
the fact that such person was a director or officer of the Company at or prior
to the Ciba Closing. The Company maintains, at its expense, an insurance policy
which insures the directors and officers of the Company, subject to certain
exclusions and deductions, against certain liabilities that they may incur in
their capacity as such. The Strategic Alliance Agreement provides that for six
years after the Ciba Closing, the Company is generally required to provide
directors' and officers' liability insurance meeting certain specified criteria
for its officers and directors as of September 29, 1995.
Pursuant to the Incentive Stock Plans, no member of the Executive
Compensation Committee of the Board of Directors of the Company, or such other
committee or committees of the Board of Directors as may be designated by the
Board of Directors from time to time to administer the Incentive Stock Plans,
shall be liable for any action or determination made in good faith, and the
members of such committee or committees shall be entitled to indemnification in
the manner provided in the Company's Certificate of Incorporation.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
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EXHIBIT NO. DESCRIPTION
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2.1 Strategic Alliance Agreement dated as of September 29, 1995 among Hexcel, Ciba-Geigy Limited and
Ciba-Geigy Corporation (incorporated herein by reference to Exhibit 10.1 to the Company's Current
Report on Form 8-K dated as of October 13, 1995).
2.1(a) Amendment dated as of December 12, 1995 to the Strategic Alliance Agreement among Hexcel,
Ciba-Geigy Limited and Ciba-Geigy Corporation (incorporated herein by reference to Exhibit 2.1(a)
to the Company's Current Report on Form 8-K dated as of March 15, 1996).
2.1(b) Letter Agreement dated as of February 28, 1996 among Hexcel, Ciba-Geigy Limited and Ciba-Geigy
Corporation (incorporated herein by reference to Exhibit 2.1(b) to the Company's Current Report on
Form 8-K dated as of March 15, 1996).
2.1(c) Distribution Agreement dated as of February 29, 1996 among the Company, Brochier S.A., Composite
Materials Limited, Salver S.r.l. and Ciba Geigy Limited (incorporated by reference to Exhibit
2.1(c) to the Company's Current Report on Form 8-K dated as of March 15, 1996).
2.1(d) Consent Letter dated February 21, 1997, between Hexcel and Ciba Specialty Chemicals Holding Inc.
(incorporated herein by reference to Exhibit 2.1(d) to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1997).
2.2 Sale and Purchase Agreement dated as of April 15, 1996 among Hexcel Corporation, Hercules
Incorporated, Hercules Nederland BV and HISPAN Corporation (incorporated herein by reference to
Exhibit 2.2 to Hexcel's Quarterly Report on Form 10-Q for the fiscal quarter ended March 31,
1996).
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
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<S> <C>
2.2(a) Amendment Number One dated as of June 27, 1996 to the Sale and Purchase Agreement among Hexcel
Corporation, Hercules Incorporated, Hercules Nederland BV and HISPAN Corporation (incorporated
herein by reference to Exhibit 2.2 to Hexcel's Current Report on Form 8-K dated July 12, 1996).
2.2(b) Letter Agreement dated as of June 27, 1996 among Hexcel Corporation, Hercules Incorporated,
Hercules Nederland BV and HISPAN Corporation (incorporated herein by reference to Exhibit 2.3 to
Hexcel's Current Report on Form 8-K dated July 12, 1996).
2.3 Asset Purchase Agreement by and among Stamford FHI Acquisition Corp., Fiberite, Inc. and Hexcel
Corporation, dated as of April 21, 1997 (incorporated herein by reference to Exhibit 10.1 to
Hexcel's Quarterly Report on Form 10-Q for the Quarter ended June 30, 1997).
2.3(a) Amended and Restated Asset Purchase Agreement by and among Stamford FHI Acquisition Corp.,
Fiberite, Inc. and Hexcel Corporation, dated as of August 25, 1997 (incorporated herein by
reference to Exhibit 10.11 to Hexcel's Quarterly Report on Form 10-Q for the Quarter ended
September 30, 1997).
2.4 License of Intellectual Property agreement, by and among Hexcel Corporation and Fiberite, Inc.,
dated as of August 29, 1997 (incorporated herein by reference to Exhibit 10.12 to Hexcel's
Quarterly Report on Form 10-Q for the Quarter ended September 30, 1997).
2.5 Asset Purchase Agreement by and among the Company, Stamford CS Acquisition Corp., Clark-Schwebel
Holdings, Inc. and Clark-Schwebel Inc., dated July 25, 1998 (incorporated herein by reference to
Exhibit 2.1 of the Company's Current Report on Form 8-K, filed on July 30, 1998).
2.5(a) Amendment No. 1 to Asset Purchase Agreement by and among the Company, Stamford CS Acquisition
Corp., Clark-Schwebel Holdings, Inc. and Clark-Schwebel Inc., dated as of September 15, 1998
(incorporated by reference to Exhibit 2.1 of the Company's Current Report on Form 8-K, filed on
September 24, 1998).
2.5(b) Amendment No. 2 to Asset Purchase Agreement by and among the Company and EQCSI Holding Corp.,
formerly known as Clark-Schwebel, Inc., dated as of December 23, 1998.
2.6 First Amended Plan of Reorganization dated as of November 7, 1994 (incorporated by reference to
Exhibit 2 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended October 2,
1994).
3.1 Restated Certificate of Incorporation of Hexcel Corporation (incorporated herein by reference to
Exhibit 1 to Hexcel's Registration Statement on Form 8-A dated July 9, 1996).
3.2 Amended and Restated Bylaws of Hexcel Corporation (incorporated herein by reference to Exhibit 2
to Hexcel's Registration Statement on Form 8-A dated July 9, 1996).
4.1 Indenture dated as of January 21, 1999 between Hexcel Corporation and The Bank of New York, as
trustee, relating to the issuance of the 9 3/4% Senior Subordinated Notes due 2009.
4.2 Registration Rights Agreement dated as of January 21, 1999 by and among Hexcel Corporation, Credit
Suisse First Boston Corporation and Salomon Smith Barney Inc., relating to the issuance of the
9 3/4% Senior Subordinated Notes due 2009.
4.3 Purchase Agreement dated as of January 15, 1999 by and among Hexcel Corporation, Credit Suisse
First Boston Corporation and Salomon Smith Barney Inc., relating to the issuance of the 9 3/4%
Senior Subordinated Notes due 2009.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
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<S> <C>
4.4 Indenture dated as of July 24, 1996 between Hexcel Corporation and First Trust of California,
National Association, as trustee, relating to the 7% Convertible Subordinated Notes due 2003 of
the Company (incorporated herein by reference to Exhibit 4 to Hexcel's Quarterly Report on Form
10-Q for the quarter ended June 30, 1996).
4.5 Indenture dated as of February 29, 1996 between Hexcel and First Trust of California, National
Association, as trustee, relating to the Increasing Rate Senior Subordinated Notes due 2003 of the
Company (incorporated herein by reference to Exhibit 4.1 to the Company's Current Report on Form
8-K dated as of March 15, 1996).
4.5(a) First Supplemental Indenture dated as of June 27, 1996 between Hexcel and First Trust of
California, N.A., as trustee, to the Indenture dated as of February 29, 1996 between Hexcel and
First Trust of California, N.A., as trustee (incorporated herein by reference to Exhibit 4.2(a) to
the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997).
4.5(b) Second Supplemental Indenture dated as of March 5, 1998 between Hexcel and First Trust of
California, N.A., as trustee, to the Indenture dated as of February 29, 1996 between Hexcel and
First Trust of California, N.A., as trustee (incorporated by reference to Exhibit 4.2(b) to
Hexcel's Annual Report on Form 10-K for the fiscal year ended December 31, 1997).
4.5(c) Third Supplemental Indenture dated as of September 15, 1998 between Hexcel and U.S. Bank Trust
National Association (formerly known as First Trust of California, National Association), as
trustee.
4.5(d) Fourth Supplemental Indenture dated as of January 21, 1999 between Hexcel and U.S. Bank Trust
National Association (formerly known as First Trust of California, National Association), as
trustee.
4.6 Indenture dated as of August 1, 1986 between Hexcel and the Bank of California, N.A., as trustee,
relating to the 7% Convertible Subordinated Notes due 2011 of the Company (incorporated herein by
reference to Exhibit 4.3 to the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997).
4.6(a) Instrument of Resignation, Appointment and Acceptance, dated as of October 1, 1993 (incorporated
herein by reference to Exhibit 4.10 to the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1993).
5.1 Opinion of Skadden, Arps, Slate, Meagher & Flom LLP, special counsel to the Company.
10.1 Credit Agreement dated as of June 27, 1996 among Hexcel and certain of its subsidiaries as
borrowers, the institutions party thereto as lenders, the institutions party thereto as issuing
banks, Citibank, N.A. as collateral agent and Credit Suisse as administrative agent (incorporated
herein by reference to Exhibit 99.2 to Hexcel's Current Report on Form 8-K dated July 12, 1996).
10.1(a) Consent Number 1 and First Amendment dated as of July 3, 1996 to the Credit Agreement dated as of
June 27, 1996 among Hexcel Corporation and certain of its subsidiaries as borrowers, the
institutions party thereto as lenders, the institutions party thereto as issuing banks, Citibank,
N.A. as collateral agent and Credit Suisse as administrative agent (incorporated herein by
reference to Exhibit 10.2 to Hexcel's Quarterly Report on Form 10-Q for the quarter ended June 30,
1996).
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
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<S> <C>
10.1(b) Modifications dated as of July 8, 1996 to the First Amendment to the Credit Agreement among Hexcel
Corporation and certain of its subsidiaries as borrowers, the institutions party thereto as
lenders, the institutions party thereto as issuing banks, Citibank, N.A. as collateral agent and
Credit Suisse as administrative agent (incorporated herein by reference to Exhibit 10.3 to
Hexcel's Quarterly Report on Form 10-Q for the Quarter ended June 30, 1996).
10.1(c) Consent Number 2 and Second Amendment dated as of November 12, 1996 to the Credit Agreement dated
as of June 27, 1996 among Hexcel Corporation and certain of its subsidiaries as borrowers, the
institutions party thereto as lenders, the institutions party thereto as issuing banks, Citibank,
N.A. as collateral agent and Credit Suisse as administrative agent (incorporated herein by
reference to Exhibit 10.4(b) to Hexcel's Annual Report on Form 10-K for the year ended December
31, 1996).
10.1(d) Consent Number 3 and Third Amendment dated as of February 27, 1997 to the Credit Agreement dated
as of June 27, 1996 among Hexcel Corporation and certain of its subsidiaries as borrowers, the
institutions party thereto as lenders, the institutions party thereto as issuing banks, Citibank,
N.A. as collateral agent and Credit Suisse as administrative agent (incorporated herein by
reference to Exhibit 10.4(c) to Hexcel's Annual Report on Form 10-K for the year ended December
31, 1996).
10.1(e) Amended and Restated Credit Agreement dated as of March 5, 1998 among Hexcel and certain
subsidiaries as borrowers, the lenders and issuing banks party thereto, Citibank, N.A., as U.S.
administrative agent, Citibank International plc, as European administrative agent and Credit
Suisse, as syndication agent (incorporated herein by reference to Exhibit 10.4(d) to Hexcel's
Annual Report on Form 10-K for the year ended December 31, 1997).
10.1(f) Second Amended and Restated Credit Agreement, dated as of September 15, 1998, by and among Hexcel
and certain of its subsidiaries as borrowers, the lenders from time to time parties thereto,
Citibank, N.A. as documentation agent, and Credit Suisse First Boston as lead arranger and as
administrative agent for the lenders (incorporated herein by reference to Exhibit 10.1 of the
Company's Quarterly Report on Form 10-Q for the Quarter ended September 30, 1998).
10.1(g) First Amendment dated as of December 31, 1998 to the Second Amended and Restated Credit Agreement
by and among Hexcel Corporation and the Foreign Borrowers from time to time party thereto, the
banks and other financial institutions from time to time parties thereto, Citibank, N.A., as
Documentation Agent, and Credit Suisse First Boston, as Administrative Agent.
10.1(h) Consent Letter dated as of January 15, 1999 relating to the First Amendment dated December 31,
1998 to the Second Amended and Restated Credit Agreement dated September 15, 1998.
10.2 Hexcel Corporation Incentive Stock Plan as amended and restated January 30, 1997 (incorporated
herein by reference to Exhibit 4.3 to the Company's Registration Statement on Form S-8,
Registration No. 333-36163).
10.2(a) Hexcel Corporation Incentive Stock Plan as amended and restated January 30, 1997 and further
amended December 10, 1997 (incorporated herein by reference to Exhibit 10.5(a) to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1997).
10.3 Hexcel Corporation 1998 Broad Based Incentive Stock Plan (incorporated herein by reference to
Exhibit 4.3 of the Company's Form S-8 filed on June 19, 1998).
</TABLE>
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<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
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10.4 Hexcel Corporation Management Stock Purchase Plan (incorporated herein by reference to Exhibit
10.9 to Hexcel's Quarterly Report on Form 10-Q for the Quarter ended June 30, 1997).
10.5 Hexcel Corporation Management Incentive Compensation Plan (incorporated herein by reference to
Annex A of the Company's Proxy Statement dated April 20, 1998, which was previously filed
electronically).
10.6 Form of Employee Option Agreement (1998) (incorporated herein by reference to Exhibit 10.4 of the
Company's Quarterly Report on Form 10-Q for the Quarter ended September 30, 1998).
10.7 Form of Employee Option Agreement (1997) (incorporated herein by reference to Exhibit 10.4 to
Hexcel's Quarterly Report on Form 10-Q for the Quarter ended June 30, 1997).
10.8 Form of Employee Option Agreement (1996) (incorporated herein by reference to Exhibit 10.5 to
Hexcel's Quarterly Report on Form 10-Q for the Quarter ended March 31, 1996).
10.9 Form of Employee Option Agreement (1995) (incorporated herein by reference to Exhibit 10.6 to
Hexcel's Quarterly Report on Form 10-Q for the Quarter ended March 31, 1996).
10.10 Form of Retainer Fee Option Agreement for Non-Employee Directors (1997) (incorporated herein by
reference to Exhibit 10.8 to Hexcel's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997).
10.11 Form of Option Agreement (Directors) (incorporated herein by reference to Exhibit 10.13 to
Hexcel's Annual Report on Form 10-K for the fiscal year ended December 31, 1995).
10.12 Form of Short-Term Option Agreement (incorporated herein by reference to Exhibit 10.8 to Hexcel's
Quarterly Report on Form 10-Q for the Quarter ended March 31, 1996).
10.13 Form of Performance Accelerated Restricted Stock Unit Agreement (1998) (incorporated herein by
reference to Exhibit 10.2 to Hexcel's Quarterly Report on Form 10-Q for the Quarter ended March
31, 1998).
10.14 Form of Performance Accelerated Restricted Stock Unit Agreement (1997) (incorporated herein by
reference to Exhibit 10.5 to Hexcel's Quarterly Report on Form 10-Q for the Quarter ended June 30,
1997).
10.15 Form of Performance Accelerated Restricted Stock Unit Agreement (1996) (incorporated herein by
reference to Exhibit 10.9 to Hexcel's Quarterly Report on Form 10-Q for the Quarter ended March
31, 1996).
10.16 Form of Reload Option Agreement (1997) (incorporated herein by reference to Exhibit 10.8 of
Hexcel's Quarterly Report on Form 10-Q for the Quarter ended June 30, 1997).
10.17 Form of Reload Option Agreement (1996) (incorporated herein by reference to Exhibit 10.10 to
Hexcel's Quarterly Report on Form 10-Q for the Quarter ended March 31, 1996).
10.18 Form of Performance Accelerated Stock Option Agreement (Director) (incorporated herein by
reference to Exhibit 10.6 to Hexcel's Quarterly Report on Form 10-Q for the Quarter ended June 30,
1997).
10.19 Form of Performance Accelerated Stock Option (Employee) (incorporated herein by reference to
Exhibit 10.7 to Hexcel's Quarterly Report on Form 10-Q for the Quarter ended June 30, 1997).
</TABLE>
II-6
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<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
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<S> <C>
10.20 Form of Grant of Restricted Stock Unit Agreement (incorporated herein by reference to Exhibit
10.10 to Hexcel's Quarterly Report on Form 10-Q for the Quarter ended June 30, 1997).
10.21 Form of Exchange Performance Accelerated Stock Option Agreement (incorporated herein by reference
to Exhibit 10.3 to Hexcel's Quarterly Report on Form 10-Q for the Quarter ended September 30,
1998).
10.22 Hexcel Corporation 1997 Employee Stock Purchase Plan (incorporated herein by reference to Exhibit
10.2 to Hexcel's Quarterly Report on Form 10-Q for the Quarter ended June 30, 1997).
10.23 Employment Agreement dated as of February 29, 1996 between Hexcel and John J. Lee (incorporated
herein by reference to Exhibit 10.14 to the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1995).
10.23(a) Employee Option Agreement dated as of February 29, 1996 between Hexcel and John J. Lee
(incorporated herein by reference to Exhibit 10.14(a) to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1995).
10.23(b) Bankruptcy Court Option Agreement dated as of February 29, 1996 between Hexcel and John J. Lee
(incorporated herein by reference to Exhibit 10.14(b) to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1995).
10.23(c) Performance Accelerated Restricted Stock Unit Agreement dated as of February 29, 1996 between
Hexcel and John J. Lee (incorporated herein by reference to Exhibit 10.14(c) to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1995).
10.23(d) Short-Term Option Agreement dated as of February 29, 1996 between Hexcel and John J. Lee
(incorporated herein by reference to Exhibit 10.14(d) to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1995).
10.23(e) Form of Reload Option Agreement dated as of February 29, 1996 between Hexcel and John J. Lee
(incorporated herein by reference to Exhibit 10.14(e) to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1995).
10.23(f) Supplemental Executive Retirement Agreement dated as of May 20, 1998 between Hexcel and John J.
Lee (incorporated herein by reference to Exhibit 10.3 to the Company's Quarterly Report on Form
10-Q for the Quarter ended June 30, 1998).
10.23(g) Summary of Terms of Employment (effective as of July 15, 1998) between Hexcel and Harold E. Kinne,
President and Chief Operating Officer of Hexcel (incorporated herein by reference to Exhibit 10.5
of the Company's Quarterly Report on Form 10-Q for the Quarter ended September 30, 1998).
10.23(h) Employment Agreement dated as of July 25, 1998 (effective date September 15, 1998) between Hexcel
and Richard Wolfe, Executive V.P. of Manufacturing of Clark-Schwebel Corporation (a wholly-owned
subsidiary of Hexcel) (incorporated herein by reference to Exhibit 10.6 of the Company's Quarterly
Report on Form 10-Q for the Quarter ended September 30, 1998).
10.23(i) Employment Agreement dated as of July 25, 1998 (effective date September 15, 1998) between Hexcel
and Jack Schwebel, Co-Chairman of Clark-Schwebel Corporation (a wholly-owned subsidiary of Hexcel)
(incorporated herein by reference to Exhibit 10.7 of the Company's Quarterly Report on Form 10-Q
for the Quarter ended September 30, 1998).
</TABLE>
II-7
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<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
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<S> <C>
10.23(j) Employment Agreement dated as of July 25, 1998 (effective date September 15, 1998) between Hexcel
and William D. Bennison, President of Clark-Schwebel Corporation (a wholly-owned subsidiary of
Hexcel) (incorporated herein by reference to Exhibit 10.8 of the Company's Quarterly Report on
Form 10-Q for the Quarter ended September 30, 1998).
10.24 Agreement dated September 3, 1996 between Hexcel Corporation and Ira J. Krakower (incorporated
herein by reference to Exhibit 10.12 to the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1997).
10.25 Separation and Release Agreement dated as of January 29, 1998 between Hexcel Corporation and
Juergen Habermeier (incorporated herein by reference to Exhibit 10.13 to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1997).
10.26 Agreement between Hexcel Corporation and Stephen C. Forsyth (incorporated herein by reference to
Exhibit 10.4(L) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1994).
10.27 Agreement between Hexcel Corporation and Gary L. Sandercock (incorporated herein by reference to
Exhibit 10.4(I) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1994).
10.28 Governance Agreement dated as of February 29, 1996 between Hexcel and Ciba-Geigy Limited
(incorporated herein by reference to Exhibit 10.21 to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1995).
10.29 Registration Rights Agreement dated as of February 29, 1996 between Hexcel and Ciba-Geigy Limited
(incorporated herein by reference to Exhibit 10.22 to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1995).
10.29(a) Amendment No.1 dated as of December 29, 1998 to the Registration Rights Agreement by and between
Ciba-Geigy Limited (which has since assigned the Registration Rights Agreement to Ciba Specialty
Chemical Holding Inc.) and Hexcel Corporation.
10.30 Agreement Governing United States Employment Matters dated as of September 29, 1995 between Hexcel
and Ciba-Geigy Corporation (incorporated herein by reference to Exhibit D to Exhibit 10.1 to the
Company's Current Report on Form 8-K as of October 13, 1995).
10.30(a) Amendment dated as of November 22, 1995 to the Agreement Governing United States Employment
Matters between Hexcel and Ciba-Geigy Corporation (incorporated herein by reference to Exhibit
10.23(a) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995).
10.31 Employment Matters Agreement dated as of February 29, 1996 among Ciba-Geigy PLC, Composite
Materials Limited and Hexcel (incorporated herein by reference to Exhibit 10.24 to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1995).
10.32 Lease Agreement, dated as of September 15, 1998, by and among Clark-Schwebel Corporation (a
wholly-owned subsidiary of Hexcel) as lessee, CSI Leasing Trust as lessor, and William J. Wade as
co-trustee for CSI Leasing Trust (incorporated herein by reference to Exhibit 10.2 of the
Company's Quarterly Report on Form 10-Q for the Quarter ended September 30, 1998).
12.1 Statement regarding the computation of ratio of earnings to fixed charges for the Company.
21.1 Subsidiaries of the Company.
</TABLE>
II-8
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------
<S> <C>
23.1 Consent of PricewaterhouseCoopers LLP.
23.2 Consent of Deloitte & Touche LLP.
23.3 Consent of Arthur Andersen LLP.
23.4 Consent of Deloitte & Touche LLP.
23.5 Consent of Skadden, Arps, Slate, Meagher & Flom LLP (included in Exhibit 5.1).
24.1 Powers of attorney (included on signature page to the Registration Statement).
25.1 Statement of Eligibility and Qualification on Form T-1 of The Bank of New York, as trustee, under
the Indenture relating to the Exchange Notes.
99.1 Form of Letter of Transmittal.
99.2 Form of Notice of Guaranteed Delivery.
99.3 Form of Letter to Clients.
99.4 Form of Letter to Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees.
99.5 Form of Exchange Agency Agreement.*
99.6 Guidelines for Certification of Taxpayer Identification Number of Substitute Form W-9.
</TABLE>
- ------------------------
* To be filed by Amendment.
ITEM 22. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes:
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers, and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by the
final adjudication of such issue.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933.
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
the registration statement. Notwithstanding the foregoing, any increase
or decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering
range may be reflected in the form of prospectus filed with the SEC
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than 20 percent change in the
II-9
<PAGE>
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement.
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(3) For purposes of determining any liability under the Securities Act
of 1933, each filing of the registrant's annual report pursuant to section
13(a) or section 15(d) of the Securities Exchange Act of 1934 (and, where
applicable, each filing of an employee benefit plan's annual report pursuant
to section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in the registration statement shall be deemed to
be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(b) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(c) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Stamford, State of
Connecticut, on the 2nd day of February, 1999.
<TABLE>
<S> <C> <C>
HEXCEL CORPORATION
(Registrant)
By: /s/ IRA J. KRAKOWER
-----------------------------------------
Ira J. Krakower
SENIOR VICE PRESIDENT, GENERAL COUNSEL
AND SECRETARY
</TABLE>
KNOWN TO ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Ira J. Krakower his attorney-in-fact,
with the power of substitution, for him in any and all capacities, to sign any
amendments to this registration statement (including post-effective amendments),
and to file the same, with exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, hereby ratifying and
confirming all that each of said attorney-in-fact, or his substitute or
substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
/s/ JOHN J. LEE Chairman of the Board; February 2, 1999
- ------------------------------ Chief Executive Officer;
John J. Lee Director
/s/ HAROLD E. KINNE President and Chief February 2, 1999
- ------------------------------ Operating Officer;
Harold E. Kinne Director
/s/ STEPHEN C. FORSYTH Executive Vice President; February 2, 1999
- ------------------------------ Chief Financial Officer
Stephen C. Forsyth
/s/ WAYNE C. PENSKY Vice President; Corporate February 2, 1999
- ------------------------------ Controller; Chief
Wayne C. Pensky Accounting Officer
/s/ JOHN M.D. CHEESMOND Director February 2, 1999
- ------------------------------
John M.D. Cheesmond
/s/ MARSHALL S. GELLER Director February 2, 1999
- ------------------------------
Marshall S. Geller
</TABLE>
II-11
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
/s/ STANLEY SHERMAN Director February 2, 1999
- ------------------------------
Stanley Sherman
/s/ MARTIN L. SOLOMON Director February 2, 1999
- ------------------------------
Martin L. Solomon
/s/ GEORGE S. SPRINGER Director February 2, 1999
- ------------------------------
George S. Springer
Director , 1999
- ------------------------------
Joseph T. Sullivan
Director , 1999
- ------------------------------
Hermann Vodicka
Director , 1999
- ------------------------------
Franklin S. Wimer
</TABLE>
II-12
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------
<S> <C>
2.1 Strategic Alliance Agreement dated as of September 29, 1995 among Hexcel, Ciba-Geigy Limited and
Ciba-Geigy Corporation (incorporated herein by reference to Exhibit 10.1 to the Company's Current
Report on Form 8-K dated as of October 13, 1995).
2.1(a) Amendment dated as of December 12, 1995 to the Strategic Alliance Agreement among Hexcel,
Ciba-Geigy Limited and Ciba-Geigy Corporation (incorporated herein by reference to Exhibit 2.1(a)
to the Company's Current Report on Form 8-K dated as of March 15, 1996).
2.1(b) Letter Agreement dated as of February 28, 1996 among Hexcel, Ciba-Geigy Limited and Ciba-Geigy
Corporation (incorporated herein by reference to Exhibit 2.1(b) to the Company's Current Report on
Form 8-K dated as of March 15, 1996).
2.1(c) Distribution Agreement dated as of February 29, 1996 among the Company, Brochier S.A., Composite
Materials Limited, Salver S.r.l. and Ciba Geigy Limited (incorporated by reference to Exhibit
2.1(c) to the Company's Current Report on Form 8-K dated as of March 15, 1996).
2.1(d) Consent Letter dated February 21, 1997, between Hexcel and Ciba Specialty Chemicals Holding Inc.
(incorporated herein by reference to Exhibit 2.1(d) to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1997).
2.2 Sale and Purchase Agreement dated as of April 15, 1996 among Hexcel Corporation, Hercules
Incorporated, Hercules Nederland BV and HISPAN Corporation (incorporated herein by reference to
Exhibit 2.2 to Hexcel's Quarterly Report on Form 10-Q for the fiscal quarter ended March 31,
1996).
2.2(a) Amendment Number One dated as of June 27, 1996 to the Sale and Purchase Agreement among Hexcel
Corporation, Hercules Incorporated, Hercules Nederland BV and HISPAN Corporation (incorporated
herein by reference to Exhibit 2.2 to Hexcel's Current Report on Form 8-K dated July 12, 1996).
2.2(b) Letter Agreement dated as of June 27, 1996 among Hexcel Corporation, Hercules Incorporated,
Hercules Nederland BV and HISPAN Corporation (incorporated herein by reference to Exhibit 2.3 to
Hexcel's Current Report on Form 8-K dated July 12, 1996).
2.3 Asset Purchase Agreement by and among Stamford FHI Acquisition Corp., Fiberite, Inc. and Hexcel
Corporation, dated as of April 21, 1997 (incorporated herein by reference to Exhibit 10.1 to
Hexcel's Quarterly Report on Form 10-Q for the Quarter ended June 30, 1997).
2.3(a) Amended and Restated Asset Purchase Agreement by and among Stamford FHI Acquisition Corp.,
Fiberite, Inc. and Hexcel Corporation, dated as of August 25, 1997 (incorporated herein by
reference to Exhibit 10.11 to Hexcel's Quarterly Report on Form 10-Q for the Quarter ended
September 30, 1997).
2.4 License of Intellectual Property agreement, by and among Hexcel Corporation and Fiberite, Inc.,
dated as of August 29, 1997 (incorporated herein by reference to Exhibit 10.12 to Hexcel's
Quarterly Report on Form 10-Q for the Quarter ended September 30, 1997).
2.5 Asset Purchase Agreement by and among the Company, Stamford CS Acquisition Corp., Clark-Schwebel
Holdings, Inc. and Clark-Schwebel Inc., dated July 25, 1998 (incorporated herein by reference to
Exhibit 2.1 of the Company's Current Report on Form 8-K, filed on July 30, 1998).
2.5(a) Amendment No. 1 to Asset Purchase Agreement by and among the Company, Stamford CS Acquisition
Corp., Clark-Schwebel Holdings, Inc. and Clark-Schwebel Inc., dated as of September 15, 1998
(incorporated by reference to Exhibit 2.1 of the Company's Current Report on Form 8-K, filed on
September 24, 1998).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------
<S> <C>
2.5(b) Amendment No. 2 to Asset Purchase Agreement by and among the Company and EQCSI Holding Corp.,
formerly known as Clark-Schwebel, Inc., dated as of December 23, 1998.
2.6 First Amended Plan of Reorganization dated as of November 7, 1994 (incorporated by reference to
Exhibit 2 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended October 2,
1994).
3.1 Restated Certificate of Incorporation of Hexcel Corporation (incorporated herein by reference to
Exhibit 1 to Hexcel's Registration Statement on Form 8-A dated July 9, 1996).
3.2 Amended and Restated Bylaws of Hexcel Corporation (incorporated herein by reference to Exhibit 2
to Hexcel's Registration Statement on Form 8-A dated July 9, 1996).
4.1 Indenture dated as of January 21, 1999 between Hexcel Corporation and The Bank of New York, as
trustee, relating to the issuance of the 9 3/4% Senior Subordinated Notes due 2009.
4.2 Registration Rights Agreement dated as of January 21, 1999 by and among Hexcel Corporation, Credit
Suisse First Boston Corporation and Salomon Smith Barney Inc., relating to the issuance of the
9 3/4% Senior Subordinated Notes due 2009.
4.3 Purchase Agreement dated as of January 15, 1999 by and among Hexcel Corporation, Credit Suisse
First Boston Corporation and Salomon Smith Barney Inc., relating to the issuance of the 9 3/4%
Senior Subordinated Notes due 2009.
4.4 Indenture dated as of July 24, 1996 between Hexcel Corporation and First Trust of California,
National Association, as trustee, relating to the 7% Convertible Subordinated Notes due 2003 of
the Company (incorporated herein by reference to Exhibit 4 to Hexcel's Quarterly Report on Form
10-Q for the quarter ended June 30, 1996).
4.5 Indenture dated as of February 29, 1996 between Hexcel and First Trust of California, National
Association, as trustee, relating to the Increasing Rate Senior Subordinated Notes due 2003 of the
Company (incorporated herein by reference to Exhibit 4.1 to the Company's Current Report on Form
8-K dated as of March 15, 1996).
4.5(a) First Supplemental Indenture dated as of June 27, 1996 between Hexcel and First Trust of
California, N.A., as trustee, to the Indenture dated as of February 29, 1996 between Hexcel and
First Trust of California, N.A., as trustee (incorporated herein by reference to Exhibit 4.2(a) to
the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997).
4.5(b) Second Supplemental Indenture dated as of March 5, 1998 between Hexcel and First Trust of
California, N.A., as trustee, to the Indenture dated as of February 29, 1996 between Hexcel and
First Trust of California, N.A., as trustee (incorporated by reference to Exhibit 4.2(b) to
Hexcel's Annual Report on Form 10-K for the fiscal year ended December 31, 1997).
4.5(c) Third Supplemental Indenture dated as of September 15, 1998 between Hexcel and U.S. Bank Trust
National Association (formerly known as First Trust of California, National Association), as
trustee.
4.5(d) Fourth Supplemental Indenture dated as of January 21, 1999 between Hexcel and U.S. Bank Trust
National Association (formerly known as First Trust of California, National Association), as
trustee.
4.6 Indenture dated as of August 1, 1986 between Hexcel and the Bank of California, N.A., as trustee,
relating to the 7% Convertible Subordinated Notes due 2011 of the Company (incorporated herein by
reference to Exhibit 4.3 to the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------
<S> <C>
4.6(a) Instrument of Resignation, Appointment and Acceptance, dated as of October 1, 1993 (incorporated
herein by reference to Exhibit 4.10 to the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1993).
5.1 Opinion of Skadden, Arps, Slate, Meagher & Flom LLP, special counsel to the Company.
10.1 Credit Agreement dated as of June 27, 1996 among Hexcel and certain of its subsidiaries as
borrowers, the institutions party thereto as lenders, the institutions party thereto as issuing
banks, Citibank, N.A. as collateral agent and Credit Suisse as administrative agent (incorporated
herein by reference to Exhibit 99.2 to Hexcel's Current Report on Form 8-K dated July 12, 1996).
10.1(a) Consent Number 1 and First Amendment dated as of July 3, 1996 to the Credit Agreement dated as of
June 27, 1996 among Hexcel Corporation and certain of its subsidiaries as borrowers, the
institutions party thereto as lenders, the institutions party thereto as issuing banks, Citibank,
N.A. as collateral agent and Credit Suisse as administrative agent (incorporated herein by
reference to Exhibit 10.2 to Hexcel's Quarterly Report on Form 10-Q for the quarter ended June 30,
1996).
10.1(b) Modifications dated as of July 8, 1996 to the First Amendment to the Credit Agreement among Hexcel
Corporation and certain of its subsidiaries as borrowers, the institutions party thereto as
lenders, the institutions party thereto as issuing banks, Citibank, N.A. as collateral agent and
Credit Suisse as administrative agent (incorporated herein by reference to Exhibit 10.3 to
Hexcel's Quarterly Report on Form 10-Q for the Quarter ended June 30, 1996).
10.1(c) Consent Number 2 and Second Amendment dated as of November 12, 1996 to the Credit Agreement dated
as of June 27, 1996 among Hexcel Corporation and certain of its subsidiaries as borrowers, the
institutions party thereto as lenders, the institutions party thereto as issuing banks, Citibank,
N.A. as collateral agent and Credit Suisse as administrative agent (incorporated herein by
reference to Exhibit 10.4(b) to Hexcel's Annual Report on Form 10-K for the year ended December
31, 1996).
10.1(d) Consent Number 3 and Third Amendment dated as of February 27, 1997 to the Credit Agreement dated
as of June 27, 1996 among Hexcel Corporation and certain of its subsidiaries as borrowers, the
institutions party thereto as lenders, the institutions party thereto as issuing banks, Citibank,
N.A. as collateral agent and Credit Suisse as administrative agent (incorporated herein by
reference to Exhibit 10.4(c) to Hexcel's Annual Report on Form 10-K for the year ended December
31, 1996).
10.1(e) Amended and Restated Credit Agreement dated as of March 5, 1998 among Hexcel and certain
subsidiaries as borrowers, the lenders and issuing banks party thereto, Citibank, N.A., as U.S.
administrative agent, Citibank International plc, as European administrative agent and Credit
Suisse, as syndication agent (incorporated herein by reference to Exhibit 10.4(d) to Hexcel's
Annual Report on Form 10-K for the year ended December 31, 1997).
10.1(f) Second Amended and Restated Credit Agreement, dated as of September 15, 1998, by and among Hexcel
and certain of its subsidiaries as borrowers, the lenders from time to time parties thereto,
Citibank, N.A. as documentation agent, and Credit Suisse First Boston as lead arranger and as
administrative agent for the lenders (incorporated herein by reference to Exhibit 10.1 of the
Company's Quarterly Report on Form 10-Q for the Quarter ended September 30, 1998).
10.1(g) First Amendment dated as of December 31, 1998 to the Second Amended and Restated Credit Agreement
by and among Hexcel Corporation and the Foreign Borrowers from time to time party thereto, the
banks and other financial institutions from time to time parties thereto, Citibank, N.A., as
Documentation Agent, and Credit Suisse First Boston, as Administrative Agent.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------
<S> <C>
10.1(h) Consent Letter dated as of January 15, 1999 relating to the First Amendment dated December 31,
1998 to the Second Amended and Restated Credit Agreement dated September 15, 1998.
10.2 Hexcel Corporation Incentive Stock Plan as amended and restated January 30, 1997 (incorporated
herein by reference to Exhibit 4.3 to the Company's Registration Statement on Form S-8,
Registration No. 333-36163).
10.2(a) Hexcel Corporation Incentive Stock Plan as amended and restated January 30, 1997 and further
amended December 10, 1997 (incorporated herein by reference to Exhibit 10.5(a) to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1997).
10.3 Hexcel Corporation 1998 Broad Based Incentive Stock Plan (incorporated herein by reference to
Exhibit 4.3 of the Company's Form S-8 filed on June 19, 1998).
10.4 Hexcel Corporation Management Stock Purchase Plan (incorporated herein by reference to Exhibit
10.9 to Hexcel's Quarterly Report on Form 10-Q for the Quarter ended June 30, 1997).
10.5 Hexcel Corporation Management Incentive Compensation Plan (incorporated herein by reference to
Annex A of the Company's Proxy Statement dated April 20, 1998, which was previously filed
electronically).
10.6 Form of Employee Option Agreement (1998) (incorporated herein by reference to Exhibit 10.4 of the
Company's Quarterly Report on Form 10-Q for the Quarter ended September 30, 1998).
10.7 Form of Employee Option Agreement (1997) (incorporated herein by reference to Exhibit 10.4 to
Hexcel's Quarterly Report on Form 10-Q for the Quarter ended June 30, 1997).
10.8 Form of Employee Option Agreement (1996) (incorporated herein by reference to Exhibit 10.5 to
Hexcel's Quarterly Report on Form 10-Q for the Quarter ended March 31, 1996).
10.9 Form of Employee Option Agreement (1995) (incorporated herein by reference to Exhibit 10.6 to
Hexcel's Quarterly Report on Form 10-Q for the Quarter ended March 31, 1996).
10.10 Form of Retainer Fee Option Agreement for Non-Employee Directors (1997) (incorporated herein by
reference to Exhibit 10.8 to Hexcel's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997).
10.11 Form of Option Agreement (Directors) (incorporated herein by reference to Exhibit 10.13 to
Hexcel's Annual Report on Form 10-K for the fiscal year ended December 31, 1995).
10.12 Form of Short-Term Option Agreement (incorporated herein by reference to Exhibit 10.8 to Hexcel's
Quarterly Report on Form 10-Q for the Quarter ended March 31, 1996).
10.13 Form of Performance Accelerated Restricted Stock Unit Agreement (1998) (incorporated herein by
reference to Exhibit 10.2 to Hexcel's Quarterly Report on Form 10-Q for the Quarter ended March
31, 1998).
10.14 Form of Performance Accelerated Restricted Stock Unit Agreement (1997) (incorporated herein by
reference to Exhibit 10.5 to Hexcel's Quarterly Report on Form 10-Q for the Quarter ended June 30,
1997).
10.15 Form of Performance Accelerated Restricted Stock Unit Agreement (1996) (incorporated herein by
reference to Exhibit 10.9 to Hexcel's Quarterly Report on Form 10-Q for the Quarter ended March
31, 1996).
10.16 Form of Reload Option Agreement (1997) (incorporated herein by reference to Exhibit 10.8 of
Hexcel's Quarterly Report on Form 10-Q for the Quarter ended June 30, 1997).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------
<S> <C>
10.17 Form of Reload Option Agreement (1996) (incorporated herein by reference to Exhibit 10.10 to
Hexcel's Quarterly Report on Form 10-Q for the Quarter ended March 31, 1996).
10.18 Form of Performance Accelerated Stock Option Agreement (Director) (incorporated herein by
reference to Exhibit 10.6 to Hexcel's Quarterly Report on Form 10-Q for the Quarter ended June 30,
1997).
10.19 Form of Performance Accelerated Stock Option (Employee) (incorporated herein by reference to
Exhibit 10.7 to Hexcel's Quarterly Report on Form 10-Q for the Quarter ended June 30, 1997).
10.20 Form of Grant of Restricted Stock Unit Agreement (incorporated herein by reference to Exhibit
10.10 to Hexcel's Quarterly Report on Form 10-Q for the Quarter ended June 30, 1997).
10.21 Form of Exchange Performance Accelerated Stock Option Agreement (incorporated herein by reference
to Exhibit 10.3 to Hexcel's Quarterly Report on Form 10-Q for the Quarter ended September 30,
1998).
10.22 Hexcel Corporation 1997 Employee Stock Purchase Plan (incorporated herein by reference to Exhibit
10.2 to Hexcel's Quarterly Report on Form 10-Q for the Quarter ended June 30, 1997).
10.23 Employment Agreement dated as of February 29, 1996 between Hexcel and John J. Lee (incorporated
herein by reference to Exhibit 10.14 to the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1995).
10.23(a) Employee Option Agreement dated as of February 29, 1996 between Hexcel and John J. Lee
(incorporated herein by reference to Exhibit 10.14(a) to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1995).
10.23(b) Bankruptcy Court Option Agreement dated as of February 29, 1996 between Hexcel and John J. Lee
(incorporated herein by reference to Exhibit 10.14(b) to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1995).
10.23(c) Performance Accelerated Restricted Stock Unit Agreement dated as of February 29, 1996 between
Hexcel and John J. Lee (incorporated herein by reference to Exhibit 10.14(c) to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1995).
10.23(d) Short-Term Option Agreement dated as of February 29, 1996 between Hexcel and John J. Lee
(incorporated herein by reference to Exhibit 10.14(d) to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1995).
10.23(e) Form of Reload Option Agreement dated as of February 29, 1996 between Hexcel and John J. Lee
(incorporated herein by reference to Exhibit 10.14(e) to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1995).
10.23(f) Supplemental Executive Retirement Agreement dated as of May 20, 1998 between Hexcel and John J.
Lee (incorporated herein by reference to Exhibit 10.3 to the Company's Quarterly Report on Form
10-Q for the Quarter ended June 30, 1998).
10.23(g) Summary of Terms of Employment (effective as of July 15, 1998) between Hexcel and Harold E. Kinne,
President and Chief Operating Officer of Hexcel (incorporated herein by reference to Exhibit 10.5
of the Company's Quarterly Report on Form 10-Q for the Quarter ended September 30, 1998).
10.23(h) Employment Agreement dated as of July 25, 1998 (effective date September 15, 1998) between Hexcel
and Richard Wolfe, Executive V.P. of Manufacturing of Clark-Schwebel Corporation (a wholly-owned
subsidiary of Hexcel) (incorporated herein by reference to Exhibit 10.6 of the Company's Quarterly
Report on Form 10-Q for the Quarter ended September 30, 1998).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------
<S> <C>
10.23(i) Employment Agreement dated as of July 25, 1998 (effective date September 15, 1998) between Hexcel
and Jack Schwebel, Co-Chairman of Clark-Schwebel Corporation (a wholly-owned subsidiary of Hexcel)
(incorporated herein by reference to Exhibit 10.7 of the Company's Quarterly Report on Form 10-Q
for the Quarter ended September 30, 1998).
10.23(j) Employment Agreement dated as of July 25, 1998 (effective date September 15, 1998) between Hexcel
and William D. Bennison, President of Clark-Schwebel Corporation (a wholly-owned subsidiary of
Hexcel) (incorporated herein by reference to Exhibit 10.8 of the Company's Quarterly Report on
Form 10-Q for the Quarter ended September 30, 1998).
10.24 Agreement dated September 3, 1996 between Hexcel Corporation and Ira J. Krakower (incorporated
herein by reference to Exhibit 10.12 to the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1997).
10.25 Separation and Release Agreement dated as of January 29, 1998 between Hexcel Corporation and
Juergen Habermeier (incorporated herein by reference to Exhibit 10.13 to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1997).
10.26 Agreement between Hexcel Corporation and Stephen C. Forsyth (incorporated herein by reference to
Exhibit 10.4(L) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1994).
10.27 Agreement between Hexcel Corporation and Gary L. Sandercock (incorporated herein by reference to
Exhibit 10.4(I) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1994).
10.28 Governance Agreement dated as of February 29, 1996 between Hexcel and Ciba-Geigy Limited
(incorporated herein by reference to Exhibit 10.21 to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1995).
10.29 Registration Rights Agreement dated as of February 29, 1996 between Hexcel and Ciba-Geigy Limited
(incorporated herein by reference to Exhibit 10.22 to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1995).
10.29(a) Amendment No.1 dated as of December 29, 1998 to the Registration Rights Agreement by and between
Ciba-Geigy Limited (which has since assigned the Registration Rights Agreement to Ciba Specialty
Chemical Holding Inc.) and Hexcel Corporation.
10.30 Agreement Governing United States Employment Matters dated as of September 29, 1995 between Hexcel
and Ciba-Geigy Corporation (incorporated herein by reference to Exhibit D to Exhibit 10.1 to the
Company's Current Report on Form 8-K as of October 13, 1995).
10.30(a) Amendment dated as of November 22, 1995 to the Agreement Governing United States Employment
Matters between Hexcel and Ciba-Geigy Corporation (incorporated herein by reference to Exhibit
10.23(a) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995).
10.31 Employment Matters Agreement dated as of February 29, 1996 among Ciba-Geigy PLC, Composite
Materials Limited and Hexcel (incorporated herein by reference to Exhibit 10.24 to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1995).
10.32 Lease Agreement, dated as of September 15, 1998, by and among Clark-Schwebel Corporation (a
wholly-owned subsidiary of Hexcel) as lessee, CSI Leasing Trust as lessor, and William J. Wade as
co-trustee for CSI Leasing Trust (incorporated herein by reference to Exhibit 10.2 of the
Company's Quarterly Report on Form 10-Q for the Quarter ended September 30, 1998).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------
<S> <C>
12.1 Statement regarding the computation of ratio of earnings to fixed charges for the Company.
21.1 Subsidiaries of the Company.
23.1 Consent of PricewaterhouseCoopers LLP.
23.2 Consent of Deloitte & Touche LLP.
23.3 Consent of Arthur Andersen LLP.
23.4 Consent of Deloitte & Touche LLP.
23.5 Consent of Skadden, Arps, Slate, Meagher & Flom LLP (included in Exhibit 5.1).
24.1 Powers of attorney (included on signature page to the Registration Statement).
25.1 Statement of Eligibility and Qualification on Form T-1 of The Bank of New York, as trustee, under
the Indenture relating to the Exchange Notes.
99.1 Form of Letter of Transmittal.
99.2 Form of Notice of Guaranteed Delivery.
99.3 Form of Letter to Clients.
99.4 Form of Letter to Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees.
99.5 Form of Exchange Agency Agreement.*
99.6 Guidelines for Certification of Taxpayer Identification Number of Substitute Form W-9.
</TABLE>
- ------------------------
* To be filed by Amendment.
<PAGE>
Exhibit 2.5(B)
AMENDMENT NO. 2 TO THE ASSET PURCHASE AGREEMENT
This AMENDMENT NO. 2, dated as of December 23, 1998 (this
"Amendment") by and between Hexcel Corporation, a Delaware corporation ("Buyer")
and EQCSI Holding Corp., a Delaware corporation formerly known as
Clark-Schwebel, Inc. ("CS Inc."), amends the Asset Purchase Agreement dated as
of July 25, 1998, as amended by Amendment No. 1 thereto dated as of September
14, 1998 (as amended, the "Asset Purchase Agreement") by and among Stamford CS
Acquisition Corp., a Delaware corporation ("Stamford"), Buyer, Clark-Schwebel
Holdings, Inc., a Delaware corporation ("CSH") and CS Inc.
RECITALS
WHEREAS, Stamford was merged with and into CSH and CSH was
merged with and into CS Inc.;
WHEREAS, CS Inc. and Buyer are currently the remaining parties
to the Asset Purchase Agreement (although certain paragraphs herein continue to
refer to the original parties to the Asset Purchase Agreement for convenience of
reference); and
WHEREAS, the parties hereto wish to amend the Asset Purchase
Agreement as herein provided.
NOW, THEREFORE, in consideration of the foregoing premises and
for other good and valuable consideration, the receipt and adequacy of which is
hereby acknowledged, the parties hereto agree as follows:
1. DEFINED TERMS. Capitalized terms which are used but not defined
herein shall have the meaning ascribed to such terms in the Asset Purchase
Agreement.
2. AMENDMENTS TO ASSET PURCHASE AGREEMENT
(A) Section 1.2(d) of the Asset Purchase Agreement is hereby
amended by deleting Section 1.2(d) in its entirety and replacing such section
with the following:
1
<PAGE>
"(d) $30,000,000 less the Interglas Pre-Payment less
the amount of any premium paid to Credit Suisse First Boston
or any of its affiliates in connection with the Current Cap
Agreement (except to the extent that any amount in respect of
the termination of the Current Cap Agreement was previously
remitted to Buyer pursuant to Section 4.21 hereof), plus the
CS International Expenses, if any (as defined in Section
4.22(b)) (the "Deferred Purchase Price"), payable to CS Inc.
at the Deferred Closing, by wire transfer, to such bank
account as shall be designated by CS Inc. at least two
business days prior to the Deferred Closing;"
(B) Section 4.21 of the Asset Purchase Agreement is hereby
amended by deleting Section 4.21 in its entirety and replacing such section with
the following:
"Section 4.21. CAP AGREEMENT EARLY TERMINATION
PAYMENTS. CSH and CS Inc. agree to remit to Buyer, immediately
upon receipt thereof, any and all early termination payments
paid in connection with the Current Cap Agreement and the
Forward Cap Agreement; provided that Buyer shall not be
entitled to the remittance of such early termination payments
after the Deferred Closing to the extent that the Deferred
Purchase Price was reduced pursuant to Section 1.2(d) to take
into account the Current Cap Agreement and the Forward Cap
Agreement. CSH and CS Inc. agree to take all necessary action
to cause the Trust to distribute to CS Inc. pursuant to
Section 5.3 of the Trust Agreement any and all early
termination payments paid in connection with the Current Cap
Agreement and the Forward Cap Agreement."
(C) Article X of the Asset Purchase Agreement is hereby
amended by deleting the definition of "Cap Agreement" appearing therein and
replacing it with the following:
"'CAP AGREEMENT' means either or both of, as the
context may require, (i) the interest rate cap agreement which
is entered into under the Master Agreement, dated as of the
date hereof, between the Lessor and Credit Suisse Financial
Products and which has an effective date of September 15, 1998
(the "Current Cap Agreement"), and (ii) the
2
<PAGE>
interest rate cap agreement which is entered into under such
Master Agreement and which has an effective date of September
30, 2001 (the "Forward Cap Agreement")."
(D) Article X of the Asset Purchase Agreement is hereby
further amended by deleting the definition of "Cap Refund" appearing therein.
3. GOVERNING LAW. This Amendment shall be governed by and construed in
accordance with the laws of the State of New York (regardless of the laws that
might otherwise govern under applicable principles of conflicts of laws thereof)
as to all matters, including but not limited to matters of validity,
construction, effect, performance and remedies.
4. COUNTERPARTS. This Amendment may be executed in counterparts, each
of which shall be deemed to be an original, but all of which shall constitute
one and the same Amendment.
IN WITNESS WHEREOF, the parties hereto have caused their duly
authorized officers to execute and deliver this Amendment as of the date first
above written.
EQCSI HOLDING CORP., formerly known
as CLARK-SCHWEBEL, INC.
By: /S/ KENNETH GREENBERG
--------------------------------
Name: Kenneth Greenberg
Title: President
HEXCEL CORPORATION
By: /S/ IRA J. KRAKOWER
--------------------------------
Name: Ira J. Krakower
Title: Secretary
3
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
HEXCEL CORPORATION
Issuer
9-3/4% Senior Subordinated Notes Due 2009
--------------------
INDENTURE
Dated as of January 21, 1999
---------------------
The Bank of New York
Trustee
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
CROSS-REFERENCE TABLE
<TABLE>
<CAPTION>
TIA Indenture
SECTION Section
<S> <C>
310(a)(1) .............................. 7.10
(a)(2) .............................. 7.10
(a)(3) .............................. N.A.
(a)(4) .............................. N.A.
(b) .............................. 7.08; 7.10
(c) .............................. N.A.
311(a) .............................. 7.11
(b) .............................. 7.11
(c) .............................. N.A.
312(a) .............................. 2.05
(b) .............................. 11.03
(c) .............................. 11.03
313(a) .............................. 7.06
(b)(1) .............................. N.A.
(b)(2) .............................. 7.06
(c) .............................. 11.02
(d) .............................. 7.06
314(a) .............................. 4.02;
4.11; 11.02
(b) .............................. N.A.
(c)(1) .............................. 11.04
(c)(2) .............................. 11.04
(c)(3) .............................. N.A.
(d) .............................. N.A.
(e) .............................. 11.05
(f) .............................. 4.10
315(a) .............................. 7.01
(b) .............................. 7.05; 11.02
(c) .............................. 7.01
(d) .............................. 7.01
(e) .............................. 6.11
316(a)(last sentence) ............................... 11.06
(a)(1)(A) .............................. 6.05
(a)(1)(B) .............................. 6.04
(a)(2) .............................. N.A.
(b) .............................. 6.07
317(a)(1) .............................. 6.08
(a)(2) .............................. 6.09
(b) .............................. 2.04
318(a) .............................. 11.01
</TABLE>
N.A. means Not Applicable.
- -----------------------
Note: This Cross-Reference Table shall not, for any purpose, be deemed to be
part of the Indenture.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE 1
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01. Definitions...................................................... 1
SECTION 1.02. Other Definitions................................................ 29
SECTION 1.03. Incorporation by Reference of
Trust Indenture Act........................................... 30
SECTION 1.04. Rules of Construction............................................ 30
ARTICLE 2
THE SECURITIES
SECTION 2.01. Form and Dating.................................................. 31
SECTION 2.02. Execution and Authentication..................................... 31
SECTION 2.03. Registrar and Paying Agent....................................... 32
SECTION 2.04. Paying Agent To Hold Money
in Trust...................................................... 33
SECTION 2.05. Securityholder Lists............................................. 33
SECTION 2.06. Transfer and Exchange............................................ 33
SECTION 2.07. Replacement Securities........................................... 34
SECTION 2.08. Outstanding Securities........................................... 35
SECTION 2.09. Temporary Securities............................................. 35
SECTION 2.10. Cancellation..................................................... 35
SECTION 2.11. Defaulted Interest............................................... 36
SECTION 2.12. CUSIP Numbers.................................................... 36
SECTION 2.13. Issuance of Additional Securities................................ 36
ARTICLE 3
REDEMPTION
SECTION 3.01. Notices to Trustee............................................... 37
SECTION 3.02. Selection of Securities To Be
Redeemed...................................................... 37
SECTION 3.03. Notice of Redemption............................................. 38
SECTION 3.04. Effect of Notice of Redemption................................... 39
</TABLE>
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<TABLE>
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Page
<S> <C>
SECTION 3.05. Deposit of Redemption Price...................................... 39
SECTION 3.06. Securities Redeemed in Part...................................... 39
ARTICLE 4
COVENANTS
SECTION 4.01. Payment of Securities............................................ 39
SECTION 4.02. SEC Reports...................................................... 40
SECTION 4.03. Limitation on Indebtedness....................................... 40
SECTION 4.04. Limitation on Restricted Payments................................ 43
SECTION 4.05. Limitation on Restrictions on
Distributions from Restricted
Subsidiaries.................................................. 47
SECTION 4.06. Limitation on Asset Dispositions................................. 48
SECTION 4.07. Limitation on Affiliate
Transactions.................................................. 52
SECTION 4.08. Limitation on the Sale or Issuance
of Capital Stock of Restricted
Subsidiaries.................................................. 53
SECTION 4.09. Change of Control................................................ 54
SECTION 4.10. Limitation on Business Activities................................ 56
SECTION 4.11. Compliance Certificate........................................... 56
SECTION 4.12. Further Instruments and Acts..................................... 56
ARTICLE 5
SUCCESSOR COMPANY
SECTION 5.01. When Company May Merge or Transfer
Assets........................................................ 57
ARTICLE 6
DEFAULTS AND REMEDIES
SECTION 6.01. Events of Default................................................ 58
SECTION 6.02. Acceleration..................................................... 60
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PAGE
<S> <C>
SECTION 6.03. Other Remedies................................................... 61
SECTION 6.04. Waiver of Past Defaults.......................................... 61
SECTION 6.05. Control by Majority.............................................. 61
SECTION 6.06. Limitation on Suits.............................................. 61
SECTION 6.07. Rights of Holders To Receive
Payment....................................................... 62
SECTION 6.08. Collection Suit by Trustee....................................... 62
SECTION 6.09. Trustee May File Proofs of Claim................................. 62
SECTION 6.10. Priorities....................................................... 63
SECTION 6.11. Undertaking for Costs............................................ 63
SECTION 6.12. Waiver of Stay or Extension Laws................................. 64
ARTICLE 7
TRUSTEE
SECTION 7.01. Duties of Trustee................................................ 64
SECTION 7.02. Rights of Trustee................................................ 65
SECTION 7.03. Individual Rights of Trustee..................................... 66
SECTION 7.04. Trustee's Disclaimer............................................. 66
SECTION 7.05. Notice of Defaults............................................... 67
SECTION 7.06. Reports by Trustee to Holders.................................... 67
SECTION 7.07. Compensation and Indemnity....................................... 67
SECTION 7.08. Replacement of Trustee........................................... 68
SECTION 7.09. Successor Trustee by Merger...................................... 69
SECTION 7.10. Eligibility; Disqualification.................................... 70
SECTION 7.11. Preferential Collection of Claims
Against Company............................................... 70
ARTICLE 8
DISCHARGE OF INDENTURE; DEFEASANCE
SECTION 8.01. Discharge of Liability on
Securities; Defeasance........................................ 70
SECTION 8.02. Conditions to Defeasance......................................... 71
SECTION 8.03. Application of Trust Money....................................... 73
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PAGE
<S> <C>
SECTION 8.04. Repayment to Company............................................. 73
SECTION 8.05. Indemnity for Government
Obligations................................................... 73
SECTION 8.06. Reinstatement.................................................... 73
ARTICLE 9
AMENDMENTS AND WAIVERS
SECTION 9.01. Without Consent of Holders....................................... 74
SECTION 9.02. With Consent of Holders.......................................... 75
SECTION 9.03. Compliance with Trust Indenture
Act............................................................ 76
SECTION 9.04. Revocation and Effect of Consents
and Waivers................................................... 76
SECTION 9.05. Notation on or Exchange of
Securities.................................................... 76
SECTION 9.06. Trustee To Sign Amendments....................................... 77
SECTION 9.07. Payment for Consent.............................................. 77
ARTICLE 10
SUBORDINATION
SECTION 10.01. Agreement To Subordinate......................................... 77
SECTION 10.02. Liquidation, Dissolution,
Bankruptcy.................................................... 77
SECTION 10.03. Default on Senior Indebtedness................................... 78
SECTION 10.04. Acceleration of Payment of
Securities.................................................... 79
SECTION 10.05. When Distribution Must Be Paid
Over.......................................................... 79
SECTION 10.06. Subrogation...................................................... 80
SECTION 10.07. Relative Rights.................................................. 80
SECTION 10.08. Subordination May Not Be Impaired
by Company.................................................... 80
SECTION 10.09. Rights of Trustee and Paying
Agent......................................................... 80
</TABLE>
<PAGE>
<TABLE>
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PAGE
<S> <C>
SECTION 10.10. Distribution or Notice to
Representative................................................ 81
SECTION 10.11. Article 10 Not To Prevent Events
of Default or Limit Right To
Accelerate.................................................... 81
SECTION 10.12. Trust Moneys Not Subordinated.................................... 81
SECTION 10.13. Trustee Entitled To Rely......................................... 81
SECTION 10.14. Trustee To Effectuate
Subordination................................................. 82
SECTION 10.15. Trustee Not Fiduciary for Holders
of Senior Indebtedness........................................ 82
SECTION 10.16. Reliance by Holders of Senior
Indebtedness on Subordination
Provisions.................................................... 82
ARTICLE 11
MISCELLANEOUS
SECTION 11.01. Trust Indenture Act Controls..................................... 83
SECTION 11.02. Notices.......................................................... 83
SECTION 11.03. Communication by Holders with
Other Holders................................................. 84
SECTION 11.04. Certificate and Opinion as to
Conditions Precedent.......................................... 84
SECTION 11.05. Statements Required in
Certificate or Opinion........................................ 84
SECTION 11.06. When Securities Disregarded...................................... 85
SECTION 11.07. Rules by Trustee, Paying Agent
and Registrar................................................. 85
SECTION 11.08. Legal Holidays................................................... 85
SECTION 11.09. Governing Law.................................................... 85
SECTION 11.10. No Recourse Against Others....................................... 85
SECTION 11.11. Successors....................................................... 86
SECTION 11.12. Multiple Originals............................................... 86
SECTION 11.13. Table of Contents; Headings...................................... 86
</TABLE>
<PAGE>
Exhibit A - Form of Security
<PAGE>
INDENTURE dated as of January 21, 1999, between HEXCEL
CORPORATION, a Delaware corporation (the "Company"), and The Bank
of New York, a New York banking corporation (the "Trustee").
Each party agrees as follows for the benefit of the other party and
for the equal and ratable benefit of the Holders of the Company's Initial
Securities, Exchange Securities and Private Exchange Securities (collectively,
the "Securities"):
ARTICLE 1
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01. DEFINITIONS.
"Additional Assets" means (1) any property or assets (other than
Indebtedness and Capital Stock) to be used by the Company, a Restricted
Subsidiary or a Joint Venture; (2) the Capital Stock of a Person that becomes a
Restricted Subsidiary as a result of the acquisition of such Capital Stock by
the Company or another Restricted Subsidiary; or (3) the Capital Stock
constituting a minority interest in any Person that at such time is a Restricted
Subsidiary or a Joint Venture; PROVIDED, HOWEVER, that any such Restricted
Subsidiary described in clauses (2) or (3) above is primarily engaged in a
Related Business.
"Additional Securities" means, subject to the Company's compliance
with Section 4.03, 9-3/4% Senior Subordinated Notes Due 2009 issued from time to
time after the Issue Date under the terms of this Indenture (other than pursuant
to Section 2.06, 2.07, 2.09 or 3.06 of this Indenture and other than Exchange
Securities or Private Exchange Securities issued pursuant to an exchange offer
for other Securities outstanding under this Indenture).
"Affiliate" of any specified Person means (1) any other Person,
directly or indirectly, controlling or controlled by or under direct or indirect
common control with such specified Person; or (2) any other Person who is a
director or officer (A) of such specified Person, (B) of any Subsidiary of such
Person or (C) of any Person described in
<PAGE>
clause (1). For the purposes of this definition, "control" when used with
respect to any Person means the power to direct the management and policies of
such Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing. For purposes of
Sections 4.07 and 4.08 only, "Affiliate" shall also mean any beneficial owner of
Capital Stock representing 10% or more of the total voting power of the Voting
Stock (on a fully diluted basis) of the Company or of rights or warrants to
purchase such Capital Stock (whether or not currently exercisable) and any
Person who would be an Affiliate of any such beneficial owner pursuant to the
first sentence hereof.
"Asahi-Schwebel" means Asahi-Schwebel Co., Ltd., a Japanese
corporation and joint venture in which a subsidiary of Hexcel owns a 43.3%
equity interest.
"Asahi-Schwebel (Taiwan)" means Asahi-Schwebel (Taiwan) Co., Ltd., a
joint venture between Asahi-Schwebel and AlliedSignal.
"Asahi-Schwebel Interglas (Philippines)" means Asahi-Schwebel
Interglas Corporation (Philippines), a proposed joint venture between
Asahi-Schwebel and CS Interglas.
"Asian Composite Manufacturing" means Asian Composite Manufacturing
Sdn. Bhd., a proposed joint venture among the Company, The Boeing Company, Sime
Darby Berhad and Malaysia Helicopter Services.
"Asset Disposition" means any direct or indirect sale, lease,
transfer, conveyance or other disposition (or series of related sales, leases,
transfers, conveyances or dispositions) of shares of Capital Stock of a
Restricted Subsidiary (other than directors' qualifying shares), property or
other assets (each referred to for the purposes of this definition as a
"disposition") by the Company or any Restricted Subsidiary (including any
disposition by means of a merger, consolidation or similar transaction)
involving an amount in excess of $3.0 million other than
(1) a disposition by a Restricted Subsidiary to the Company, by the
Company or a Restricted Subsidiary
<PAGE>
to a Restricted Subsidiary or between Restricted Subsidiaries;
(2) a disposition of property or assets at fair market value in the
ordinary course of business and consistent with past practices of the
Company or any of its Restricted Subsidiaries, as applicable (including
sales of products to customers, disposition of excess inventory and
dispositions of used or replaced equipment);
(3) the disposition or grant of licenses to third parties in respect
of intellectual property;
(4) a sale or disposition of assets for the purpose of forming any
Joint Venture, in exchange for an interest in such Joint Venture;
(5) the sale of Specified Properties;
(6) a disposition by the Company or any Subsidiary of assets within 24
months after such assets were directly or indirectly acquired as part of an
acquisition of other properties or assets (including Capital Stock) (the
"Primary Acquisition"), if the assets being disposed of are "non-core"
assets (as determined in good faith by a majority of the Board of
Directors) or are required to be disposed of pursuant to any law, rule or
regulation or any order of or settlement with any court or governmental
authority, and the proceeds therefrom are used within 18 months after the
date of sale to repay any Indebtedness Incurred in connection with the
Primary Acquisition of such assets;
(7) for purposes Section 4.06 only, a disposition that constitutes a
Restricted Payment permitted under Section 4.04; or
(8) an Asset Disposition that also constitutes a Change of Control;
PROVIDED, HOWEVER, that the Company complies with all its obligations under
Section 4.09.
"Average Life" means, as of the date of determination, with respect
to any Indebtedness, the quotient obtained by dividing (x) the sum of the
products of the numbers of years from the date of determination to the date
<PAGE>
of each successive scheduled principal payment of such Indebtedness or scheduled
redemption multiplied by the amount of such payment by (y) the sum of all such
payments.
"Banks" has the meaning specified in the Credit Agreement.
"Bank Indebtedness" means any and all Indebtedness and other amounts
payable under or in respect of the Credit Agreement including principal, premium
(if any), interest (including interest accruing at the contract rate specified
in the Credit Agreement (including any rate applicable upon default) on or after
the filing of any petition in bankruptcy, or the commencement of any similar
state, federal or foreign reorganization or liquidation proceeding, relating to
the Company and interest that would accrue but for the commencement of such
proceeding whether or not a claim for post-filing interest is allowed in such
proceedings), fees, charges, expenses, reimbursement obligations, guarantees and
all other amounts payable thereunder or in respect thereof.
"BHA Aero Composite Parts" means BHA Aero Composite Parts Co., Ltd., a
proposed joint venture among Hexcel, The Boeing Company and Aviation Industries
of China.
"Board of Directors" means the Board of Directors of the Company or
any committee thereof duly authorized to act on behalf of such Board.
"Board Resolution" means a duly adopted resolution of the Board of
Directors in full force and effect at the time of determination and certified as
such by the Secretary or an Assistant Secretary of the Company.
"Business Day" means each day which is not a Legal Holiday.
"Capital Stock" of any Person means any and all shares, interests,
rights to purchase, warrants, options, participations or other equivalents of or
interests (including partnership interests) in (however designated) equity of
such Person, including any Preferred Stock, but excluding any debt securities
convertible into such equity.
"Capitalized Lease Obligation" means an obligation that is required to
be classified and accounted for as a
<PAGE>
capitalized lease for financial reporting purposes in accordance with GAAP. The
amount of Indebtedness represented by such obligation shall be the capitalized
amount of such obligation determined in accordance with GAAP. The Stated
Maturity thereof shall be the date of the last payment of rent or any other
amount due under such lease prior to the first date upon which such lease may be
terminated by the lessee without payment of a penalty.
"Change of Control" means the occurrence of any of the following
events:
(1) any "person" (as such term is used in Sections 13(d) and 14(d) of
the Exchange Act), other than one or more Permitted Holders, becomes the
beneficial owner (as defined in Rules 13d-3 and 13d-5 under the Exchange
Act, except that for purposes of this clause (1), such person shall be
deemed to have "beneficial ownership" of all shares that any such person
has the right to acquire, whether or not such right is exercisable
immediately), directly or indirectly, of more than 40% of the total voting
power of the Voting Stock of the Company; PROVIDED, HOWEVER, that the
Permitted Holders beneficially own (as defined in Rules 13d-3 and 13d-5
under the Exchange Act), directly or indirectly, in the aggregate a lesser
percentage of the total voting power of the Voting Stock of the Company
than such other person and do not have the right or ability by voting
power, contract or otherwise to elect or designate for election a majority
of the Board of Directors;
(2) during any period of two consecutive years, individuals who at the
beginning of such period constituted the Board of Directors (together with
any new directors whose election by such Board of Directors or whose
nomination for election by the stockholders of the Company was approved
pursuant to the Governance Agreement or by a vote of 66-2/3% of the
directors of the Company then still in office who were either directors at
the beginning of such period or whose election or nomination for election
was previously so approved) cease for any reason to constitute a majority
of the Board of Directors then in office; or
(3) the merger or consolidation of the Company with or into another
Person (other than a Permitted
<PAGE>
Holder) or the merger of another Person (other than a Permitted Holder)
with or into the Company, or the sale of all or substantially all the
assets of the Company to another Person (other than a Person controlled by
the Permitted Holders), and, in the case of any such merger or
consolidation, the securities of the Company that are outstanding
immediately prior to such transaction and that represent 100% of the
aggregate voting power of the Voting Stock of the Company are changed into
or exchanged for cash, securities or property, unless pursuant to such
transaction such securities are changed into or exchanged for, in addition
to any other consideration, securities of the surviving Person that
represent, immediately after such transaction, at least a majority of the
aggregate voting power of the Voting Stock of the surviving Person or
transferee;
PROVIDED, HOWEVER, that if the event described in (1) above occurs as a result
of a transfer of Voting Stock by the Permitted Holders in a single transaction
or a series of related transactions (a "Change of Control Event"), a Change of
Control shall be deemed not to occur unless and until the publicly announced
rating of the Securities by either Rating Agency shall, on or within 90 days
after the date of the occurrence of such Change of Control Event (which period
shall be extended so long as the rating of the Securities is under publicly
announced consideration for possible downgrade by either Rating Agency), be less
than the rating of the Securities by such Rating Agency on the date (the "Rating
Date") which is 90 days before the date of the occurrence of such Change of
Control Event; PROVIDED FURTHER, HOWEVER, that, if on the Rating Date the
Securities have an Investment Grade Rating by both Rating Agencies, a Change of
Control shall be deemed not to occur following a Change of Control Event unless
and until the publicly announced rating of the Securities by either Rating
Agency shall, on or within 90 days after the date of the occurrence of such
Change of Control Event (which period shall be extended so long as the rating of
the Notes is under publicly announced consideration for possible downgrade by
either Rating Agency), be less than an Investment Grade Rating.
"Clark-Schwebel Acquisition" means the acquisition by the Company of
the industrial fabrics business of Clark- Schwebel Inc. and its subsidiaries on
September 15, 1998.
<PAGE>
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" means the party named as such in this Indenture until a
successor replaces it and, thereafter, means the successor and, for purposes of
any provision contained herein and required by the TIA, each other obligor on
the indenture securities.
"Consolidated Coverage Ratio" as of any date of determination means
the ratio of (x) the aggregate amount of EBITDA for the most recent four
consecutive fiscal quarters ending at least 45 days prior to the date of such
determination to (y) Consolidated Interest Expense for such four fiscal
quarters; PROVIDED, HOWEVER, that:
(1) if the Company or any Restricted Subsidiary has Incurred any
Indebtedness since the beginning of such period that remains outstanding on
such date of determination or if the transaction giving rise to the need to
calculate the Consolidated Coverage Ratio is an Incurrence of Indebtedness,
or both, EBITDA and Consolidated Interest Expense for such period shall be
calculated after giving effect on a pro forma basis to (a) such
Indebtedness as if such Indebtedness had been Incurred on the first day of
such period and (b) the discharge of any other Indebtedness repaid,
repurchased, defeased or otherwise discharged with the proceeds of such new
Indebtedness as if such discharge had occurred on the first day of such
period;
(2) if the Company or any Restricted Subsidiary has repaid,
repurchased, defeased or otherwise discharged any Indebtedness since the
beginning of such period or if any Indebtedness is to be repaid,
repurchased, defeased or otherwise discharged (in each case other than
Indebtedness Incurred under any revolving credit facility unless such
Indebtedness has been permanently repaid and has not been replaced) on the
date of the transaction giving rise to the need to calculate the
Consolidated Coverage Ratio, EBITDA and Consolidated Interest Expense for
such period shall be calculated on a pro forma basis as if such discharge
had occurred on the first day of such period and as if the Company or such
Restricted Subsidiary has not earned the interest income actually earned
during such period in respect of cash or Temporary Cash Investments
<PAGE>
used to repay, repurchase, defease or otherwise discharge such
Indebtedness;
(3) if since the beginning of such period the Company or any
Restricted Subsidiary shall have made any Asset Disposition, the EBITDA for
such period shall be reduced by an amount equal to the EBITDA (if positive)
directly attributable to the assets which are the subject of such Asset
Disposition for such period or increased by an amount equal to the EBITDA
(if negative) directly attributable thereto for such period and
Consolidated Interest Expense for such period shall be reduced by an amount
equal to the Consolidated Interest Expense directly attributable to any
Indebtedness of the Company or any Restricted Subsidiary repaid,
repurchased, defeased or otherwise discharged with respect to the Company
and its continuing Restricted Subsidiaries in connection with such Asset
Disposition for such period (or, if the Capital Stock of any Restricted
Subsidiary is sold, the Consolidated Interest Expense for such period
directly attributable to the Indebtedness of such Restricted Subsidiary to
the extent the Company and its continuing Restricted Subsidiaries are no
longer liable for such Indebtedness after such sale);
(4) if since the beginning of such period the Company or any
Restricted Subsidiary (by merger or otherwise) shall have made an
Investment in any Restricted Subsidiary (or any Person which becomes a
Restricted Subsidiary) or an acquisition of assets, including any
acquisition of assets occurring in connection with a transaction causing a
calculation to be made hereunder, EBITDA and Consolidated Interest Expense
for such period shall be calculated after giving pro forma effect thereto
(including the Incurrence of any Indebtedness) as if such Investment or
acquisition occurred on the first day of such period; and
(5) if since the beginning of such period any Person (that
subsequently became a Restricted Subsidiary or was merged with or into the
Company or any Restricted Subsidiary since the beginning of such period)
shall have made any Asset Disposition, any Investment or acquisition of
assets requiring an adjustment pursuant to clause (3) or (4) above if made
<PAGE>
by the Company or a Restricted Subsidiary during such period, EBITDA and
Consolidated Interest Expense for such period shall be calculated after
giving pro forma effect thereto as if such Asset Disposition, Investment or
acquisition of assets occurred on the first day of such period.
For purposes of this definition, whenever pro forma effect is to be given to an
acquisition of assets, the amount of income or earnings relating thereto and the
amount of Consolidated Interest Expense associated with any Indebtedness
Incurred in connection therewith, the pro forma calculations shall be determined
in good faith by a responsible financial or accounting Officer of the Company.
If any Indebtedness bears a floating rate of interest and is being given pro
forma effect, the interest expense on such Indebtedness shall be calculated as
if the rate in effect on the date of determination had been the applicable rate
for the entire period (taking into account any Interest Rate Protection
Agreement applicable to such Indebtedness if such Interest Rate Protection
Agreement has a remaining term as of the date of determination in excess of 12
months).
"Consolidated Interest Expense" means, for any period, the sum of,
without duplication:
(a) total interest expense of the Company and its consolidated
Restricted Subsidiaries for such period, including, to the extent not
otherwise included in such interest expense, and to the extent Incurred by
the Company or its Restricted Subsidiaries in such period, without
duplication, (1) interest expense attributable to capital leases; (2)
amortization of debt discount and debt issuance cost; (3) amortization of
capitalized interest; (4) non-cash interest expense; (5) accrued interest;
(6) amortization of commissions, discounts and other fees and charges owed
with respect to letters of credit and bankers' acceptance financing; (7)
interest actually paid by the Company or any such Restricted Subsidiary
under any Guarantee of Indebtedness of any other Person; (8) net payments,
if any, made pursuant to Interest Rate Protection Agreements (including
amortization of fees);
(b) Preferred Stock dividends paid during such period in respect of
all Preferred Stock of Restricted
<PAGE>
Subsidiaries of the Company held by Persons other than the Company; and
(c) cash contributions made during such period to any employee stock
ownership plan or other trust for the benefit of employees to the extent
such contributions are used by such plan or trust to pay interest or fees
to any Person (other than the Company) in connection with Indebtedness
Incurred by such plan or trust to purchase Capital Stock of the Company.
"Consolidated Net Income" means, for any period, the net income (loss)
of the Company and its consolidated Subsidiaries; PROVIDED, HOWEVER, that there
shall not be included in such Consolidated Net Income:
(1) any net income (loss) of any Person if such Person is not a
Restricted Subsidiary, except that (A) the Company's equity in the net
income of any such Person for such period shall be included in such
Consolidated Net Income up to the aggregate amount of cash that could have
been distributed by such Person during such period to the Company or a
Restricted Subsidiary as a dividend or other distribution (subject, in the
case of a dividend or other distribution to a Restricted Subsidiary, to the
limitations contained in clause (3) below) and (B) the Company's equity in
a net loss of any such Person for such period shall be included in
determining such Consolidated Net Income;
(2) any net income (loss) of any Person acquired by the Company or a
Subsidiary in a pooling of interests transaction for any period prior to
the date of such acquisition;
(3) any net income (loss) of any Restricted Subsidiary if such
Restricted Subsidiary is subject to restrictions, directly or indirectly,
on the payment of dividends or the making of distributions by such
Restricted Subsidiary, directly or indirectly, to the Company, except that
(A) the Company's equity in the net income of any such Restricted
Subsidiary for such period shall be included in such Consolidated Net
Income up to the aggregate amount of cash that could have been distributed
by such Restricted Subsidiary during such period to the Company or another
Restricted
<PAGE>
Subsidiary as a dividend or other distribution (subject, in the case of a
dividend or other distribution paid to another Restricted Subsidiary, to
the limitation contained in this clause) and (B) the Company's equity in a
net loss of any such Restricted Subsidiary for such period shall be
included in determining such Consolidated Net Income;
(4) any gain (but not loss) realized upon the sale or other
disposition of any assets of the Company, its consolidated Subsidiaries or
any other Person which is not sold or otherwise disposed of in the ordinary
course of business and any gain (but not loss) realized upon the sale or
other disposition of any Capital Stock of any Person;
(5) any extraordinary gain or loss;
(6) the cumulative effect of a change in accounting principles; and
(7) any non-cash business consolidation and acquisition charges
recognized with respect to the Clark-Schwebel Acquisition (except to the
extent such non-cash charges represent an accrual of or a reserve for cash
expenditures in any future period).
Notwithstanding the foregoing, for the purposes of Section 4.04 only, there
shall be excluded from Consolidated Net Income any dividends, repayments of
loans or advances or other transfers of assets from Unrestricted Subsidiaries to
the Company or a Restricted Subsidiary to the extent such dividends, repayments
or transfers increase the amount of Restricted Payments permitted under such
Section pursuant to clause (a)(3)(D) thereof.
"Consolidated Net Worth" means the total of the amounts shown on the
balance sheet of the Company and its consolidated Subsidiaries, determined on a
consolidated basis in accordance with GAAP, as of the end of the most recent
fiscal quarter of the Company ending at least 45 days prior to the taking of any
action for the purpose of which the determination is being made, as the sum of
(1) the par or stated value of all outstanding Capital Stock of the Company PLUS
(2) paid-in capital or capital surplus relating to such Capital Stock PLUS (3)
any retained earnings or
<PAGE>
earned surplus LESS (4) any accumulated deficit LESS (5) any amounts
attributable to Disqualified Stock.
"Credit Agreement" means (1) one or more credit agreements, loan
agreements or similar agreements providing for working capital advances, term
loans, letter of credit facilities or similar advances, loan or facilities to
the Company, any Restricted Subsidiary, domestic or foreign, or any or all of
such Persons, including the Second Amended and Restated Credit Agreement in
effect on the Issue Date, among the Company and certain subsidiaries of the
Company, as borrowers, the lenders party thereto and Credit Suisse First Boston
as administrative agent for the lenders, Citibank, N.A., as documentation agent
for the Lenders, as the same may be amended, modified, restated or supplemented
from time to time, or any other indebtedness referred to in Section 4.03(b)(1)
and (2) any one or more agreements governing advances, loans or facilities
provided to refund, refinance, replace or renew (including subsequent or
successive refundings, financings, replacements and renewals) Indebtedness under
the agreement or agreements referred to in the foregoing clause (1), as the same
may be amended, modified, restated or supplemented from time to time.
"CS Interglas" means CS Interglas AG, a German stock corporation in
which a subsidiary of the Company owns a 43.6% equity interest.
"CS Tech-Fab" means CS Tech-Fab Company, a New York general
partnership and joint venture in which a subsidiary of the Company owns a 50%
partnership interest.
"Currency Exchange Protection Agreement" means in respect of any
Person, any foreign exchange contract, currency swap agreement, currency option
or other similar agreement or arrangement designed to protect such Person
against fluctuations in currency exchange rates.
"Default" means any event which is, or after notice or passage of time
or both would be, an Event of Default.
"Designated Senior Indebtedness" means (1) the Bank Indebtedness and
(2) any other Senior Indebtedness (other than Hedging Obligations) which, at the
date of determination, has an aggregate principal amount outstanding
<PAGE>
of, or under which, at the date of determination, the holders thereof are
committed to lend up to, at least $25.0 million and is specifically designated
by the Company in the instrument evidencing or governing such Senior
Indebtedness as "Designated Senior Indebtedness" for purposes of this Indenture
in an Officers' Certificate received by the Trustee.
"DIC" means the joint venture entered into between the Company and
Dainippon Ink & Chemicals, Inc. ("Dainippon"), pursuant to that certain Parent
Company Agreement dated as of April 17, 1990, under which the Company and
Dainippon caused Hexcel Technologies, Inc. and DIC Technologies, Inc. (Wholly
Owned Subsidiaries of the Company and Dainippon Ink & Chemicals, Inc.,
respectively) to enter into that certain Participants Agreement dated as of
September 14, 1990, pursuant to which Hexcel Technologies, Inc. and DIC
Technologies, Inc. formed Hexcel- DIC Partnership ("HDP") and pursuant to which
Hexcel Technologies, Inc. and DIC Technologies, Inc., caused HDP to form
DIC-Hexcel, Ltd. as a wholly owned subsidiary of HDP.
"Disqualified Stock" means, with respect to any Person, any Capital
Stock which by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable at the option of the holder) or upon
the happening of any event (1) matures or is mandatorily redeemable pursuant to
a sinking fund obligation or otherwise, (2) is convertible or exchangeable at
the option of the holder for Indebtedness or Disqualified Stock or (3) is
mandatorily redeemable or must be purchased, upon the occurrence of certain
events or otherwise, in whole or in part, in each case on or prior to the first
anniversary of the Stated Maturity of the Securities; PROVIDED, HOWEVER, that
any Capital Stock that would not constitute Disqualified Stock but for
provisions thereof giving holders thereof the right to require such Person to
repurchase or redeem such Capital Stock upon the occurrence of an "asset sale"
or "change of control" occurring prior to the first anniversary of the Stated
Maturity of the Securities shall not constitute Disqualified Stock if (1) the
"asset sale" or "Change of Control" provisions applicable to such Capital Stock
are not more favorable to the holders of such Capital Stock than the terms
applicable to the Securities and under Sections 4.06 and 4.09 and (2) any such
requirement only becomes operative after compliance with such terms
<PAGE>
applicable to the Securities, including the purchase of any Securities tendered
pursuant thereto.
"EBITDA" for any period means the sum of Consolidated Net Income,
plus, without duplication, the following to the extent deducted in calculating
such Consolidated Net Income: (1) all income tax expense of the Company and its
consolidated Restricted Subsidiaries for such period, (2) Consolidated Interest
Expense for such period, (3) depreciation expense and amortization expense of
the Company and its consolidated Restricted Subsidiaries for such period
(excluding amortization expense attributable to a prepaid cash item that was
paid in a prior period), (4) all other non-cash items of the Company and its
consolidated Restricted Subsidiaries for such period (excluding any such
non-cash charge to the extent that it represents an accrual of or reserve for
cash expenditures in any future period) reducing Consolidated Net Income LESS
all non-cash items increasing Consolidated Net Income for such period; and (5)
business consolidation and acquisition charges recognized for such period to the
extent recognized during or prior to the fiscal year ended December 31, 2000;
PROVIDED, HOWEVER, that the aggregate amount of the charges described in this
clause (5) through the end of such fiscal year shall not exceed $25.0 million.
Notwithstanding the foregoing, the provision for taxes based on the
income or profits of, and the depreciation and amortization of, a Restricted
Subsidiary shall be added to Consolidated Net Income to compute EBITDA only to
the extent (and in the same proportion) that the net income of such Restricted
Subsidiary was included in calculating Consolidated Net Income and only if a
corresponding amount would be permitted at the date of determination to be
dividended to the Company by such Restricted Subsidiary without prior approval
(that has not been obtained), pursuant to the terms of its charter and all
agreements, instruments, judgments, decrees, orders, statutes, rules and
governmental regulations applicable to such Restricted Subsidiary or its
stockholders.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Existing Joint Ventures" means (1) AsahiSchwebel, (2) Asahi-Schwebel
(Taiwan), (3) Asahi-Schwebel Interglas (Philippines), (4) CS Tech-Fab, (5) CS
Interglas,
<PAGE>
(6) Asian Composite Manufacturing, (7) BHA Aero Composite Parts and (8) DIC.
"Foreign Subsidiary" means a Subsidiary that is incorporated in a
jurisdiction other than, and the majority of the assets of which are located
outside of, the United States, a State thereof and the District of Columbia.
"GAAP" means generally accepted accounting principles in the United
States of America as in effect as of the Issue Date set forth in the opinions
and pronouncements of the Accounting Principles Board of the American Institute
of Certified Public Accountants and statements and pronouncements of the
Financial Accounting Standards Board or in such other statements by such other
entity as approved by a significant segment of the accounting profession. All
ratios and computations based on GAAP contained in this Indenture shall be
computed in conformity with GAAP.
"Governance Agreement" means the Governance Agreement dated as of
February 29, 1996, between Ciba Specialty Chemicals Holding, Inc. and the
Company.
"Guarantee" means any obligation, contingent or otherwise, of any
Person directly or indirectly guaranteeing any Indebtedness of any other Person
and any obligation, direct or indirect, contingent or otherwise, of such Person
(1) to purchase or pay (or advance or supply funds for the purchase or payment
of) such Indebtedness of such other Person (whether arising by virtue of
partnership arrangements, or by agreements to keep-well, to purchase assets,
goods, securities or services, to take-or-pay or to maintain financial statement
conditions or otherwise) or (2) entered into for the purpose of assuring in any
other manner the obligee of such Indebtedness of the payment thereof or to
protect such obligee against loss in respect thereof (in whole or in part);
PROVIDED, HOWEVER, that the term "Guarantee" shall not include (1) endorsements
for collection or deposit in the ordinary course of business or (2) obligations,
warranties and indemnities, not with respect to Indebtedness of any Person, that
have been or are undertaken or made in the ordinary course of business or in
connection with any Asset Disposition permitted under Section 4.06 and not for
the benefit of or in favor of an Affiliate of the Company or any of its
Subsidiaries. The term "Guarantee" used as a verb has a corresponding meaning.
<PAGE>
"Hedging Obligations" of any Person means the obligations of such
Person pursuant to any Interest Rate Protection Agreement or Currency Exchange
Protection Agreement or other similar agreement or arrangement involving
interest rates, currencies, commodities or otherwise.
"Holder" or "Securityholder" means the Person in whose name a Security
is registered on the Registrar's books.
"Incur" means issue, assume, Guarantee, incur or otherwise become
liable for; PROVIDED, HOWEVER, that any Indebtedness or Capital Stock of a
Person existing at the time such Person becomes a Restricted Subsidiary (whether
by merger, consolidation, acquisition or otherwise) shall be deemed to be
Incurred by such Restricted Subsidiary at the time it becomes a Restricted
Subsidiary; PROVIDED, FURTHER, that any amendment, modification or waiver of any
provision of any document pursuant to which Indebtedness was previously Incurred
shall not be deemed to be an Incurrence of Indebtedness as long as such
amendment, modification or waiver does not (1) increase the principal or premium
thereof or interest rate thereon; (2) change to an earlier date the Stated
Maturity thereof or the date of any scheduled or required principal payment
thereon or the time or circumstances under which such Indebtedness may or shall
be redeemed; or (3) if such Indebtedness is contractually subordinated in right
of payment to the Securities, modify or affect, in any manner adverse to the
holders, such subordination. The term "Incurrence" when used as a noun shall
have a correlative meaning. The accretion of principal of a non-interest bearing
or other discount security shall not be deemed the Incurrence of Indebtedness.
"Indebtedness" means, with respect to any Person on any date of
determination (without duplication):
(1) the principal of and premium (if any such premium is then due and
owing) in respect of (A) indebtedness of such Person for money borrowed and
(B) indebtedness evidenced by notes, debentures, bonds or other similar
instruments for the payment of which such Person is responsible or liable;
(2) all Capitalized Lease Obligations of such Person;
<PAGE>
(3) all obligations of such Person issued or assumed as the deferred
purchase price of property, all conditional sale obligations of such Person
and all obligations of such Person under any title retention agreement (but
excluding trade accounts payable arising in the ordinary course of
business);
(4) all obligations of such Person for the reimbursement of any
obligor on any letter of credit, banker's acceptance or similar credit
transaction (other than obligations with respect to letters of credit
securing obligations (other than obligations described in clauses (1)
through (3) above) entered into in the ordinary course of business of such
Person to the extent such letters of credit are not drawn upon or, if and
to the extent drawn upon, such drawing is reimbursed no later than the
tenth Business Day following receipt by such Person of a demand for
reimbursement following payment on the letter of credit);
(5) the amount of all obligations of such Person with respect to the
redemption, repayment or other repurchase of any Disqualified Stock of such
Person or, with respect to any Subsidiary of such Person, the liquidation
preference with respect to any Preferred Stock (but excluding, in each
case, any accrued dividends);
(6) all obligations of the type referred to in clauses (1) through (5)
of other Persons and all dividends of other Persons for the payment of
which, in either case, such Person is responsible or liable, directly or
indirectly, as obligor, guarantor or otherwise, including by means of any
Guarantee;
(7) all obligations of the type referred to in clauses (1) through (6)
of other Persons secured by any Lien on any property or asset of such
Person (whether or not such obligation is assumed by such Person), the
amount of such obligation being deemed to be the lesser of the value of
such property or assets or the amount of the obligation so secured; and
(8) to the extent not otherwise included in this definition, Hedging
Obligations of such Person.
<PAGE>
For purposes of this definition, the obligation of such Person with respect to
the redemption, repayment or repurchase price of any Disqualified Stock that
does not have a fixed redemption, repayment or repurchase price shall be
calculated in accordance with the terms of such Stock as if such Stock were
redeemed, repaid or repurchased on any date on which Indebtedness is required to
be determined pursuant to this Indenture; PROVIDED, HOWEVER, that if such Stock
is not then permitted to be redeemed, repaid or repurchased, the redemption,
repayment or repurchase price shall be the book value of such Stock as reflected
in the most recent financial statements of such Person. The amount of
Indebtedness of any Person at any date shall be the outstanding balance at such
date of all unconditional obligations as described above and, with respect to
contingent obligations, the amount of liability required by GAAP to be accrued
or reflected on the most recently published balance sheet of such Person;
PROVIDED, HOWEVER, that (1) the amount outstanding at any time of any
Indebtedness issued with original issue discount shall be the face amount of
such indebtedness LESS the remaining unamortized portion of the original issue
discount of such Indebtedness at such time as determined in conformity with GAAP
and (2) Indebtedness shall not include any liability for Federal, state, local
or other taxes.
"Indenture" means this Indenture as amended or supplemented from time
to time.
"Interest Rate Protection Agreement" means, in respect of any Person,
any interest rate swap agreement, interest rate option agreement, interest rate
cap agreement, interest rate collar agreement, interest rate floor agreement or
other similar agreement or arrangement designed to protect such Person against
fluctuations in interest rates.
"Investment" by any Person in any other Person means any direct or
indirect advance, loan (other than advances to customers or suppliers in the
ordinary course of business that are recorded as accounts receivable on the
balance sheet of such former Person) or other extensions of credit (including by
way of Guarantee or similar arrangement) or capital contribution to (by means of
any transfer of cash or other property to others or any payment for property or
services for the account or use of others), or any purchase or acquisition of
Capital Stock,
<PAGE>
Indebtedness or other similar instruments issued by such latter Person that are
or would be classified as investments on a balance sheet of such former Person
prepared in accordance with GAAP. In determining the amount of any Investment in
respect of any property or assets other than cash, such property or asset shall
be valued at its fair market value at the time of such Investment (unless
otherwise specified in this definition), as determined in good faith by the
Board of Directors. For purposes of the definition of "Unrestricted Subsidiary,"
the definition of "Restricted Payment" and Section 4.04, (1) "Investment" shall
include the portion (proportionate to the Company's equity interest in such
Subsidiary) of the fair market value of the net assets of any Subsidiary of the
Company at the time that such Subsidiary is designated an Unrestricted
Subsidiary; PROVIDED, HOWEVER, that upon a redesignation of such Subsidiary as a
Restricted Subsidiary, the Company shall be deemed to continue to have a
permanent "Investment" in an Unrestricted Subsidiary equal to an amount (if
positive) equal to (x) the Company's "Investment" in such Subsidiary at the time
of such redesignation LESS (y) the portion (proportionate to the Company's
equity interest in such Subsidiary) of the fair market value of the net assets
of such Subsidiary at the time of such redesignation; and (2) any property
transferred to or from an Unrestricted Subsidiary shall be valued at its fair
market value at the time of such transfer, in each case as determined in good
faith by the Board of Directors.
"Investment Grade Rating" means a rating of BBB- or higher by Standard
& Poor's Ratings Group, Inc. and Baa3 or higher by Moody's Investors Service,
Inc. or the equivalent of such ratings by Standard & Poor's Ratings Group, Inc.
or Moody's Investors Service, Inc. or by any other Rating Agency selected as
provided in the definition of Rating Agency.
"Issue Date" means January 21, 1999.
"Joint Venture" means the Existing Joint Ventures, and any other joint
venture, partnership or other similar arrangement whether in corporate,
partnership or other legal form which is formed by the Company or any Restricted
Subsidiary and one or more Persons which own, operate or service a Related
Business.
<PAGE>
"Joint Venture Subsidiary" means a Restricted Subsidiary formed by the
Company or any Restricted Subsidiary and one or more Persons which own, operate
or service a Related Business.
"Lenders" has the meaning specified in the Credit Agreement.
"Lien" means any mortgage, pledge, security interest, encumbrance,
lien or charge of any kind (including any conditional sale or other title
retention agreement or lease in the nature thereof).
"Net Available Cash" from an Asset Disposition means the aggregate
amount of cash received in respect of an Asset Disposition (including any cash
payments received by way of deferred payment of principal pursuant to a note or
installment receivable or otherwise, but only as and when received, but
excluding any other consideration received in the form of assumption by the
acquiring Person of Indebtedness or other obligations relating to such
properties or assets or received in any other noncash form) therefrom, in each
case net of:
(1) all legal, accounting, title and recording tax expenses,
commissions and other fees and expenses incurred, and all Federal, state,
provincial, foreign and local taxes required to be paid or accrued as a
liability under GAAP as a consequence of such Asset Disposition;
(2) all payments made on any Indebtedness which is secured by any
assets subject to such Asset Disposition, in accordance with the terms of
any Lien upon such assets, or which must by its terms, or in order to
obtain a necessary consent to such Asset Disposition, or by applicable law,
be repaid out of the proceeds from such Asset Disposition;
(3) all distributions and other payments required to be made to
minority interest holders in Restricted Subsidiaries or Joint Ventures as a
result of such Asset Disposition;
(4) any amount of cash required to be placed in escrow by one or more
parties to a transaction relating to contingent liabilities associated with
an Asset
<PAGE>
Disposition until such cash is released to the Company or a Restricted
Subsidiary; and
(5) the deduction of appropriate amounts to be provided by the seller
as a reserve, in accordance with GAAP, against any liabilities associated
with the assets disposed of in such Asset Disposition, including pension
and other post-employment benefit liabilities, liabilities related to
environmental matters and liabilities under any indemnification obligations
associated with such Asset Dispositions, all as determined in conformity
with GAAP, retained by the Company or any Restricted Subsidiary after such
Asset Disposition.
"Net Cash Proceeds", with respect to any issuance or sale of Capital
Stock, means the cash proceeds of such issuance or sale net of attorneys' fees,
accountants' fees, printing costs, underwriters' or placement agents' fees,
discounts or commissions and brokerage, stock exchange listing fees, consultant
and other fees actually incurred in connection with such issuance or sale and
net of taxes paid or payable as a result thereof.
"Officer" means the Chairman of the Board, the President, any Vice
President, the Treasurer, an Assistant Treasurer, the Secretary or any Assistant
Secretary of the Company.
"Officers' Certificate" means a certificate signed by the Chairman of
the Board, the President, an Executive Vice President, a Senior Vice President
or a Vice President, and by the Treasurer, an Assistant Treasurer, the Secretary
or an Assistant Secretary, of the Company and delivered to the Trustee.
"Opinion of Counsel" means a written opinion of legal counsel
acceptable to the Trustee. The counsel may be an employee of or counsel for the
Company.
"Permitted Holders" means (1) Ciba Specialty Chemicals Holding Inc.
and its Affiliates; (2) any Person succeeding to the business of Ciba Specialty
Chemicals Holding Inc., including pursuant to any merger or combination of one
or more businesses that includes the business of Ciba Specialty Chemicals
Holding Inc.; and (3) any Affiliate of any Person described in clause (2).
<PAGE>
"Permitted Investment" means an Investment:
(1) in the Company or a Restricted Subsidiary or a Person which shall,
upon the making of such Investment, become a Restricted Subsidiary;
PROVIDED, HOWEVER, that the primary business of such Restricted Subsidiary
is a Related Business;
(2) in another Person, if as a result of such Investment such other
Person is merged or consolidated with or into, or transfers or conveys all
or substantially all its assets to, the Company or a Restricted Subsidiary;
PROVIDED, HOWEVER, that such Person's primary business is a Related
Business;
(3) in Temporary Cash Investments;
(4) in receivables owing to the Company or any Restricted Subsidiary
if created or acquired in the ordinary course of business and payable or
dischargeable in accordance with customary trade terms; PROVIDED, HOWEVER,
that such trade terms may include such concessionary trade terms as the
Company or any such Restricted Subsidiary deems reasonable under the
circumstances;
(5) in loans or advances to officers, directors or employees of the
Company or any of its Subsidiaries for travel, transportation,
entertainment, and moving and other relocation expenses and other business
expenses that are expected at the time of such advances ultimately to be
treated as expenses for accounting purposes and that are made in the
ordinary course of business;
(6) in loans or advances to employees made in the ordinary course of
business consistent with past practices of the Company or such Subsidiary,
as the case may be;
(7) in stock, obligations or securities received (A) in settlement of
debts created in the ordinary course of business and owing to the Company
or any Subsidiary; (B) in satisfaction of judgments; or (C) as
consideration in connection with an Asset Disposition permitted under
Section 4.06; and
<PAGE>
(8) deemed to have been made as a result of the acquisition of a
Person that at the time of such acquisition held instruments constituting
Investments that were not acquired in contemplation of the acquisition of
such Person.
"Person" means any individual, corporation, partnership, limited
liability company, joint venture, association, joint-stock company, trust,
unincorporated organization, government or any agency or political subdivision
thereof or any other entity.
"Plans" means any employee benefit plan, retirement plan, deferred
compensation plan, restricted stock plan, health, life, disability or other
insurance plan or program, employee stock purchase plan, employee stock
ownership plan, pension plan, stock option plan or similar plan or arrangement
of the Company or any Subsidiary, or any successor thereof and "Plan" shall have
a correlative meaning.
"Preferred Stock", as applied to the Capital Stock of any Person,
means Capital Stock of any class or classes (however designated) which is
preferred as to the payment of dividends or, as to the distribution of assets
upon any voluntary or involuntary liquidation or dissolution of such Person,
over shares of Capital Stock of any other class of such Person.
"principal" of a Security means the principal of the Security plus the
premium, if any, payable on the Security which is due or overdue or is to
become due at the relevant time.
"Public Equity Offering" means an underwritten primary public offering
of common stock of the Company pursuant to an effective registration statement
under the Securities Act.
"Public Market" means any time after (x) a Public Equity Offering has
been consummated and (y) at least 15% of the total issued and outstanding common
stock of the Company has been distributed by means of an effective registration
statement under the Securities Act or sales pursuant to Rule 144 under the
Securities Act.
<PAGE>
"Qualified Preferred Stock" of a Restricted Subsidiary means a series
of Preferred Stock of such Restricted Subsidiary which (1) has a fixed
liquidation preference that is no greater in the aggregate than the sum of (x)
the fair market value (as determined in good faith by the Board of Directors at
the time of the issuance of such series of Preferred Stock) of the consideration
received by such Restricted Subsidiary for the issuance of such series of
Preferred Stock and (y) accrued and unpaid dividends to the date of liquidation,
(2) has a fixed annual dividend and has no right to share in any dividend or
other distributions based on the financial or other similar performance of such
Restricted Subsidiary and (3) does not entitle the holders thereof to vote in
the election of directors, managers or trustees of such Restricted Subsidiary
unless such Restricted Subsidiary has failed to pay dividends on such series of
Preferred Stock for a period of at least 12 consecutive calendar months.
"Rating Agency" means Standard & Poor's Ratings Group, Inc. and
Moody's Investors Service, Inc. or if Standard & Poor's Ratings Group, Inc. or
Moody's Investors Service, Inc. or both shall not make a rating on the
Securities publicly available, a nationally recognized statistical rating agency
or agencies, as the case may be, selected by the Company (as certified by a
resolution of the Board of Directors) which shall be substituted for Standard &
Poor's Ratings Group, Inc. or Moody's Investors Service, Inc. or both, as the
case may be.
"Refinancing Indebtedness" means Indebtedness that refunds,
refinances, replaces, renews, repays or extends (including pursuant to any
defeasance or discharge mechanism) (collectively, "refinances," and "refinanced"
and "refinancing" shall each have a correlative meaning) any Indebtedness or
Incurred in compliance with this Indenture (including Indebtedness of the
Company that refinances Indebtedness of any Restricted Subsidiary and
Indebtedness of any Restricted Subsidiary that refinances Indebtedness of
another Restricted Subsidiary), including Indebtedness that refinances
Refinancing Indebtedness; PROVIDED, HOWEVER, that:
(1) such Refinancing Indebtedness has a Stated Maturity no earlier
than any Stated Maturity of the Indebtedness being refinanced;
<PAGE>
(2) the Refinancing Indebtedness has an Average Life at the time such
Refinancing Indebtedness is Incurred that is equal to or greater than the
Average Life of the Indebtedness being refinanced; and
(3) such Refinancing Indebtedness is Incurred in an aggregate
principal amount (or if issued with original issue discount, an aggregate
issue price) that is equal to or less than the sum of (x) either the
aggregate principal amount (or if issued with original issue discount, the
aggregate accreted value) of the Indebtedness being refinanced (including,
with respect to both the Refinancing Indebtedness and the Indebtedness
being refinanced, amounts then outstanding and amounts available
thereunder) or, if the Indebtedness being refinanced is the Capitalized
Lease Obligation entered into on or about September 15, 1998, the aggregate
purchase price of the property subject thereto, PLUS (y) unpaid interest,
prepayment penalties, redemption premiums, defeasance costs, fees, expenses
and other amounts owing with respect thereto, PLUS reasonable financing
fees and other reasonable out-of-pocket expenses incurred in connection
therewith;
PROVIDED, FURTHER, HOWEVER, that Refinancing Indebtedness shall not include
Indebtedness of a Subsidiary that refinances Indebtedness of the Company.
"Related Business" means any business conducted by the Company and its
Restricted Subsidiaries on the Issue Date and any business related, ancillary or
complementary to the businesses of the Company and the Restricted Subsidiaries
on the Issue Date.
"Representative" means the trustee, agent or other representative (if
any) for an issue of Senior Indebtedness.
"Restricted Payment" with respect to any Person means:
(1) the declaration or payment of any dividends or any other
distributions of any sort in respect of its Capital Stock (including any
payment in connection with any merger or consolidation involving such
Person) or similar payment to the direct or indirect holders of its Capital
Stock (other than dividends or
<PAGE>
distributions payable solely in its Capital Stock (other than Disqualified
Stock) and dividends or distributions payable solely to the Company or a
Restricted Subsidiary, and other than pro rata dividends or other
distributions made by a Subsidiary that is not a Wholly Owned Subsidiary to
minority stockholders (or owners of an equivalent interest in the case of a
Subsidiary that is an entity other than a corporation));
(2) the purchase, redemption or other acquisition or retirement for
value of any Capital Stock of the Company held by any Person or of any
Capital Stock of a Restricted Subsidiary held by any Affiliate of the
Company (other than a Restricted Subsidiary), including the exercise of any
option to exchange any Capital Stock (other than into Capital Stock of the
Company that is not Disqualified Stock);
(3) the purchase, repurchase, redemption, defeasance or other
acquisition or retirement for value, prior to scheduled maturity, scheduled
repayment or scheduled sinking fund payment of any Subordinated Obligations
(other than the purchase, repurchase, or other acquisition of Subordinated
Obligations purchased in anticipation of satisfying a sinking fund
obligation, principal installment or final maturity, in each case due
within one year of the date of acquisition); or
(4) the making of any Investment (other than a Permitted Investment)
in any Person.
"Restricted Subsidiary" means any Subsidiary of the Company that is
not an Unrestricted Subsidiary.
"SEC" means the Securities and Exchange Commission.
"Secured Indebtedness" means any Indebtedness of the Company secured
by a Lien.
"Securities" means the Securities issued under this Indenture.
"Securities Act" means the Securities Act of 1933.
<PAGE>
"Senior Indebtedness" means (1) all Bank Indebtedness and (2) all
other Indebtedness of the Company including interest (including interest
accruing at the contract rate specified in the Credit Agreement or the
documentation governing such other Indebtedness, as applicable (including any
rate applicable upon default) on or after the filing of any petition in
bankruptcy, or the commencement of any similar state, federal or foreign
reorganization or liquidation proceeding, relating to the Company, whether or
not allowed as a claim against the Company in any such proceeding) and fees
thereon, whether outstanding on the Issue Date or thereafter issued or Incurred,
unless in the instrument creating or evidencing the same or pursuant to which
the same is outstanding it is provided that such obligations are not superior in
right of payment to the Securities; PROVIDED, HOWEVER, that Senior Indebtedness
shall not include (1) any liability for Federal, state, local or other taxes
owed or owing by the Company, (2) any accounts payable or other liabilities to
trade creditors arising in the ordinary course of business (including guarantees
thereof or instruments evidencing such liabilities), (3) any Indebtedness,
Guarantee or obligation of the Company which is subordinate or junior in any
respect to any other Indebtedness, Guarantee or obligation of the Company,
including any Senior Subordinated Indebtedness and any Subordinated Obligations,
and (4) any obligations with respect to any Capital Stock.
"Senior Subordinated Indebtedness" means the Securities, the senior
subordinated notes payable to Ciba Specialty Chemicals Inc. issued pursuant to
the indenture dated February 29, 1996, between the Company and First Trust of
California, N.A., as Trustee, as amended and supplemented, and any other
Indebtedness of the Company that specifically provides that such Indebtedness is
to rank PARI PASSU with the Securities in right of payment and is not
subordinated by its terms in right of payment to any Indebtedness or other
obligation of the Company which is not Senior Indebtedness.
"Significant Subsidiary" means a Restricted Subsidiary of that is a
"significant subsidiary" as defined in Rule 1-02 under Regulation S-X
promulgated under the Securities Act and Exchange Act.
<PAGE>
"Specified Properties" means the Company's manufacturing plants
located in Lancaster, Ohio; Welkenraedt, Belgium; Brindisi, Italy; and Lodi, New
Jersey; and certain real property adjacent to the Company's manufacturing plant
in Livermore, California.
"Stated Maturity" means, with respect to any security, the date
specified in such security as the fixed date on which the payment of principal
of such security is due and payable, including pursuant to any mandatory
redemption provision (but excluding any provision providing for the repurchase
of such security at the option of the holder thereof upon the happening of any
contingency beyond the control of the issuer unless such contingency has
occurred).
"Subordinated Obligation" means any Indebtedness of the Company
(whether outstanding on the Issue Date or thereafter Incurred) that is
contractually subordinated or junior in right of payment to the Securities
pursuant to a written agreement, including the 7% Convertible Subordinated Notes
Due 2003 and the 7% Convertible Subordinated Debentures Due 2011.
"Subsidiary" of any Person means any corporation, association,
partnership or other business entity of which more than 50% of the total voting
power of shares of Voting Stock is at the time owned or controlled, directly or
indirectly, by (1) such Person, (2) such Person and one or more Subsidiaries of
such Person or (3) one or more Subsidiaries of such Person. Unless the context
requires otherwise, "Subsidiary" shall refer to a Subsidiary of the Company.
"Temporary Cash Investments" means any of the following:
(1) investments in U.S. Government Obligations;
(2) investments in time deposit accounts, certificates of deposit and
money market deposits maturing within 180 days of the date of acquisition
thereof issued by a bank or trust company which is organized under the laws
of the United States of America, any state thereof or any foreign country
recognized by the United States of America having capital, surplus and
undivided profits aggregating in
<PAGE>
excess of $50.0 million (or the foreign currency equivalent thereof) and
whose long-term debt is rated "A-" (or such similar equivalent rating) or
higher by at least one "nationally recognized statistical rating
organization" (as defined in Rule 436 under the Securities Act);
(3) repurchase obligations with a term of not more than 30 days for
underlying securities of the types described in clause (1) above entered
into with a bank meeting the qualifications described in clause (2) above;
(4) investments in commercial paper, maturing not more than 90 days
after the date of acquisition, issued by a corporation (other than an
Affiliate of the Company) organized and in existence under the laws of the
United States of America or any foreign country recognized by the United
States of America with a rating at the time as of which any investment
therein is made of "P-1" (or higher) according to Moody's Investors
Service, Inc. or "A-1" (or higher) according to Standard and Poor's Ratings
Group; and
(5) investments in securities with maturities of six months or less
from the date of acquisition issued or fully guaranteed by any state,
commonwealth or territory of the United States of America, or by any
political subdivision or taxing authority thereof, and rated at least "A"
by Standard & Poor's Ratings Group or "A" by Moody's Investors Service,
Inc.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. Sections
77aaa-77bbbb) as in effect on the Issue Date, except as provided in Section
9.03.
"Trustee" means the party named as such in this Indenture until a
successor replaces it and, thereafter, means the successor.
"Trust Officer" means any officer within the corporate trust
department of the Trustee, including any vice president, assistant vice
president, assistant secretary, assistant treasurer, trust officer or any other
officer of the Trustee who customarily performs functions similar to those
performed by the Persons who at the time shall be such officers, respectively,
or to whom any
<PAGE>
corporate trust matter is referred because of such person's knowledge of and
familiarity with the particular subject and who shall have direct responsibility
for the administration of this Indenture.
"Uniform Commercial Code" means the New York Uniform Commercial Code
as in effect from time to time.
"Unrestricted Subsidiary" means (1) any Subsidiary of the Company that
at the time of determination shall be designated an Unrestricted Subsidiary by
the Board of Directors in the manner provided below and (2) any Subsidiary of an
Unrestricted Subsidiary. The Board of Directors may designate any Subsidiary of
the Company (including any newly acquired or newly formed Subsidiary) to be an
Unrestricted Subsidiary unless such Subsidiary or any of its Subsidiaries owns
any Capital Stock or Indebtedness of, or owns or holds any Lien on any property
of, the Company or any other Subsidiary of the Company that is not a Subsidiary
of the Subsidiary to be so designated; PROVIDED, HOWEVER, that either (A) the
Subsidiary to be so designated has total assets of $1,000 or less or (B) if such
Subsidiary has assets greater than $1,000, such designation would be permitted
under Section 4.04. The Board of Directors may designate any Unrestricted
Subsidiary to be a Restricted Subsidiary; PROVIDED, HOWEVER, that immediately
after giving effect to such designation (x) the Company could Incur $1.00 of
additional Indebtedness under Section 4.03(a) and (y) no Default shall have
occurred and be continuing. Any such designation by the Board of Directors shall
be evidenced to the Trustee by promptly filing with the Trustee a copy of the
resolution of the Board of Directors giving effect to such designation and an
Officers' Certificate certifying that such designation complied with the
foregoing provisions.
"U.S. Government Obligations" means direct obligations (or
certificates representing an ownership interest in such obligations) of the
United States of America (including any agency or instrumentality thereof) for
the payment of which the full faith and credit of the United States of America
is pledged and which are not callable or redeemable at the issuer's option.
"Voting Stock" of a Person means all classes of Capital Stock or other
interests (including partnership interests) of such Person then outstanding and
normally
<PAGE>
entitled (without regard to the occurrence of any contingency) to vote in the
election of directors, managers or trustees thereof.
"Wholly Owned Subsidiary" means a Restricted Subsidiary all the
Capital Stock of which (other than Qualified Preferred Stock and director's
qualifying shares) is owned by the Company or another Wholly Owned Subsidiary.
SECTION 1.02. OTHER DEFINITIONS.
<TABLE>
<CAPTION>
Defined in
Term Section
---- ----------
<S> <C>
"Affiliate Transaction".................................................... 4.07(a)
"Bankruptcy Law"........................................................... 6.01
"Blockage Notice".......................................................... 10.03
"Change of Control Offer".................................................. 4.09(b)
"Consolidated Working Capital Amount"...................................... 4.03(b)(1)
"covenant defeasance option"............................................... 8.01(b)
"Custodian"................................................................ 6.01
"Event of Default"......................................................... 6.01
"legal defeasance option".................................................. 8.01(b)
"Legal Holiday"............................................................ 11.08
"Maximum Committed Credit Agreement
Amount"............................................................... 4.03(b)(1)
"Notice of Default"........................................................ 6.01
"Offer".................................................................... 4.06(b)
"Offer Amount"............................................................. 4.06(d)(2)
"pay the Securities"....................................................... 10.03
"Paying Agent"............................................................. 2.03
"Payment Blockage Period".................................................. 10.03
"Payment Restrictions"..................................................... 4.05
"Purchase Date"............................................................ 4.06(d)(1)
"Registrar"................................................................ 2.03
"Successor Company"........................................................ 5.01
</TABLE>
SECTION 1.03. INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT. This
Indenture is subject to the mandatory provisions of the TIA which are
incorporated by reference in and made a part of this Indenture. The following
TIA terms have the following meanings:
"Commission" means the SEC;
"indenture securities" means the Securities;
<PAGE>
"indenture security holder" means a Securityholder;
"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means the Trustee; and
"obligor" on the indenture securities means the Company and any other
obligor on the indenture securities.
All other TIA terms used in this Indenture that are defined by the
TIA, defined by TIA reference to another statute or defined by SEC rule have the
meanings assigned to them by such definitions.
SECTION 1.04. RULES OF CONSTRUCTION. Unless the context otherwise
requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning assigned
to it in accordance with GAAP;
(3) "or" is not exclusive;
(4) "including" means including without limitation;
(5) words in the singular include the plural and words in the plural
include the singular;
(6) unsecured Indebtedness shall not be deemed to be subordinate or
junior to Secured Indebtedness merely by virtue of its nature as unsecured
Indebtedness;
(7) the principal amount of any noninterest bearing or other discount
security at any date shall be the principal amount thereof that would be
shown on a balance sheet of the issuer dated such date prepared in
accordance with GAAP;
(8) the principal amount of any Preferred Stock shall be (i) the
maximum liquidation value of such Preferred Stock or (ii) the maximum
mandatory redemption or mandatory repurchase price with respect to such
Preferred Stock, whichever is greater;
<PAGE>
(9) all references to the date the Securities were originally issued
shall refer to the Issue Date; and
(10) all references to any payment of principal, purchase prices in
connection with a purchase of the Securities and interest or any other
amount payable on or with respect to such Securities shall be deemed to
include payment of any additional cash interest pursuant to any
Registration Rights Agreement.
ARTICLE 2
THE SECURITIES
SECTION 2.01. FORM AND DATING. Provisions relating to the Initial
Securities, the Private Exchange Securities and the Exchange Securities are set
forth in the Rule 144A/Regulation S Appendix attached hereto (the "Appendix")
which is hereby incorporated in and expressly made part of this Indenture. The
Initial Securities and the Trustee's certificate of authentication shall be
substantially in the form of Exhibit 1 to the Appendix which is hereby
incorporated in and expressly made a part of this Indenture. The Exchange
Securities and the Private Exchange Securities and the Trustee's certificate of
authentication shall be substantially in the form of Exhibit A, which is hereby
incorporated in and expressly made a part of this Indenture. The Securities may
have notations, legends or endorsements required by law, stock exchange rule,
agreements to which the Company is subject, if any, or usage (provided that any
such notation, legend or endorsement is in a form acceptable to the Company).
Each Security shall be dated the date of its authentication. The terms of the
Securities set forth in the Appendix and Exhibit A are part of the terms of this
Indenture.
SECTION 2.02. EXECUTION AND AUTHENTICATION. Two Officers shall sign
the Securities for the Company by manual or facsimile signature.
If an Officer whose signature is on a Security no longer holds that
office at the time the Trustee authenticates the Security, the Security shall
be valid nevertheless.
<PAGE>
A Security shall not be valid until an authorized signatory of the
Trustee manually signs the certificate of authentication on the Security. The
signature shall be conclusive evidence that the Security has been authenticated
under this Indenture.
On the Issue Date, the Trustee shall authenticate and deliver $240.0
million of 9-3/4% Senior Subordinated Notes Due 2009 and, at any time and from
time to time thereafter, the Trustee shall authenticate and deliver Securities
for original issue in an aggregate principal amount specified in such order, in
each case upon a written order of the Company signed by two Officers or by an
Officer and either an Assistant Treasurer or an Assistant Secretary of the
Company. Such order shall specify the amount of the Securities to be
authenticated and the date on which the original issue of Securities is to be
authenticated and, in the case of an issuance of Additional Securities pursuant
to Section 2.13 after the Issue Date, shall certify that such issuance is in
compliance with Section 4.03.
The Trustee may appoint an authenticating agent reasonably acceptable
to the Company to authenticate the Securities. Unless limited by the terms of
such appointment, an authenticating agent may authenticate Securities whenever
the Trustee may do so. Each reference in this Indenture to authentication by the
Trustee includes authentication by such agent. An authenticating agent has the
same rights as any Registrar, Paying Agent or agent for service of notices and
demands.
SECTION 2.03. REGISTRAR AND PAYING AGENT. The Company shall maintain
an office or agency where Securities may be presented for registration of
transfer or for exchange (the "Registrar") and an office or agency where
Securities may be presented for payment (the "Paying Agent"). The Registrar
shall keep a register of the Securities and of their transfer and exchange. The
Company may have one or more co-registrars and one or more additional paying
agents. The term "Paying Agent" includes any additional paying agent.
The Company shall enter into an appropriate agency agreement with any
Registrar or Paying Agent or co-registrar not a party to this Indenture, which
shall incorporate the terms of the TIA. The agreement shall implement the
provisions of this Indenture that relate to such agent. The
<PAGE>
Company shall notify the Trustee of the name and address of any such agent and
any change in the address of such agent. If the Company fails to maintain a
Registrar or Paying Agent, the Trustee shall act as such and shall be entitled
to appropriate compensation therefor pursuant to Section 7.07. The Company or
any of its domestically incorporated Wholly Owned Subsidiaries may act as Paying
Agent, Registrar, co-registrar or transfer agent.
The Company initially appoints the Trustee as Registrar and Paying
Agent in connection with the Securities.
SECTION 2.04. PAYING AGENT TO HOLD MONEY IN TRUST. Prior to each due
date of the principal and interest on any Security, the Company shall deposit
with the Paying Agent a sum sufficient to pay such principal and interest when
so becoming due. The Company shall require each Paying Agent (other than the
Trustee) to agree in writing that the Paying Agent shall hold in trust for the
benefit of Securityholders or the Trustee all money held by the Paying Agent for
the payment of principal of or interest on the Securities and shall notify the
Trustee of any default by the Company in making any such payment. If the Company
or a Subsidiary acts as Paying Agent, it shall segregate the money held by it as
Paying Agent and hold it as a separate trust fund. The Company at any time may
require a Paying Agent to pay all money held by it to the Trustee and to account
for any funds disbursed by the Paying Agent. Upon complying with this Section,
the Paying Agent shall have no further liability for the money delivered to the
Trustee.
SECTION 2.05. SECURITYHOLDER LISTS. The Trustee shall preserve in as
current a form as is reasonably practicable the most recent list available to
it of the names and addresses of Securityholders. If the Trustee is not the
Registrar, the Company shall furnish to the Trustee, in writing at least five
Business Days before each interest payment date and at such other times as the
Trustee may request in writing, a list in such form and as of such date as the
Trustee may reasonably require of the names and addresses of Securityholders.
SECTION 2.06. TRANSFER AND EXCHANGE. The Securities shall be issued in
registered form and shall be transferable only upon the surrender of a Security
for registration of transfer. When a Security is presented to
<PAGE>
the Registrar or a co-registrar with a request to register a transfer, the
Registrar shall register the transfer as requested if the requirements of
Section 8-401(1) of the Uniform Commercial Code are met. When Securities are
presented to the Registrar or a co-registrar with a request to exchange them for
an equal principal amount of Securities of other denominations, the Registrar
shall make the exchange as requested if the same requirements are met. To permit
registration of transfers and exchanges, the Company shall execute and the
Trustee shall authenticate Securities at the Registrar's or co-registrar's
request. The Company may require payment of a sum sufficient to pay all taxes,
assessments or other governmental charges in connection with any transfer or
exchange pursuant to this Section. The Company shall not be required to make and
the Registrar need not register transfers or exchanges of Securities selected
for redemption (except, in the case of Securities to be redeemed in part, the
portion thereof not to be redeemed) or any Securities for a period of 15 days
before the mailing of a notice of redemption of Securities to be redeemed or 15
days before an interest payment date.
Prior to the due presentation for registration of transfer of any
Security, the Company, the Trustee, the Paying Agent, the Registrar or any
co-registrar may deem and treat the person in whose name a Security is
registered as the absolute owner of such Security for the purpose of receiving
payment of principal of and interest on such Security and for all other purposes
whatsoever, whether or not such Security is overdue, and none of the Company,
the Trustee, the Paying Agent, the Registrar or any co-registrar shall be
affected by notice to the contrary.
All Securities issued upon any transfer or exchange pursuant to the
terms of this Indenture shall evidence the same debt and shall be entitled to
the same benefits under this Indenture as the Securities surrendered upon such
transfer or exchange.
The Trustee shall have no obligation or duty to monitor, determine or
inquire as to compliance with any restrictions on transfer imposed under this
Indenture or under applicable law with respect to any transfer of any interest
in any Security (including any transfers between or among a participant in the
Depositary or beneficial owners of interests in any Global Security) other than
as are
<PAGE>
expressly required by, and to do so if and when expressly required by the terms
of this Indenture.
SECTION 2.07. REPLACEMENT SECURITIES. If a mutilated Security is
surrendered to the Registrar or if the Holder of a Security claims that the
Security has been lost, destroyed or wrongfully taken, the Company shall issue
and the Trustee shall authenticate a replacement Security if the requirements of
Section 8-405 of the Uniform Commercial Code are met and the Holder satisfies
any other reasonable requirements of the Company and the Trustee. If required by
the Trustee or the Company, such Holder shall furnish an indemnity bond
sufficient in the judgment of the Company and the Trustee to protect the
Company, the Trustee, the Paying Agent, the Registrar and any co-registrar from
any loss which any of them may suffer if a Security is replaced. The Company and
the Trustee may charge the Holder for their expenses in replacing a Security.
Every replacement Security is an additional obligation of the Company.
SECTION 2.08. OUTSTANDING SECURITIES. Securities outstanding at any
time are all Securities authenticated by the Trustee except for those canceled
by it, those delivered to it for cancellation and those described in this
Section as not outstanding. Except as set forth in Section 11.06, a Security
does not cease to be outstanding because the Company or an Affiliate of the
Company holds the Security.
If a Security is replaced pursuant to Section 2.07, it ceases to be
outstanding unless the Trustee and the Company receive proof satisfactory to
them that the replaced Security is held by a bona fide purchaser.
If the entire amount of their principal and all accrued and unpaid
interest on any Securities are considered paid under Section 4.01 on the date
such amounts are due, such Securities shall cease to be outstanding under this
Indenture and interest on such Securities shall cease to accrue from and after
such date.
If the Paying Agent segregates and holds in trust, in accordance with
this Indenture, on a redemption date or maturity date money sufficient to pay
all principal and interest payable on that date with respect to the Securities
(or portions thereof) to be redeemed or maturing, as the
<PAGE>
case may be, and the Paying Agent is not prohibited from paying such money to
the Securityholders on that date pursuant to the terms of this Indenture, then
on and after that date such Securities (or portions thereof) cease to be
outstanding and interest on them ceases to accrue.
SECTION 2.09. TEMPORARY SECURITIES. Until definitive Securities are
ready for delivery, the Company may prepare and the Trustee shall authenticate
temporary Securities. Temporary Securities shall be substantially in the form of
definitive Securities but may have variations that the Company considers
appropriate for temporary Securities. Without unreasonable delay, the Company
shall prepare and the Trustee shall authenticate definitive Securities and
deliver them in exchange for temporary Securities.
SECTION 2.10 CANCELLATION. The Company at any time may deliver
Securities to the Trustee for cancellation. The Registrar and the Paying Agent
shall forward to the Trustee any Securities surrendered to them for registration
of transfer, exchange or payment. The Trustee and no one else shall cancel in
accordance with its customary practice all Securities surrendered for
registration of transfer, exchange, payment or cancellation. The Company may not
issue new Securities to replace Securities it has redeemed, paid or delivered to
the Trustee for cancellation.
SECTION 2.11. DEFAULTED INTEREST. If the Company defaults in a payment
of interest on the Securities, the Company shall pay defaulted interest (PLUS
interest on such defaulted interest to the extent lawful) in any lawful manner.
The Company may pay the defaulted interest to the persons who are
Securityholders on a subsequent special record date. The Company shall fix or
cause to be fixed any such special record date and payment date to the
satisfaction of the Trustee and shall promptly mail to each Securityholder a
notice within 10 days of fixing or causing to be fixed such special record date
that states the special record date (which shall not be more than 20 days from
the interest payment date applicable thereto), the payment date and the amount
of defaulted interest to be paid.
SECTION 2.12. CUSIP NUMBERS. The Company in issuing the Securities may
use "CUSIP" numbers (if then generally in use) and, if so, the Trustee shall use
"CUSIP" numbers in notices of redemption as a convenience to
<PAGE>
Holders; PROVIDED, HOWEVER, that any such notice may state that no
representation is made as to the correctness of such numbers either as printed
on the Securities or as contained in any notice of a redemption and that
reliance may be placed only on the other identification numbers printed on the
Securities, and any such redemption shall not be affected by any defect in or
omission of such numbers. The Company will promptly notify the Trustee of any
change in CUSIP numbers.
SECTION 2.13. ISSUANCE OF ADDITIONAL SECURITIES. The Company shall be
entitled, subject to its compliance with Section 4.03, to issue Additional
Securities under this Indenture which shall have identical terms as the Initial
Securities issued on the Issue Date, other than with respect to the date of
issuance, issue price and amount of interest payable on the first payment date
applicable thereto. The Initial Securities issued on the Issue Date, any
Additional Securities and all Exchange Securities or Private Exchange Securities
issued in exchange therefor shall be treated as a single class for all purposes
under this Indenture.
With respect to any Additional Securities, the Company shall set forth
in a resolution of the Board of Directors and an Officers' Certificate, a copy
of each which shall be delivered to the Trustee, the following information:
(1) the aggregate principal amount of such Additional Securities to be
authenticated and delivered pursuant to this Indenture;
(2) the issue price, the issue date and the CUSIP number of such
Additional Securities and the amount of interest payable on the first
payment date applicable thereto; PROVIDED, HOWEVER, that no Additional
Securities may be issued at a price that would cause such Additional
Securities to have "original issue discount" within the meaning of Section
1273 of the Code; and
(3) whether such Additional Securities shall be transfer restricted
securities and issued in the form of Initial Securities as set forth in the
Appendix to this Indenture or shall be issued in the form of Exchange
Securities as set forth in Exhibit A.
<PAGE>
ARTICLE 3
REDEMPTION
SECTION 3.01. NOTICES TO TRUSTEE. If the Company elects to redeem
Securities pursuant to paragraph 5 of the Securities, it shall notify the
Trustee in writing of the redemption date, the principal amount of Securities to
be redeemed and the paragraph of the Securities pursuant to which the redemption
shall occur.
The Company shall give each notice to the Trustee provided for in this
Section at least 60 days before the redemption date unless the Trustee consents
to a shorter period. Such notice shall be accompanied by an Officers'
Certificate and an Opinion of Counsel from the Company to the effect that such
redemption shall comply with the conditions herein.
SECTION 3.02. SELECTION OF SECURITIES TO BE REDEEMED. If fewer than
all the Securities are to be redeemed, the Trustee shall select the Securities
to be redeemed pro rata or by lot or by a method that complies with applicable
legal and securities exchange requirements, if any, and in accordance with
methods generally used at the time of selection by fiduciaries in similar
circumstances. The Trustee shall make the selection from outstanding Securities
not previously called for redemption. The Trustee may select for redemption
portions of the principal of Securities that have denominations larger than
$1,000. Securities and portions of them the Trustee selects shall be in amounts
of $1,000 or a whole multiple of $1,000. Provisions of this Indenture that
apply to Securities called for redemption also apply to portions of Securities
called for redemption. The Trustee shall notify the Company promptly of the
Securities or portions of Securities to be redeemed.
SECTION 3.03. NOTICE OF REDEMPTION. At least 30 days but not more than
60 days before a date for redemption of Securities, the Company shall mail a
notice of redemption by first-class mail to each Holder of Securities to be
redeemed at such Holder's registered address.
<PAGE>
The notice shall identify the Securities (including CUSIP numbers) to
be redeemed and shall state:
(1) the redemption date;
(2) the redemption price;
(3) the name and address of the Paying Agent;
(4) that Securities called for redemption must be surrendered to the
Paying Agent to collect the redemp tion price;
(5) if fewer than all the outstanding Securities are to be redeemed,
the identification and principal amounts of the particular Securities to be
redeemed;
(6) that, unless the Company defaults in making such redemption
payment or the Paying Agent is prohibited from making such payment
pursuant to the terms of this Indenture, interest on Securities (or portion
thereof) called for redemption ceases to accrue on and after the redemption
date; and
(7) that no representation is made as to the correctness or accuracy
of the CUSIP number, if any, listed in such notice or printed on the
Securities.
At the Company's request, the Trustee shall give the notice of
redemption in the Company's name and at the Company's expense. In such event,
the Company shall provide the Trustee with the information required by this
Section.
SECTION 3.04. EFFECT OF NOTICE OF REDEMPTION. Once notice of
redemption is mailed, Securities called for redemption become due and payable on
the redemption date and at the redemption price stated in the notice. Upon
surrender to the Paying Agent, such Securities shall be paid at the redemption
price stated in the notice, PLUS accrued interest to the redemption date
(subject to the right of Holders of record on the relevant record date to
receive interest due on the related interest payment date). Failure to give
notice or any defect in the notice to any Holder shall not affect the validity
of the notice to any other Holder.
<PAGE>
SECTION 3.05. DEPOSIT OF REDEMPTION PRICE. Prior to the redemption
date, the Company shall deposit with the Paying Agent (or, if the Company or a
Subsidiary is the Paying Agent, shall segregate and hold in trust) money
sufficient to pay the redemption price of and accrued interest on all
Securities to be redeemed on that date other than Securities or portions of
Securities called for redemption which have been delivered by the Company to the
Trustee for cancellation.
SECTION 3.06. SECURITIES REDEEMED IN PART. Upon surrender of a
Security that is redeemed in part, the Company shall execute and the Trustee
shall authenticate for the Holder (at the Company's expense) a new Security
equal in principal amount to the unredeemed portion of the Security
surrendered.
ARTICLE 4
COVENANTS
SECTION 4.01. PAYMENT OF SECURITIES. The Company shall promptly pay
the principal of and interest on the Securities on the dates and in the manner
provided in the Securities and in this Indenture. Principal and interest shall
be considered paid on the date due if on such date the Trustee or the Paying
Agent holds in accordance with this Indenture money sufficient to pay all
principal and interest then due and the Trustee or the Paying Agent, as the case
may be, is not prohibited from paying such money to the Securityholders on that
date pursuant to the terms of this Indenture.
The Company shall pay interest on overdue principal at the rate
specified therefor in the Securities, and it shall pay interest on overdue
installments of interest at the same rate to the extent lawful.
SECTION 4.02. SEC REPORTS. Whether or not subject to the reporting
requirements of Section 13 or 15(d) of the Exchange Act, the Company shall file
with the SEC and provide the Trustee and the Securityholders with such annual
reports and such information, documents and other reports as are specified in
Sections 13 and 15(d) of the Exchange Act and applicable to a U.S. corporation
subject to such Sections.
<PAGE>
In addition, whether or not required by the SEC, the Company shall
file a copy of all of the information and reports referred to above with the SEC
for public availability within the time periods specified in the Commission's
rules and regulations (unless the SEC does not accept such a filing) and make
such information available to securities analysts and prospective investors upon
request. The Company also shall comply with the other provisions of TIA ss.
314(a).
Delivery of such SEC reports and information and documents to the
Trustee is for informational purposes only and the Trustee's receipt of such
shall not constitute constructive notice of any information contained therein or
determinable from information contained therein, including the Company's
compliance with any of its covenants hereunder (as to which the Trustee is
entitled to rely exclusively on Officers' Certificates).
SECTION 4.03. LIMITATION ON INDEBTEDNESS. (a) The Company shall not,
and shall not permit any Restricted Subsidiary to, Incur, directly or
indirectly, any Indebtedness; PROVIDED, HOWEVER, that the Company and its
Restricted Subsidiaries may Incur Indebtedness if, on the date of such
Incurrence and after giving effect thereto on a pro forma basis, the
Consolidated Coverage Ratio exceeds 2.0 to 1.0 if such Indebtedness is Incurred
prior to February 15, 2002 or 2.25 to 1.0 if such Indebtedness is Incurred
thereafter.
(b) Notwithstanding the foregoing paragraph (a), the Company and the
Restricted Subsidiaries may Incur any or all of the following Indebtedness:
(1) Indebtedness Incurred by the Company or any Restricted Subsidiary
pursuant to the Credit Agreement; PROVIDED, HOWEVER, that, after giving
effect to any such Incurrence, the aggregate principal amount of such
Indebtedness then outstanding does not exceed (A) the greater of (x) $680.0
million LESS the sum of all term loan principal amortization payments
scheduled to be made (whether or not in fact made) through the date of such
Incurrence pursuant to the Credit Agreement as in effect on the Issue Date
(such amount being the "Maximum Committed Credit Agreement Amount") and (y)
the sum of 50% of the book value of the consolidated inventory of the
Company and its
<PAGE>
Restricted Subsidiaries and 80% of the consolidated accounts receivable of
the Company and its Restricted Subsidiaries (such sum being the
"Consolidated Working Capital Amount") LESS the principal amount of any
Indebtedness Incurred pursuant to clause (2) below and then outstanding,
LESS, without duplication, (B) the sum of all principal payments with
respect to such Indebtedness made pursuant to Section 4.06(a)(3)(A);
(2) Indebtedness Incurred by Foreign Subsidiaries to finance the
working capital requirements of Foreign Subsidiaries; PROVIDED, HOWEVER,
that the aggregate principal amount of such Indebtedness, when added
together with the amount of Indebtedness Incurred by all Foreign
Subsidiaries pursuant to this clause (2) and then outstanding, does not
exceed the lesser of (A) the sum of 50% of the book value of the
consolidated inventories of all Foreign Subsidiaries and 80% of the
consolidated accounts receivable of all Foreign Subsidiaries and (B) the
amount by which the greater of (x) the Consolidated Working Capital Amount
and (y) the Maximum Committed Credit Agreement Amount exceeds the principal
amount of Indebtedness Incurred pursuant to clause (1) above and then
outstanding;
(3) Indebtedness owed to and held by the Company or any Wholly Owned
Subsidiary; PROVIDED, HOWEVER, that (A) any subsequent issuance or transfer
of any Capital Stock which results in any such Wholly Owned Subsidiary
ceasing to be a Wholly Owned Subsidiary or any subsequent transfer of such
Indebtedness (other than to the Company or a Wholly Owned Subsidiary) shall
be deemed, in each case, to constitute the Incurrence of such Indebtedness
and (B) if the Company is the obligor on such Indebtedness, the payment of
such Indebtedness is expressly subordinate to the prior payment in full in
cash of all obligations with respect to the Securities;
(4) the Securities (other than Additional Securities);
(5) Indebtedness (other than the Indebtedness described in clauses
(1), (2), (3) or (4) above) outstanding on the Issue Date;
<PAGE>
(6) Refinancing Indebtedness in respect of Indebtedness Incurred
pursuant to Section 4.03(a) or pursuant to clause (4) or (5) of this
Section 4.03(b) or this clause (6);
(7) Hedging Obligations directly related to Indebtedness permitted to
be Incurred by the Company and Restricted Subsidiaries pursuant to this
Indenture or, in the case of a Currency Exchange Protection Agreement,
reasonably related to the ordinary course of business of the Company and
its Restricted Subsidiaries;
(8) Indebtedness, including Capitalized Lease Obligations and purchase
money Indebtedness, Incurred by the Company or its Restricted Subsidiaries
to finance the acquisition of tangible assets or other capital
expenditures, and Indebtedness Incurred by the Company or its Restricted
Subsidiaries to Refinance such Capitalized Lease Obligations and purchase
money Indebtedness, in an aggregate outstanding principal amount which,
when added together with the amount of Indebtedness Incurred pursuant to
this clause (8) and then outstanding, does not exceed $20.0 million;
(9) Indebtedness in respect of performance, surety or appeal bonds
provided in the ordinary course of the Company and its Restricted
Subsidiaries; or
(10) Indebtedness in an aggregate principal amount which, together
with all other Indebtedness of the Company and Restricted Subsidiaries
outstanding on the date of such Incurrence (other than Indebtedness
permitted by clauses (1) through (9) of this Section 4.03(b) or Section
4.03(a), does not exceed $25.0 million.
(c) Notwithstanding the foregoing, the Company shall not Incur any
Indebtedness pursuant to Section 4.03(b) if the proceeds thereof are used,
directly or indirectly, to Refinance any Subordinated Obligations, unless such
Indebtedness shall be subordinated to the Securities to at least the same extent
as such Subordinated Obligations.
(d) For purposes of determining compliance with this Section 4.03, (i)
in the event that an item of Indebtedness meets the criteria of more than one of
the
<PAGE>
types of Indebtedness described herein, the Company, in its sole discretion,
shall classify such item of Indebtedness and only be required to include the
amount and type of such Indebtedness in one of the above clauses and (ii) an
item of Indebtedness may be divided and classified in more than one of the types
of Indebtedness described herein.
(e) Notwithstanding Section 4.03(a) or 4.03(b), the Company shall not
Incur (i) any Indebtedness if such Indebtedness is subordinate or junior in
ranking in any respect to any Senior Indebtedness, unless such Indebtedness is
Senior Subordinated Indebtedness or is expressly subordinated in right of
payment to Senior Subordinated Indebtedness or (ii) any Secured Indebtedness
that is not Senior Indebtedness, unless contemporaneously therewith effective
provision is made to secure the Securities equally and ratably with such Secured
Indebtedness for so long as such Secured Indebtedness is secured by a Lien.
(f) For the purpose of determining amounts of Indebtedness outstanding
under Section 4.03 and for the purpose of avoiding duplication only,
Indebtedness of a Person resulting from the grant by such Person of security
interests with respect to, or from the issuance by such Person of Guarantees
(and security interests with respect thereof) of, or from the assumption of
obligations with respect to letters of credit supporting, Indebtedness Incurred
by such Person pursuant to this Indenture (or Indebtedness which such Person is
otherwise permitted to Incur under this Indenture) shall not be deemed to be a
separate Incurrence of Indebtedness by such Person.
(g) Indebtedness of any Person which is outstanding at the time such
Person becomes a Restricted Subsidiary of the Company (including upon
designation of any Subsidiary or other Person as a Restricted Subsidiary) or is
merged with or into or consolidated with the Company or a Restricted Subsidiary
of the Company shall be deemed to have been Incurred at the time such Person
becomes a Restricted Subsidiary or merged with or into or consolidated with the
Company or a Restricted Subsidiary, as applicable.
SECTION 4.04. LIMITATION ON RESTRICTED PAYMENTS. (a) The Company shall
not, and shall not permit any Restricted Subsidiary, directly or indirectly, to
make a Restricted Payment if at the time the Company or such Restricted
Subsidiary makes such Restricted Payment:
<PAGE>
(1) a Default shall have occurred and be continuing (or would result
therefrom);
(2) the Company is not able to Incur an additional $1.00 of
Indebtedness under Section 4.03(a); or
(3) the aggregate amount of such Restricted Payment and all other
Restricted Payments made since the Issue Date would exceed the sum of
(without duplication):
(A) 50% of the Consolidated Net Income accrued during the period
(treated as one accounting period) from the beginning of the fiscal
quarter in which the Issue Date occurs to the end of the most recent
fiscal quarter ending at least 45 days prior to the date of such
Restricted Payment (or, in case such Consolidated Net Income is a
deficit, LESS 100% of such deficit); PLUS
(B) 100% of the aggregate Net Cash Proceeds received by the
Company from the issuance or sale of its Capital Stock (other than
Disqualified Stock) subsequent to the Issue Date and on or prior to
the date of such Restricted Payment (other than an issuance or sale to
a Subsidiary of the Company or an issuance or sale to an employee
stock ownership plan or to a trust established by the Company or any
of its Subsidiaries for the benefit of their employees); PLUS
(C) the amount by which the Indebtedness of the Company is
reduced on the Company's balance sheet upon the conversion or exchange
(other than by a Subsidiary of the Company) subsequent to the Issue
Date and on or prior to the date of such Restricted Payment of any
Indebtedness of the Company convertible or exchangeable for Capital
Stock (other than Disqualified Stock) of the Company (LESS the amount
of any cash, or the fair value of any other property, distributed by
the Company upon such conversion or exchange); PLUS
(D) an amount equal to the sum of (x) the net reduction in
Investments in Unrestricted Subsidiaries resulting from dividends,
repayments
<PAGE>
of loans or advances or other transfers of assets, in each case to the
Company or any Restricted Subsidiary from Unrestricted Subsidiaries,
and (y) the portion (proportionate to the Company's equity interest in
such Subsidiary) of the fair market value of the net assets of an
Unrestricted Subsidiary at the time such Unrestricted Subsidiary is
designated a Restricted Subsidiary; PROVIDED, HOWEVER, that the
foregoing sum shall not exceed, in the case of any Unrestricted
Subsidiary, the amount of Investments previously made (and treated as
a Restricted Payment) by the Company or any Restricted Subsidiary in
such Unrestricted Subsidiary.
(b) The provisions of Section 4.04(a) shall not prohibit:
(1) any acquisition of any Capital Stock of the Company made by
exchange for, or out of the proceeds of the substantially concurrent sale
of, Capital Stock of the Company (other than Disqualified Stock and other
than Capital Stock issued or sold to a Subsidiary of the Company) or
options, warrants or other rights to purchase such Capital Stock; PROVIDED,
HOWEVER, that (A) such purchase or redemption shall be excluded in the
calculation of the amount of Restricted Payments and (B) the Net Cash
Proceeds from such sale shall be excluded from Section 4.04(a)(3)(B);
(2) any purchase, repurchase, redemption, defeasance or acquisition or
retirement for value of Subordinated Obligations made by exchange for, or
out of the proceeds of the substantially concurrent sale of, Capital Stock
of the Company (other than Disqualified Stock and other than Capital Stock
issued or sold to a Subsidiary of the Company) or options, warrants or
other rights to purchase such Capital Stock; PROVIDED, HOWEVER, that (A)
such purchase, repurchase, redemption, defeasance or acquisition or
retirement for value shall be excluded in the calculation of the amount of
Restricted Payments and (B) the Net Cash Proceeds from such sale shall be
excluded from Section 4.04(a)(3)(B);
<PAGE>
(3) any purchase, repurchase, redemption, defeasance or acquisition or
retirement for value of Subordinated Obligations made by exchange for, or
out of the proceeds of the substantially concurrent sale of, Indebtedness
of the Company which is permitted to be Incurred under Section 4.03;
PROVIDED, HOWEVER, that such Indebtedness (A) shall have a Stated Maturity
later than the Stated Maturity of the Securities and (B) shall have an
Average Life greater than the remaining Average Life of the Securities;
PROVIDED FURTHER, HOWEVER, that such purchase, repurchase, redemption,
defeasance or other acquisition or retirement for value shall be excluded
in the calculation of the amount of Restricted Payments;
(4) any purchase or redemption of Subordinated Obligations from Net
Available Cash after application in accordance with clauses (A), (B) and
(C) of Section 4.06(3)(B); PROVIDED, HOWEVER, that such purchase or
redemption shall be excluded in the calculation of the amount of Restricted
Payments;
(5) dividends paid within 60 days after the date of declaration
thereof if at such date of declaration such dividend would have complied
with Section 4.04(a); PROVIDED, HOWEVER, that at the time of payment of
such dividend, no other Default shall have occurred and be continuing (or
result therefrom); PROVIDED FURTHER, HOWEVER, that the declaration, but not
the payment, of such dividend shall be included in the calculation of the
amount of Restricted Payments;
(6) so long as no Default shall have occurred and be continuing (or
result therefrom), Investments in Joint Ventures or other Persons engaged
in a Related Business in an aggregate amount which, when added together
with the amount of all other Investments made pursuant to this clause (6)
which at such time have not been repaid through dividends, repayments of
loans or advances or other transfer of assets, does not exceed $60.0
million; PROVIDED, HOWEVER, that the amount of such Investments shall be
excluded in the calculation of Restricted Payments;
(7) so long as no Default shall have occurred and be continuing (or
result therefrom), payments with respect to employee or director stock
options, stock
<PAGE>
incentive plans or restricted stock plans of the Company, including
any redemption, repurchase, acquisition, cancelation or other retirement
for value of shares of Capital Stock of the Company, restricted stock,
options on any such shares or similar securities held by directors,
officers or employees or former directors, officers or employees or by any
Plan upon death, disability, retirement or termination of employment of any
such person pursuant to the terms of such Plan or agreement under which
such shares or related rights were issued or acquired; PROVIDED, HOWEVER,
that the amount of any such payments shall be included in the calculation
of Restricted Payments;
(8) so long as no Default shall have occurred and be continuing (or
result therefrom), any purchase or defeasance of Subordinated Obligations
upon a Change of Control to the extent required by the indenture or other
agreement or instrument pursuant to which such Subordinated Obligations
were issued, but only if the Company has first complied with all its
obligations under Section 4.09; PROVIDED, HOWEVER, that the amount of such
purchase or defeasance shall be excluded in the calculation of Restricted
Payments; or
(9) so long as no Default shall have occurred and be continuing (or
result therefrom), Restricted Payments in an aggregate amount which, when
added together with the amount of all other Restricted Payments made
pursuant to this clause (9) which at such time have not been repaid through
dividends, repayments of loans or advances or other transfer of assets,
does not exceed $40.0 million; PROVIDED, HOWEVER, that the amount of such
Restricted Payments shall be included in the calculation of Restricted
Payments.
SECTION 4.05. LIMITATION ON RESTRICTIONS ON DISTRIBUTIONS FROM
RESTRICTED SUBSIDIARIES. The Company shall not, and shall not permit any
Restricted Subsidiary to, create or otherwise cause or permit to exist or become
effective any consensual encumbrance or restriction on the ability of any
Restricted Subsidiary to (a) pay dividends or make any other distributions on
its Capital Stock to the Company or a Restricted Subsidiary or pay any
Indebtedness owed to the Company, (b) make any loans or advances to the Company
or any Restricted Subsidiary or (c) transfer any of
<PAGE>
its property or assets to the Company or any Restricted Subsidiary (collectively
"Payment Restrictions"), except:
(1) any Payment Restriction imposed pursuant to the Credit Agreement,
this Indenture, Refinancing Indebtedness in respect of the Securities and
any agreement in effect at or entered into on the Issue Date;
(2) any Payment Restriction with respect to a Restricted Subsidiary
pursuant to an agreement relating to any Indebtedness Incurred by such
Restricted Subsidiary on or prior to the date on which such Restricted
Subsidiary was acquired by the Company (other than Indebtedness Incurred as
consideration in, or to provide all or any portion of the funds or credit
support utilized to consummate, the transaction or series of related
transactions pursuant to which such Restricted Subsidiary became a
Restricted Subsidiary of, or was acquired by, the Company) and outstanding
on such date;
(3) any Payment Restriction pursuant to an agreement effecting a
Refinancing of Indebtedness Incurred pursuant to an agreement referred to
in clause (1) or (2) of this Section 4.05 or this clause (3) or contained
in any amendment to an agreement referred to in Section 4.05(1) or (2) or
this clause (3); PROVIDED, HOWEVER, that the Payment Restrictions with
respect to such Restricted Subsidiary contained in any such refinancing
agreement or amendment are no less favorable to the Securityholders than
those with respect to such Restricted Subsidiary contained in such
predecessor agreements;
(4) in the case of clause (c) above, any encumbrance or restriction
consisting of customary non- assignment provisions in leases or other
contracts governing leasehold interests to the extent such provisions
restrict the transfer of the lease or the property leased thereunder;
(5) any restriction with respect to a Restricted Subsidiary imposed
pursuant to an agreement entered into for the sale or disposition of all or
substantially all the Capital Stock or assets of such
<PAGE>
Restricted Subsidiary pending the closing of such sale or disposition; and
(6) any encumbrance or restriction contained in the governing
documents of any Joint Venture Subsidiary.
SECTION 4.06. LIMITATION ON ASSET DISPOSITIONS. (a) The Company shall
not, and shall not permit any Restricted Subsidiary to, make any Asset
Disposition unless
(1) the Company or such Restricted Subsidiary receives consideration
at the time of such Asset Disposition at least equal to the fair market
value (including as to the value of all non-cash consideration), as
determined in good faith by the Board of Directors (if the total proceeds
of such sale is greater than $5.0 million), the determination of which
shall be evidenced by a Board Resolution (including as to the value of all
non-cash consideration), of the shares and assets subject to such Asset
Disposition;
(2) at least 75% of the consideration therefor received by the Company
or such Restricted Subsidiary is in the form of cash; and
(3) an amount equal to 100% of the Net Available Cash from such Asset
Disposition is applied by the Company (or such Restricted Subsidiary, as
the case may be)
(A) FIRST, to the extent the Company or such Restricted
Subsidiary elects (or is required by the terms of any Senior
Indebtedness or Indebtedness of such Restricted Subsidiary), to
prepay, repay or purchase Senior Indebtedness or Indebtedness (other
than any Disqualified Stock) of a Restricted Subsidiary (in each case
other than Indebtedness owed to the Company or an Affiliate of the
Company) within one year from the later of the date of such Asset
Disposition or the receipt of such Net Available Cash;
(B) SECOND, to the extent of the balance of such Net Available
Cash after application in accordance with clause (A), to the extent
the
<PAGE>
Company or such Restricted Subsidiary elects, to acquire Additional
Assets within one year from the later of such Asset Disposition or the
receipt of such Net Available Cash;
(C) THIRD, to the extent of the balance of such Net Available
Cash after application in accordance with clauses (A) and (B), to make
an offer to the Securityholders (and to holders of other Senior
Subordinated Indebtedness designated by the Company) to purchase
Securities (and such other Senior Subordinated Indebtedness) pursuant
to and subject to the conditions contained in the Indenture; and
(D) FOURTH, to the extent of the balance of such Net Available
Cash after application in accordance with clauses (A), (B) and (C),
for any purpose not prohibited by the terms of the Indenture.
Notwithstanding Section 4.06(a)(3)(C), the Company and the Restricted
Subsidiaries shall not be required to apply any Net Available Cash in accordance
with the foregoing paragraph except to the extent that the aggregate Net
Available Cash from all Asset Dispositions which are not applied with accordance
with the foregoing paragraph exceeds $15.0 million. Pending application of Net
Available Cash pursuant to this covenant, such Net Available Cash shall be
invested in Temporary Cash Investments.
For the purposes of this Section 4.06, the following shall be deemed
to be cash: (x) the assumption of Indebtedness of the Company or any Restricted
Subsidiary and the release of the Company or such Restricted Subsidiary from all
liability with respect to such Indebtedness in connection with such Asset
Disposition; PROVIDED, HOWEVER, that the amount of such Indebtedness shall not
be deemed to be cash for the purpose of the term "Net Available Cash;" and (y)
securities received by the Company or any Restricted Subsidiary from the
transferee that are promptly converted by the Company or such Restricted
Subsidiary into cash.
(b) In the event of an Asset Disposition that requires the purchase of
the Securities (and other Senior Subordinated Indebtedness) pursuant to Section
4.06(a) (3)(C), the Company shall purchase Securities tendered
<PAGE>
pursuant to an offer by the Company for the Securities (and other Senior
Subordinated Indebtedness) (the "Offer") at a purchase price of 100% of their
principal amount (without premium) plus accrued but unpaid interest (or, in
respect of such other Senior Subordinated Indebtedness, such lesser price, if
any, as may be provided for by the terms of such Senior Subordinated
Indebtedness) in accordance with the procedures (including prorating in the
event of oversubscription) set forth in Section 4.06(d). If the aggregate
purchase price of Securities (and any other Senior Subordinated Indebtedness)
tendered pursuant to the Offer is less than the Net Available Cash allotted to
the purchase thereof, the Company shall be entitled to apply the remaining Net
Available Cash in accordance with Section 4.06(a)(3)(D). The Company shall not
be required to make such an Offer to purchase Securities (and other Senior
Subordinated Indebtedness) pursuant to this Section 4.06 if the Net Available
Cash available therefor (after application of Net Available Cash in accordance
with clauses (A) and (B) of paragraph (a) above) is less than $10.0 million
(which lesser amount shall be carried forward for purposes of determining
whether such an Offer is required with respect to any subsequent Asset
Disposition).
(c) (1) Promptly, and in any event within 10 days after the Company
becomes obligated to make an Offer, the Company shall be obligated to deliver to
the Trustee and send, by first-class mail to each Holder, a written notice
stating that the Holder may elect to have his Securities purchased by the
Company either in whole or in part (subject to prorating as hereinafter
described in the event the Offer is oversubscribed) in integral multiples of
$1,000 of principal amount, at the applicable purchase price. The notice shall
specify a purchase date not less than 30 days nor more than 60 days after the
date of such notice (the "Purchase Date") and shall contain such information
concerning the business of the Company which the Company in good faith believes
shall enable such Holders to make an informed decision (which at a minimum shall
include (i) the most recently filed Annual Report on Form 10-K (including
audited consolidated financial statements) of the Company, the most recent
subsequently filed Quarterly Report on Form 10-Q and any Current Report on Form
8-K of the Company filed subsequent to such Quarterly Report, other than Current
Reports describing Asset Dispositions otherwise described in the offering
materials (or corresponding successor reports)
<PAGE>
and (ii) if material, appropriate pro forma financial information).
(2) Not later than the date upon which written notice of an Offer is
delivered to the Trustee as provided below, the Company shall deliver to the
Trustee an Officers' Certificate as to (i) the amount of the Offer (the "Offer
Amount"), (ii) the allocation of the Net Available Cash from the Asset
Dispositions pursuant to which such Offer is being made and (iii) the compliance
of such allocation with Section 4.06(a).
(3) Holders shall be entitled to withdraw their election to have a
Security purchased if the Trustee or the Company receives not later than one
Business Day prior to the Purchase Date, a facsimile transmission or letter
setting forth the name of the Holder, the principal amount of the Security which
was delivered for purchase by the Holder and a statement that such Holder is
withdrawing his election to have such Security purchased. If at the expiration
of the period for which the Offer remains open the aggregate principal amount of
Securities (and any other Senior Subordinated Indebtedness included in the
Offer) surrendered by holders thereof exceeds the Offer Amount, the Company
shall select the Securities and the other Senior Subordinated Indebtedness to be
purchased on a pro rata basis (with such adjustments as may be deemed
appropriate by the Company so that only Securities and the other Senior
Subordinated Indebtedness in denominations of $1,000, or integral multiples
thereof, shall be purchased).
(d) The Company shall comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities laws
or regulations in connection with the purchase of the Securities pursuant to
this covenant. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this covenant, the Company shall comply
with the applicable securities laws and regulations under this clause by virtue
thereof.
SECTION 4.07. LIMITATION ON AFFILIATE TRANSACTIONS. (a) The Company
shall not, and shall not permit any Restricted Subsidiary to enter into or
permit to exist any transaction (including the purchase, sale, lease or exchange
of any property, employee compensation arrangements or the rendering of any
service) with any
<PAGE>
Affiliate of the Company (an "Affiliate Transaction") unless (1) the Affiliate
Transaction is made in (A) good faith and (B) on terms which are fair and
reasonable to the Company or such Restricted Subsidiary, as the case may be; (2)
if such Affiliate Transaction involves an amount in excess of $5.0 million, the
terms of the Affiliate Transaction are set forth in writing and a majority of
the non-employee directors of the Company disinterested with respect to such
Affiliate Transactions have determined in good faith that the criteria set forth
in clause (1)(B) are satisfied and have approved the relevant Affiliate
Transaction as evidenced by a Board Resolution; and (3) if such Affiliate
Transaction involves an amount in excess of $10.0 million, the Board of
Directors shall also have received a written opinion from an investment banking
firm of national prominence that is not an Affiliate of the Company to the
effect that such Affiliate Transaction is fair, from a financial standpoint, to
the Company and its Restricted Subsidiaries.
(b) The provisions of Section 4.07(a) shall not prohibit (1) any
Permitted Investment and any Restricted Payment permitted to be paid under
Section 4.04; (2) any issuance of securities, or other payments, awards or
grants in cash, securities or otherwise pursuant to, or the funding of,
employment arrangements, stock options and stock ownership plans approved by the
Board of Directors; (3) the payment of reasonable fees to directors of the
Company and its Restricted Subsidiaries; (4) transactions between the Company or
a Restricted Subsidiary and one or more Restricted Subsidiaries; PROVIDED,
HOWEVER, that no Affiliate of the Company (other than another Restricted
Subsidiary) owns, directly or indirectly, any Capital Stock in any such
Restricted Subsidiary; (5) transactions in the ordinary course of business
(including loans, expense advances and reimbursements) between the Company or
any of its Restricted Subsidiaries, on the one hand, and any employee thereof,
on the other hand; (6) transactions with Affiliates entered into in the ordinary
course of business of the Company or its Restricted Subsidiaries, on terms which
are, in the opinion of the Company's management or the Board of Directors, fair
and reasonable to the Company or its Restricted Subsidiaries; (7) the granting
and performance of registration rights for shares of Capital Stock of the
Company under a written registration rights agreement approved by a majority of
directors of the Company that are disinterested with respect to such
transactions;
<PAGE>
(8) transactions with Affiliates solely in their capacity as holders of
Indebtedness or Capital Stock of the Company or any of its Subsidiaries, so long
as Indebtedness or Capital Stock of the same class is also held by Persons that
are not Affiliates of the Company and such Affiliates are treated no more
favorably than holders of such Indebtedness or such Capital Stock generally, and
the prepayment from time to time of the outstanding principal amount of the Ciba
Notes (together with accrued interest at the contract rate thereon); (9)
transactions in accordance with or as contemplated by the Governance Agreement,
and any amendments to the Governance Agreement that are not adverse to the
interests of the holders of the Securities and which are approved by a majority
of the directors of the Company disinterested with respect to such amendment;
and (10) any transaction between the Company or any Restricted Subsidiaries and
any of the Existing Joint Ventures pursuant to agreements in effect on the Issue
Date.
SECTION 4.08. LIMITATION ON THE SALE OR ISSUANCE OF CAPITAL STOCK OF
RESTRICTED SUBSIDIARIES. The Company shall not sell or otherwise dispose of any
shares of Capital Stock (other than Qualified Preferred Stock) of a Restricted
Subsidiary, and shall not permit any Restricted Subsidiary, directly or
indirectly, to issue or sell or otherwise dispose of any shares of its Capital
Stock (other than Qualified Preferred Stock) except (1) to the Company or a
Wholly Owned Subsidiary; (2) directors' qualifying shares; (3) if, immediately
after giving effect to such issuance, sale or other disposition, neither the
Company nor any of its Subsidiaries own any Capital Stock of such Restricted
Subsidiary; or (4) if, immediately after giving effect to such issuance, sale or
other disposition, such Restricted Subsidiary would no longer constitute a
Restricted Subsidiary and any Investment in such Person remaining after giving
effect thereto would have been permitted to be made under Section 4.04 if made
on the date of such issuance, sale or other disposition. Notwithstanding the
foregoing, the issuance or sale of shares of Capital Stock of any Restricted
Subsidiary of the Company shall not violate the provisions of the immediately
preceding sentence if such shares are issued or sold in connection with (x) the
formation or capitalization of a Restricted Subsidiary which, at the time of
such issuance or sale or immediately thereafter, is a Joint Venture Subsidiary
or (y) a single transaction or a series of substantially contemporaneous
transactions whereby such Restricted Subsidiary becomes a
<PAGE>
Restricted Subsidiary of the Company by reason
of the acquisition of securities or assets from another Person.
SECTION 4.09. CHANGE OF CONTROL. (a) Upon the occurrence of a Change
of Control, each Holder shall have the right to require that the Company
repurchase such Holder's Securities at a purchase price in cash equal to 101% of
the principal amount thereof plus accrued and unpaid interest, if any, to the
date of purchase (subject to the right of holders of record on the relevant
record date to receive interest on the relevant interest payment date), in
accordance with the terms contemplated in Section 4.09(b). In the event that at
the time of such Change of Control the terms of the Senior Indebtedness of the
Company restrict or prohibit the repurchase of Securities pursuant to this
Section, then prior to the mailing of the notice to Holders provided for in
Section 4.09(b) below but in any event within 30 days following any Change of
Control, the Company shall (1) repay in full all such Senior Indebtedness or
offer to repay in full all such Senior Indebtedness and repay such Senior
Indebtedness of each lender who has accepted such offer or (2) obtain the
requisite consent under the agreements governing such Senior Indebtedness to
permit the repurchase of the Securities as provided for in Section 4.09(b).
(b) Within 30 days following any Change of Control, the Company shall
mail a notice to each Holder with a copy to the Trustee (the "Change of Control
Offer") stating:
(1) that a Change of Control has occurred and that such Holder has the
right to require the Company to purchase such Holder's Securities at a
purchase price in cash equal to 101% of the principal amount thereof plus
accrued and unpaid interest, if any, to the date of purchase (subject to
the right of Holders of record on the relevant record date to receive
interest on the relevant interest payment date);
(2) the circumstances and relevant facts regarding such Change of
Control (including information with respect to pro forma historical income,
cash flow and capitalization, each after giving effect to such Change of
Control);
<PAGE>
(3) the repurchase date (which shall be no earlier than 30 days nor
later than 60 days from the date such notice is mailed); and
(4) the instructions determined by the Company, consistent with this
Section, that a Holder must follow in order to have its Securities
purchased.
(c) Holders electing to have a Security purchased shall be required to
surrender the Security, with an appropriate form duly completed, to the Company
at the address specified in the notice at least three Business Days prior to the
purchase date. Holders shall be entitled to withdraw their election if the
Trustee or the Company receives not later than one Business Day prior to the
purchase date, a telegram, facsimile transmission or letter setting forth the
name of the Holder, the principal amount of the Security which was delivered for
purchase by the Holder and a statement that such Holder is withdrawing his
election to have such Security purchased.
(d) On the purchase date, all Securities purchased by the Company
under this Section shall be delivered by the Trustee for cancellation, and the
Company shall pay the purchase price plus accrued and unpaid interest, if any,
to the Holders entitled thereto.
(e) Notwithstanding the foregoing provisions of this Section, the
Company shall not be required to make a Change of Control Offer upon a Change of
Control if a third party makes the Change of Control Offer in the manner, at the
times and otherwise in compliance with the requirements set forth in Section
applicable to a Change of Control Offer made by the Company and purchases all
Securities validly tendered and not withdrawn under such Change of Control
Offer.
(f) The Company shall comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities laws
or regulations in connection with the repurchase of Securities pursuant to this
Section. To the extent that the provisions of any securities laws or regulations
conflict with provisions of this Section, the Company shall comply with the
applicable securities laws and regulations and shall not be deemed to have
breached its obligations under this Section by virtue thereof.
<PAGE>
SECTION 4.10. LIMITATION ON BUSINESS ACTIVITIES. The Company shall
not, and shall not permit any Restricted Subsidiary to, engage in any business
other than in businesses conducted by the Company and its Restricted
Subsidiaries on the Issue Date and businesses which, in the good faith
determination of the Board of Directors, are reasonably related, ancillary or
complementary thereto.
SECTION 4.11. COMPLIANCE CERTIFICATE. The Company shall deliver to the
Trustee within 120 days after the end of each fiscal year of the Company an
Officers' Certificate, one of the signers of which shall be the principal
executive officer, principal financial officer or principal accounting officer
of the Company, stating that in the course of the performance by the signers of
their duties as Officers of the Company they would normally have knowledge of
any Default and whether or not the signers know of any Default that occurred
during such period. If they do, the certificate shall describe the Default, its
status and what action the Company is taking or proposes to take with respect
thereto. The Company also shall comply with TIA ss. 314(a)(4).
The Company shall deliver to the Trustee, as soon as possible and in
any event within five days after the Company becomes aware of the occurrence of
any Event of Default, an Officers' Certificate setting forth the details of such
Event of Default and the action which the Company proposes to take with respect
thereto.
SECTION 4.12. FURTHER INSTRUMENTS AND ACTS. Upon request of the
Trustee, the Company shall execute and deliver such further instruments and do
such further acts as may be reasonably necessary or proper to carry out more
effectively the purpose of this Indenture.
ARTICLE 5
SUCCESSOR COMPANY
SECTION 5.01. WHEN COMPANY MAY MERGE OR TRANSFER ASSETS. The Company
shall not consolidate with or merge
<PAGE>
with or into, or convey, transfer or lease, in one transaction or a series of
transactions, all or substantially all its assets to, any other Person, unless:
(1) the resulting, surviving or transferee Person (the "Successor
Company") shall be a Person organized and existing under the laws of the
United States of America, any State thereof or the District of Columbia and
the Successor Company (if not the Company) shall expressly assume, by an
indenture supplemental hereto, executed and delivered to the Trustee, in
form satisfactory to the Trustee, all the obligations of the Company under
the Securities and this Indenture;
(2) immediately after giving effect to such transaction (and treating
any Indebtedness which becomes an obligation of the Successor Company or
any Restricted Subsidiary as a result of such transaction as having been
Incurred by the Successor Company or such Restricted Subsidiary at the time
of such transaction), no Default shall have occurred and be continuing;
(3) immediately after giving effect to such transaction, the Successor
Company would be able to Incur an additional $1.00 of Indebtedness pursuant
to Section 4.03(a);
(4) immediately after giving effect to such transaction, the Successor
Company shall have Consolidated Net Worth in an amount that is not less
than the Consolidated Net Worth of the Company immediately prior to such
transaction; and
(5) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that such
consolidation, merger or transfer and such supplemental indenture (if any)
comply with this Indenture.
Nothing contained in this Section 5.01 foregoing shall prohibit any
Wholly Owned Subsidiary from consolidating with, merging with or into, or
transferring all or part of its properties and assets to the Company.
The Successor Company shall be the successor to the Company and shall
succeed to, and be substituted for,
<PAGE>
and may exercise every right and power of, the Company under this Indenture, but
the predecessor Company in the case of a conveyance, transfer or lease shall not
be released from the obligation to pay the principal of and interest on the
Securities.
ARTICLE 6
DEFAULTS AND REMEDIES
SECTION 6.01. EVENTS OF DEFAULT. An "Event of Default" occurs if:
(1) the Company defaults in any payment of inter est on any Security
when the same becomes due and payable, whether or not such payment shall be
prohibited by Article 10, and such default continues for a period of 30
days;
(2) the Company (i) defaults in the payment of the principal of any
Security when the same becomes due and payable at its Stated Maturity, upon
redemption, upon declaration or otherwise, whether or not such payment
shall be prohibited by Article 10 or (ii) fails to purchase Securities when
required pursuant to this Indenture or the Securities, whether or not such
pur chase shall be prohibited by Article 10;
(3) the Company fails to comply with Section 5.01;
(4) the Company fails to comply with Section 4.02, 4.03, 4.04, 4.05,
4.06, 4.07, 4.08, 4.09 or 4.10 (other than a failure to purchase Securities
when required under Section 4.06 or 4.09) and such failure continues for 30
days after the notice specified below;
(5) the Company fails to comply with any of its agreements in the
Securities or this Indenture (other than those referred to in clause (1),
(2), (3) or (4) above) and such failure continues for 60 days after the
notice specified below;
(6) Indebtedness of the Company or any Significant Subsidiary is not
paid within any applicable grace period after final maturity or is
accelerated by the holders thereof because of a default and the total
amount of such Indebtedness unpaid or accelerated
<PAGE>
exceeds $10.0 million or its foreign currency equivalent;
(7) the Company or any Significant Subsidiary pursuant to or within
the meaning of any Bankruptcy Law:
(A) commences a voluntary case;
(B) consents to the entry of an order for relief against it in an
involuntary case;
(C) consents to the appointment of a Custodian of it or for any
substantial part of its property; or
(D) makes a general assignment for the benefit of its creditors;
or takes any comparable action under any foreign laws relating to
insolvency;
(8) a court of competent jurisdiction enters an order or decree under
any Bankruptcy Law that:
(A) is for relief against the Company or any Significant
Subsidiary in an involuntary case;
(B) appoints a Custodian of the Company or any Significant
Subsidiary or for any substantial part of its property; or
(C) orders the winding up or liquidation of the Company or any
Significant Subsidiary;
or any similar relief is granted under any foreign laws and the order or
decree remains unstayed and in effect for 60 days; or
(9) any judgment or decree for the payment of money in excess of $10.0
million or its foreign currency equivalent is entered against the Company
or any Significant Subsidiary, remains outstanding for a period of 60 days
following the entry of such judgment or decree and is not discharged,
waived or the execution thereof stayed within 10 days after the notice
specified below.
<PAGE>
The foregoing shall constitute Events of Default whatever the reason
for any such Event of Default and whether it is voluntary or involuntary or is
effected by operation of law or pursuant to any judgment, decree or order of any
court or any order, rule or regulation of any administrative or governmental
body.
The term "Bankruptcy Law" means Title 11, UNITED STATES CODE, or any
similar Federal or state law for the relief of debtors. The term "Custodian"
means any receiver, trustee, assignee, liquidator, custodian or similar official
under any Bankruptcy Law.
A Default under clauses (4), (5), or (9) is not an Event of Default
until the Trustee or the holders of at least 25% in principal amount of the
outstanding Securities notify the Company of the Default and the Company does
not cure such Default within the time specified after receipt of such notice.
Such notice must specify the Default, demand that it be remedied and state that
such notice is a "Notice of Default."
The Company shall deliver to the Trustee, within 30 days after the
occurrence thereof, written notice in the form of an Officers' Certificate of
any Event of Default under clause (6) and any event which with the giving of
notice or the lapse of time would become an Event of Default under clause (4),
(5) or (9), its status and what action the Company is taking or proposes to take
with respect thereto.
SECTION 6.02. ACCELERATION. If an Event of Default (other than an
Event of Default specified in Section 6.01(7) or (8) with respect to the
Company) occurs and is continuing, the Trustee by notice to the Company, or the
Holders of at least 25% in principal amount of the Securities by notice to the
Company and the Trustee, may declare the principal of and accrued but unpaid
interest on all the Securities to be due and payable. Upon such a declaration,
such principal and interest shall be due and payable immediately. If an Event of
Default specified in Section 6.01(7) or (8) with respect to the Company occurs,
the principal of and interest on all the Securities shall IPSO FACTO become and
be immediately due and payable without any declaration or other act on the part
of the Trustee or any Securityholders. The Holders of a majority in principal
amount of the Securities by notice to the Trustee may rescind an acceleration
and its consequences if the
<PAGE>
rescission would not conflict with any judgment or decree and if all existing
Events of Default have been cured or waived except nonpayment of principal or
interest that has become due solely because of acceleration. No such rescission
shall affect any subsequent Default or impair any right consequent thereto.
SECTION 6.03. OTHER REMEDIES. If an Event of Default occurs and is
continuing, the Trustee may pursue any available remedy to collect the payment
of principal of or interest on the Securities or to enforce the performance of
any provision of the Securities or this Indenture.
The Trustee may maintain a proceeding even if it does not possess any
of the Securities or does not produce any of them in the proceeding. A delay or
omission by the Trustee or any Securityholder in exercising any right or remedy
accruing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of or acquiescence in the Event of Default. No remedy is
exclusive of any other remedy. All available remedies are cumulative.
SECTION 6.04. WAIVER OF PAST DEFAULTS. The Holders of a majority in
principal amount of the Securities by notice to the Trustee may waive an
existing Default and its consequences except (i) a Default in the payment of the
principal of or interest on a Security (ii) a Default arising from the failure
or purchase any Security when required pursuant to this Indenture or (iii) a
Default in respect of a provision that under Section 9.02 cannot be amended
without the consent of each Securityholder affected. When a Default is waived,
it is deemed cured, but no such waiver shall extend to any subsequent or other
Default or impair any consequent right.
SECTION 6.05. CONTROL BY MAJORITY. The Holders of a majority in
principal amount of the Securities may direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee or of
exercising any trust or power conferred on the Trustee. However, the Trustee may
refuse to follow any direction that conflicts with law or this Indenture or,
subject to Section 7.01, that the Trustee determines is unduly prejudicial to
the rights of other Securityholders or would involve the Trustee in personal
liability; PROVIDED, HOWEVER, that the Trustee may take any other action deemed
proper by the Trustee that is not inconsistent with such direction. Prior to
taking any
<PAGE>
action hereunder, the Trustee shall be entitled to indemnification
satisfactory to it in its sole discretion against all losses and expenses caused
by taking or not taking such action.
SECTION 6.06. LIMITATION ON SUITS. Except to enforce the right to
receive payment of principal, premium (if any) or interest when due, no
Securityholder may pursue any remedy with respect to this Indenture or the
Securities unless:
(1) the Holder gives to the Trustee written notice stating that an
Event of Default is continuing;
(2) the Holders of at least 25% in principal amount of the Securities
make a written request to the Trustee to pursue the remedy;
(3) such Holder or Holders offer to the Trustee reasonable security or
indemnity against any loss, liability or expense;
(4) the Trustee does not comply with the request within 60 days after
receipt of the request and the offer of security or indemnity; and
(5) the Holders of a majority in principal amount of the Securities do
not give the Trustee a direction inconsistent with the request during such
60-day period.
A Securityholder may not use this Indenture to prejudice the rights of
another Securityholder or to obtain a preference or priority over another
Securityholder.
SECTION 6.07. RIGHTS OF HOLDERS TO RECEIVE PAYMENT. Notwithstanding
any other provision of this Indenture, the right of any Holder to receive
payment of principal of and interest on the Securities held by such Holder,
on or after the respective due dates expressed in the Securities, or to bring
suit for the enforcement of any such payment on or after such respective
dates, shall not be impaired or affected without the consent of such Holder.
SECTION 6.08. COLLECTION SUIT BY TRUSTEE. If an Event of Default
specified in Section 6.01(1) or (2) occurs and is continuing, the Trustee may
recover judgment in its
<PAGE>
own name and as trustee of an express trust against the Company for the whole
amount then due and owing (together with interest on any unpaid interest to the
extent lawful) and the amounts provided for in Section 7.07.
SECTION 6.09. TRUSTEE MAY FILE PROOFS OF CLAIM. The Trustee may file
such proofs of claim and other papers or documents as may be necessary or
advisable in order to have the claims of the Trustee and the Securityholders
allowed in any judicial proceedings relative to the Company, its creditors or
its property and, unless prohibited by law or applicable regulations, may vote
on behalf of the Holders in any election of a trustee in bankruptcy or other
Person performing similar functions, and any Custodian in any such judicial
proceeding is hereby authorized by each Holder to make payments to the Trustee
and, in the event that the Trustee shall consent to the making of such payments
directly to the Holders, to pay to the Trustee any amount due it for the
compensation, expenses, disbursements and advances of the Trustee, its agents
and its counsel, and any other amounts due the Trustee under Section 7.07.
SECTION 6.10. PRIORITIES. If the Trustee collects any money or
property pursuant to this Article 6, it shall pay out the money or property in
the following order:
FIRST: to the Trustee for amounts due under Section 7.07;
SECOND: to holders of Senior Indebtedness of the Company to the extent
required by Article 10;
THIRD: to Securityholders for amounts due and unpaid on the Securities
for principal and interest, ratably, without preference or priority of any
kind, according to the amounts due and payable on the Securities for
principal and interest, respectively; and
FOURTH: to the Company.
The Trustee may fix a record date and payment date for any payment to
Securityholders pursuant to this Section. At least 15 days before such record
date, the Company shall mail to each Securityholder and the Trustee a notice
that states the record date, the payment date and amount to be paid.
<PAGE>
SECTION 6.11. UNDERTAKING FOR COSTS. In any suit for the
enforcement of any right or remedy under this Indenture or in any suit
against the Trustee for any action taken or omitted by it as Trustee, a court
in its discretion may require the filing by any party litigant in the suit of
an undertaking to pay the costs of the suit, and the court in its discretion
may assess reasonable costs, including reasonable attorneys' fees and
expenses, against any party litigant in the suit, having due regard to the
merits and good faith of the claims or defenses made by the party litigant.
This Section does not apply to a suit by the Trustee, a suit by a Holder
pursuant to Section 6.07 or a suit by Holders of more than 10% in principal
amount of the Securities.
SECTION 6.12. WAIVER OF STAY OR EXTENSION LAWS. The Company (to the
extent it may lawfully do so) shall not at any time insist upon, or plead, or
in any manner whatsoever claim or take the benefit or advantage of, any stay
or extension law wherever enacted, now or at any time hereafter in force,
which may affect the covenants or the performance of this Indenture; and the
Company (to the extent that it may lawfully do so) hereby expressly waives
all benefit or advantage of any such law, and shall not hinder, delay or
impede the execution of any power herein granted to the Trustee, but shall
suffer and permit the execution of every such power as though no such law had
been enacted.
ARTICLE 7
TRUSTEE
SECTION 7.01. DUTIES OF TRUSTEE. (a) If an Event of Default has
occurred and is continuing, the Trustee shall exercise the rights and powers
vested in it by this Indenture and use the same degree of care and skill in
their exercise as a prudent Person would exercise or use under the circumstances
in the conduct of such Person's own affairs.
(b) Except during the continuance of an Event of Default:
(1) the Trustee undertakes to perform such duties and only such duties
as are specifically set forth in this Indenture and no implied covenants or
obligations
<PAGE>
shall be read into this Indenture against the Trustee; and
(2) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness of
the opinions expressed therein, upon certificates or opinions furnished to
the Trustee and conforming to the requirements of this Indenture. However,
in the case of any such certificates or opinions which by any provision
hereof are specifically required to be furnished to the Trustee, the
Trustee shall examine the certificates and opinions to determine whether or
not they conform to the requirements of this Indenture.
(c) The Trustee may not be relieved from liability for its own
negligent action, its own negligent failure to act or its own wilful misconduct,
except that:
(1) this paragraph does not limit the effect of paragraph (b) of this
Section;
(2) the Trustee shall not be liable for any error of judgment made in
good faith by a Trust Officer unless it is proved that the Trustee was
negligent in ascertaining the pertinent facts; and
(3) the Trustee shall not be liable with respect to any action it
takes or omits to take in good faith in accordance with a direction
received by it pursuant to Section 6.05.
(d) Every provision of this Indenture that in any way relates to the
Trustee is subject to paragraphs (a), (b) and (c) of this Section.
(e) The Trustee shall not be liable for interest on any money received
by it except as the Trustee may agree in writing with the Company.
(f) Money held in trust by the Trustee need not be segregated from
other funds except to the extent required by law.
(g) No provision of this Indenture shall require the Trustee to expend
or risk its own funds or otherwise incur financial liability in the performance
of any of its
<PAGE>
duties hereunder or in the exercise of any of its rights or powers.
(h) Every provision of this Indenture relating to the conduct or
affecting the liability of or affording protection to the Trustee shall be
subject to the provisions of this Section and to the provisions of the TIA.
SECTION 7.02. RIGHTS OF TRUSTEE. (a) The Trustee may conclusively rely
on any document believed by it to be genuine and to have been signed or
presented by the proper person. The Trustee need not investigate any fact or
matter stated in the document. But the Trustee, in its reasonable discretion,
may make such further inquiry or investigation into such facts or matters as it
may see fit.
(b) Before the Trustee acts or refrains from acting, it may require
an Officers' Certificate or an Opinion of Counsel. The Trustee shall not be
liable for any action it takes or omits to take in good faith in reliance on
the Officers' Certificate or Opinion of Counsel.
(c) The Trustee may act through agents and shall not be responsible
for the misconduct or negligence of any agent appointed with due care.
(d) The Trustee shall not be liable for any action it takes or omits
to take in good faith which it believes to be authorized or within its rights or
powers; PROVIDED, HOWEVER, that the Trustee's conduct does not constitute wilful
misconduct or negligence.
(e) The Trustee may consult with counsel of its selection, and the
advice or opinion of counsel with respect to legal matters relating to this
Indenture and the Securities shall be full and complete authorization and
protection from liability in respect to any action taken, omitted or suffered by
it hereunder in good faith and in accordance with the advice or opinion of such
counsel.
(f) The Trustee shall not be deemed to have notice of any Default or
Event of Default unless a Trust Officer of the Trustee has actual knowledge
thereof or unless written notice of any event which is in fact such a default is
received by the Trustee at the principal corporate trust office of the Trustee,
and such notice references the Securities and this Indenture.
<PAGE>
(g) The rights, protections, immunities and benefits given to the
Trustee, including its right to be indemnified, are extended to, and shall be
enforceable by, the Trustee in each of its capacities hereunder, and to each
agent, custodian and other Person employed to act hereunder.
SECTION 7.03. INDIVIDUAL RIGHTS OF TRUSTEE. The Trustee in its
individual or any other capacity may become the owner or pledgee of Securities
and may otherwise deal with the Company or its Affiliates with the same rights
it would have if it were not Trustee. Any Paying Agent, Registrar, co-registrar
or co-paying agent may do the same with like rights. However, the Trustee must
comply with Sections 7.10 and 7.11.
SECTION 7.04. TRUSTEE'S DISCLAIMER. The Trustee shall not be
responsible for and makes no representation as to the validity or adequacy of
this Indenture or the Securities, it shall not be accountable for the
Company's use of the proceeds from the Securities, and it shall not be
responsible for any statement of the Company in the Indenture or in any
document issued in connection with the sale of the Securities or in the
Securities other than the Trustee's certificate of authentication.
SECTION 7.05. NOTICE OF DEFAULTS. If a Default occurs and is
continuing and if it is actually known to the Trustee, the Trustee shall mail to
each Securityholder notice of the Default within 90 days after it occurs. Except
in the case of a Default in payment of principal of or interest on any Security
(including payments pursuant to the mandatory redemption provisions of such
Security, if any), the Trustee may withhold the notice if and so long as a
committee of its Trust Officers in good faith determines that withholding the
notice is in the interests of Securityholders.
SECTION 7.06. REPORTS BY TRUSTEE TO HOLDERS. As promptly as
practicable after each January 15 beginning with the January 15 following the
date of the first issuance of Securities under this Indenture, and in any
event prior to March 15 in each year, the Trustee shall mail to each
Securityholder a brief report dated as of January 15 that complies with TIA
ss. 313(a). The Trustee also shall comply with TIA ss. 313(b).
<PAGE>
A copy of each report at the time of its mailing to Securityholders
shall be filed with the SEC and each stock exchange (if any) on which the
Securities are listed. The Company agrees to notify promptly the Trustee
whenever the Securities become listed on any stock exchange and of any delisting
thereof.
SECTION 7.07. COMPENSATION AND INDEMNITY. The Company shall pay to
the Trustee from time to time such compensation as shall be agreed in writing
between the Company and the Trustee for its services. The Trustee's
compensation shall not be limited by any law on compensation of a trustee of
an express trust. The Company shall reimburse the Trustee upon request for
all reasonable out-of-pocket expenses incurred or made by it, including costs
of collection, in addition to the compensation for its services. Such
expenses shall include the reasonable compensation and expenses,
disbursements and advances of the Trustee's agents, counsel, accountants and
experts. The Company shall indemnify the Trustee and any predecessor Trustee
against any and all loss, damage, claim, liability or expense (including
attorneys' fees) incurred by it in connection with the acceptance or
administration of this trust and the performance of its duties hereunder. The
Trustee shall notify the Company promptly of any claim (whether asserted by
the Company, any Holder or any other Person) for which it may seek indemnity.
Failure by the Trustee to so notify the Company shall not relieve the Company
of its obligations hereunder. The Company shall defend the claim and the
Trustee may have separate counsel and the Company shall pay the fees and
expenses of such counsel. The Company need not pay for any settlement made
without its consent, which consent shall not be unreasonably withheld. The
Company need not reimburse any expense or indemnify against any loss,
liability or expense incurred by the Trustee through the Trustee's own wilful
misconduct, negligence or bad faith.
To secure the Company's payment obligations in this Section, the
Trustee shall have a lien prior to the Securities on all money or property held
or collected by the Trustee other than money or property held in trust to pay
principal of and interest on particular Securities.
The Company's payment obligations pursuant to this Section shall
survive the discharge of this Indenture. When the Trustee incurs expenses after
the occurrence of a
<PAGE>
Default specified in Section 6.01(7) or (8) with respect to the Company, the
expenses are intended to constitute expenses of administration under the
Bankruptcy Law.
SECTION 7.08. REPLACEMENT OF TRUSTEE. The Trustee may resign at any
time by so notifying the Company. The Holders of a majority in principal
amount of the Securities may remove the Trustee by so notifying the Trustee
and may appoint a successor Trustee. The Company shall remove the Trustee if:
(1) the Trustee fails to comply with Section 7.10;
(2) the Trustee is adjudged bankrupt or insolvent;
(3) a receiver or other public officer takes charge of the Trustee or
its property; or
(4) the Trustee otherwise becomes incapable of acting.
If the Trustee resigns, is removed by the Company or by the Holders of
a majority in principal amount of the Securities and such Holders do not
reasonably promptly appoint a successor Trustee, or if a vacancy exists in the
office of Trustee for any reason (the Trustee in such event being referred to
herein as the retiring Trustee), the Company shall promptly appoint a successor
Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Thereupon the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have all the rights, powers and duties of the Trustee
under this Indenture. The successor Trustee shall mail a notice of its
succession to Securityholders. The retiring Trustee shall promptly transfer all
property held by it as Trustee to the successor Trustee, subject to the lien
provided for in Section 7.07.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee or the Holders of
10% in principal amount of the Securities may petition, at the expense of the
Company, any court of competent jurisdiction for the appointment of a successor
Trustee.
<PAGE>
If the Trustee fails to comply with Section 7.10, any Securityholder
may petition any court of competent jurisdiction for the removal of the Trustee
and the appointment of a successor Trustee.
Notwithstanding the replacement of the Trustee pursuant to this
Section, the Company's obligations under Section 7.07 shall continue for the
benefit of the retiring Trustee.
SECTION 7.09. SUCCESSOR TRUSTEE BY MERGER. If the Trustee
consolidates with, merges or converts into, or transfers all or substantially
all its corporate trust business or assets to, another corporation or banking
association, the resulting, surviving or transferee corporation without any
further act shall be the successor Trustee.
In case at the time such successor or successors by merger, conversion
or consolidation to the Trustee shall succeed to the trusts created by this
Indenture any of the Securities shall have been authenticated but not delivered,
any such successor to the Trustee may adopt the certificate of authentication of
any predecessor trustee, and deliver such Securities so authenticated; and in
case at that time any of the Securities shall not have been authenticated, any
successor to the Trustee may authenticate such Securities either in the name of
any predecessor hereunder or in the name of the successor to the Trustee; and in
all such cases such certificates shall have the full force which it is anywhere
in the Securities or in this Indenture provided that the certificate of the
Trustee shall have.
SECTION 7.10. ELIGIBILITY; DISQUALIFICATION. The Trustee shall at
all times satisfy the requirements of TIA ss. 310(a). The Trustee shall have
a combined capital and surplus of at least $50.0 million as set forth in its
most recent published annual report of condition. The Trustee shall comply
with TIA ss. 310(b); PROVIDED, HOWEVER, that there shall be excluded from the
operation of TIA ss. 310(b)(1) any indenture or indentures under which other
securities or certificates of interest or participation in other securities
of the Company are outstanding if the requirements for such exclusion set
forth in TIA ss. 310(b)(1) are met.
SECTION 7.11. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY. The
Trustee shall comply with TIA
<PAGE>
ss. 311(a), excluding any creditor relationship listed in TIA ss. 311(b). A
Trustee who has resigned or been removed shalL be subject to TIA ss. 311(a) to
the extent indicated.
ARTICLE 8
DISCHARGE OF INDENTURE; DEFEASANCE
SECTION 8.01. DISCHARGE OF LIABILITY ON SECURITIES; DEFEASANCE. (a)
When (i) the Company delivers to the Trustee all outstanding Securities
(other than Securities replaced pursuant to Section 2.07) for cancellation or
(ii) all outstanding Securities have become due and payable, whether at
maturity or as a result of the mailing of a notice of redemption pursuant to
Article 3 hereof and the Company irrevocably deposits with the Trustee funds
sufficient to pay at maturity or upon redemption all outstanding Securities,
including interest thereon to maturity or such redemption date (other than
Securities replaced pursuant to Section 2.07), and if in either case the
Company pays all other sums payable hereunder by the Company, then this
Indenture shall, subject to Sections 8.01(c), cease to be of further effect.
The Trustee shall acknowledge satisfaction and discharge of this Indenture on
demand of the Company accompanied by an Officers' Certificate and an Opinion
of Counsel and at the cost and expense of the Company.
(b) Subject to Sections 8.01(c) and 8.02, the Company at any time may
terminate (i) all its obligations under the Securities and this Indenture
("legal defeasance option") or (ii) its obligations under Sections 4.02, 4.03,
4.04, 4.05, 4.06, 4.07, 4.08, 4.09 and 4.10 and the operation of Sections
6.01(4), 6.01(6), 6.01(7), 6.01(8) and 6.01(9) (but, in the case of Sections
6.01(7) and (8), with respect only to Significant Subsidiaries) and the
limitations contained in Sections 5.01(3) and (4) ("covenant defeasance
option"). The Company may exercise its legal defeasance option notwithstanding
its prior exercise of its covenant defeasance option.
If the Company exercises its legal defeasance option, payment of the
Securities may not be accelerated because of an Event of Default with respect
thereto. If the Company exercises its covenant defeasance option, payment of the
Securities may not be accelerated because of an Event of Default specified in
Sections 6.01(4), 6.01(6), 6.01(7),
<PAGE>
6.01(8) and 6.01(9) (but, in the case of Sections 6.01(7) and (8), with respect
only to Significant Subsidiaries) or because of the failure of the Company to
comply with Section 5.01(3) or (4).
Upon satisfaction of the conditions set forth herein and upon request
of the Company, the Trustee shall acknowledge in writing the discharge of those
obligations that the Company terminates.
(c) Notwithstanding clauses (a) and (b) above, the Company's
obligations in Sections 2.03, 2.04, 2.05, 2.06, 2.07, 2.08, 7.07 and 7.08 and in
this Article 8 shall survive until the Securities have been paid in full.
Thereafter, the Company's obligations in Sections 7.07, 8.04 and 8.05 shall
survive.
SECTION 8.02. CONDITIONS TO DEFEASANCE. The Company may exercise its
legal defeasance option or its covenant defeasance option only if:
(1) the Company irrevocably deposits in trust with the Trustee money
or U.S. Government Obligations for the payment of principal of and interest
on the Securities to maturity or redemption, as the case may be;
(2) the Company delivers to the Trustee a certificate from a
nationally recognized firm of independent accountants expressing their
opinion that the payments of principal and interest when due and without
reinvestment on the deposited U.S. Government Obligations plus any
deposited money without investment shall provide cash at such times and in
such amounts as shall be sufficient to pay principal and interest when due
on all the Securities to maturity or redemption, as the case may be;
(3) 123 days pass after the deposit is made and during the 123-day
period no Default specified in Sections 6.01(7) or (8) with respect to the
Company occurs which is continuing at the end of the period;
(4) the deposit does not constitute a default under any other
agreement binding on the Company and is not prohibited by Article 10;
<PAGE>
(5) the Company delivers to the Trustee an Opinion of Counsel to the
effect that the trust resulting from the deposit does not constitute, or is
qualified as, a regulated investment company under the Investment Company
Act of 1940;
(6) in the case of the legal defeasance option, the Company shall have
delivered to the Trustee an Opinion of Counsel stating that (i) the Company
has received from, or there has been published by, the Internal Revenue
Service a ruling, or (ii) since the date of this Indenture there has been a
change in the applicable Federal income tax law, in either case to the
effect that, and based thereon such Opinion of Counsel shall confirm that,
the Securityholders shall not recognize income, gain or loss for Federal
income tax purposes as a result of such defeasance and shall be subject to
Federal income tax on the same amounts, in the same manner and at the same
times as would have been the case if such defeasance had not occurred;
(7) in the case of the covenant defeasance option, the Company shall
have delivered to the Trustee an Opinion of Counsel to the effect that the
Securityholders shall not recognize income, gain or loss for Federal
income tax purposes as a result of such covenant defeasance and shall be
subject to Federal income tax on the same amounts, in the same manner and
at the same times as would have been the case if such covenant defeasance
had not occurred; and
(8) the Company delivers to the Trustee an Officers' Certificate and
an Opinion of Counsel, each stating that all conditions precedent to the
defeasance and discharge of the Securities as contemplated by this Article
8 have been complied with.
Before or after a deposit, the Company may make arrangements
satisfactory to the Trustee for the redemption of Securities at a future date in
accordance with Article 3.
SECTION 8.03. APPLICATION OF TRUST MONEY. The Trustee shall hold in
trust money or U.S. Government Obligations deposited with it pursuant to this
Article 8. It shall apply the deposited money and the money from U.S. Government
Obligations through the Paying Agent and in accordance with this Indenture to
the payment of principal
<PAGE>
of and interest on the Securities. Money and securities so held in trust are not
subject to Article 10.
SECTION 8.04. REPAYMENT TO COMPANY. The Trustee and the Paying Agent
shall promptly turn over to the Company upon written request any excess money or
securities held by them at any time.
Subject to any applicable abandoned property law, the Trustee and the
Paying Agent shall pay to the Company upon written request any money held by
them for the payment of principal or interest that remains unclaimed for two
years, and, thereafter, Securityholders entitled to the money must look to the
Company for payment as general creditors.
SECTION 8.05. INDEMNITY FOR GOVERNMENT OBLIGATIONS. The Company shall
pay and shall indemnify the Trustee against any tax, fee or other charge imposed
on or assessed against deposited U.S. Government Obligations or the principal
and interest received on such U.S. Government Obligations.
SECTION 8.06. REINSTATEMENT. If the Trustee or Paying Agent is unable
to apply any money or U.S. Government Obligations in accordance with this
Article 8 by reason of any legal proceeding or by reason of any order or
judgment of any court or governmental authority enjoining, restraining or
otherwise prohibiting such application, the Company's obligations under this
Indenture and the Securities shall be revived and reinstated as though no
deposit had occurred pursuant to this Article 8 until such time as the Trustee
or Paying Agent is permitted to apply all such money or U.S. Government
Obligations in accordance with this Article 8; PROVIDED, HOWEVER, that, if the
Company has made any payment of interest on or principal of any Securities
because of the reinstatement of its obligations, the Company shall be subrogated
to the rights of the Holders of such Securities to receive such payment from the
money or U.S. Government Obligations held by the Trustee or Paying Agent.
<PAGE>
ARTICLE 9
AMENDMENTS AND WAIVERS
SECTION 9.01. WITHOUT CONSENT OF HOLDERS. The Company and the Trustee
may amend this Indenture or the Securities without notice to or consent of any
Securityholder:
(1) to cure any ambiguity, omission, defect or inconsistency;
(2) to comply with Article 5;
(3) to provide for uncertificated Securities in addition to or in
place of certificated Securities; PROVIDED, HOWEVER, that the
uncertificated Securities are issued in registered form for purposes of
Section 163(f) of the Code or in a manner such that the uncertificated
Securities are described in Section 163(f)(2)(B) of the Code;
(4) to make any change in Article 10 that would limit or terminate the
benefits available to any holder of Senior Indebtedness (or Representatives
therefor) under Article 10;
(5) to add guarantees with respect to the Securities, or to secure
the Securities;
(6) to add to the covenants of the Company for the benefit of the
Holders or to surrender any right or power herein conferred upon the
Company;
(7) to comply with any requirements of the SEC in connection with
qualifying, or maintaining the qualification of, this Indenture under the
TIA; or
(8) to make any change that does not adversely affect the rights of
any Securityholder.
An amendment under this Section may not make any change that adversely
affects the rights under Article 10 of any holder of Senior Indebtedness then
outstanding unless the holders of such Senior Indebtedness (or any group or
representative thereof authorized to give a consent) consent to such change.
<PAGE>
After an amendment under this Section becomes effective, the Company
shall mail to Securityholders a notice briefly describing such amendment. The
failure to give such notice to all Securityholders, or any defect therein, shall
not impair or affect the validity of an amendment under this Section.
SECTION 9.02. WITH CONSENT OF HOLDERS. The Company and the Trustee may
amend this Indenture or the Securities without notice to any Securityholder but
with the written consent of the Holders of at least a majority in principal
amount of the Securities then outstanding (including consents obtained in
connection with a tender offer or exchange for the Securities). However, without
the consent of 80% or more in principal amount of the Securities then
outstanding, the Company may not (with respect to any Securities held by a
non-consenting Securityholder) make any change to Article 10 (or the defined
terms used therein) that would adversely affect the Securityholders. In
addition, without the consent of each Securityholder affected thereby, an
amendment or waiver may not:
(1) reduce the amount of Securities whose Holders must consent to an
amendment;
(2) reduce the rate of or extend the time for payment of interest on
any Security;
(3) reduce the principal of or extend the Stated Maturity of any
Security;
(4) reduce the premium payable upon the redemption of any Security or
change the time at which any Security may be redeemed in accordance with
Article 3;
(5) make any Security payable in money other than that stated in the
Security; or
(6) make any change in Section 6.04 or 6.07 or the second sentence of
this Section.
It shall not be necessary for the consent of the Holders under this
Section to approve the particular form of any proposed amendment, but it shall
be sufficient if such consent approves the substance thereof.
<PAGE>
An amendment under this Section may not make any change that adversely
affects the rights under Article 10 of any holder of Senior Indebtedness then
outstanding unless the holders of such Senior Indebtedness (or any group or
representative thereof authorized to give a consent) consent to such change.
After an amendment under this Section becomes effective, the Company
shall mail to Securityholders a notice briefly describing such amendment. The
failure to give such notice to all Securityholders, or any defect therein, shall
not impair or affect the validity of an amendment under this Section.
SECTION 9.03. COMPLIANCE WITH TRUST INDENTURE ACT. Every amendment to
this Indenture or the Securities shall comply with the TIA as then in effect.
SECTION 9.04. REVOCATION AND EFFECT OF CONSENTS AND WAIVERS. A consent
to an amendment or a waiver by a Holder of a Security shall bind the Holder and
every subsequent Holder of that Security or portion of the Security that
evidences the same debt as the consenting Holder's Security, even if notation of
the consent or waiver is not made on the Security. However, any such Holder or
subsequent Holder may revoke the consent or waiver as to such Holder's Security
or portion of the Security if the Trustee receives the notice of revocation
before the date the amendment or waiver becomes effective. After an amendment or
waiver becomes effective, it shall bind every Securityholder. An amendment or
waiver becomes effective upon the execution of such amendment or waiver by the
Trustee.
The Company may, but shall not be obligated to, fix a record date for
the purpose of determining the Securityholders entitled to give their consent or
take any other action described above or required or permitted to be taken
pursuant to this Indenture. If a record date is fixed, then notwithstanding the
immediately preceding paragraph, those Persons who were Securityholders at such
record date (or their duly designated proxies), and only those Persons, shall be
entitled to give such consent or to revoke any consent previously given or to
take any such action, whether or not such Persons continue to be Holders after
such record date. No such consent shall be valid or effective for more than 120
days after such record date.
<PAGE>
SECTION 9.05. NOTATION ON OR EXCHANGE OF SECURITIES. If an amendment
changes the terms of a Security, the Trustee may require the Holder of the
Security to deliver it to the Trustee. The Trustee may place an appropriate
notation on the Security regarding the changed terms and return it to the
Holder. Alternatively, if the Company or the Trustee so determines, the Company
in exchange for the Security shall issue and the Trustee shall authenticate a
new Security that reflects the changed terms. Failure to make the appropriate
notation or to issue a new Security shall not affect the validity of such
amendment.
SECTION 9.06. TRUSTEE TO SIGN AMENDMENTS. The Trustee shall sign any
amendment authorized pursuant to this Article 9 if the amendment does not
adversely affect the rights, duties, liabilities or immunities of the Trustee.
If it does, the Trustee may but need not sign it. In signing such amendment the
Trustee shall receive indemnity reasonably satisfactory to it, and (subject to
Section 7.01) shall be fully protected in relying upon, an Officers' Certificate
and an Opinion of Counsel stating that such amendment is authorized or permitted
by this Indenture.
SECTION 9.07. PAYMENT FOR CONSENT. Neither the Company nor any
Affiliate of the Company shall, directly or indirectly, pay or cause to be paid
any consideration, whether by way of interest, fee or otherwise, to any Holder
for or as an inducement to any consent, waiver or amendment of any of the terms
or provisions of this Indenture or the Securities unless such consideration is
offered to be paid to all Holders that so consent, waive or agree to amend in
the time frame set forth in solicitation documents relating to such consent,
waiver or agreement.
ARTICLE 10
SUBORDINATION
SECTION 10.01. AGREEMENT TO SUBORDINATE. The Company agrees, and each
Securityholder by accepting a Security agrees, that the Indebtedness evidenced
by the Securities is subordinated in right of payment, to the extent and in the
manner provided in this Article 10, to the prior payment of all Senior
Indebtedness and that the subordination is for the benefit of and enforceable by
the holders of such Senior Indebtedness. The Securities shall
<PAGE>
in all respects rank PARI PASSU with all other Senior Subordinated Indebtedness
of the Company and only Indebtedness which is Senior Indebtedness shall rank
senior to the Securities in accordance with the provisions set forth herein. All
provisions of this Article 10 shall be subject to Section 10.12.
SECTION 10.02. LIQUIDATION, DISSOLUTION, BANKRUPTCY. Upon any payment
or distribution of the assets of the Company to creditors upon a total or
partial liquidation or a total or partial dissolution of the Company or in a
bankruptcy, reorganization, insolvency, receivership or similar proceeding
relating to the Company or its property:
(1) holders of Senior Indebtedness shall be entitled to receive
payment in full of such Senior Indebtedness before Securityholders shall be
entitled to receive any payment of principal of or interest on the
Securities; and
(2) until such Senior Indebtedness is paid in full, any payment or
distribution to which Securityholders would be entitled but for this
Article 10 shall be made to holders of such Senior Indebtedness as their
interests may appear, except that Securityholders may receive shares of
stock and any debt securities that are subordinated to such Senior
Indebtedness to at least the same extent as the Securities.
SECTION 10.03. DEFAULT ON SENIOR INDEBTEDNESS. The Company may not pay
the principal of or interest on the Securities or make any deposit pursuant to
Section 8.01 and may not repurchase, redeem or otherwise retire any Securities
(collectively, "pay the Securities") if (1) any Designated Senior Indebtedness
is not paid when due or (2) any other default on Designated Senior Indebtedness
occurs and the maturity of such Designated Senior Indebtedness is accelerated in
accordance with its terms unless, in either case, (x) the default has been cured
or waived and any such acceleration has been rescinded or (y) such Designated
Senior Indebtedness has been paid in full; PROVIDED, HOWEVER, that the Company
may pay the Securities without regard to the foregoing if the Company and the
Trustee receive written notice approving such payment from the Representative of
such Designated Senior Indebtedness. During the continuance of any default
(other than a default
<PAGE>
described in clause (1) or (2) of the preceding sentence) with respect to any
Designated Senior Indebtedness pursuant to which the maturity thereof may be
accelerated immediately without further notice (except such notice as may be
required to effect such acceleration) or the expiration of any applicable grace
periods, the Company may not pay the Securities for a period (a "Payment
Blockage Period") commencing upon the receipt by the Company and the Trustee of
written notice (a "Blockage Notice") of such default from the Representative of
such Designated Senior Indebtedness specifying an election to effect a Payment
Blockage Period and ending 179 days thereafter (or earlier if such Payment
Blockage Period is terminated (1) by written notice to the Trustee and the
Company from the Person or Persons who gave such Blockage Notice, (2) because
the default giving rise to such Blockage Notice is cured, waived or otherwise no
longer continuing) or (3) because such Designated Senior Indebtedness has been
repaid in full. Notwithstanding the provisions described in the immediately
preceding sentence (but subject to the provisions contained in the first
sentence of this Section), unless the holders of such Designated Senior
Indebtedness or the Representative of such holders shall have accelerated the
maturity of such Designated Senior Indebtedness, the Company may resume payments
on the Securities after termination of such Payment Blockage Period. Not more
than one Blockage Notice may be given in any consecutive 360-day period,
irrespective of the number of defaults with respect to Designated Senior
Indebtedness during such period; PROVIDED, HOWEVER, that if any Blockage Notice
within such 360-day period is given by or on behalf of any holders of Designated
Senior Indebtedness (other than the Bank Indebtedness), the Representative of
the Bank Indebtedness may give another Blockage Notice within such period;
PROVIDED FURTHER, HOWEVER, that in no event may the total number of days during
which any Payment Blockage Period or Periods is in effect exceed 179 days in the
aggregate during any 360-consecutive-day period. For purposes of this Section,
no default or event of default which existed or was continuing on the date of
the commencement of any Payment Blockage Period with respect to the Designated
Senior Indebtedness initiating such Payment Blockage Period shall be, or be
made, the basis of the commencement of a subsequent Payment Blockage Period by
the Representative of such Designated Senior Indebtedness, whether or not within
a period of 360 consecutive days, unless such default or event of
<PAGE>
default shall have been cured or waived for a period of not less than 90
consecutive days.
SECTION 10.04. ACCELERATION OF PAYMENT OF SECURITIES. If payment of
the Securities is accelerated because of an Event of Default, the Company or the
Trustee shall promptly notify the holders of the Designated Senior Indebtedness
(or their Representatives) of the acceleration. The Trustee shall give notice of
such acceleration, of which it has actual knowledge, to all holders of
Designated Senior Indebtedness.
SECTION 10.05. WHEN DISTRIBUTION MUST BE PAID OVER. If a distribution
is made to Securityholders that because of this Article 10 should not have been
made to them, the Securityholders who receive the distribution shall hold it in
trust for holders of Senior Indebtedness and pay it over to them as their
interests may appear. With respect to the holders of Senior Indebtedness, the
Trustee undertakes to perform or to observe only such of its covenants or
obligations as are specifically set forth in this Article 10 and no implied
covenants or obligations with respect to holders of Senior Indebtedness shall be
read into this Indenture against the Trustee.
SECTION 10.06. SUBROGATION. After all Senior Indebtedness is paid in
full and until the Securities are paid in full, Securityholders shall be
subrogated to the rights of holders of such Senior Indebtedness to receive
distributions applicable to such Senior Indebtedness. A distribution made under
this Article 10 to holders of such Senior Indebtedness which otherwise would
have been made to Securityholders is not, as between the Company and
Securityholders, a payment by the Company on such Senior Indebtedness.
SECTION 10.07. RELATIVE RIGHTS. This Article 10 defines the relative
rights of Securityholders and holders of Senior Indebtedness. Nothing in this
Indenture shall:
(1) impair, as between the Company and Securityholders, the
obligation of the Company, which is absolute and unconditional, to pay
principal of and interest on the Securities in accordance with their terms;
or
<PAGE>
(2) prevent the Trustee or any Securityholder from exercising its
available remedies upon a Default, subject to the rights of holders of
Senior Indebtedness to receive distributions otherwise payable to
Securityholders.
SECTION 10.08. SUBORDINATION MAY NOT BE IMPAIRED BY COMPANY. No right
of any holder of Senior Indebtedness to enforce the subordination of the
Indebtedness evidenced by the Securities shall be impaired by any act or failure
to act by the Company or by its failure to comply with this Indenture.
SECTION 10.09. RIGHTS OF TRUSTEE AND PAYING AGENT. Notwithstanding
Section 10.03, the Trustee or Paying Agent may continue to make payments on the
Securities and shall not be charged with knowledge of the existence of facts
that would prohibit the making of any such payments unless, not less than two
Business Days prior to the date of such payment, a Trust Officer of the Trustee
receives notice satisfactory to it that payments may not be made under this
Article 10. The Company, the Registrar or co-registrar, the Paying Agent, a
Representative or a holder of Senior Indebtedness may give the notice; PROVIDED,
HOWEVER, that, if an issue of Senior Indebtedness has a Representative, only the
Representative may give the notice.
The Trustee in its individual or any other capacity may hold Senior
Indebtedness with the same rights it would have if it were not Trustee. The
Registrar and co-registrar and the Paying Agent may do the same with like
rights. The Trustee shall be entitled to all the rights set forth in this
Article 10 with respect to any Senior Indebtedness which may at any time be held
by it, to the same extent as any other holder of such Senior Indebtedness; and
nothing in Article 7 shall deprive the Trustee of any of its rights as such
holder. Nothing in this Article 10 shall apply to claims of, or payments to, the
Trustee under or pursuant to Section 7.07.
SECTION 10.10. DISTRIBUTION OR NOTICE TO REPRESENTATIVE. Whenever a
distribution is to be made or a notice given to holders of Senior Indebtedness,
the distribution may be made and the notice given to their Representative (if
any).
<PAGE>
SECTION 10.11. ARTICLE 10 NOT TO PREVENT EVENTS OF DEFAULT OR LIMIT
RIGHT TO ACCELERATE. The failure to make a payment pursuant to the Securities by
reason of any provision in this Article 10 shall not be construed as preventing
the occurrence of a Default. Nothing in this Article 10 shall have any effect on
the right of the Securityholders or the Trustee to accelerate the maturity of
the Securities.
SECTION 10.12. TRUST MONEYS NOT SUBORDINATED. Notwithstanding anything
contained herein to the contrary, payments from money or the proceeds of U.S.
Government Obligations held in trust under Article 8 by the Trustee for the
payment of principal of and interest on the Securities shall not be subordinated
to the prior payment of any Senior Indebtedness or subject to the restrictions
set forth in this Article 10, and none of the Securityholders shall be obligated
to pay over any such amount to the Company or any holder of Senior Indebtedness
or any other creditor of the Company.
SECTION 10.13. TRUSTEE ENTITLED TO RELY. Upon any payment or
distribution pursuant to this Article 10, the Trustee and the Securityholders
shall be entitled to rely (1) upon any order or decree of a court of competent
jurisdiction in which any proceedings of the nature referred to in Section
10.02 are pending, (2) upon a certificate of the liquidating trustee or agent or
other Person making such payment or distribution to the Trustee or to the
Securityholders or (3) upon the Representatives for the holders of Senior
Indebtedness for the purpose of ascertaining the Persons entitled to participate
in such payment or distribution, the holders of such Senior Indebtedness and
other Indebtedness of the Company, the amount thereof or payable thereon, the
amount or amounts paid or distributed thereon and all other facts pertinent
thereto or to this Article 10. In the event that the Trustee determines, in good
faith, that evidence is required with respect to the right of any Person as a
holder of Senior Indebtedness to participate in any payment or distribution
pursuant to this Article 10, the Trustee may request such Person to furnish
evidence to the satisfaction of the Trustee as to the amount of such Senior
Indebtedness held by such Person, the extent to which such Person is entitled to
participate in such payment or distribution and other facts pertinent to the
rights of such Person under this Article 10, and, if such evidence is not
furnished, the Trustee may defer any payment
<PAGE>
to such Person pending judicial determination as to the right of such Person to
receive such payment. The provisions of Sections 7.01 and 7.02 shall be
applicable to all actions or omissions of actions by the Trustee pursuant to
this Article 10.
SECTION 10.14. TRUSTEE TO EFFECTUATE SUBORDINATION. Each
Securityholder by accepting a Security authorizes and directs the Trustee on
his behalf to take such action as may be necessary or appropriate to acknowledge
or effectuate the subordination between the Securityholders and the holders of
Senior Indebtedness as provided in this Article 10 and appoints the Trustee as
attorney-in-fact for any and all such purposes.
SECTION 10.15. TRUSTEE NOT FIDUCIARY FOR HOLDERS OF SENIOR
INDEBTEDNESS. The Trustee shall not be deemed to owe any fiduciary duty to the
holders of Senior Indebtedness and shall not be liable to any such holders if it
shall mistakenly pay over or distribute to Securityholders or the Company or any
other Person, money or assets to which any holders of Senior Indebtedness shall
be entitled by virtue of this Article 10 or otherwise.
SECTION 10.16. RELIANCE BY HOLDERS OF SENIOR INDEBTEDNESS ON
SUBORDINATION PROVISIONS. Each Securityholder by accepting a Security
acknowledges and agrees that the foregoing subordination provisions are, and are
intended to be, an inducement and a consideration to each holder of any Senior
Indebtedness whether such Senior Indebtedness was created or acquired before or
after the issuance of the Securities, to acquire and continue to hold, or to
continue to hold, such Senior Indebtedness and such holder of such Senior
Indebtedness shall be deemed conclusively to have relied on such subordination
provisions in acquiring and continuing to hold, or in continuing to hold, such
Senior Indebtedness.
ARTICLE 11
MISCELLANEOUS
SECTION 11.01. TRUST INDENTURE ACT CONTROLS. If any provision of this
Indenture limits, qualifies or conflicts with another provision which is
required to be
<PAGE>
included in this Indenture by the TIA, the required provision shall control.
SECTION 11.02. NOTICES. Any notice or communication shall be in
writing and delivered in person or mailed by first-class mail addressed as
follows:
if to the Company:
Hexcel Corporation
Two Stamford Plaza
281 Tresser Blvd.
Stamford, Connecticut 06901
Attention: General Counsel
if to the Trustee:
The Bank of New York
101 Barclay Street
New York, NY 10286
Attention: Corporate Trust Trustee Administration
The Company or the Trustee by notice to the other may designate
additional or different addresses for subsequent notices or communications.
Any notice or communication mailed to a Securityholder shall be
mailed to the Securityholder at the Securityholder's address as it appears on
the registration books of the Registrar and shall be sufficiently given if so
mailed within the time prescribed.
Failure to mail a notice or communication to a Securityholder or any
defect in it shall not affect its sufficiency with respect to other
Securityholders. If a notice or communication is mailed in the manner provided
above, it is duly given, whether or not the addressee receives it.
SECTION 11.03. COMMUNICATION BY HOLDERS WITH OTHER HOLDERS.
Securityholders may communicate pursuant to TIA ss. 312(b) with other
Securityholders with respect to their rights under this Indenture or the
Securities. The Company, the Trustee, the Registrar and anyone else shall have
the protection of TIA ss. 312(c).
<PAGE>
SECTION 11.04. CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT.
Upon any request or application by the Company to the Trustee to take or refrain
from taking any action under this Indenture, the Company shall furnish to the
Trustee:
(1) an Officers' Certificate in form and substance reasonably
satisfactory to the Trustee stating that, in the opinion of the signers,
all conditions precedent, if any, provided for in this Indenture relating
to the proposed action have been complied with; and
(2) an Opinion of Counsel in form and substance reasonably
satisfactory to the Trustee stating that, in the opinion of such counsel,
all such conditions precedent have been complied with.
SECTION 11.05. STATEMENTS REQUIRED IN CERTIFICATE OR OPINION. Each
certificate or opinion with respect to compliance with a covenant or condition
provided for in this Indenture shall include:
(1) a statement that the individual making such certificate or opinion
has read such covenant or condition;
(2) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(3) a statement that, in the opinion of such individual, he has made
such examination or investigation as is necessary to enable him to express
an informed opinion as to whether or not such covenant or condition has
been complied with; and
(4) a statement as to whether or not, in the opinion of such
individual, such covenant or condition has been complied with.
SECTION 11.06. WHEN SECURITIES DISREGARDED. In determining whether the
Holders of the required principal amount of Securities have concurred in any
direction, waiver or consent, Securities owned by the Company or by any Person
directly or indirectly controlling or controlled by or under direct or indirect
common control with the Company shall be
<PAGE>
disregarded and deemed not to be outstanding, except that, for the purpose of
determining whether the Trustee shall be protected in relying on any such
direction, waiver or consent, only Securities which the Trustee knows are so
owned shall be so disregarded. Also, subject to the foregoing, only Securities
outstanding at the time shall be considered in any such determination.
SECTION 11.07. RULES BY TRUSTEE, PAYING AGENT AND REGISTRAR. The
Trustee may make reasonable rules for action by or a meeting of Securityholders.
The Registrar and the Paying Agent may make reasonable rules for their
functions.
SECTION 11.08. LEGAL HOLIDAYS. A "Legal Holiday" is a Saturday, a
Sunday or a day on which banking institutions are not required to be open in
the State of New York. If a payment date is a Legal Holiday, payment shall be
made on the next succeeding day that is not a Legal Holiday, and no interest
shall accrue for the intervening period. If a regular record date is a Legal
Holiday, the record date shall not be affected.
SECTION 11.09. GOVERNING LAW. This Indenture and the Securities shall
be governed by, and construed in accordance with, the laws of the State of New
York but without giving effect to applicable principles of conflicts of law to
the extent that the application of the laws of another jurisdiction would be
required thereby.
SECTION 11.10. NO RECOURSE AGAINST OTHERS. A director, officer,
employee or stockholder, as such, of the Company shall not have any liability
for any obligations of the Company under the Securities or this Indenture or for
any claim based on, in respect of or by reason of such obligations or their
creation. By accepting a Security, each Securityholder shall waive and release
all such liability. The waiver and release shall be part of the consideration
for the issue of the Securities.
SECTION 11.11. SUCCESSORS. All agreements of the Company in this
Indenture and the Securities shall bind its successors. All agreements of the
Trustee in this Indenture shall bind its successors.
SECTION 11.12. MULTIPLE ORIGINALS. The parties may sign any number of
copies of this Indenture. Each signed copy shall be an original, but all of them
together
<PAGE>
represent the same agreement. One signed copy is enough to prove this
Indenture.
SECTION 11.13. TABLE OF CONTENTS; HEADINGS. The table of contents,
cross-reference sheet and headings of the Articles and Sections of this
Indenture have been inserted for convenience of reference only, are not intended
to be considered a part hereof and shall not modify or restrict any of the terms
or provisions hereof.
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Indenture to be duly
executed as of the date first written above.
HEXCEL CORPORATION,
by /s/ Bruce D. Herman
-------------------------------
Name: Bruce D. Herman
Title: Treasurer
THE BANK OF NEW YORK,
as Trustee
by /s/ Mary Beth Lewicki
-------------------------------
Name: Mary Beth Lewicki
Title: Assistant Vice President
<PAGE>
RULE 144A/REGULATION S APPENDIX
FOR OFFERINGS TO QUALIFIED INSTITUTIONAL BUYERS PURSUANT
TO RULE 144A AND TO CERTAIN PERSONS IN OFFSHORE
TRANSACTIONS IN RELIANCE ON REGULATION S.
PROVISIONS RELATING TO INITIAL SECURITIES,
EXCHANGE SECURITIES AND PRIVATE EXCHANGE SECURITIES
1. DEFINITIONS
1.1 DEFINITIONS
For the purposes of this Appendix the following terms shall have the
meanings indicated below:
"Depository" means The Depository Trust Company, its nominees and
their respective successors.
"Exchange Securities" means (i) the 9-3/4% Senior Subordinated Notes
Due 2009 issued pursuant to the Indenture in connection with a Registered
Exchange Offer pursuant to a Registration Rights Agreement and (ii) Additional
Securities, if any, issued pursuant to a registration statement filed with the
SEC under the Securities Act.
"Initial Purchasers" means (i) with respect to the Initial Securities
issued on the Issue Date, Credit Suisse First Boston Corporation and Salomon
Smith Barney Inc. and (ii) with respect to each issuance of Additional
Securities, the Persons purchasing such Additional Securities under the related
Purchase Agreement.
"Initial Securities" means (i) $240,000,000 9-3/4% Senior Subordinated
Notes Due 2009 issued on the Issue Date and (ii) Additional Securities, if any,
issued in a transaction exempt from the registration requirements of the
Securities Act.
"Private Exchange" means the offer by the Company, pursuant to a
Registration Rights Agreement, to the Initial Purchasers to issue and deliver to
each Initial Purchaser, in exchange for the Initial Securities held by the
Initial Purchaser as part of its initial distribution, a like aggregate
principal amount of Private Exchange Securities.
"Private Exchange Securities" means any 9-3/4% Senior Subordinated
Notes Due 2009 issued in connection with a Private Exchange.
<PAGE>
"Purchase Agreement" means (i) with respect to the Initial Securities
issued on the Issue Date, the Purchase Agreement dated January 15, 1999, among
the Company and the Initial Purchasers, and (ii) with respect to each issuance
of Additional Securities, the purchase agreement or underwriting agreement among
the Company and the Persons purchasing such Additional Securities.
"QIB" means a "qualified institutional buyer" as defined in Rule 144A.
"Registered Exchange Offer" means the offer by the Company, pursuant
to a Registration Rights Agreement, to certain Holders of Initial Securities, to
issue and deliver to such Holders, in exchange for the Initial Securities, a
like aggregate principal amount of Exchange Securities registered under the
Securities Act.
"Registration Rights Agreement" means (i) with respect to the Initial
Securities issued on the Issue Date, the Registration Rights Agreement dated
January 21, 1999, among the Company and the Initial Purchasers, and (ii) with
respect to each issuance of Additional Securities issued in a transaction exempt
from the registration requirements of the Securities Act, the registration
rights agreement, if any, among the Company and the Persons purchasing such
Additional Securities under the related Purchase Agreement.
"Securities" means the Initial Securities, the Exchange Securities and
the Private Exchange Securities, treated as a single class.
"Securities Act" means the Securities Act of 1933.
"Securities Custodian" means the custodian with respect to a Global
Security (as appointed by the Depository), or any successor person thereto and
shall initially be the Trustee.
"Shelf Registration Statement" means the registration statement issued
by the Company, in connection with the offer and sale of Initial Securities or
Private Exchange Securities, pursuant to the Registration Rights Agreement.
"Transfer Restricted Securities" means Securities that bear or are
required to bear the legend set forth in Section 2.3(b) hereto.
<PAGE>
1.2 OTHER DEFINITIONS
<TABLE>
<CAPTION>
DEFINED IN
TERM SECTION:
---- ----------
<S> <C>
"Agent Members".....................................................2.1(b)
"Global Security"...................................................2.1(a)
"Regulation S"......................................................2.1(a)
"Rule 144A".........................................................2.1(a)
</TABLE>
2. THE SECURITIES.
2.1 FORM AND DATING.
The Initial Securities are being offered and sold by the Company
pursuant to the Purchase Agreement.
(a) GLOBAL SECURITIES. Initial Securities offered and sold to a QIB in
reliance on Rule 144A under the Securities Act ("Rule 144A") or in reliance on
Regulation S under the Securities Act ("Regulation S"), in each case as provided
in the Purchase Agreement, shall be issued initially in the form of one or more
permanent global Securities in definitive, fully registered form without
interest coupons with the global securities legend and restricted securities
legend set forth in Exhibit 1 hereto (each, a "Global Security"), which shall be
deposited on behalf of the purchasers of the Initial Securities represented
thereby with the Trustee, at its New York office, as custodian for the
Depository (or with such other custodian as the Depository may direct), and
registered in the name of the Depository or a nominee of the Depository, duly
executed by the Company and authenticated by the Trustee as hereinafter
provided. The aggregate principal amount of the Global Securities may from time
to time be increased or decreased by adjustments made on the records of the
Trustee and the Depository or its nominee as hereinafter provided.
(b) BOOK-ENTRY PROVISIONS. This Section 2.1(b) shall apply only to a
Global Security deposited with or on behalf of the Depository.
The Company shall execute and the Trustee shall, in accordance with
this Section 2.1(b), authenticate and deliver initially one or more Global
Securities that (a) shall be registered in the name of the Depository for such
Global Security or Global Securities or the nominee of such Depository and (b)
shall be delivered by the Trustee to such
<PAGE>
Depository or pursuant to such Depository's instructions or held by the Trustee
as custodian for the Depository.
Members of, or participants in, the Depository ("Agent Members") shall
have no rights under the Indenture with respect to any Global Security held on
their behalf by the Depository or by the Trustee as the custodian of the
Depository or under such Global Security, and the Depository may be treated by
the Company, the Trustee and any agent of the Company or the Trustee as the
absolute owner of such Global Security for all purposes whatsoever.
Notwithstanding the foregoing, nothing herein shall prevent the Company, the
Trustee or any agent of the Company or the Trustee from giving effect to any
written certification, proxy or other authorization furnished by the Depository
or impair, as between the Depository and its Agent Members, the operation of
customary practices of such Depository governing the exercise of the rights of a
holder of a beneficial interest in any Global Security.
(c) CERTIFICATED SECURITIES. Except as provided in this Section 2.1 or
Section 2.3 or 2.4, owners of beneficial interests in Global Securities will not
be entitled to receive physical delivery of certificated Securities.
2.2 AUTHENTICATION. The Trustee shall authenticate and deliver: (1) On the
Issue Date, $240.0 million 9-3/4% Senior Subordinated Notes Due 2009, (2) any
Additional Securities for an original issue in an aggregate principal amount
specified in the written order of the Company pursuant to Section 2.02 of the
Indenture and (3) Exchange Securities or Private Exchange Securities in exchange
therefor for issue only in a Registered Exchange Offer or a Private Exchange,
respectively, for a like principal amount, in each case upon a written order of
the Company signed by two Officers or by an Officer and either an Assistant
Treasurer or an Assistant Secretary of the Company. Such order shall specify the
amount of the Securities to be authenticated and the date on which the original
issue of Securities is to be authenticated and, in the case of an issuance of
Additional Securities pursuant to Section 2.13 of the Indenture, shall certify
that such issuance is in compliance with Section 4.03 of the Indenture.
2.3 TRANSFER AND EXCHANGE. (a) TRANSFER AND EXCHANGE OF GLOBAL SECURITIES.
(i) The transfer and exchange of Global Securities or beneficial interests
therein shall be effected through the Depository, in accordance with this
Indenture (including applicable restrictions on transfer set
<PAGE>
forth herein, if any) and the procedures of the Depository therefor. A
transferor of a beneficial interest in a Global Security shall deliver to the
Registrar a written order given in accordance with the Depositary's procedures
containing information regarding the participant account of the Depositary to be
credited with a beneficial interest in the Global Security. The Registrar shall,
in accordance with such instructions instruct the Depositary to credit to the
account of the Person specified in such instructions a beneficial interest in
the Global Security and to debit the account of the Person making the transfer
the beneficial interest in the Global Security being transferred.
(ii) Notwithstanding any other provisions of this Appendix (other than
the provisions set forth in Section 2.4), a Global Security may not be
transferred as a whole except by the Depository to a nominee of the
Depository or by a nominee of the Depository to the Depository or another
nominee of the Depository or by the Depository or any such nominee to a
successor Depository or a nominee of such successor Depository.
(iii) In the event that a Global Security is exchanged for Securities
in definitive registered form pursuant to Section 2.4 or Section 2.09 of
the Indenture, prior to the consummation of a Registered Exchange Offer or
the effectiveness of a Shelf Registration Statement with respect to such
Securities, such Securities may be exchanged only in accordance with such
procedures as are substantially consistent with the provisions of this
Section 2.3 (including the certification requirements set forth on the
reverse of the Initial Securities intended to ensure that such transfers
comply with Rule 144A or Regulation S, as the case may be) and such other
procedures as may from time to time be adopted by the Company.
(b) LEGEND.
(i) Except as permitted by the following para graphs (ii), (iii) and
(iv), each Security certificate evidencing the Global Securities (and all
Securities issued in exchange therefor or in substitution thereof) shall
bear a legend in substantially the following form:
THIS SECURITY (OR ITS PREDECESSOR) WAS ORIGINALLY ISSUED IN A
TRANSACTION EXEMPT FROM REGISTRATION UNDER THE UNITED STATES
SECURITIES ACT
<PAGE>
OF 1933 (THE "SECURITIES ACT"), AND THIS SECURITY MAY NOT BE OFFERED,
SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR
AN APPLICABLE EXEMPTION THEREFROM. EACH PURCHASER OF THIS SECURITY IS
HEREBY NOTIFIED THAT THE SELLER OF THIS SECURITY MAY BE RELYING ON THE
EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT
PROVIDED BY RULE 144A THEREUNDER.
THE HOLDER OF THIS SECURITY AGREES FOR THE BENEFIT OF THE COMPANY
THAT (A) THIS SECURITY MAY BE OFFERED, RESOLD, PLEDGED OR OTHERWISE
TRANSFERRED, ONLY (I) IN THE UNITED STATES TO A PERSON WHOM THE SELLER
REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN
RULE 144A UNDER THE SECURITIES ACT) IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 144A, (II) OUTSIDE THE UNITED STATES IN AN
OFFSHORE TRANSACTION IN ACCORDANCE WITH RULE 904 UNDER THE SECURITIES
ACT, (III) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE
SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE) OR (IV)
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES
ACT, IN EACH OF CASES (I) THROUGH (IV) IN ACCORDANCE WITH ANY
APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES, AND (B)
THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY
PURCHASER OF THIS SECURITY FROM IT OF THE RESALE RESTRICTIONS REFERRED
TO IN (A) ABOVE.
(ii) Upon any sale or transfer of a Transfer Restricted Security
(including any Transfer Restricted Security represented by a Global
Security) pursuant to Rule 144 under the Securities Act, the Registrar
shall permit the Holder thereof to exchange such Transfer Restricted
Security for a certificated Security that does not bear the legend set
forth above and rescind any restriction on the transfer of such Transfer
Restricted Security, if the Holder certifies in writing to the Registrar
that its request for such exchange was made in reliance on Rule 144 (such
certification to be in the form set forth on the reverse of the Security).
(iii) After a transfer of any Initial Securities or Private Exchange
Securities during the period of the effectiveness of a Shelf Registration
Statement with respect to such Initial Securities or Private Exchange
Securities, as the case may be, all requirements
<PAGE>
pertaining to legends on such Initial Security or such Private Exchange
Security will cease to apply, the requirements requiring any such Initial
Security or such Private Exchange Security issued to certain Holders be
issued in global form will cease to apply, and a certificated Initial
Security or Private Exchange Security without legends will be available to
the transferee of the Holder of such Initial Securities or Private Exchange
Securities upon exchange of such transferring Holder's certificated Initial
Security or Private Exchange Security or directions to transfer such
Holder's interest in the Global Security, as applicable.
(iv) Upon the consummation of a Registered Exchange Offer with respect
to the Initial Securities pursuant to which Holders of such Initial
Securities are offered Exchange Securities in exchange for their Initial
Securities, all requirements pertaining to such Initial Securities that
Initial Securities issued to certain Holders be issued in global form will
cease to apply and certificated Initial Securities with the restricted
securities legend set forth in Exhibit 1 hereto will be available to
Holders of such Initial Securities that do not exchange their Initial
Securities, and Exchange Securities in certificated or global form will be
available to Holders that exchange such Initial Securities in such
Registered Exchange Offer.
(v) Upon the consummation of a Private Exchange with respect to the
Initial Securities pursuant to which Holders of such Initial Securities are
offered Private Exchange Securities in exchange for their Initial
Securities, all requirements pertaining to such Initial Securities that
Initial Securities issued to certain Holders be issued in global form will
still apply, and Private Exchange Securities in global form with the
Restricted Securities Legend set forth in Exhibit 1 hereto will be
available to Holders that exchange such Initial Securities in such Private
Exchange.
(c) CANCELLATION OR ADJUSTMENT OF GLOBAL SECURITY. At such time as all
beneficial interests in a Global Security have either been exchanged for
certificated Securities, redeemed, repurchased or canceled, such Global Security
shall be returned to the Depository for cancellation or retained and canceled by
the Trustee. At any time prior to such cancellation, if any beneficial interest
in a Global Security is exchanged for certificated Securities, redeemed,
<PAGE>
repurchased or canceled, the principal amount of Securities represented by such
Global Security shall be reduced and an adjustment shall be made on the books
and records of the Trustee (if it is then the Securities Custodian for such
Global Security) with respect to such Global Security, by the Trustee or the
Securities Custodian, to reflect such reduction.
(d) OBLIGATIONS WITH RESPECT TO TRANSFERS AND EXCHANGES OF SECURITIES.
(i) To permit registrations of transfers and exchanges, the Company
shall execute and the Trustee shall authenticate certificated Securities
and Global Securities at the Registrar's or co-registrar's request.
(ii) No service charge shall be made for any registration of transfer
or exchange, but the Company may require payment of a sum sufficient to
cover any transfer tax, assessments, or similar governmental charge payable
in connection therewith (other than any such transfer taxes, assessments or
similar governmental charge payable upon exchange or transfer pursuant to
Sections 3.06, 3.09 and 9.05 of the Indenture).
(iii) The Registrar or co-registrar shall not be required to register
the transfer of or exchange of any Security for a period beginning 15
Business Days before the mailing of a notice of an offer to repurchase or
redeem Securities or 15 Business Days before an interest payment date.
(iv) Prior to the due presentation for registration of transfer of any
Security, the Company, the Trustee, the Paying Agent, the Registrar or any
co-registrar may deem and treat the person in whose name a Security is
registered as the absolute owner of such Security for the purpose of
receiving payment of principal of and interest on such Security and for all
other purposes whatsoever, whether or not such Security is overdue, and
none of the Company, the Trustee, the Paying Agent, the Registrar or any
co-registrar shall be affected by notice to the contrary.
(v) All Securities issued upon any transfer or exchange pursuant to
the terms of this Indenture shall evidence the same debt and shall be
entitled to the same
<PAGE>
benefits under this Indenture as the Securities surrendered upon such
transfer or exchange.
(e) NO OBLIGATION OF THE TRUSTEE.
(i) The Trustee shall have no responsibility or obligation to any
beneficial owner of a Global Security, a member of, or a participant in the
Depository or other Person with respect to the accuracy of the records of
the Depository or its nominee or of any participant or member thereof, with
respect to any ownership interest in the Securities or with respect to the
delivery to any participant, member, beneficial owner or other Person
(other than the Depository) of any notice (including any notice of
redemption) or the payment of any amount, under or with respect to such
Securities. All notices and communications to be given to the Holders and
all payments to be made to Holders under the Securities shall be given or
made only to or upon the order of the registered Holders (which shall be
the Depository or its nominee in the case of a Global Security). The rights
of beneficial owners in any Global Security shall be exercised only through
the Depository subject to the applicable rules and procedures of the
Depository. The Trustee may rely and shall be fully protected in relying
upon information furnished by the Depository with respect to its members,
participants and any beneficial owners.
(ii) The Trustee shall have no obligation or duty to monitor,
determine or inquire as to compliance with any restrictions on transfer
imposed under this Indenture or under applicable law with respect to any
transfer of any interest in any Security (including any transfers between
or among Depository participants, members or beneficial owners in any
Global Security) other than to require delivery of such certificates and
other documentation or evidence as are expressly required by, and to do so
if and when expressly required by, the terms of this Indenture, and to
examine the same to determine substantial compliance as to form with the
express requirements hereof.
2.4 CERTIFICATED SECURITIES.
(a) A Global Security deposited with the Depository or with the
Trustee as custodian for the Depository pursuant to Section 2.1 shall be
transferred to the beneficial owners thereof in the form of certificated
Securities in an aggregate
<PAGE>
principal amount equal to the principal amount of such Global Security, in
exchange for such Global Security, only if such transfer complies with Section
2.3 and (i) the Depository notifies the Company that it is unwilling or unable
to continue as Depository for such Global Security or if at any time such
Depository ceases to be a "clearing agency" registered under the Exchange Act
and a successor depositary is not appointed by the Company within 90 days of
such notice, or (ii) an Event of Default has occurred and is continuing or (iii)
the Company, in its sole discretion, notifies the Trustee in writing that it
elects to cause the issuance of certificated Securities under this Indenture.
(b) Any Global Security that is transferable to the beneficial owners
thereof pursuant to this Section shall be surrendered by the Depository to the
Trustee located in the Borough of Manhattan, The City of New York, to be so
transferred, in whole or from time to time in part, without charge, and the
Trustee shall authenticate and deliver, upon such transfer of each portion of
such Global Security, an equal aggregate principal amount of certificated
Initial Securities of authorized denominations. Any portion of a Global Security
transferred pursuant to this Section shall be executed, authenticated and
delivered only in denominations of $1,000 and any integral multiple thereof and
registered in such names as the Depository shall direct. Any certificated
Initial Security delivered in exchange for an interest in the Global Security
shall, except as otherwise provided by Section 2.3(b), bear the restricted
securities legend set forth in Exhibit 1 hereto.
(c) Subject to the provisions of Section 2.4(b), the registered Holder
of a Global Security may grant proxies and otherwise authorize any Person,
including Agent Members and Persons that may hold interests through Agent
Members, to take any action which a Holder is entitled to take under this
Indenture or the Securities.
(d) In the event of the occurrence of either of the events specified
in Section 2.4(a), the Company will promptly make available to the Trustee a
reasonable supply of certificated Securities in definitive, fully registered
form without interest coupons.
<PAGE>
EXHIBIT 1
to
RULE 144A/REGULATION S APPENDIX
[FORM OF FACE OF INITIAL SECURITY]
[Global Securities Legend]
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE
OF THE DEPOSITARY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), NEW YORK, NEW
YORK, TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR
PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR
SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY
PAYMENT IS MADE TO CEDE & CO., OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF DTC) ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR
VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED
OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN
WHOLE, BUT NOT IN PART, TO NOMINEES OF DTC OR TO A SUCCESSOR THEREOF OR SUCH
SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY SHALL BE
LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE
INDENTURE REFERRED TO ON THE REVERSE HEREOF.
[Restricted Securities Legend]
THIS SECURITY (OR ITS PREDECESSOR) WAS ORIGINALLY ISSUED IN A
TRANSACTION EXEMPT FROM REGISTRATION UNDER THE UNITED STATES SECURITIES ACT OF
1933 (THE "SECURITIES ACT"), AND THIS SECURITY MAY NOT BE OFFERED, SOLD OR
OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE
EXEMPTION THEREFROM. EACH PURCHASER OF THIS SECURITY IS HEREBY NOTIFIED THAT THE
SELLER OF THIS SECURITY MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF
SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER.
THE HOLDER OF THIS SECURITY AGREES FOR THE BENEFIT OF THE COMPANY THAT
(A) THIS SECURITY MAY BE OFFERED, RESOLD, PLEDGED OR OTHERWISE TRANSFERRED, ONLY
(I) IN THE UNITED STATES TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A
QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT)
IN A TRANSACTION MEETING THE REQUIREMENTS
<PAGE>
OF RULE 144A, (II) OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN
ACCORDANCE WITH RULE 904 UNDER THE SECURITIES ACT, (III) PURSUANT TO AN
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144
THEREUNDER (IF AVAILABLE) OR (IV) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT, IN EACH OF CASES (I) THOUGHT (IV) IN
ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED
STATES, AND (B) THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO,
NOTIFY ANY PURCHASER OF THIS SECURITY FROM IT OF THE RESALE RESTRICTIONS
REFERRED TO IN (A) ABOVE.
<PAGE>
CUSIP NO.
No. $
9-3/4% Senior Subordinated Notes Due 2009
Hexcel Corporation, a Delaware corporation, promises
to pay to , or registered assigns, the principal sum of
Dollars on January 15, 2009.
Interest Payment Dates: January 15 and July 15.
Record Dates: January 1 and July 1.
Additional provisions of this Security are set forth on the
other side of this Security.
Dated:
HEXCEL CORPORATION,
by
------------------------
Name:
Title:
by
-------------------------
Name:
Title:
TRUSTEE'S CERTIFICATE OF
AUTHENTICATION
THE BANK OF NEW YORK,
as Trustee, certifies that
this is one of the Securities
referred to in the Indenture.
by
-----------------------------
Authorized Signatory
<PAGE>
[FORM OF REVERSE SIDE OF INITIAL SECURITY]
9-3/4% Senior Subordinated Note Due 2009
1. INTEREST
Hexcel Corporation, a Delaware corporation (such corporation, and its
successors and assigns under the Indenture hereinafter referred to, being herein
called the "Company"), promises to pay interest on the principal amount of this
Security at the rate per annum shown above; PROVIDED, HOWEVER, that if a
Registration Default (as defined in the Registration Rights Agreement) occurs,
interest will accrue on this Security at a rate of 0.50% per annum from and
including the date on which any such Registration Default shall occur to but
excluding the date on which all Registration Defaults have been cured. The
Company will pay interest semiannually on January 15 and July 15 of each year.
Interest on the Securities will accrue from the most recent date to which
interest has been paid or, if no interest has been paid, from [January 21, 1999]
[date of issuance of any Additional Securities]. Interest will be computed on
the basis of a 360-day year of twelve 30-day months. The Company shall pay
interest on overdue principal at the rate borne by the Securities plus 1% per
annum, and it shall pay interest on overdue installments of interest at the same
rate to the extent lawful.
2. METHOD OF PAYMENT
The Company will pay interest on the Securities (except defaulted
interest) to the Persons who are registered holders of Securities at the close
of business on the January 1 or July 1 next preceding the interest payment date
even if Securities are canceled after the record date and on or before the
interest payment date. Holders must surrender Securities to a Paying Agent to
collect principal payments. The Company will pay principal and interest in money
of the United States that at the time of payment is legal tender for payment of
public and private debts. Payments in respect of the Securities represented by a
Global Security (including principal, premium and interest) will be made by wire
transfer of immediately available funds to the accounts specified by The
Depository Trust Company. The Company will make all
<PAGE>
payments in respect of a certificated Security (including principal, premium and
interest) by mailing a check to the registered address of each Holder thereof;
PROVIDED, HOWEVER, that payments on a certificated Security will be made by wire
transfer to a U.S. dollar account maintained by the payee with a bank in the
United States if such Holder elects payment by wire transfer by giving written
notice to the Trustee or the Paying Agent to such effect designating such
account no later than 30 days immediately preceding the relevant due date for
payment (or such other date as the Trustee may accept in its discretion).
3. PAYING AGENT AND REGISTRAR
Initially, The Bank of New York, a New York banking corporation
("Trustee"), will act as Paying Agent and Registrar. The Company may appoint and
change any Paying Agent, Registrar or co-registrar without notice. The Company
or any of its domestically incorporated Wholly Owned Subsidiaries may act as
Paying Agent, Registrar or co-registrar.
4. INDENTURE
The Company issued the Securities under an Indenture dated as of
January 21, 1999 ("Indenture"), between the Company and the Trustee. The
terms of the Securities include those stated in the Indenture and those made
part of the Indenture by reference to the Trust Indenture Act of 1939 (15
U.S.C. Sections 77aaa-77bbbb) as in effect on the date of the Indenture (the
"Act"). Terms defined in the Indenture and not defined herein have the
meanings ascribed thereto in the Indenture. The Securities are subject to all
such terms, and Securityholders are referred to the Indenture and the Act for
a statement of those terms.
The Securities are general unsecured obligations of the Company. The
Company shall be entitled, subject to its compliance with Section 4.03 of the
Indenture, to issue Additional Securities pursuant to Section 2.13 of the
Indenture. The Initial Securities issued on the Issue Date, any Additional
Securities and all Exchange Securities or Private Exchange Securities issued in
exchange therefor will be treated as a single class for all purposes under the
Indenture. The Indenture contains certain covenants that, among other things,
will limit the ability of the Company and its subsidiaries to (i) incur
additional indebtedness, (ii) pay dividends or distributions on, or redeem or
<PAGE>
repurchase, the Company's capital stock, (iii) make investments, (iv)
issue or sell capital stock of subsidiaries, (v) engage in transactions with
affiliates, (vi) create liens on the Company's assets to service certain debt,
(vii) transfer or sell assets, (viii) guarantee indebtedness, (ix) make dividend
or other payments to the Company, (x) consolidate, merge or transfer all or
substantially all of the Company's assets and the assets of its subsidiaries and
(xi) engage in unrelated business. These covenants, however, are subject to
important exceptions and qualifications.
5. OPTIONAL REDEMPTION
Except as set forth in the next paragraph, the Securities may not be
redeemed prior to January 15, 2004. On and after that date, the Company may
redeem the Securities in whole at any time or in part from time to time at the
following redemption prices (expressed in percentages of principal amount), plus
accrued interest to the redemption date (subject to the right of Holders of
record on the relevant record date to receive interest due on the related
interest payment date):
if redeemed during the 12-month period beginning January 15,
<TABLE>
<CAPTION>
PERIOD PERCENTAGE
------ ----------
<S> <C>
2004 . . . . . . . . . . . . . . . . . . . 104.875%
2005 . . . . . . . . . . . . . . . . . . . 103.900
2006 . . . . . . . . . . . . . . . . . . . 102.925
2007 . . . . . . . . . . . . . . . . . . . 101.950
2008 . . . . . . . . . . . . . . . . . . . 100.975
2009 and thereafter . . . . . . . . . . . . . 100.000%
</TABLE>
In addition, prior to January 15, 2002, the Company may at it option
redeem up to 35% of the aggregate principal amount of the original aggregate
principal amount of the Securities issued for cash under the Indenture
(including the original principal amount of any Additional Securities) at a
redemption price of 109.75% of the principal amount thereof, plus accrued and
unpaid interest to the redemption date, with the net cash proceeds from one or
more Public Equity Offerings following which there is a Public Market; PROVIDED,
HOWEVER, that
(1) at least 65% of the original aggregate principal amount of Securities
(including the original principal amount of any Additional Securities)
<PAGE>
remains outstanding immediately after the occurrence of each such
redemption (other than Securities held, directly or indirectly, by the
Company or its Affiliates); and
(2) each such redemption occurs within 120 days after the date of the
related Public Equity Offering.
6. NOTICE OF REDEMPTION
Notice of redemption will be mailed at least 30 days but not more than
60 days before the redemption date to each Holder of Securities to be redeemed
at his registered address. Securities in denominations larger than $1,000 may be
redeemed in part but only in whole multiples of $1,000. If money sufficient to
pay the redemption price of and accrued interest on all Securities (or portions
thereof) to be redeemed on the redemption date is deposited with the Paying
Agent on or before the redemption date and certain other conditions are
satisfied, on and after such date interest ceases to accrue on such Securities
(or such portions thereof) called for redemption.
7. PUT PROVISIONS
Upon a Change of Control, any Holder of Securities will have the
right, subject to certain conditions, to cause the Company to repurchase all or
any part of the Securities of such Holder at a repurchase price equal to 101% of
the principal amount of the Securities to be repurchased plus accrued interest
to the date of repurchase (subject to the right of holders of record on the
relevant record date to receive interest due on the related interest payment
date) as provided in, and subject to the terms of, the Indenture.
8. SUBORDINATION
The Securities are subordinated to Senior Indebtedness, as defined in
the Indenture. To the extent provided in the Indenture, Senior Indebtedness must
be paid before the Securities may be paid. The Company agrees, and each
Securityholder by accepting a Security agrees, to the subordination provisions
contained in the Indenture and authorizes the Trustee to give it effect and
appoints the Trustee as attorney-in-fact for such purpose.
<PAGE>
9. DENOMINATIONS; TRANSFER; EXCHANGE
The Securities are in registered form without coupons in denominations
of $1,000 and whole multiples of $1,000. A Holder may transfer or exchange
Securities in accordance with the Indenture. The Registrar may require a Holder,
among other things, to furnish appropriate endorsements or transfer documents
and to pay any taxes and fees required by law or permitted by the Indenture. The
Registrar need not register the transfer of or exchange any Securities selected
for redemption (except, in the case of a Security to be redeemed in part, the
portion of the Security not to be redeemed) or any Securities for a period of 15
days before a selection of Securities to be redeemed or 15 days before an
interest payment date.
10. PERSONS DEEMED OWNERS
The registered Holder of this Security may be treated as the owner of
it for all purposes.
11. UNCLAIMED MONEY
If money for the payment of principal or interest remains unclaimed
for two years, the Trustee or Paying Agent shall pay the money back to the
Company at its request unless an abandoned property law designates another
Person. After any such payment, Holders entitled to the money must look only to
the Company and not to the Trustee for payment.
12. DISCHARGE AND DEFEASANCE
Subject to certain conditions, the Company at any time may terminate
some or all of its obligations under the Securities and the Indenture if the
Company deposits with the Trustee money or U.S. Government Obligations for the
payment of principal and interest on the Securities to redemption or maturity,
as the case may be.
13. AMENDMENT, WAIVER
Subject to certain exceptions set forth in the Indenture, (i) the
Indenture or the Securities may be amended with the written consent of the
Holders of at least a majority in principal amount outstanding of the
Securities and (ii) any default or noncompliance with any provision may be
waived with the written consent of the Holders of a majority in principal
amount outstanding of the Securities. However, without the
<PAGE>
consent of Holders of 80% or more in principal amount of the Securities then
outstanding, the Company may not (with respect to any Securities held by a
non-consenting Holder) make any change to Article 10 of the Indenture (or the
defined terms used therein) that would adversely affect Holders of the
Securities. Subject to certain exceptions set forth in the Indenture, without
the consent of any Securityholder, the Company and the Trustee may amend the
Indenture or the Securities to cure any ambiguity, omission, defect or
inconsistency, or to comply with Article 5 of the Indenture, or to provide
for uncertificated Securities in addition to or in place of certificated
Securities, or to add guarantees with respect to the Securities or to secure
the Securities, or to add additional covenants or surrender rights and powers
conferred on the Company, or to comply with any request of the SEC in
connection with qualifying the Indenture under the Act, or to make any change
that does not adversely affect the rights of any Securityholder.
14. DEFAULTS AND REMEDIES
Under the Indenture, Events of Default include (i) default for 30 days
in payment of interest on the Securities; (ii) default in payment of principal
on the Securities at maturity, upon redemption pursuant to paragraph 5 of the
Securities, upon acceleration or otherwise, or failure by the Company to
purchase Securities when required; (iii) failure by the Company to comply with
other agreements in the Indenture or the Securities, in certain cases subject to
notice and lapse of time; (iv) certain accelerations (including failure to pay
within any grace period after final maturity) of other Indebtedness of the
Company if the amount accelerated (or so unpaid) exceeds $10.0 million or its
foreign currency equivalent; (v) certain events of bankruptcy or insolvency with
respect to the Company and the Significant Subsidiaries; and (vi) certain
judgments or decrees for the payment of money in excess of $10.0 million or its
foreign currency equivalent. If an Event of Default occurs and is continuing,
the Trustee or the Holders of at least 25% in principal amount of the Securities
may declare all the Securities to be due and payable immediately. Certain events
of bankruptcy or insolvency are Events of Default which will result in the
Securities being due and payable immediately upon the occurrence of such Events
of Default.
Securityholders may not enforce the Indenture or the Securities except
as provided in the Indenture. The Trustee may refuse to enforce the Indenture or
the Securities unless
<PAGE>
it receives reasonable indemnity or security. Subject to certain limitations,
Holders of a majority in principal amount of the Securities may direct the
Trustee in its exercise of any trust or power. The Trustee may withhold from
Securityholders notice of any continuing Default (except a Default in payment of
principal or interest) if it determines that withholding notice is in the
interest of the Holders.
15. TRUSTEE DEALINGS WITH THE COMPANY
Subject to certain limitations imposed by the Act, the Trustee under
the Indenture, in its individual or any other capacity, may become the owner or
pledgee of Securities and may otherwise deal with and collect obligations owed
to it by the Company or its Affiliates and may otherwise deal with the Company
or its Affiliates with the same rights it would have if it were not Trustee.
16. NO RECOURSE AGAINST OTHERS
A director, officer, employee or stockholder, as such, of the Company
or the Trustee shall not have any liability for any obligations of the Company
under the Securities or the Indenture or for any claim based on, in respect of
or by reason of such obligations or their creation. By accepting a Security,
each Securityholder waives and releases all such liability. The waiver and
release are part of the consideration for the issue of the Securities.
17. AUTHENTICATION
This Security shall not be valid until an authorized signatory of the
Trustee (or an authenticating agent) manually signs the certificate of
authentication on the other side of this Security.
18. ABBREVIATIONS
Customary abbreviations may be used in the name of a Securityholder or
an assignee, such as TEN COM (=tenants in common), TEN ENT (=tenants by the
entireties), JT TEN (=joint tenants with rights of survivorship and not as
tenants in common), CUST (=custodian), and U/G/M/A (=Uniform Gift to Minors
Act).
<PAGE>
19. HOLDERS' COMPLIANCE WITH REGISTRATION RIGHTS AGREEMENT.
Each Holder of a Security, by acceptance hereof, acknowledges and
agrees to the provisions of the Registration Rights Agreement, including the
obligations of the Holders with respect to a registration and the
indemnification of the Company to the extent provided therein.
20. GOVERNING LAW.
THIS SECURITY SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF NEW YORK BUT WITHOUT GIVING EFFECT TO APPLICABLE
PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF
ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY.
THE COMPANY WILL FURNISH TO ANY SECURITYHOLDER UPON WRITTEN REQUEST
AND WITHOUT CHARGE TO THE SECURITY HOLDER A COPY OF THE INDENTURE WHICH HAS IN
IT THE TEXT OF THIS SECURITY IN LARGER TYPE. REQUESTS MAY BE MADE TO:
HEXCEL CORPORATION
TWO STAMFORD PLAZA
281 TRESSER BLVD.
STAMFORD, CONNECTICUT 06901
ATTENTION: GENERAL COUNSEL
<PAGE>
- -------------------------------------------------------------------------------
ASSIGNMENT FORM
To assign this Security, fill in the form below:
I or we assign and transfer this Security to
(Print or type assignee's name, address and zip code)
(Insert assignee's soc. sec. or tax I.D. No.)
and irrevocably appoint agent to
transfer this Security on the books of the Company. The agent
may substitute another to act for him.
- --------------------------------------------------------------------------------
Date: ________________ Your Signature: _________________________________________
- --------------------------------------------------------------------------------
Sign exactly as your name appears on the other side of this Security.
In connection with any transfer of any of the Securities evidenced by this
certificate occurring prior to the expiration of the period referred to in Rule
144(k) under the Securities Act after the later of the date of original issuance
of such Securities and the last date, if any, on which such Securities were
owned by the Company or any Affiliate of the Company, the undersigned confirms
that such Securities are being transferred in accordance with its terms:
CHECK ONE BOX BELOW
(1) / / to the Company; or
(2) / / pursuant to an effective registration statement
under the Securities Act of 1933; or
(3) / / inside the United States to a "qualified
institutional buyer" (as defined in Rule 144A
under the Securities Act of 1933) that
purchases for its own account or for the
<PAGE>
account of a qualified institutional buyer to
whom notice is given that such transfer is
being made in reliance on Rule 144A, in each
case pursuant to and in compliance with
Rule 144A under the Securities Act of 1933; or
(4) / / outside the United States in an offshore
transaction within the meaning of Regulation S under
the Securities Act in compliance with Rule 904 under
the Securities Act of 1933; or
(5) / / pursuant to another available exemption from
registration provided by Rule 144 under the
Securities Act of 1933.
Unless one of the boxes is checked, the Trustee will refuse to register
any of the Securities evidenced by this certificate in the name of any
person other than the registered holder thereof; PROVIDED, HOWEVER,
that if box (4) or (5) is checked, the Trustee may require, prior to
registering any such transfer of the Securities, such legal opinions,
certifications and other information as the Company has reasonably
requested to confirm that such transfer is being made pursuant to an
exemption from, or in a transaction not subject to, the registration
requirements of the Securities Act of 1933, such as the exemption
provided by Rule 144 under such Act.
--------------------------
Signature
Signature Guarantee:
- ---------------------------- --------------------------
Signature must be guaranteed Signature
<PAGE>
- -------------------------------------------------------------------------------
TO BE COMPLETED BY PURCHASER IF (3) ABOVE IS CHECKED.
The undersigned represents and warrants that it is purchasing this
Security for its own account or an account with respect to which it exercises
sole investment discretion and that it and any such account is a "qualified
institutional buyer" within the meaning of Rule 144A under the Securities Act of
1933, and is aware that the sale to it is being made in reliance on Rule 144A
and acknowledges that it has received such information regarding the Company as
the undersigned has requested pursuant to Rule 144A or has determined not to
request such information and that it is aware that the transferor is relying
upon the undersigned's foregoing representations in order to claim the exemption
from registration provided by Rule 144A.
Dated:
----------------- ---------------------------------
NOTICE: To be executed by
an executive officer
<PAGE>
[TO BE ATTACHED TO GLOBAL SECURITIES]
SCHEDULE OF INCREASES OR DECREASES IN GLOBAL SECURITY
The following increases or decreases in this Global Security
have been made:
<TABLE>
<CAPTION>
Date of Amount of decrease Amount of increase Principal amount Signature of
Exchange in Principal in Principal of this Global authorized officer
Amount of this Amount of this Security following of Trustee or
Global Security Global Security such decrease or Securities
increase) Cusodian
<S> <C> <C> <C> <C>
</TABLE>
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased by the Company
pursuant to Section 4.06 or 4.09 of the Indenture, check the box:
/ /
If you want to elect to have only part of this Security purchased by
the Company pursuant to Section 4.06 or 4.09 of the Indenture, state the amount
in principal amount: $
Date: Your Signature:
----------------- ----------------------------
(Sign exactly as your name
appears on the other side of
this Security.)
Signature Guarantee:
--------------------------------------------
(Signature must be guaranteed)
<PAGE>
EXHIBIT A
[FORM OF FACE OF EXCHANGE SECURITY
OR PRIVATE EXCHANGE SECURITY]
[*/]
[**/]
No.
9-3/4% Senior Subordinated Notes Due 2009
Hexcel Corporation, a Delaware corporation, promises to pay to
, or registered assigns, the principal sum of Dollars
on January 15, 2009.
Interest Payment Dates: January 15 and July 15.
Record Dates: January 1 and July 1.
Additional provisions of this Security are set forth on the other side
of this Security.
Dated:
HEXCEL CORPORATION,
by
-----------------------
President
by
-----------------------
Secretary
TRUSTEE'S CERTIFICATE OF
AUTHENTICATION
THE BANK OF NEW YORK,
as Trustee, certifies
that this is one of
the Securities referred
to in the Indenture.
by
<PAGE>
-----------------------------
Authorized Signatory
- ---------------------------------
*/ [If the Security is to be issued in global form add the Global
Securities Legend from Exhibit 1 to Appendix A and the attachment from such
Exhibit 1 captioned "[TO BE ATTACHED TO GLOBAL SECURITIES] - SCHEDULE OF
INCREASES OR DECREASES IN GLOBAL SECURITY".]
<PAGE>
**/ [If the Security is a Private Exchange Security issued in a Private
Exchange to an Initial Purchaser holding an unsold portion of its initial
allotment, add the Restricted Securities Legend from Exhibit 1 to Appendix
A and replace the Assignment Form included in this Exhibit A with the
Assignment Form included in such Exhibit 1.]
<PAGE>
[FORM OF REVERSE SIDE OF EXCHANGE SECURITY
OR PRIVATE EXCHANGE SECURITY]
9-3/4% Senior Subordinated Note Due 2009
1. INTEREST
Hexcel Corporation, a Delaware corporation (such corporation, and its
successors and assigns under the Indenture hereinafter referred to, being herein
called the "Company"), promises to pay interest on the principal amount of this
Security at the rate per annum shown above [; PROVIDED, HOWEVER, that if a
Registration Default (as defined in the Registration Rights Agreement) occurs,
interest will accrue on this Security at a rate of 0.50% per annum from and
including the date on which any such Registration Default shall occur to but
excluding the date on which all Registration Defaults have been cured]1/. The
Company will pay interest semiannually on January 15 and July 15 of each year.
Interest on the Securities will accrue from the most recent date to which
interest has been paid or, if no interest has been paid, from [January 21, 1999]
[date of issuance of any Additional Securities]. Interest will be computed on
the basis of a 360-day year of twelve 30-day months. The Company shall pay
interest on overdue principal at the rate borne by the Securities plus 1% per
annum, and it shall pay interest on overdue installments of interest at the same
rate to the extent lawful.
2. METHOD OF PAYMENT
The Company will pay interest on the Securities (except defaulted
interest) to the Persons who are registered holders of Securities at the close
of business on the January 1 or July 1 next preceding the interest payment date
even if Securities are canceled after the record date and on or before the
interest payment date. Holders must surrender Securities to a Paying Agent to
collect principal payments.
- ------------------
1/ Insert if at the time of issuance of the Exchange Security or Private
Exchange Security (as the case may be) neither the Registered Exchange Offer has
been consummated nor a Shelf Registration Statement has been declared effective
in accordance with the Registration Rights Agreement.
<PAGE>
The Company will pay principal and interest in money of the United States that
at the time of payment is legal tender for payment of public and private debts.
Payments in respect of Securities (including principal, premium and interest)
will be made by wire transfer of immediately available funds to the accounts
specified by the holders thereof or, if no U.S. dollar account maintained by the
payee with a bank in the United States is designated by any holder to the
Trustee or the Paying Agent at least 30 days prior to the relevant due date for
payment (or such other date as the Trustee may accept in its discretion), by
mailing a check to the registered address of such holder.
3. PAYING AGENT AND REGISTRAR
Initially, The Bank of New York, a New York banking corporation
("Trustee"), will act as Paying Agent and Registrar. The Company may appoint and
change any Paying Agent, Registrar or co-registrar without notice. The Company
or any of its domestically incorporated Wholly Owned Subsidiaries may act as
Paying Agent, Registrar or co-registrar.
4. INDENTURE
The Company issued the Securities under an Indenture dated as of
January 21, 1999 ("Indenture"), between the Company and the Trustee. The
terms of the Securities include those stated in the Indenture and those made
part of the Indenture by reference to the Trust Indenture Act of 1939 (15
U.S.C. Sections 77aaa-77bbbb) as in effect on the date of the Indenture (the
"Act"). Terms defined in the Indenture and not defined herein have the
meanings ascribed thereto in the Indenture. The Securities are subject to all
such terms, and Securityholders are referred to the Indenture and the Act for
a statement of those terms.
The Securities are general unsecured obligations of the Company. The
Company shall be entitled, subject to its compliance with Section 4.03 of the
Indenture, to issue Additional Securities pursuant to Section 2.13 of the
Indenture. The Initial Securities issued on the Issue Date, any Additional
Securities and all Exchange Securities or Private Exchange Securities issued in
exchange therefor, and any Additional Securities will be treated as a single
class for all purposes under the Indenture. The Indenture contains certain
covenants that, among other things will limit the ability of the Company and
certain of its subsidiaries to
<PAGE>
(i) incur additional indebtedness, (ii) pay dividends or distributions on, or
redeem or repurchase, the Company's capital stock, (iii) make investments, (iv)
issue or sell capital stock of subsidiaries, (v) engage in transactions with
affiliates, (vi) create liens on the Company's assets to service certain debt,
(vii) transfer or sell assets, (viii) guarantee indebtedness, (ix) make dividend
or other payments to the Company, (x) consolidate, merge or transfer all or
substantially all of the Company's assets and the assets of its subsidiaries and
(xi) engage in unrelated business. These covenants, however, are subject to
important exceptions and qualifications.
5. OPTIONAL REDEMPTION
Except as set forth in the next paragraph, the Securities may not be
redeemed prior to January 15, 2004. On and after that date, the Company may
redeem the Securities in whole at any time or in part from time to time at the
following redemption prices (expressed in percentages of principal amount), plus
accrued interest to the redemption date (subject to the right of Holders of
record on the relevant record date to receive interest due on the related
interest payment date):
if redeemed during the 12-month period beginning January 15,
PERIOD PERCENTAGE
2004 . . . . . . . . . . . . . . . . . . . . . . . . . 104.875%
2005 . . . . . . . . . . . . . . . . . . . . . . . . . 103.900
2006 . . . . . . . . . . . . . . . . . . . . . . . . . 102.925
2007 . . . . . . . . . . . . . . . . . . . . . . . . . 101.950
2008 . . . . . . . . . . . . . . . . . . . . . . . . . 100.975
2009 and thereafter. . . . . . . . . . . . . . . . . . 100.000%
In addition, prior to January 15, 2002, the Company may at it option
redeem up to 35% of the aggregate principal amount of the original aggregate
principal amount of the Securities issued for cash under the Indenture
(including the original principal amount of any Additional Securities) at a
redemption price of 9-3/4% of the principal amount thereof, plus accrued and
unpaid interest to the redemption date, with the net cash proceeds from one or
more Public Equity Offerings following which there is a Public Market; PROVIDED,
HOWEVER, that
<PAGE>
(1) at least 65% of the original aggregate principal amount of Securities
(including the original principal amount of any Additional Securities)
remains outstanding immediately after the occurrence of each such
redemption (other than Securities held, directly or indirectly, by the
Company or its Affiliates); and
(2) each such redemption occurs within 120 days after the date of the
related Public Equity Offering.
6. NOTICE OF REDEMPTION
Notice of redemption will be mailed at least 30 days but not more than
60 days before the redemption date to each Holder of Securities to be redeemed
at his registered address. Securities in denominations larger than $1,000 may be
redeemed in part but only in whole multiples of $1,000. If money sufficient to
pay the redemption price of and accrued interest on all Securities (or portions
thereof) to be redeemed on the redemption date is deposited with the Paying
Agent on or before the redemption date and certain other conditions are
satisfied, on and after such date interest ceases to accrue on such Securities
(or such portions thereof) called for redemption.
7. PUT PROVISIONS
Upon a Change of Control, any Holder of Securities will have the
right, subject to certain conditions, to cause the Company to repurchase all or
any part of the Securities of such Holder at a repurchase price equal to 101% of
the principal amount of the Securities to be repurchased plus accrued interest
to the date of repurchase (subject to the right of holders of record on the
relevant record date to receive interest due on the related interest payment
date) as provided in, and subject to the terms of, the Indenture.
8. SUBORDINATION
The Securities are subordinated to Senior Indebtedness, as defined in
the Indenture. To the extent provided in the Indenture, Senior Indebtedness must
be paid before the Securities may be paid. The Company agrees, and each
Securityholder by accepting a Security agrees, to the subordination provisions
contained in the Indenture and authorizes the Trustee to give it effect and
appoints the Trustee as attorney-in-fact for such purpose.
<PAGE>
9. DENOMINATIONS; TRANSFER; EXCHANGE
The Securities are in registered form without coupons in denominations
of $1,000 and whole multiples of $1,000. A Holder may transfer or exchange
Securities in accordance with the Indenture. The Registrar may require a Holder,
among other things, to furnish appropriate endorsements or transfer documents
and to pay any taxes and fees required by law or permitted by the Indenture. The
Registrar need not register the transfer of or exchange any Securities selected
for redemption (except, in the case of a Security to be redeemed in part, the
portion of the Security not to be redeemed) or any Securities for a period of 15
days before a selection of Securities to be redeemed or 15 days before an
interest payment date.
10. PERSONS DEEMED OWNERS
The registered Holder of this Security may be treated as the owner of
it for all purposes.
11. UNCLAIMED MONEY
If money for the payment of principal or interest remains unclaimed
for two years, the Trustee or Paying Agent shall pay the money back to the
Company at its request unless an abandoned property law designates another
Person. After any such payment, Holders entitled to the money must look only to
the Company and not to the Trustee for payment.
12. DISCHARGE AND DEFEASANCE
Subject to certain conditions, the Company at any time may terminate
some or all of its obligations under the Securities and the Indenture if the
Company deposits with the Trustee money or U.S. Government Obligations for the
payment of principal and interest on the Securities to redemption or maturity,
as the case may be.
13. AMENDMENT, WAIVER
Subject to certain exceptions set forth in the Indenture, (i) the
Indenture or the Securities may be amended with the written consent of the
Holders of at least a majority in principal amount outstanding of the
Securities and (ii) any default or noncompliance with any provision may be
waived with the written consent of the Holders of a majority in principal
amount outstanding of the Securities. However, without the
<PAGE>
consent of Holders of 80% or more in principal amount of the Securities then
outstanding, the Company may not (with respect to any Securities held by a
non-consenting Holder) make any change to Article 10 of the Indenture (or the
defined terms used therein) that would adversely affect Holders of the
Securities. Subject to certain exceptions set forth in the Indenture, without
the consent of any Securityholder, the Company and the Trustee may amend the
Indenture or the Securities to cure any ambiguity, omission, defect or
inconsistency, or to comply with Article 5 of the Indenture, or to provide
for uncertificated Securities in addition to or in place of certificated
Securities, or to add guarantees with respect to the Securities or to secure
the Securities, or to add additional covenants or surrender rights and powers
conferred on the Company, or to comply with any request of the SEC in
connection with qualifying the Indenture under the Act, or to make any change
that does not adversely affect the rights of any Securityholder.
14. DEFAULTS AND REMEDIES
Under the Indenture, Events of Default include (i) default for 30 days
in payment of interest on the Securities; (ii) default in payment of principal
on the Securities at maturity, upon redemption pursuant to paragraph 5 of the
Securities, upon acceleration or otherwise, or failure by the Company to
purchase Securities when required; (iii) failure by the Company to comply with
other agreements in the Indenture or the Securities, in certain cases subject to
notice and lapse of time; (iv) certain accelerations (including failure to pay
within any grace period after final maturity) of other Indebtedness of the
Company if the amount accelerated (or so unpaid) exceeds $10.0 million or its
foreign currency equivalent; (v) certain events of bankruptcy or insolvency with
respect to the Company and the Significant Subsidiaries; and (vi) certain
judgments or decrees for the payment of money in excess of $10.0 million or its
foreign currency equivalent. If an Event of Default occurs and is continuing,
the Trustee or the Holders of at least 25% in principal amount of the Securities
may declare all the Securities to be due and payable immediately. Certain events
of bankruptcy or insolvency are Events of Default which will result in the
Securities being due and payable immediately upon the occurrence of such Events
of Default.
Securityholders may not enforce the Indenture or the Securities except
as provided in the Indenture. The Trustee may refuse to enforce the Indenture or
the Securities unless
<PAGE>
it receives reasonable indemnity or security. Subject to certain limitations,
Holders of a majority in principal amount of the Securities may direct the
Trustee in its exercise of any trust or power. The Trustee may withhold from
Securityholders notice of any continuing Default (except a Default in payment of
principal or interest) if it determines that withholding notice is in the
interest of the Holders.
15. TRUSTEE DEALINGS WITH THE COMPANY
Subject to certain limitations imposed by the Act, the Trustee under
the Indenture, in its individual or any other capacity, may become the owner or
pledgee of Securities and may otherwise deal with and collect obligations owed
to it by the Company or its Affiliates and may otherwise deal with the Company
or its Affiliates with the same rights it would have if it were not Trustee.
16. NO RECOURSE AGAINST OTHERS
A director, officer, employee or stockholder, as such, of the Company
or the Trustee shall not have any liability for any obligations of the Company
under the Securities or the Indenture or for any claim based on, in respect of
or by reason of such obligations or their creation. By accepting a Security,
each Securityholder waives and releases all such liability. The waiver and
release are part of the consideration for the issue of the Securities.
17. AUTHENTICATION
This Security shall not be valid until an authorized signatory of the
Trustee (or an authenticating agent) manually signs the certificate of
authentication on the other side of this Security.
18. ABBREVIATIONS
Customary abbreviations may be used in the name of a Securityholder or
an assignee, such as TEN COM (=tenants in common), TEN ENT (=tenants by the
entireties), JT TEN (=joint tenants with rights of survivorship and not as
tenants in common), CUST (=custodian), and U/G/M/A (=Uniform Gift to Minors
Act).
<PAGE>
19. CUSIP NUMBERS
Pursuant to a recommendation promulgated by the Committee on Uniform
Security Identification Procedures the Company has caused CUSIP numbers to be
printed on the Securities and has directed the Trustee to use CUSIP numbers in
notices of redemption as a convenience to Securityholders. No representation is
made as to the accuracy of such numbers either as printed on the Securities or
as contained in any notice of redemption and reliance may be placed only on the
other identification numbers placed thereon.
20. HOLDERS' COMPLIANCE WITH REGISTRATION RIGHTS AGREEMENT.
Each Holder of a Security, by acceptance hereof, acknowledges and
agrees to the provisions of the Registration Rights Agreement, including,
without limitation, the obligations of the Holders with respect to a
registration and the indemnification of the Company to the extent provided
therein.
21. GOVERNING LAW.
THIS SECURITY SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF NEW YORK BUT WITHOUT GIVING EFFECT TO APPLICABLE
PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF
ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY.
THE COMPANY WILL FURNISH TO ANY SECURITYHOLDER UPON WRITTEN REQUEST
AND WITHOUT CHARGE TO THE SECURITY HOLDER A COPY OF THE INDENTURE WHICH HAS IN
IT THE TEXT OF THIS SECURITY IN LARGER TYPE. REQUESTS MAY BE MADE TO:
HEXCEL CORPORATION
TWO STAMFORD PLAZA
281 TRESSER BLVD.
STAMFORD, CONNECTICUT 06901
ATTENTION: GENERAL COUNSEL
<PAGE>
- -------------------------------------------------------------------------------
ASSIGNMENT FORM
To assign this Security, fill in the form below:
I or we assign and transfer this Security to
(Print or type assignee's name, address and zip code)
(Insert assignee's soc. sec. or tax I.D. No.)
and irrevocably appoint agent to
transfer this Security on the books of the Company. The agent
may substitute another to act for him.
- -----------------------------------------------------------------------
Date: Your Signature:
------------------------- ------------------------
- -------------------------------------------------------------------------------
Sign exactly as your name appears on the other side of this Security.
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
IF YOU WANT TO ELECT TO HAVE THIS SECURITY PURCHASED BY THE
COMPANY PURSUANT TO SECTION 4.06 OR 4.09 OF THE INDENTURE, CHECK THE BOX:
---
/ /
---
IF YOU WANT TO ELECT TO HAVE ONLY PART OF THIS SECURITY PURCHASED
BY THE COMPANY PURSUANT TO SECTION 4.06 OR 4.09 OF THE INDENTURE, STATE THE
AMOUNT: $
DATE: YOUR SIGNATURE:
--------------------- ----------------------------------
(SIGN EXACTLY AS YOUR NAME APPEARS
ON THE OTHER SIDE OF THE SECURITY)
SIGNATURE GUARANTEE:
-----------------------------------
(SIGNATURE MUST BE GUARANTEED BY A
MEMBER FIRM OF THE NEW YORK STOCK
EXCHANGE OR A COMMERCIAL BANK OR TRUST COMPANY)
<PAGE>
EXECUTION COPY
$240,000,000
HEXCEL CORPORATION
9 3/4% SENIOR SUBORDINATED NOTES DUE 2009
REGISTRATION RIGHTS AGREEMENT
January 21, 1999
CREDIT SUISSE FIRST BOSTON CORPORATION
SALOMON SMITH BARNEY INC.
c/o CREDIT SUISSE FIRST BOSTON CORPORATION
Eleven Madison Avenue
New York, New York 10010-3629
Dear Sirs:
Hexcel Corporation, a Delaware corporation (the "COMPANY"), proposes
to issue and sell to Credit Suisse First Boston Corporation and Salomon Smith
Barney Inc. (the "INITIAL PURCHASERS"), upon the terms set forth in a purchase
agreement dated January 15, 1999 (the "PURCHASE AGREEMENT"), $240,000,000
aggregate principal amount of its 9 3/4% Senior Subordinated Notes Due 2009 (thE
"INITIAL SECURITies"). The Initial Securities will be issued pursuant to an
Indenture of even date herewith (the "INDENTURE"), between the Company and The
Bank of New York, as trustee (the "TRUSTEE"). As an inducement to the Initial
Purchasers to enter into the Purchase Agreement, the Company agrees with the
Initial Purchasers, for the benefit of the holders of the Initial Securities
(including, without limitation, the Initial Purchasers), the Exchange Securities
(as defined below) and the Private Exchange Securities (as defined below)
(collectively the "HOLDERS"), as follows:
1. REGISTERED EXCHANGE OFFER. The Company shall, at its own cost,
prepare and, not later than 90 days after (or if the 90th day is not a business
day, the first business day thereafter) the date of original issue of the
Initial Securities (the "ISSUE DATE"), file with the Securities and Exchange
Commission (the "COMMISSION") a registration statement (the "EXCHANGE OFFER
REGISTRATION STATEMENT") on an appropriate form under the Securities Act of 1933
(the "SECURITIES ACT"), with respect to a proposed offer (the "REGISTERED
EXCHANGE OFFER") to the Holders of Transfer Restricted Securities (as defined in
Section 6 hereof), who are not prohibited by any law or policy of the Commission
from participating in the Registered Exchange Offer, to issue and deliver to
such Holders, in exchange for the Initial Securities, a like aggregate principal
amount of debt securities (the "EXCHANGE SECURITIES") of the Company issued
under the Indenture and identical in all material respects to the Initial
Securities (except for the transfer restrictions relating to the Initial
Securities and the provisions relating to the matters described in Section 6
hereof) that would be registered under the Securities Act. The Company shall use
its best efforts to cause such Exchange Offer Registration Statement to become
effective under the Securities Act within 180 days (or if the 180th day is not a
business day, the first business day thereafter) after the Issue Date of the
Initial Securities and shall use its best efforts to keep the Exchange Offer
Registration Statement effective for not less than 30 days (or longer, if
required by applicable law) after the date notice of the Registered Exchange
Offer is mailed to the Holders (such period being called the "EXCHANGE OFFER
REGISTRATION PERIOD").
If the Company effects the Registered Exchange Offer, the Company will
be entitled to close the Registered Exchange Offer 30 days after the
commencement thereof provided that the Company has
<PAGE>
accepted all the Initial Securities theretofore validly tendered in accordance
with the terms of the Registered Exchange Offer.
As soon as practicable, following the declaration of the effectiveness
of the Exchange Offer Registration Statement, the Company shall promptly
commence the Registered Exchange Offer, it being the objective of such
Registered Exchange Offer to enable each Holder of Transfer Restricted
Securities (as defined in Section 6 hereof) electing to exchange the Initial
Securities for Exchange Securities (assuming that such Holder is not an
affiliate of the Company within the meaning of the Securities Act, acquires the
Exchange Securities in the ordinary course of such Holder's business and has no
arrangements with any person to participate in the distribution of the Exchange
Securities and is not prohibited by any law or policy of the Commission from
participating in the Registered Exchange Offer) to trade such Exchange
Securities from and after their receipt without any limitations or restrictions
under the Securities Act and without material restrictions under the securities
laws of the several states of the United States.
Notwithstanding the foregoing, the Initial Purchasers and the Company
acknowledge that, pursuant to current interpretations by the Commission's staff
of Section 5 of the Securities Act, in the absence of an applicable exemption
therefrom, (i) each Holder which is a broker-dealer electing to exchange Initial
Securities, acquired for its own account as a result of market making activities
or other trading activities, for Exchange Securities (an "EXCHANGING DEALER"),
is required to deliver a prospectus containing the information set forth in (a)
Annex A hereto on the cover, (b) Annex B hereto in the "Exchange Offer
Procedures" section and the "Purpose of the Exchange Offer" section, and (c)
Annex C hereto in the "Plan of Distribution" section of such prospectus in
connection with a sale of any such Exchange Securities received by such
Exchanging Dealer pursuant to the Registered Exchange Offer and (ii) an Initial
Purchaser that elects to sell Securities (as defined below) acquired in exchange
for Initial Securities constituting any portion of an unsold allotment, is
required to deliver a prospectus containing the information required by Items
507 or 508 of Regulation S-K under the Securities Act, as applicable, in
connection with such sale.
The Company shall use its best efforts to keep the Exchange Offer
Registration Statement effective and to amend and supplement the prospectus
contained therein, in order to permit such prospectus to be lawfully delivered
by all persons subject to the prospectus delivery requirements of the Securities
Act for such period of time as such persons must comply with such requirements
in order to resell the Exchange Securities; PROVIDED, HOWEVER, that (i) in the
case where such prospectus and any amendment or supplement thereto must be
delivered by an Exchanging Dealer or an Initial Purchaser, such period shall be
the lesser of 180 days and the date on which all Exchanging Dealers and the
Initial Purchasers have sold all Exchange Securities held by them (unless such
period is extended pursuant to Section 3(j) below) and (ii) the Company shall
make such prospectus and any amendment or supplement thereto available to any
broker-dealer for use in connection with any resale of any Exchange Securities
for a period of not less than 180 days after the consummation of the Registered
Exchange Offer.
If, upon consummation of the Registered Exchange Offer, any Initial
Purchaser holds Initial Securities acquired by it as part of its initial
distribution, the Company, simultaneously with the delivery of the Exchange
Securities pursuant to the Registered Exchange Offer, shall issue and deliver to
such Initial Purchaser upon the written request of the Initial Purchaser, in
exchange (each, a "PRIVATE EXCHANGE" and collectively, the "PRIVATE EXCHANGES")
for the Initial Securities held by the Initial Purchaser, a like principal
amount of debt securities of the Company issued under the Indenture and
identical in all material respects (including the existence of restrictions on
transfer under the Securities Act and the securities laws of the several states
of the United States, but excluding provisions relating to the matters described
in Section 6 hereof) to the Initial Securities (the "PRIVATE EXCHANGE
SECURITIES"). The Initial Securities, the Exchange Securities and the Private
Exchange Securities are herein collectively called the "SECURITIES".
In connection with the Registered Exchange Offer, the Company shall:
2
<PAGE>
(a) mail to each Holder a copy of the prospectus forming part of
the Exchange Offer Registration Statement, together with an
appropriate letter of transmittal and related documents;
(b) use its best efforts to keep the Registered Exchange Offer
open for not less than 30 days (or longer, if required by applicable
law) after the date notice thereof is mailed to the Holders;
(c) utilize the services of a depositary for the Registered
Exchange Offer with an address in the Borough of Manhattan, The City
of New York, which may be the Trustee or an affiliate of the Trustee;
(d) permit Holders to withdraw tendered Securities at any time
prior to the close of business, New York time, on the last business
day on which the Registered Exchange Offer shall remain open; and
(e) otherwise comply with all applicable laws.
As soon as practicable after the close of Registered Exchange Offer or
the Private Exchanges, as the case may be, the Company shall:
(x) accept for exchange all the Securities validly tendered and
not withdrawn pursuant to the Registered Exchange Offer and the
Private Exchanges;
(y) deliver to the Trustee for cancellation all the Initial
Securities so accepted for exchange; and
(z) cause the Trustee to authenticate and deliver promptly to
each Holder of the Initial Securities, Exchange Securities or Private
Exchange Securities, as the case may be, equal in principal amount to
the Initial Securities of such Holder so accepted for exchange.
The Indenture will provide that the Exchange Securities will not be
subject to the transfer restrictions set forth in the Indenture and that all the
Securities will vote and consent together on all matters as one class and that
none of the Securities will have the right to vote or consent as a class
separate from one another on any matter.
Interest on each Exchange Security and Private Exchange Security
issued pursuant to the Registered Exchange Offer and in the Private Exchanges
will accrue from the last interest payment date on which interest was paid on
the Initial Securities surrendered in exchange therefor or, if no interest has
been paid on the Initial Securities, from the Issue Date.
Each Holder participating in the Registered Exchange Offer shall be
required to represent to the Company that at the time of the consummation of the
Registered Exchange Offer (i) any Exchange Securities received by such Holder
will be acquired in the ordinary course of business, (ii) such Holder will have
no arrangements or understanding with any person to participate in the
distribution of the Securities or the Exchange Securities within the meaning of
the Securities Act, (iii) such Holder is not an "affiliate," as defined in Rule
405 of the Securities Act, of the Company or if it is an affiliate, such Holder
will comply with the registration and prospectus delivery requirements of the
Securities Act to the extent applicable, (iv) if such Holder is not a
broker-dealer, that it is not engaged in, and does not intend to engage in, the
distribution of the Exchange Securities and (v) if such Holder is a
broker-dealer, that it will receive Exchange Securities for its own account in
exchange for Initial Securities that were acquired as a result of market-making
activities or other trading activities and that it will be required to
acknowledge that it will deliver a prospectus in connection with any resale of
such Exchange Securities.
3
<PAGE>
Notwithstanding any other provisions hereof, the Company will use its
best efforts to ensure that (i) any Exchange Offer Registration Statement and
any amendment thereto and any prospectus forming part thereof and any supplement
thereto complies in all material respects with the Securities Act and the rules
and regulations thereunder, (ii) any Exchange Offer Registration Statement and
any amendment thereto does not, when it becomes effective, contain an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading and
(iii) any prospectus forming part of any Exchange Offer Registration Statement,
and any supplement to such prospectus, does not include an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
2. SHELF REGISTRATION. If, (i) because of any change in law or in
applicable interpretations thereof by the staff of the Commission, the Company
determines that it is not permitted to effect a Registered Exchange Offer, as
contemplated by Section 1 hereof, (ii) for any other reason the Registered
Exchange Offer is not consummated within 180 days of the Issue Date (or, if such
day is not a business day, the first business day thereafter), (iii) any Initial
Purchaser notifies the Company within 10 business days following consummation of
the Registered Exchange Offer that the Initial Securities (or the Private
Exchange Securities) held by it are not eligible to be exchanged for Exchange
Securities in the Registered Exchange Offer and held by it following
consummation of the Registered Exchange Offer or (iv) any Holder (other than an
Exchanging Dealer) is not eligible to participate in the Registered Exchange
Offer or, in the case of any Holder (other than an Exchanging Dealer) that
participates in the Registered Exchange Offer, such Holder does not receive
freely tradeable Exchange Securities on the date of the exchange, the Company
shall take the following actions:
(a) The Company shall, at its cost, as promptly as practicable
(but in no event more than 90 days after so required or requested
pursuant to this Section 2) file with the Commission and thereafter
shall use its best efforts to cause to be declared effective a
registration statement (the "SHELF REGISTRATION STATEMENT" and,
together with the Exchange Offer Registration Statement, a
"REGISTRATION STATEMENT") on an appropriate form under the Securities
Act relating to the offer and sale of the Transfer Restricted
Securities (as defined in Section 6 hereof) by the Holders thereof
from time to time in accordance with the methods of distribution set
forth in the Shelf Registration Statement and Rule 415 under the
Securities Act (hereinafter, the "SHELF REGISTRATION"); PROVIDED,
HOWEVER, that no Holder (other than an Initial Purchaser) shall be
entitled to have the Securities held by it covered by such Shelf
Registration Statement unless such Holder agrees in writing to be
bound by all the provisions of this Agreement applicable to such
Holder.
(b) The Company shall use its best efforts to keep the Shelf
Registration Statement continuously effective in order to permit the
prospectus included therein to be lawfully delivered by the Holders of
the relevant Securities, for a period of two years (or for such longer
period if extended pursuant to Section 3(j) below) from the date of
its effectiveness or such shorter period that will terminate when all
the Securities covered by the Shelf Registration Statement (i) have
been sold pursuant thereto or (ii) when, in the opinion of outside
counsel to the Company, which is reasonably satisfactory in form and
substance to counsel for the Initial Purchasers, all such Securities
may be sold pursuant to Rule 144 without any limitations imposed
pursuant to clauses (c), (e), (f) and (h) thereunder. The Company
shall be deemed not to have used its best efforts to keep the Shelf
Registration Statement effective during the requisite period if it
voluntarily takes any action that would result in Holders of
Securities covered thereby not being able to offer and sell such
Securities during that period, unless such action is required by
applicable law.
(c) Notwithstanding any other provisions of this Agreement to the
contrary, the Company shall use its best efforts to cause the Shelf
Registration Statement and the related prospectus and any amendment or
supplement thereto, as of the effective date of the Shelf
4
<PAGE>
Registration Statement, amendment or supplement, (i) to comply in all
material respects with the applicable requirements of the Securities
Act and the rules and regulations thereunder and (ii) not to contain
any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they
were made, not misleading.
3. REGISTRATION PROCEDURES. In connection with any Shelf Registration
contemplated by Section 2 hereof and, to the extent applicable, any Registered
Exchange Offer contemplated by Section 1 hereof, the following provisions shall
apply:
(a) The Company shall (i) furnish to each Initial Purchaser,
prior to the filing thereof with the Commission, a copy of the
Registration Statement and each amendment thereof and each supplement,
if any, to the prospectus included therein and, in the event that an
Initial Purchaser (with respect to any portion of an unsold allotment
from the original offering) is participating in such Registered
Exchange Offer or the Shelf Registration Statement, the Company shall
use its best efforts to reflect in each such document, when so filed
with the Commission, such comments as such Initial Purchaser
reasonably may on a timely basis propose; (ii) include substantially
the information set forth in Annex A hereto on the cover, in Annex B
hereto in the "Exchange Offer Procedures" section and the "Purpose of
the Exchange Offer" section and in Annex C hereto in the "Plan of
Distribution" section of the prospectus forming a part of the Exchange
Offer Registration Statement and include the information set forth in
Annex D hereto in the Letter of Transmittal delivered pursuant to the
Registered Exchange Offer; (iii) if requested by an Initial Purchaser,
include the information required by Items 507 or 508 of Regulation S-K
under the Securities Act, as applicable, in the prospectus forming a
part of the Exchange Offer Registration Statement; (iv) include within
the prospectus contained in the Exchange Offer Registration Statement
a section entitled "Plan of Distribution," reasonably acceptable to
the Initial Purchasers, which shall contain a summary statement of the
positions taken or policies made by the staff of the Commission with
respect to the potential "underwriter" status of any broker-dealer
that is the beneficial owner (as defined in Rule 13d-3 under the
Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT")) of
Exchange Securities received by such broker-dealer in the Registered
Exchange Offer (a "PARTICIPATING BROKER-DEALER"), whether such
positions or policies have been publicly disseminated by the staff of
the Commission or such positions or policies, in the reasonable
judgment of the Initial Purchasers based upon advice of counsel (which
may be in-house counsel), represent the prevailing views of the staff
of the Commission; and (v) in the case of a Shelf Registration
Statement, include the names of the Holders who propose to sell
Securities pursuant to the Shelf Registration Statement as selling
securityholders.
(b) The Company shall give written notice to the Initial
Purchasers, the Holders of the Securities and any Participating
Broker-Dealer from whom the Company has received prior written notice
that it will be a Participating Broker-Dealer in the Registered
Exchange Offer (which notice pursuant to clauses (ii)-(v) hereof shall
be accompanied by an instruction to suspend the use of the prospectus
until the requisite changes have been made, if applicable):
(i) when the Registration Statement or any amendment thereto
has been filed with the Commission and when the Registration
Statement or any post-effective amendment thereto has become
effective;
(ii) of any request by the Commission for amendments or
supplements to the Registration Statement or the prospectus
included therein or for additional information;
(iii) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or the
initiation of any proceedings for that purpose;
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(iv) of the receipt by the Company or its legal counsel of
any notification with respect to the suspension of the
qualification of the Securities included thereunder for sale in
any jurisdiction or the initiation or threatening of any
proceeding for such purpose; and
(v) of the happening of any event that requires the Company
to make changes in the Registration Statement or the prospectus
in order that the Registration Statement or the prospectus do not
contain an untrue statement of a material fact nor omit to state
a material fact required to be stated therein or necessary to
make the statements therein (in the case of the prospectus, in
light of the circumstances under which they were made) not
misleading.
(c) The Company shall make every reasonable effort to obtain the
withdrawal at the earliest possible time, of any order suspending the
effectiveness of the Registration Statement.
(d) The Company shall furnish to each Holder of Securities
included within the coverage of the Shelf Registration, without
charge, at least one copy of the Shelf Registration Statement and any
post-effective amendment thereto, including financial statements and
schedules, and, if the Holder so requests in writing, all exhibits
thereto (including those, if any, incorporated by reference).
(e) The Company shall deliver to each Exchanging Dealer and
each Initial Purchaser, and to any other Holder who so requests,
without charge, at least one copy of the Exchange Offer Registration
Statement and any post-effective amendment thereto, including financial
statements and schedules, and, if any Initial Purchaser or any such
Holder so requests in writing, all exhibits thereto (including those
incorporated by reference).
(f) The Company shall, during the Shelf Registration Period,
deliver to each Holder of Securities included within the coverage of
the Shelf Registration, without charge, as many copies of the
prospectus (including each preliminary prospectus) included in the
Shelf Registration Statement and any amendment or supplement thereto
as such Holder may reasonably request. The Company consents, subject
to the provisions of this Agreement, to the use of the prospectus or
any amendment or supplement thereto by each of the selling Holders of
the Securities in connection with the offering and sale of the
Securities covered by the prospectus, or any amendment or supplement
thereto, included in the Shelf Registration Statement.
(g) The Company shall deliver to each Initial Purchaser, any
Exchanging Dealer, any Participating Broker-Dealer and such other
persons required to deliver a prospectus following the Registered
Exchange Offer, without charge, as many copies of the final prospectus
included in the Exchange Offer Registration Statement and any
amendment or supplement thereto as such persons may reasonably
request. The Company consents, subject to the provisions of this
Agreement, to the use of the prospectus or any amendment or supplement
thereto by any Initial Purchaser, if necessary, any Participating
Broker-Dealer and such other persons required to deliver a prospectus
following the Registered Exchange Offer in connection with the
offering and sale of the Exchange Securities covered by the
prospectus, or any amendment or supplement thereto, included in such
Exchange Offer Registration Statement.
(h) Prior to any public offering of the Securities pursuant to
any Registration Statement, the Company shall register or qualify or
cooperate with the Holders of the Securities included therein and
their respective counsel in connection with the registration or
qualification of the Securities for offer and sale under the
securities or "blue sky" laws of such states of the United States as
any Holder of the Securities reasonably requests in writing and do any
and all other acts or things necessary or advisable to enable the
offer and sale in such jurisdictions of the Securities
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covered by such Registration Statement; PROVIDED, HOWEVER, that the
Company shall not be required to (i) qualify generally to do business
in any jurisdiction where it is not then so qualified or (ii) take any
action which would subject it to general service of process or to
taxation in any jurisdiction where it is not then so subject.
(i) The Company shall cooperate with the Holders of the
Securities to facilitate the timely preparation and delivery of
certificates representing the Securities to be sold pursuant to any
Registration Statement free of any restrictive legends and in such
denominations and registered in such names as the Holders may request
a reasonable period of time prior to sales of the Securities pursuant
to such Registration Statement.
(j) Upon the occurrence of any event contemplated by paragraphs
(ii) through (v) of Section 3(b) above during the period for which the
Company is required to maintain an effective Registration Statement,
the Company shall promptly prepare and file a post-effective amendment
to the Registration Statement or a supplement to the related
prospectus and any other required document so that, as thereafter
delivered to Holders of the Securities or purchasers of Securities,
the prospectus will not contain an untrue statement of a material fact
or omit to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. If the
Company notifies the Initial Purchasers, the Holders of the Securities
and any known Participating Broker-Dealer in accordance with
paragraphs (ii) through (v) of Section 3(b) above to suspend the use
of the prospectus until the requisite changes to the prospectus have
been made, then the Initial Purchasers, the Holders of the Securities
and any such Participating Broker-Dealers shall suspend use of such
prospectus, and the period of effectiveness of the Shelf Registration
Statement provided for in Section 2(b) above and the Exchange Offer
Registration Statement provided for in Section 1 above shall each be
extended by the number of days from and including the date of the
giving of such notice to and including the date when the Initial
Purchasers, the Holders of the Securities and any known Participating
Broker-Dealer shall have received such amended or supplemented
prospectus pursuant to this Section 3(j).
(k) Not later than the effective date of the applicable
Registration Statement, the Company will provide a CUSIP number for
the Initial Securities, the Exchange Securities or the Private
Exchange Securities, as the case may be, and provide the applicable
trustee with printed certificates for the Initial Securities, the
Exchange Securities or the Private Exchange Securities, as the case
may be, in a form eligible for deposit with The Depository Trust
Company.
(l) The Company will comply with all rules and regulations of the
Commission to the extent and so long as they are applicable to the
Registered Exchange Offer or the Shelf Registration and will make
generally available to its security holders (or otherwise provide in
accordance with Section 11(a) of the Securities Act) an earnings
statement satisfying the provisions of Section 11(a) of the Securities
Act, as soon as is practicable after the effective date of the
applicable Registration Statement.
(m) The Company shall cause the Indenture to be qualified under
the Trust Indenture Act of 1939, as amended, in a timely manner and
containing such changes, if any, as shall be necessary for such
qualification. In the event that such qualification would require the
appointment of a new trustee under the Indenture, the Company shall
appoint a new trustee thereunder pursuant to the applicable provisions
of the Indenture.
(n) The Company may require each Holder of Securities to be sold
pursuant to the Shelf Registration Statement to furnish to the Company
such information regarding the Holder and the distribution of the
Securities as the Company may from time to time reasonably require for
inclusion in the Shelf Registration Statement, and the Company may
exclude from such
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<PAGE>
registration the Securities of any Holder that fails to furnish such
information within a reasonable time after receiving such request.
(o) The Company shall enter into such customary agreements
(including, if requested, an underwriting agreement in customary form)
and take all such other action, if any, as any Holder of the
Securities shall reasonably request in order to facilitate the
disposition of the Securities pursuant to any Shelf Registration.
(p) In the case of any Shelf Registration, the Company shall (i)
make reasonably available for inspection by the Holders of the
Securities, any underwriter participating in any disposition pursuant
to the Shelf Registration Statement and any attorney, accountant or
other agent retained by the Holders of the Securities or any such
underwriter all relevant financial and other records, pertinent
corporate documents and properties of the Company and (ii) cause the
Company's officers, directors, employees, accountants and auditors to
supply all relevant information reasonably requested by the Holders of
the Securities or any such underwriter, attorney, accountant or agent
in connection with the Shelf Registration Statement, in each case, as
shall be reasonably necessary to enable such persons, to conduct a
reasonable investigation within the meaning of Section 11 of the
Securities Act; PROVIDED, HOWEVER, that the foregoing inspection and
information gathering shall be coordinated on behalf of the Initial
Purchasers by you and on behalf of the other parties, by one counsel
designated by and on behalf of such other parties as described in and
subject to the provisions of Section 4 hereof. In connection with the
preparation and filing of a Shelf Registration Statement, the Company
may require each Holder to agree to keep confidential any non-public
information relating to the Company received by such Holders and not
to publicly disclose such information until such information has been
made generally available to the public.
(q) In the case of any Shelf Registration, the Company, if
requested by any Holder of Securities covered thereby, shall cause (i)
its counsel to deliver an opinion relating to the Securities in
customary form; (ii) its officers to execute and deliver all customary
documents and certificates requested by any underwriters of the
applicable Securities and (iii) its independent public accountants and
the independent public accountants with respect to any other entity
for which financial information is provided in the Shelf Registration
Statement to provide to the selling Holders of the applicable
Securities and any underwriter therefor a comfort letter in customary
form.
(r) In the case of the Registered Exchange Offer, if requested by
any Initial Purchaser or any known Participating Broker-Dealer, the
Company shall use its best efforts to cause (i) its counsel to deliver
to such Initial Purchaser or such Participating Broker-Dealer a signed
opinion in the form set forth in Section 6(d)-(f) of the Purchase
Agreement with such changes as are customary in connection with the
preparation of a Registration Statement and (ii) its independent
public accountants and the independent public accountants with respect
to any other entity for which financial information is provided in the
Registration Statement to deliver to such Initial Purchaser or such
Participating Broker-Dealer a comfort letters, in customary form,
meeting the requirements as to the substance thereof as set forth in
Section 6(a) and (b) of the Purchase Agreement, with appropriate date
changes.
(s) If a Registered Exchange Offer or a Private Exchange is to be
consummated, upon delivery of the Initial Securities by Holders to the
Company (or to such other Person as directed by the Company) in
exchange for the Exchange Securities or the Private Exchange
Securities, as the case may be, the Company shall mark, or caused to
be marked, on the Initial Securities so exchanged that such Initial
Securities are being canceled in exchange for the Exchange Securities
or the Private Exchange Securities, as the case may be; in no event
shall the Initial Securities be marked as paid or otherwise satisfied.
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<PAGE>
(t) The Company will use its best efforts to (a) if the Initial
Securities have been rated prior to the initial sale of such Initial
Securities, confirm such ratings will apply to the Securities covered
by a Registration Statement, or (b) if the Initial Securities were not
previously rated, cause the Securities covered by a Registration
Statement to be rated with the appropriate rating agencies, if so
requested by Holders of a majority in aggregate principal amount of
Securities covered by such Registration Statement, or by the managing
underwriters, if any.
(u) In the event that any broker-dealer registered under the
Exchange Act shall underwrite any Securities or participate as a
member of an underwriting syndicate or selling group or "assist in the
distribution" (within the meaning of the Conduct Rules (the "RULES")
of the National Association of Securities Dealers, Inc. ("NASD"))
thereof, whether as a Holder of such Securities or as an underwriter,
a placement or sales agent or a broker or dealer in respect thereof,
or otherwise, the Company will assist such broker-dealer in complying
with the requirements of such Rules, including, without limitation, by
(i) if such Rules, including Rule 2720, shall so require, engaging a
"qualified independent underwriter" (as defined in Rule 2720) to
participate in the preparation of the Registration Statement relating
to such Securities, to exercise usual standards of due diligence in
respect thereto and, if any portion of the offering contemplated by
such Registration Statement is an underwritten offering or is made
through a placement or sales agent, to recommend the yield of such
Securities, (ii) indemnifying any such qualified independent
underwriter to the extent of the indemnification of underwriters
provided in Section 5 hereof and (iii) providing such information to
such broker-dealer as may be required in order for such broker-dealer
to comply with the requirements of the Rules.
(v) The Company shall use its best efforts to take all other
steps necessary to effect the registration of the Securities covered
by a Registration Statement contemplated hereby.
4. REGISTRATION EXPENSES. The Company shall bear all fees and expenses
incurred by it in connection with the performance of its obligations under
Sections 1 through 3 hereof (including the reasonable fees and expenses, if any,
of Cravath, Swaine & Moore, counsel for the Initial Purchasers, incurred in
connection with the Registered Exchange Offer), whether or not the Registered
Exchange Offer or a Shelf Registration is filed or becomes effective, and, in
the event of a Shelf Registration, shall bear or reimburse the Holders of the
Securities covered thereby for the reasonable fees and disbursements of one firm
of counsel designated by the Holders of a majority in principal amount of the
Securities covered thereby to act as counsel for the Holders of the Securities
in connection therewith.
5. INDEMNIFICATION. (a) The Company agrees to indemnify and hold
harmless each Holder of the Securities, any Participating Broker-Dealer and each
person, if any, who controls such Holder or such Participating Broker-Dealer
within the meaning of the Securities Act or the Exchange Act (each Holder, any
Participating Broker-Dealer and such controlling persons are referred to
collectively as the "INDEMNIFIED PARTIES") from and against any losses, claims,
damages or liabilities, joint or several, or any actions in respect thereof
(including, but not limited to, any losses, claims, damages, liabilities or
actions relating to purchases and sales of the Securities) to which each
Indemnified Party may become subject under the Securities Act, the Exchange Act
or otherwise, insofar as such losses, claims, damages, liabilities or actions
arise out of or are based upon any untrue statement or alleged untrue statement
of a material fact contained in a Registration Statement or in a prospectus
contained in a Registration Statement (a "PROSPECTUS") or in any amendment or
supplement thereto or in any preliminary prospectus relating to a Shelf
Registration, or arise out of, or are based upon, the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and shall reimburse, as
incurred, the Indemnified Parties for any legal or other expenses reasonably
incurred by them in connection with investigating or defending any such loss,
claim, damage, liability or action in respect thereof; PROVIDED, HOWEVER, that
(i) the Company shall not be liable in any such case to the extent that such
loss, claim, damage, liability or actions in respect thereof arises out of or is
based upon any untrue statement or alleged untrue statement or omission or
alleged omission made in a Registration
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<PAGE>
Statement or Prospectus or in any amendment or supplement thereto or in any
preliminary prospectus relating to a Shelf Registration in reliance upon and in
conformity with written information pertaining to such Holder and furnished to
the Company by or on behalf of such Holder specifically for inclusion therein
and (ii) with respect to any untrue statement or omission or alleged untrue
statement or omission made in any preliminary prospectus relating to a Shelf
Registration Statement, the indemnity agreement contained in this subsection (a)
shall not inure to the benefit of any Holder or Participating Broker-Dealer from
whom the person asserting any such losses, claims, damages, liabilities or
actions in respect thereof purchased the Securities concerned, to the extent
that a prospectus relating to such Securities was required to be delivered by
such Holder or Participating Broker-Dealer under the Securities Act in
connection with such purchase and any such loss, claim, damage, liability or
action of such Holder or Participating Broker-Dealer results from the fact that
there was not sent or given to such person, at or prior to the written
confirmation of the sale of such Securities to such person, a copy of the final
prospectus if the Company had previously furnished copies thereof to such Holder
or Participating Broker-Dealer; PROVIDED FURTHER, HOWEVER, that this indemnity
agreement will be in addition to any liability which the Company may otherwise
have to such Indemnified Party. The Company shall also indemnify underwriters,
their officers and directors and each person who controls such underwriters
within the meaning of the Securities Act or the Exchange Act to the same extent
as provided above with respect to the indemnification of the Holders of the
Securities if requested by such Holders.
(b) Each Holder of the Securities, severally and not jointly, will
indemnify and hold harmless the Company and each person, if any, who controls
the Company within the meaning of the Securities Act or the Exchange Act from
and against any losses, claims, damages or liabilities or any actions in respect
thereof, to which the Company or any such controlling person may become subject
under the Securities Act, the Exchange Act or otherwise, insofar as such losses,
claims, damages, liabilities or actions arise out of or are based upon any
untrue statement or alleged untrue statement of a material fact contained in a
Registration Statement or prospectus or in any amendment or supplement thereto
or in any preliminary prospectus relating to a Shelf Registration, or arise out
of or are based upon the omission or alleged omission to state therein a
material fact necessary to make the statements therein not misleading, but in
each case only to the extent that the untrue statement or omission or alleged
untrue statement or omission was made in reliance upon and in conformity with
written information pertaining to such Holder and furnished to the Company by or
on behalf of such Holder specifically for inclusion therein; and, subject to the
limitation set forth immediately preceding this clause, shall reimburse, as
incurred, the Company for any legal or other expenses reasonably incurred by the
Company or any such controlling person in connection with investigating or
defending any loss, claim, damage, liability or action in respect thereof. This
indemnity agreement will be in addition to any liability which such Holder may
otherwise have to the Company or any of its controlling persons.
(c) Promptly after receipt by an indemnified party under this Section
5 of notice of the commencement of any action or proceeding (including a
governmental investigation), such indemnified party will, if a claim in respect
thereof is to be made against the indemnifying party under this Section 5,
notify the indemnifying party of the commencement thereof; but the omission so
to notify the indemnifying party will not, in any event, relieve the
indemnifying party from any obligations to any indemnified party other than the
indemnification obligation provided in paragraph (a) or (b) above, except to the
extent the indemnifying party is materially prejudiced by such failure. In case
any such action is brought against any indemnified party, and it notifies the
indemnifying party of the commencement thereof, the indemnifying party will be
entitled to participate therein and, to the extent that it may wish, jointly
with any other indemnifying party similarly notified, to assume the defense
thereof, with counsel reasonably satisfactory to such indemnified party (who
shall not, except with the consent of the indemnified party, be counsel to the
indemnifying party), and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof the
indemnifying party will not be liable to such indemnified party under this
Section 5 for any legal or other expenses, other than reasonable costs of
investigation, subsequently incurred by such indemnified party in connection
with the defense thereof. In no event shall an indemnifying party be liable for
fees and expenses of more than one counsel
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(in addition to any local counsel) separate from their own counsel for all
indemnified parties in connection with any one action or separate but similar or
related actions in the same jurisdiction arising out of the same general
allegations or circumstances. No indemnifying party shall, without the prior
written consent of the indemnified party, effect any settlement of any pending
or threatened action in respect of which any indemnified party is or could have
been a party and indemnity could have been sought hereunder by such indemnified
party unless such settlement includes an unconditional release of such
indemnified party from all liability on any claims that are the subject matter
of such action.
(d) If the indemnification provided for in this Section 5 is
unavailable or insufficient to hold harmless an indemnified party under
subsections (a) or (b) above, then each indemnifying party shall contribute to
the amount paid or payable by such indemnified party as a result of the losses,
claims, damages or liabilities (or actions in respect thereof) referred to in
subsection (a) or (b) above (i) in such proportion as is appropriate to reflect
the relative benefits received by the indemnifying party or parties on the one
hand and the indemnified party on the other from the exchange of the Securities,
pursuant to the Registered Exchange Offer, or (ii) if the allocation provided by
the foregoing clause (i) is not permitted by applicable law, in such proportion
as is appropriate to reflect not only the relative benefits referred to in
clause (i) above but also the relative fault of the indemnifying party or
parties on the one hand and the indemnified party on the other in connection
with the statements or omissions that resulted in such losses, claims, damages
or liabilities (or actions in respect thereof) as well as any other relevant
equitable considerations. The relative fault of the parties shall be determined
by reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to state a
material fact relates to information supplied by such indemnifying party on the
one hand or such indemnified party on the other, and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission. The amount paid by an indemnified party as a result
of the losses, claims, damages or liabilities referred to in the first sentence
of this subsection (d) shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any action or claim which is the subject of this subsection (d).
Notwithstanding any other provision of this Section 5(d), the Holders of the
Securities shall not be required to contribute any amount in excess of the
amount by which the net proceeds received by such Holders from the sale of the
Securities pursuant to a Registration Statement exceeds the amount of damages
which such Holders have otherwise been required to pay by reason of such untrue
or alleged untrue statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. For purposes of this paragraph (d),
each person, if any, who controls such indemnified party within the meaning of
the Securities Act or the Exchange Act shall have the same rights to
contribution as such indemnified party and each person, if any, who controls the
Company within the meaning of the Securities Act or the Exchange Act shall have
the same rights to contribution as the Company.
(e) The agreements contained in this Section 5 shall survive the sale
of the Securities pursuant to a Registration Statement and shall remain in full
force and effect, regardless of any termination or cancellation of this
Agreement or any investigation made by or on behalf of any indemnified party.
6. ADDITIONAL INTEREST UNDER CERTAIN CIRCUMSTANCES. (a) Additional
interest (the "ADDITIONAL INTEREST") with respect to the Initial Securities and
the Private Exchange Securities shall be assessed as follows if any of the
following events occur (each such event in clauses (i) through (iii) below a
"REGISTRATION DEFAULT"):
(i) If by April 21, 1999 (90 days after the Issue Date), neither
the Exchange Offer Registration Statement nor a Shelf Registration
Statement has been filed with the Commission;
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(ii) If by July 20, 1999 (180 days after the Issue Date), neither
the Registered Exchange Offer is consummated nor, if required in lieu
thereof, the Shelf Registration Statement is declared effective by the
Commission; or
(iii) If after July 20, 1999, and after either the Exchange Offer
Registration Statement or the Shelf Registration Statement is declared
effective (A) such Registration Statement thereafter ceases to be
effective or (B) such Registration Statement or the related prospectus
ceases to be usable except as permitted in paragraph (b) hereof in
connection with resales of Transfer Restricted Securities during the
periods specified herein because either (1) any event occurs as a
result of which the related prospectus forming part of such
Registration Statement would include any untrue statement of a
material fact or omit to state any material fact necessary to make the
statements therein in the light of the circumstances under which they
were made not misleading, or (2) it shall be necessary to amend such
Registration Statement or supplement the related prospectus, to comply
with the Securities Act or the Exchange Act or the respective rules
thereunder.
Additional Interest shall accrue on the Initial Securities and the Private
Exchange Notes over and above the interest set forth in the title of the
Securities from and including the date on which any such Registration Default
shall occur to but excluding the date on which all such Registration Defaults
have been cured, at a rate of 0.50% per annum (the "ADDITIONAL INTEREST RATE")
until all Registration Defaults have been cured.
(b) A Registration Default referred to in Section 6(a)(iii) hereof
shall be deemed not to have occurred and be continuing in relation to a Shelf
Registration Statement or the related prospectus if (i) such Registration
Default has occurred solely as a result of (x) the filing of a post-effective
amendment to such Shelf Registration Statement to incorporate annual audited
financial information with respect to the Company where such post-effective
amendment is not yet effective and needs to be declared effective to permit
Holders to use the related prospectus or (y) other material events, with respect
to the Company that would need to be described in such Shelf Registration
Statement or the related prospectus and (ii) in the case of clause (y), the
Company is proceeding promptly and in good faith to amend or supplement such
Shelf Registration Statement and related prospectus to describe such events;
PROVIDED, HOWEVER, that in any case if such Registration Default occurs for a
continuous period in excess of 30 days, Additional Interest shall be payable in
accordance with the above paragraph from the day such Registration Default
occurs until such Registration Default is cured.
(c) Any amounts of Additional Interest due pursuant to clause (i),
(ii) or (iii) of Section 6(a) above will be payable in cash on the regular
interest payment dates with respect to the Securities. The amount of Additional
Interest will be determined by multiplying the applicable Additional Interest
rate by the principal amount of the Initial Securities or Private Exchange Notes
or Exchange Securities, as the case may be, multiplied by a fraction, the
numerator of which is the number of days such Additional Interest rate was
applicable during such period (determined on the basis of a 360-day year
comprised of twelve 30-day months), and the denominator of which is 360.
(d) "TRANSFER RESTRICTED SECURITIES" means each Security until (i) the
date on which such Security has been exchanged by a person other than a
broker-dealer for a freely transferable Exchange Security in the Registered
Exchange Offer, (ii) following the exchange by a broker-dealer in the Registered
Exchange Offer of an Initial Security for an Exchange Note, the date on which
such Exchange Note is sold to a purchaser who receives from such broker-dealer
on or prior to the date of such sale a copy of the prospectus contained in the
Exchange Offer Registration Statement, (iii) the date on which such Security has
been effectively registered under the Securities Act and disposed of in
accordance with the Shelf Registration Statement or (iv) the date on which such
Security is distributed to the public pursuant to Rule 144 under the Securities
Act or is saleable pursuant to Rule 144(k) under the Securities Act.
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7. RULES 144 AND 144A. The Company shall use its best efforts to file
the reports required to be filed by it under the Securities Act and the Exchange
Act in a timely manner and, if at any time the Company is not required to file
such reports, it will, upon the request of any Holder of Securities, make
publicly available other information so long as necessary to permit sales of
their securities pursuant to Rules 144 and 144A. The Company covenants that it
will take such further action as any Holder of Securities may reasonably
request, all to the extent required from time to time to enable such Holder to
sell Securities without registration under the Securities Act within the
limitation of the exemptions provided by Rules 144 and 144A (including the
requirements of Rule 144A(d)(4)). The Company will provide a copy of this
Agreement to prospective purchasers of Initial Securities identified to the
Company by the Initial Purchasers upon request. Upon the request of any Holder
of Initial Securities, the Company shall deliver to such Holder a written
statement as to whether it has complied with such requirements. Notwithstanding
the foregoing, nothing in this Section 7 shall be deemed to require the Company
to register any of its securities pursuant to the Exchange Act.
8. UNDERWRITTEN REGISTRATIONS. If any of the Transfer Restricted
Securities covered by any Shelf Registration are to be sold in an underwritten
offering, the investment banker or investment bankers and manager or managers
that will administer the offering ("MANAGING UNDERWRITERS") will be selected by
the Holders of a majority in aggregate principal amount of such Transfer
Restricted Securities to be included in such offering, with the consent of the
Company, which consent shall not be unreasonably withheld.
No person may participate in any underwritten registration hereunder
unless such person (i) agrees to sell such person's Transfer Restricted
Securities on the basis reasonably provided in any underwriting arrangements
approved by the persons entitled hereunder to approve such arrangements and (ii)
completes and executes all questionnaires, powers of attorney, indemnities,
underwriting agreements and other documents reasonably required under the terms
of such underwriting arrangements.
9. MISCELLANEOUS.
(a) AMENDMENTS AND WAIVERS. The provisions of this Agreement may not
be amended, modified or supplemented, and waivers or consents to departures from
the provisions hereof may not be given, unless the Company has obtained the
written consent of the Holders of a majority in principal amount of the
Securities affected by such amendment, modification, supplement, waiver or
consents.
(b) NOTICES. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand delivery, first-class mail,
facsimile transmission or air courier which guarantees overnight delivery:
(1) if to a Holder of the Securities, at the most current address
given by such Holder to the Company.
(2) if to the Initial Purchasers;
Credit Suisse First Boston Corporation
Eleven Madison Avenue
New York, NY 10010-3629
Fax No.: (212) 325-8278
Attention: Transactions Advisory Group
with a copy to:
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
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<PAGE>
New York, NY 10019-7475
Fax No.: (212) 735-3700
Attention: William J. Whelan, III
(3) if to the Company, at its address as follows:
Hexcel Corporation
Two Stamford Plaza
281 Tresser Boulevard
Stamford, CT 06901
Fax No.: (203) 358-3993
Attention: General Counsel
with a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, NY 10022
Fax No.: (212) 735-2000
Attention: Joseph A. Coco, Esq.
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; three business
days after being deposited in the mail, postage prepaid, if mailed; when receipt
is acknowledged by recipient's facsimile machine operator, if sent by facsimile
transmission; and on the day delivered, if sent by overnight air courier
guaranteeing next day delivery.
(c) NO INCONSISTENT AGREEMENTS. The Company has not, as of the date
hereof, entered into, nor shall it, on or after the date hereof, enter into, any
agreement with respect to its securities that is inconsistent with the rights
granted to the Holders herein or otherwise conflicts with the provisions hereof.
(d) SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon the
Company and its successors and assigns.
(e) COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(f) HEADINGS. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(g) GOVERNING Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED
IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAWS.
(h) SEVERABILITY. If any one or more of the provisions contained
herein, or the application thereof in any circumstance, is held invalid, illegal
or unenforceable, the validity, legality and enforceability of any such
provision in every other respect and of the remaining provisions contained
herein shall not be affected or impaired thereby.
(i) SECURITIES HELD BY THE COMPANY. Whenever the consent or approval
of Holders of a specified percentage of principal amount of Securities is
required hereunder, Securities held by the Company or its affiliates (other than
subsequent Holders of Securities if such subsequent Holders are deemed to be
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<PAGE>
affiliates solely by reason of their holdings of such Securities) shall not be
counted in determining whether such consent or approval was given by the Holders
of such required percentage.
(j) APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED
IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAWS.
The Company hereby submits to the non-exclusive jurisdiction of the
Federal and state courts in the Borough of Manhattan in The City of New York in
any suit or proceeding arising out of or relating to this Agreement or the
transactions contemplated hereby.
To the extent that the Company may acquire any immunity from
jurisdiction of any court or from any legal process (whether through service of
notice, attachment prior to judgment, attachment in aid of execution, execution
or otherwise) with respect to itself or its property, it hereby irrevocably
waives such immunity in respect of this Agreement, to the fullest extent
permitted by law.
15
<PAGE>
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to the Company a counterpart hereof, whereupon
this instrument, along with all counterparts, will become a binding agreement
among the Initial Purchasers and the Company in accordance with its terms.
Very truly yours,
HEXCEL CORPORATION,
by /s/ Bruce D. Herman
--------------------------------
Name: Bruce D. Herman
Title: Treasurer
The foregoing Registration
Rights Agreement is hereby confirmed
and accepted as of the date first
above written.
CREDIT SUISSE FIRST BOSTON CORPORATION
SALOMON SMITH BARNEY INC.
by: CREDIT SUISSE FIRST BOSTON CORPORATION
by /s/ Joseph D. Carrabino, Jr.
-------------------------------
Name: Joseph D. Carrabino, Jr.
Title: Managing Director
16
<PAGE>
ANNEX A
Each broker-dealer that receives Exchange Securities for its own
account pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Securities. The Letter
of Transmittal states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of Exchange Securities received in exchange for Initial Securities
where such Initial Securities were acquired by such broker-dealer as a result of
market-making activities or other trading activities. The Company has agreed
that, for a period of 180 days after the Expiration Date (as defined herein), it
will make this Prospectus available to any broker-dealer for use in connection
with any such resale. See "Plan of Distribution."
17
<PAGE>
ANNEX B
Each broker-dealer that receives Exchange Securities for its own
account in exchange for Initial Securities, where such Initial Securities were
acquired by such broker-dealer as a result of market-making activities or other
trading activities, must acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Securities. See "Plan of
Distribution."
18
<PAGE>
ANNEX C
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Securities for its own
account pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Securities. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of Exchange Securities received in
exchange for Initial Securities where such Initial Securities were acquired as a
result of market-making activities or other trading activities. The Company has
agreed that, for a period of 180 days after the Expiration Date, it will make
this prospectus, as amended or supplemented, available to any broker-dealer for
use in connection with any such resale. In addition, until , 199 ,
all dealers effecting transactions in the Exchange Securities may be required
to deliver a prospectus.(1)
The Company will not receive any proceeds from any sale of Exchange
Securities by broker-dealers. Exchange Securities received by broker-dealers for
their own account pursuant to the Exchange Offer may be sold from time to time
in one or more transactions in the over-the-counter market, in negotiated
transactions, through the writing of options on the Exchange Securities or a
combination of such methods of resale, at market prices prevailing at the time
of resale, at prices related to such prevailing market prices or negotiated
prices. Any such resale may be made directly to purchasers or to or through
brokers or dealers who may receive compensation in the form of commissions or
concessions from any such broker-dealer or the purchasers of any such Exchange
Securities. Any broker-dealer that resells Exchange Securities that were
received by it for its own account pursuant to the Exchange Offer and any broker
or dealer that participates in a distribution of such Exchange Securities may be
deemed to be an "underwriter" within the meaning of the Securities Act and any
profit on any such resale of Exchange Securities and any commission or
concessions received by any such persons may be deemed to be underwriting
compensation under the Securities Act. The Letter of Transmittal states that, by
acknowledging that it will deliver and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act.
For a period of 180 days after the Expiration Date the Company will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such documents
in the Letter of Transmittal. The Company has agreed to pay all expenses
incident to the Exchange Offer (including the expenses of one counsel for the
Holders of the Securities) other than commissions or concessions of any brokers
or dealers and will indemnify the Holders of the Securities (including any
broker-dealers) against certain liabilities, including liabilities under the
Securities Act.
- -----------------
(1) In addition, the legend required by Item 502(e) of Regulation S-K will
appear on the inside front cover page of the Exchange Offer prospectus.
19
<PAGE>
ANNEX D
|_| CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO.
Name:
--------------------------------------
Address:
--------------------------------------
--------------------------------------
If the undersigned is not a broker-dealer, the undersigned represents that it is
not engaged in, and does not intend to engage in, a distribution of Exchange
Securities. If the undersigned is a broker-dealer that will receive Exchange
Securities for its own account in exchange for Initial Securities that were
acquired as a result of market-making activities or other trading activities, it
acknowledges that it will deliver a prospectus in connection with any resale of
such Exchange Securities; however, by so acknowledging and by delivering a
prospectus, the undersigned will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
20
<PAGE>
EXECUTION COPY
$240,000,000
HEXCEL CORPORATION
9 3/4% SENIOR SUBORDINATED NOTES DUE 2009
PURCHASE AGREEMENT
January 15, 1999
CREDIT SUISSE FIRST BOSTON CORPORATION
SALOMON SMITH BARNEY INC.
c/o CREDIT SUISSE FIRST BOSTON CORPORATION
Eleven Madison Avenue,
New York, N.Y. 10010-3629
Dear Sirs:
1. INTRODUCTORY. Hexcel Corporation, a Delaware corporation (the
"COMPANY"), proposes, subject to the terms and conditions stated herein, to
issue and sell to the several initial purchasers named in Schedule A hereto (the
"INITIAL PURCHASERS") $240,000,000 principal amount of its 9 3/4% Senior
Subordinated Notes Due 2009 (the "OFFERED SECURITIES"). The Offered Securities
will be issued under an indenture dated as of January 21, 1999 (the
"INDENTURE"), between the Company and The Bank of New York, as trustee (the
"TRUSTEE").
The Offered Securities will be offered and sold to the Initial
Purchasers without being registered under the Securities Act of 1933 (the
"SECURITIES ACT"), in reliance upon an exemption therefrom. Prior to the Closing
Date (as defined herein), the Company will deliver to the Initial Purchasers a
Preliminary Offering Circular (as defined herein) setting forth the information
concerning the Company and the Offered Securities. Any references herein to the
Offering Circular (as defined herein) shall be deemed to include all amendments
and supplements thereto, unless otherwise noted, and all documents (the
"INCORPORATED DOCUMENTS") incorporated by reference therein and filed under the
Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT"); and any
references herein to the terms "amend", "amendment" or "supplement" with respect
to the Offering Circular shall be deemed to refer to and include the filing of
any document under the Exchange Act subsequent to the date thereof and before
the Closing Date that is incorporated by reference therein. The Company hereby
confirms that it has authorized the use of the Incorporated Documents and the
Offering Document (as defined herein) in connection with the offering and resale
of the Offered Securities by the Initial Purchasers in accordance with Section 2
hereof.
Holders of the Offered Securities (including the Initial Purchasers and
their direct and indirect transferees) will be entitled to the benefits of a
Registration Rights Agreement dated January 21, 1999, among the Company and the
Initial Purchasers (the "REGISTRATION RIGHTS AGREEMENT"), pursuant to which the
Company will agree to file with the Securities and Exchange Commission (the
"COMMISSION") (i) a registration statement under the Securities Act (the
"EXCHANGE OFFER REGISTRATION STATEMENT") registering an issue of senior
subordinated notes of the Company (the "EXCHANGE NOTES"), which are identical in
all material respects to the Offered Securities (except that the Exchange Notes
will not contain terms with respect to transfer restrictions and interest rate
increase) and (ii) under certain circumstances, a shelf registration statement
pursuant to Rule 415 under the Securities Act.
<PAGE>
Capitalized terms used but not defined herein shall have the meanings
given to such terms in the Offering Document.
The Company hereby agrees with the Initial Purchasers as follows:
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to, and agrees with, the Initial Purchasers that:
(a) A preliminary offering circular and an offering circular
relating to the Offered Securities has been prepared by the Company.
Such preliminary offering circular (the "PRELIMINARY OFFERING
CIRCULAR") and offering circular (the "OFFERING CIRCULAR"), as both are
supplemented as of the date of this Agreement, and any other document
approved by the Company for use in connection with the contemplated
resale of the Offered Securities, are hereinafter collectively referred
to as the "OFFERING DOCUMENT". On the date of this Agreement, the
Offering Document does not include any untrue statement of a material
fact or omit to state any material fact necessary in order to make the
statements therein, in the light of the circumstances under which they
were made, not misleading. The preceding sentence does not apply to
statements in or omissions from the Offering Document based upon
written information furnished to the Company by any Initial Purchaser
through Credit Suisse First Boston Corporation ("CSFBC") specifically
for use therein, it being understood and agreed that the only such
information is that described as such in Section 7(b) hereof. Except as
disclosed in the Offering Document, on the date of this Agreement, the
Incorporated Documents and all subsequent reports (collectively, the
"EXCHANGE ACT REPORTS") which have been filed by the Company with the
Commission or sent to stockholders pursuant to the Exchange Act when
they were filed with the Commission, conformed in all material respects
to the requirements of the Exchange Act and the rules and regulations
of the Commission thereunder.
(b) The Company has been duly incorporated and is a validly
existing corporation in good standing under the laws of the State of
Delaware, with power and authority (corporate and other) to own its
properties and conduct its business as described in the Offering
Document; and the Company is duly qualified to do business as a foreign
corporation in good standing in all other jurisdictions in which its
ownership or lease of property or the conduct of its business requires
such qualification, except where the failure to be so qualified would
not have a material adverse effect on the condition (financial or
other), business, properties or results of operations of the Company
and its Subsidiaries (as hereinafter defined), taken as a whole (a
"MATERIAL ADVERSE EFFECT").
(c) Each subsidiary of the Company within the meaning of Rule
1-02(w) of Regulation S-X under the Securities Act is listed in
Schedule B hereto (each individually, a "SUBSIDIARY" and collectively,
the "SUBSIDIARIES"). Each Subsidiary of the Company has been duly
incorporated and is a validly existing corporation in good standing
(where applicable) under the laws of the jurisdiction of its
incorporation, with power and authority (corporate and other) to own
its properties and conduct its business as described in the Offering
Document; and each Subsidiary of the Company is duly qualified to do
business as a foreign corporation in good standing (where applicable)
in all other jurisdictions in which its ownership or lease of property
or the conduct of its business requires such qualification, except
where the failure to be so qualified would not have a Material Adverse
Effect; all of the issued and outstanding capital stock of each
Subsidiary of the Company has been duly authorized and validly issued
and is fully paid and nonassessable; and, except as disclosed in the
Offering Document, the capital stock of each Subsidiary is owned by the
Company, directly or through Subsidiaries, and is owned free from
material liens, encumbrances and defects except for liens and
encumbrances created by or under the Senior Credit Facility (as defined
in the Offering Document).
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<PAGE>
(d) The Indenture has been duly authorized by the Company; the
Offered Securities have been duly authorized by the Company; and when
the Offered Securities are delivered and paid for pursuant to this
Agreement and the Indenture on the Closing Date, the Indenture will
have been duly executed and delivered (assuming due authorization,
execution and delivery by the Trustee), such Offered Securities will
have been duly executed, authenticated, issued and delivered (assuming
authentication by the Trustee in accordance with the provisions of the
Indenture) and will conform in all material respects to the description
thereof contained in the Offering Document; and the Indenture and such
Offered Securities will constitute valid and legally binding
obligations of the Company (and the Offered Securities will be entitled
to the benefits in the Indenture), enforceable in accordance with their
terms, except to the extent that enforcement thereof may be limited by
(i) bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium or other similar laws, now or hereafter in effect, relating
to creditors' rights generally and (ii) general principles of equity
(regardless of whether enforcement is considered in a proceeding in
equity or at law).
(e) Except as disclosed in the Offering Document, there are no
contracts, agreements or understandings between the Company and any
person that would give rise to a valid claim against the Company or any
Initial Purchaser for a brokerage commission, finder's fee or other
like payment in connection with the issuance and sale of Offered
Securities.
(f) No consent, approval, authorization, or order of, or filing
with, any governmental agency or body or any court is required for the
consummation of the transactions contemplated by this Agreement and the
Registration Rights Agreement in connection with the issuance and sale
of the Offered Securities by the Company except (i) those that have
been obtained or made; (ii) for filings and qualifications contemplated
by the Registration Rights Agreement; (iii) such as may be required
under foreign or state securities or blue sky laws; or (iv) such
Exchange Act Reports as may be required to be filed with the Commission
after the Closing Date pursuant to the Company's periodic reporting
requirements under Sections 13 and 15(d) of the Exchange Act.
(g) The Registration Rights Agreement has been duly authorized by
the Company and will conform in all material respects to the
description thereof in the Offering Document and, when the Registration
Rights Agreement has been duly executed and delivered by the Initial
Purchasers, will constitute a valid and binding obligation of the
Company, enforceable against the Company in accordance with its terms,
except to the extent that enforcement thereof may be limited by (i)
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium
or other similar laws, now or hereinafter in effect, relating to
creditors' rights generally and (ii) general principles of equity
(regardless of whether enforcement is considered in a proceeding in
equity or at law).
(h) This Agreement has been duly authorized, executed and
delivered by the Company.
(i) The execution, delivery and performance of the Indenture,
Registration Rights Agreement and this Agreement, and the issuance and
sale of the Offered Securities and compliance with the terms and
provisions thereof will not result in a breach or violation of any of
the terms and provisions of, or constitute a default under, (i) any
statute, any rule, regulation or order of any governmental agency or
body or any court, domestic or foreign, having jurisdiction over the
Company or any Subsidiary of the Company or any of their properties, or
(ii) any agreement (except for such provisions in the Senior Credit
Facility and the indenture governing the issuance of the Ciba Notes (as
defined in the Offering Document) which shall be amended or consents
obtained to avoid any default thereunder) or instrument to which the
Company or any such Subsidiary is a party or by which the Company or
any such Subsidiary is bound or to which any of the properties of the
Company or any such Subsidiary is subject, or (iii) the charter or
by-laws of the Company or any such Subsidiary except, in the case of
clauses (i) and (ii) above,
3
<PAGE>
for breaches, violations and defaults that would not have a Material
Adverse Effect or prevent or negate the effectiveness of the Indenture,
Registration Rights Agreement or this Agreement; and the Company has
full power and authority to authorize, issue and sell the Offered
Securities as contemplated by this Agreement.
(j) The Company and its Subsidiaries have good and marketable
title to all real properties and all other properties and assets owned
by them, in each case free from liens, encumbrances and defects that
would materially affect the value thereof or materially interfere with
the use made or to be made thereof by them except, in each case, (i) as
disclosed in the Offering Document; (ii) such liens and encumbrances
created by or under the Senior Credit Facility (as defined in the
Offering Document); or (iii) such as do not have a Material Adverse
Effect; and the Company and its Subsidiaries hold any leased real or
personal property under valid and enforceable leases with such
exceptions as are not material to the Company and its Subsidiaries
taken as a whole and would not materially interfere with the use made
or proposed to be made thereof by them except (i) as disclosed in the
Offering Document; or (ii) such as do not have a Material Adverse
Effect.
(k) The Company and its Subsidiaries possess adequate
certificates, authorities or permits issued by appropriate governmental
agencies or bodies necessary to conduct the business in the manner
presently conducted by them, subject to such qualifications as may be
set forth in the Offering Document or except where the failure to so
possess would not, singularly or in the aggregate, have a Material
Adverse Effect and have not received any notice of proceedings relating
to the revocation or modification of any such certificate, authority or
permit that, if determined adversely to the Company or any of its
Subsidiaries, would have a Material Adverse Effect.
(l) No labor dispute with the employees of the Company or any
Subsidiary exists or, to the knowledge of the Company, is imminent that
might have a Material Adverse Effect.
(m) The Company and its Subsidiaries own, possess or can acquire
on reasonable terms, adequate trademarks, trade names and other rights
to inventions, know-how, patents, copyrights, confidential information
and other intellectual property (collectively, "INTELLECTUAL PROPERTY
RIGHTS") necessary to conduct the business now operated by them, or
presently employed by them except where the failure to so own or
possess would not, singularly or in the aggregate, have a Material
Adverse Effect and have not received any notice of infringement of or
conflict with asserted rights of others with respect to any
intellectual property rights that, if determined adversely to the
Company or any of its Subsidiaries, would individually or in the
aggregate have a Material Adverse Effect.
(n) Except as disclosed in the Offering Document, neither the
Company nor any of its Subsidiaries is in violation of any statute, any
rule, regulation, decision or order of any governmental agency or body
or any court, domestic or foreign, relating to the use, disposal or
release of hazardous or toxic substances or relating to the protection
or restoration of the environment or human exposure to hazardous or
toxic substances or wastes (collectively, "ENVIRONMENTAL LAWS"), owns
or operates any real property contaminated with any substance that is
subject to any environmental laws, is liable for any off-site disposal
or contamination pursuant to any environmental laws, or, to the
knowledge of the Company, is subject to any claim relating to any
environmental laws, which violation, contamination, liability or claim
would individually or in the aggregate have a Material Adverse Effect;
and the Company is not aware of any pending investigation which might
lead to such a claim.
(o) Except as disclosed in the Offering Document, there are no
pending actions, suits or proceedings against or affecting the Company
or any of its Subsidiaries or, to the knowledge of the Company or its
Subsidiaries, to which any of their respective properties are subject
or that, if
4
<PAGE>
determined adversely to the Company or any of its Subsidiaries, would
individually or in the aggregate have a Material Adverse Effect, or
would materially and adversely affect the ability of the Company to
perform its obligations under the Indenture or this Agreement, or which
are otherwise material in the context of the sale of the Offered
Securities; and no such actions, suits or proceedings are, to the
Company's knowledge, threatened or contemplated.
(p) The historical financial statements included in the Offering
Document present fairly the financial position of the Company and its
consolidated subsidiaries on the basis stated in the Offering Document
as of the dates shown and their results of operations and cash flows
for the periods shown, and such financial statements have been prepared
in conformity with the generally accepted accounting principles in the
United States applied on a consistent basis throughout the periods
involved, except as disclosed therein; and the pro forma financial
information, and the related notes thereto included in the Offering
Document and the assumptions used in preparing such pro forma financial
statements are a reasonable basis for presenting the significant
effects directly attributable to the transactions or events described
therein, the related pro forma adjustments give appropriate effect to
those assumptions, and the pro forma columns therein reflect the proper
application of those adjustments to the corresponding historical
financial statement amounts.
(q) Except as disclosed in the Offering Document, since the date
of the latest audited financial statements included in the Offering
Document there has been no material adverse change, nor any development
or event involving a prospective material adverse change, in the
condition (financial or other), business, properties or results of
operations of the Company and its Subsidiaries taken as a whole, and,
except as disclosed in or contemplated by the Offering Document, there
has been no dividend or distribution of any kind declared, paid or made
by the Company on any class of its capital stock.
(r) The Company is not an open-end investment company, unit
investment trust or face-amount certificate company that is or is
required to be registered under Section 8 of the United States
Investment Company Act of 1940 (the "INVESTMENT COMPANY ACT"); and the
Company is not and, after giving effect to the offering and sale of the
Offered Securities and the application of the proceeds thereof as
described in the Offering Document, will not be an "investment company"
required to be registered under the Investment Company Act.
(s) No securities of the same class (within the meaning of Rule
144A(d)(3) under the Securities Act) as the Offered Securities are
listed on any national securities exchange registered under Section 6
of the Exchange Act or quoted in a U.S. automated inter-dealer
quotation system.
(t) Assuming the accuracy of the representations and warranties of
the Initial Purchasers set forth in this Agreement and compliance by
the Initial Purchasers with the provisions of this Agreement, it is not
necessary in connection with the offer, sale and delivery of the
Offered Securities to the Initial Purchasers and to each subsequent
purchaser in the manner contemplated by this Agreement and the Offering
Document to register the Offered Securities under the Securities Act or
to qualify the Indenture under the United States Trust Indenture Act of
1939, as amended (the "TRUST INDENTURE ACT").
(u) Neither the Company, nor any of its affiliates, nor any person
acting on its or their behalf (i) has, within the six-month period
prior to the date hereof, offered or sold in the United States or to
any U.S. person (as such terms are defined in Regulation S under the
Securities Act) the Offered Securities or any security of the same
class or series as the Offered Securities or (ii) has offered or will
offer or sell the Offered Securities (A) in the United States by means
of any form of general solicitation or general advertising within the
meaning of Rule 502(c) under the Securities Act or (B) with respect to
any securities sold in reliance on Rule 903 of Regulation S, by means
of any directed selling efforts within the meaning of Rule 902(b) of
Regulation S. The
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<PAGE>
Company has not entered and will not enter into any contractual
arrangement with respect to the distribution of the Offered Securities
except for this Agreement.
3. PURCHASE, SALE AND DELIVERY OF OFFERED SECURITIES. On the basis of
the representations, warranties and agreements herein contained, but subject to
the terms and conditions herein set forth, the Company agrees to sell to the
Initial Purchasers, and the Initial Purchasers agree, severally and not jointly,
to purchase from the Company, at a purchase price of 97.5% of the principal
amount thereof plus accrued interest from January 21, 1999 to the Closing Date
(as hereinafter defined), the respective principal amounts of the Offered
Securities set forth opposite the names of the several Initial Purchasers in
Schedule A hereto.
The Company will deliver against payment of the purchase price the
Offered Securities in the form of one or more permanent global Securities in
definitive form (the "GLOBAL SECURITIES") deposited with the Trustee as
custodian for The Depository Trust Company ("DTC") and registered in the name of
Cede & Co., as nominee for DTC. Interests in any permanent Global Securities
will be held only in book-entry form through DTC, except in the limited
circumstances described in the Offering Document. Payment for the Offered
Securities shall be made by the Initial Purchasers in Federal (same day) funds
by wire transfer to an account of the Company at a bank designated by the
Company and acceptable to CSFBC or by official Federal Reserve Bank check or
checks drawn to the order of the Company at the office of Cravath, Swaine &
Moore at 9:00 A.M. (New York time), on January 21, 1999, or at such other time
not later than seven full business days thereafter as CSFBC and the Company
determine, such time being herein referred to as the "CLOSING DATE", against
delivery to the Trustee as custodian for DTC of the Global Securities
representing all of the Offered Securities. The Global Securities will be made
available for checking at the office of Cravath, Swaine & Moore at least 24
hours prior to the Closing Date.
4. REPRESENTATIONS BY INITIAL PURCHASERS; RESALE BY INITIAL
PURCHASERS. (a) Each Initial Purchaser severally represents and warrants to the
Company that it is an "ACCREDITED INVESTOR" within the meaning of Regulation D
under the Securities Act.
(b) Each Initial Purchaser severally acknowledges that the Offered
Securities have not been registered under the Securities Act and may
not be offered or sold within the United States or to, or for the
account or benefit of, U.S. persons except in accordance with
Regulation S or pursuant to an exemption from the registration
requirements of the Securities Act. Each Initial Purchaser severally
represents and agrees that it has offered and sold the Offered
Securities and will offer and sell the Offered Securities as part of
its distribution, only in accordance with Rule 144A ("RULE 144A") or
Rule 903 under the Securities Act. Accordingly, neither such Initial
Purchaser nor its affiliates, nor any persons acting on its or their
behalf, have engaged or will engage in any directed selling efforts
with respect to the Offered Securities, and such Initial Purchaser, its
affiliates and all persons acting on its or their behalf have complied
and will comply with the offering restrictions requirement of
Regulation S. Terms used in this subsection (b) have the meanings given
to them by Regulation S.
(c) Each Initial Purchaser severally agrees that it and each of
its affiliates has not entered and will not enter into any contractual
arrangement with respect to the distribution of the Offered Securities
except for any such arrangements with the other Initial Purchaser or
affiliates of the other Initial Purchaser or with the prior written
consent of the Company.
(d) Each Initial Purchaser severally agrees that it and each of
its affiliates will not offer or sell the Offered Securities by means
of any form of general solicitation or general advertising, within the
meaning of Rule 502(c) under the Securities Act, including, but not
limited to (i) any advertisement, article, notice or other
communication published in any newspaper, magazine or similar media or
broadcast over television or radio, or (ii) any seminar or meeting
whose attendees have been invited by any general solicitation or
general advertising. Each Initial Purchaser severally agrees, with
respect to resales made in reliance on Rule 144A of any of the Offered
Securities, to deliver either with the confirmation of such resale or
otherwise prior to settlement of such resale a notice to the effect
that the resale of such Offered
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Securities has been made in reliance upon the exemption from the
registration requirements of the Securities Act provided by Rule 144A.
(e) Each of the Initial Purchasers severally represents and agrees
that (i) it has not offered or sold and prior to the date six months
after the date of issue of the Offered Securities will not offer or
sell any Offered Securities to persons in the United Kingdom except to
persons whose ordinary activities involve them in acquiring, holding,
managing or disposing of investments (as principal or agent) for the
purposes of their businesses or otherwise in circumstances which have
not resulted and will not result in an offer to the public in the
United Kingdom within the meaning of the Public Offers of Securities
Regulations 1995; (ii) it has complied and will comply with all
applicable provisions of the Financial Services Act 1986 with respect
to anything done by it in relation to the Offered Securities in, from
or otherwise involving the United Kingdom; and (iii) it has only issued
or passed on and will only issue or pass on in the United Kingdom any
document received by it in connection with the issue of the Offered
Securities to a person who is of a kind described in Article 11(3) of
the Financial Services Act 1986 (Investment Advertisements)
(Exemptions) Order 1996 or is a person to whom such document may
otherwise lawfully be issued or passed on.
5. CERTAIN AGREEMENTS OF THE COMPANY. The Company agrees with the
several Initial Purchasers that:
(a) The Company will advise CSFBC promptly of any proposal to
amend or supplement the Offering Document and will not effect such
amendment or supplementation without CSFBC's consent, which consent
shall not be unreasonably withheld or delayed. If, at any time prior to
the completion of the resale of the Offered Securities by the Initial
Purchasers any event occurs as a result of which the Offering Document
as then amended or supplemented would include an untrue statement of a
material fact or omit to state any material fact necessary in order to
make the statements therein, in the light of the circumstances under
which they were made, not misleading, or if it is necessary at any such
time to amend or supplement the Offering Document to comply with any
applicable law, the Company promptly will notify CSFBC of such event
and promptly will prepare, at its own expense, an amendment or
supplement which will correct such statement or omission or effect such
compliance. Neither CSFBC's consent to, nor the Initial Purchasers'
delivery to offerees or investors of, any such amendment or supplement
shall constitute a waiver of any of the conditions set forth in Section
6 of this Agreement.
(b) The Company will furnish to CSFBC copies of the Offering
Document and all amendments and supplements to such documents, in each
case as soon as available and in such quantities as CSFBC reasonably
requests, and the Company will furnish to CSFBC on the date hereof
three copies of the Offering Document signed by a duly authorized
officer of the Company, one of which will include the independent
accountants' reports therein manually signed by such independent
accountants. At any time when the Company is not subject to Section 13
or 15(d) of the Exchange Act, the Company will promptly furnish or
cause to be furnished to CSFBC (and, upon request, to each of the other
Initial Purchasers) and, upon request of holders and prospective
purchasers of the Offered Securities, to such holders and purchasers,
copies of the information required to be delivered to holders and
prospective purchasers of the Offered Securities pursuant to Rule
144A(d)(4) under the Securities Act (or any successor provision
thereto) in order to permit compliance with Rule 144A in connection
with resales by such holders of the Offered Securities. The Company
will pay the expenses of printing and distributing to the Initial
Purchasers all such documents.
(c) The Company will arrange with the cooperation of the Initial
Purchasers for the qualification of the Offered Securities for sale and
the determination of their eligibility for investment under the laws of
such jurisdictions in the United States and Canada as CSFBC designates
and will continue such qualifications in effect so long as required for
the resale of the Offered Securities by the Initial Purchasers provided
that the Company will not be required to
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qualify such Offered Securities if such qualification would require the
Company to as a foreign corporation or to file a general consent to
service of process or subject itself to taxation in any such state.
(d) During the period of three years hereafter, the Company will
furnish to CSFBC and, upon request, to each of the other Initial
Purchasers, as soon as practicable after the end of each fiscal year, a
copy of its annual report to stockholders for such year; and the
Company will furnish to CSFBC and, upon request, to each of the other
Initial Purchasers (i) as soon as available, a copy of each report and
any definitive proxy statement of the Company filed with the Commission
under the Exchange Act or mailed to stockholders, and (ii) from time to
time, such other information concerning the Company as CSFBC may
reasonably request.
(e) During the period of two years after the Closing Date, the
Company will, upon request, furnish to CSFBC, each of the other Initial
Purchasers and any holder of Offered Securities a copy of the
restrictions on transfer applicable to the Offered Securities.
(f) During the period of two years after the Closing Date, the
Company will not, and will not permit any of its affiliates (as defined
in Rule 144 under the Securities Act) to, resell any of the Offered
Securities that have been reacquired by any of them.
(g) During the period of two years after the Closing Date, the
Company will not be or become, an open-end investment company, unit
investment trust or face-amount certificate company that is or is
required to be registered under Section 8 of the Investment Company
Act.
(h) The Company will pay all expenses incidental to the
performance of its obligations under this Agreement, the Registration
Rights Agreement and the Indenture, including (i) the fees and expenses
of the Trustee and its professional advisers; (ii) all expenses in
connection with the execution, issue, authentication, packaging and
initial delivery of the Offered Securities and, as applicable, the
Exchange Securities (as defined in the Registration Rights Agreement),
the preparation and printing of this Agreement, the Securities, the
Indenture, the Offering Document and amendments and supplements
thereto, and any other document relating to the issuance, offer, sale
and delivery of the Offered Securities and, as applicable, the Exchange
Securities; (iii) the cost of qualifying the Offered Securities for
trading in The Portal-SM- Market ("PORTAL") of The Nasdaq Stock Market,
Inc. and any expenses incidental thereto, (iv) the cost of any
advertising approved in writing by the Company in connection with the
issue of the Offered Securities, (v) for any expenses (including
reasonable fees and disbursements of counsel) incurred in connection
with qualification of the Offered Securities or the Exchange Securities
for sale under the laws of such jurisdictions as in writing by the
Company CSFBC designates and the printing of memoranda relating
thereto, (vi) for any fees charged by investment rating agencies for
the rating of the Offered Securities or the Exchange Securities, and
(vii) for expenses incurred in distributing the Offering Document
(including any amendments and supplements thereto) to the Initial
Purchasers. The Company will reimburse the Initial Purchasers for all
reasonable travel expenses of the Initial Purchasers and the Company's
officers and employees (to the extent incurred by the Initial
Purchasers) and any other reasonable expenses of the Initial Purchasers
and the Company (to the extent incurred by the Initial Purchasers) in
connection with attending or hosting meetings with prospective
purchasers of the Offered Securities.
(i) In connection with the offering, until CSFBC shall have
notified the Company and the other Initial Purchasers of the completion
of the resale of the Offered Securities, neither the Company nor any of
its affiliates has or will, either alone or with one or more other
persons, bid for or purchase for any account in which it or any of its
affiliates has a beneficial interest any Offered Securities or attempt
to induce any person to purchase any Offered Securities; and neither it
nor any of its affiliates will make bids or purchases for the purpose
of creating actual, or apparent, active trading in, or of raising the
price of, the Offered Securities.
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(j) For a period of 120 days after the date of the initial
offering of the Offered Securities by the Initial Purchasers, the
Company will not, without the prior written consent of CSFBC, which
consent shall not be unreasonably withheld, offer, sell, contract to
sell, pledge, or otherwise dispose of, directly or indirectly, any
United States dollar-denominated debt securities issued or guaranteed
by the Company and having a maturity of more than one year from the
date of issue, except issuances of (i) Offered Securities pursuant to
the conversion or exchange of convertible or exchangeable securities or
the exercise of warrants or options, in each case outstanding on the
date hereof, (ii) the Exchange Securities, (iii) any debt securities of
another entity acquired by the Company or assured by the Company in
connection with an acquisition of the assets of such entity, which debt
securities were (a) existing prior to such acquisition; and (b) were
not issued in connection with, or in contemplation of, such
acquisition), (iv) grants of employee stock options pursuant to the
terms of a plan in effect on the date hereof, issuances of Offered
Securities pursuant to the exercise of such options or issuances of
Offered Securities pursuant to the Company's dividend reinvestment
plan. The Company will not at any time offer, sell, contract to sell,
pledge or otherwise dispose of, directly or indirectly, any securities
under circumstances where such offer, sale, pledge, contract or
disposition would cause the exemption afforded by Section 4(2) of the
Securities Act to cease to be applicable to the offer and sale of the
Offered Securities.
6. CONDITIONS OF THE OBLIGATION OF THE INITIAL PURCHASERS. The
obligation of the several Initial Purchasers to purchase and pay for the Offered
Securities will be subject to the accuracy of the representations and warranties
on the part of the Company herein, to the accuracy of the statements of officers
of the Company made pursuant to the provisions hereof, to the performance by the
Company of its obligations hereunder and to the following additional conditions
precedent:
(a) The Initial Purchasers shall have received a letter, dated the
date of this Agreement, of PricewaterhouseCoopers LLP confirming that
they are independent public accountants within the meaning of the
Securities Act and the applicable published rules and regulations
thereunder ("RULES AND REGULATIONS") and to the effect that:
(i) In their opinion the financial statements and schedules
of the Company examined by them and included in the Offering
Document comply as to form in all material respects with the
applicable accounting requirements of the Securities Act and the
related published Rules and Regulations;
(ii) they have performed the procedures specified by the
American Institute of Certified Public Accountants for a review of
interim financial information as described in Statement of
Auditing Standards No. 71, Interim Financial Information, on the
unaudited financial statements of the Company included in the
Offering Document;
(iii) on the basis of the review referred to in clause (ii)
above, a reading of the latest available interim financial
statements of the Company, inquiries of officials of the Company
who have responsibility for financial and accounting matters and
other specified procedures, nothing came to their attention that
caused them to believe that:
(A) the unaudited financial statements included in the
Offering Document do not comply as to form in all material
respects with the applicable accounting requirements of the
Securities Act and the related published Rules and
Regulations or any material modifications should be made to
such unaudited financial statements for them to be in
conformity with generally accepted accounting principles;
(B) at the date of the latest available balance sheet
read by such accountants, or at a subsequent date, there was
any change in the capital stock or
9
<PAGE>
any increase in short-term indebtedness or long-term debt of
the Company and its consolidated Subsidiaries or, at the date
of the latest available balance sheet read by such
accountants, there was any decrease in consolidated (i) total
current assets minus total current liabilities or (ii) total
shareholders' equity (or deficit), as compared with amounts
shown on the latest balance sheet included in the Offering
Document; or
(C) for the period from the closing date of the latest
statement of operations included in the Offering Document to
the closing date of the latest available statement of
operations read by such accountants there were any decreases,
as compared with the corresponding period of the previous
year, in consolidated net sales, in consolidated income (or
loss) from continuing operations, in the total amounts of
consolidated net income (or loss), except in all cases set
forth in clauses (B) and (C) above for changes, increases or
decreases which are described in such letter;
(iv) they have compared specified dollar amounts (or
percentages derived from such dollar amounts) and other financial
information contained in the Offering Document, as agreed upon
with the Initial Purchasers (in each case to the extent that such
dollar amounts, percentages and other financial information are
derived from the general accounting records of the Company and its
subsidiaries subject to the internal controls of the Company's
accounting system or are derived directly from such records by
analysis or computation), with the results obtained from
inquiries, a reading of such general accounting records and other
procedures specified in such letter and have found such dollar
amounts, percentages and other financial information to be in
agreement with such results, except as otherwise specified in such
letter; and
(v) on the basis of a reading of the pro forma financial
statements, carrying out certain specified procedures, reading of
minutes, inquiries of certain officials of the Company who have
responsibility for financial and accounting matters and proving
the arithmetic accuracy of the application of the pro forma
adjustments to the historical amounts in the pro forma financial
statements, nothing came to their attention which caused them to
believe that the pro forma financial statements do not comply as
to form in all material respects with the applicable accounting
requirements of Rule 11-02 of Regulation S-X under the Securities
Act or that the pro forma adjustments have not been properly
applied to the historical amounts in the compilation of such
statements or on the pro forma basis described in the notes
thereto.
(b) The Initial Purchasers shall have received a letter, dated
between the date of this Agreement and the Closing Date, of Deloitte &
Touche LLP confirming that they are independent public accountants
within the meaning of the Securities Act and the applicable published
Rules and Regulations and in form and substance reasonably satisfactory
to the Initial Purchasers.
(c) The Initial Purchasers shall have received a letter, dated the
date of this Agreement, of Arthur Andersen LLP confirming that they are
independent public accountants within the meaning of the Securities Act
and the applicable published Rules and Regulations and in form and
substance reasonably satisfactory to the Initial Purchasers.
(d) Subsequent to the execution and delivery of this Agreement,
there shall not have occurred (i) a change in U.S. or international
financial, political or economic conditions or currency exchange rates
or exchange controls as would, in the judgment of CSFBC, be likely to
prejudice materially the success of the proposed issue, sale or
distribution of the Offered Securities, whether in the primary market
or in respect of dealings in the secondary market, or (ii) any change,
or any development or event involving a prospective change, in the
condition
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<PAGE>
(financial or other), business, properties or results of operations of
the Company or its Subsidiaries taken as a whole which, in the judgment
of a majority in interest of the Initial Purchasers, including CSFBC,
is material and adverse and makes it impractical or inadvisable to
proceed with the completion of the offering or the sale of and payment
for the Offered Securities; (iii) any downgrading in the rating of any
debt securities of the Company by any "nationally recognized
statistical rating organization" (as defined for purposes of Rule
436(g) under the Securities Act), or any public announcement that any
such organization has under surveillance or review its rating of any
debt securities of the Company (other than an announcement with
positive implications of a possible upgrading, and no implication of a
possible downgrading, of such rating); (iv) any suspension or
limitation of trading in securities generally on the New York Stock
Exchange or any setting of minimum prices for trading on such exchange,
or any suspension of trading of any securities of the Company on any
exchange or in the over-the-counter market; (v) any banking moratorium
declared by U.S. Federal or New York authorities; or (vi) any outbreak
or escalation of major hostilities in which the United States is
involved, any declaration of war by Congress or any other substantial
national or international calamity or emergency if, in the judgment of
a majority in interest of the Initial Purchasers, including CSFBC, the
effect of any such outbreak, escalation, declaration, calamity or
emergency makes it impractical or inadvisable to proceed with the
completion of the offering or sale of and payment for the Offered
Securities.
(e) The Initial Purchasers shall have received an opinion, dated
the Closing Date, of Ira J. Krakower, Esq., General Counsel for the
Company, to the effect that:
(i) The Company has been duly incorporated and is validly
existing and in good standing under the laws of the State of
Delaware;
(ii) The Company is duly qualified as a foreign corporation
to transact business and is in good standing as a foreign
corporation under the laws of each jurisdiction in which such
qualification is required, whether by reason of the ownership or
leasing of property or the conduct of business, except where the
failure to so qualify or to be in good standing would not result
in a Material Adverse Effect and except for jurisdictions not
recognizing the legal concept of good standing;
(iii) Clark-Schwebel Corporation, a Delaware corporation
("Clark-Schwebel") has been duly incorporated and is validly
existing and in good standing under the laws of the State of
Delaware;
(iv) Clark-Schwebel is duly qualified as a foreign
corporation to transact business and is in good standing as a
foreign corporation under the laws of each jurisdiction in which
such qualification is required, whether by reason of the ownership
or leasing of property or the conduct of business, except where
the failure to so qualify or to be in good standing would not
result in a Material Adverse Effect and except for jurisdictions
not recognizing the legal concept of good standing;
(v) Clark-Schwebel has corporate power and authority to own,
lease and operate its properties and to conduct its business as
described in the Offering Circular;
(vi) There is no action, suit or proceeding or, to the
knowledge of such counsel, inquiry or investigation before or by
any court or governmental agency or body, domestic or foreign, now
pending or, to the knowledge of such counsel, threatened, against
or affecting the Company or any of its subsidiaries, which would,
individually or in the aggregate, have a Material Adverse Effect,
or which might reasonably be expected to materially and adversely
affect the properties or assets thereof or the transactions
contemplated by this Agreement or the performance by the Company
of its obligations
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<PAGE>
thereunder or under the Securities or in connection with the
transactions contemplated thereby;
(vii) The execution and delivery by the Company of the
Securities and of each of the Transaction Documents, and the
performance by the Company of its obligations thereunder, will not
(a) to the best knowledge of such counsel, whether with or without
the giving of notice or lapse of time or both, conflict with or
constitute a breach of or a default under (except for Permitted
Liens) or result in the creation or imposition of any lien, charge
or encumbrance (except for Permitted Liens) upon any property or
assets of the Company or Clark-Schwebel pursuant to any material
contract, indenture, mortgage, deed of trust, loan or credit
agreement, note, lease or any other material agreement or
instrument to which the Company or Clark-Schwebel is a party or by
which it or any of them may be bound, or to which any of the
property or assets of the Company or Clark-Schwebel is subject
(except for such conflicts, breaches or defaults, that would not
have a Material Adverse Effect) and except that such counsel does
not express any opinion with respect to the financial ratios or
tests or any aspects of the financial condition or results of
operations of the Company and Clark-Schwebel to the extent the
determination of such conflict, breach or default requires
quantitative determination; and
(viii) Such counsel does not know of any legal or
governmental proceeding required to be described in the Offering
Circular which are not described as required or of any contracts
or documents of a character required to be described in the
Offering Document which are not described and filed as required.
(f) The Initial Purchasers shall have received an opinion, dated
the Closing Date, of Skadden, Arps, Slate, Meagher & Flom LLP, counsel
for the Company to the effect, that:
(i) The Company has the corporate power and corporate
authority to own, lease and operate its properties and to conduct
its business as described in the Offering Circular;
(ii) The Company has the corporate power and corporate
authority to execute, deliver and perform all its obligations
under this Agreement, the Registration Rights Agreement, the
Indenture and the Offered Securities;
(iii) This Agreement has been duly authorized, executed and
delivered by the Company;
(iv) The Indenture has been duly authorized, executed and
delivered by the Company and is a valid and binding agreement of
the Company, enforceable against the Company in accordance with
its terms, except to the extent that (a) enforcement thereof may
be limited by (i) bankruptcy, insolvency, reorganization,
moratorium, fraudulent conveyance or other similar laws now or
hereafter in effect relating to creditors' rights generally and
(ii) general principles of equity (regardless of whether
enforceability is considered in a proceeding at law or in equity),
and (b) the enforceability, under certain circumstances, of
provisions imposing a payment obligation pending the ability of
the Company to comply timely with its registration obligations may
be limited by applicable law;
(v) The Registration Rights Agreement has been duly
authorized, executed and delivered by the Company and is a valid
and binding agreement of the Company, enforceable against the
Company in accordance with its terms, except to the extent that
(a) enforcement thereof may be limited by (i) bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance or
other similar laws now or hereafter in effect
12
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relating to creditor's rights generally and (ii) general
principles of equity (regardless of whether enforcement is
considered in a proceeding at law or in equity), (b) the
enforceability, under certain circumstances, of provisions
imposing a payment obligation pending the ability of the Company
to comply timely with its registration obligations may be limited
by applicable law, and (c) the enforceability of indemnification
and contribution provisions may be limited by Federal and state
securities laws or the public policies underlying such laws;
(vi) The issuance and sale of the Securities have been duly
authorized by the Company, and the Offered Securities, when
executed and authenticated in accordance with the terms of the
Indenture and delivered to and paid for by the Initial Purchasers
in accordance with the terms of this Agreement, will be valid and
binding obligations of the Company entitled to the benefits of the
Indenture and enforceable against the Company in accordance with
their terms, except to the extent that (a) enforcement thereof may
be limited by (i) bankruptcy, insolvency, reorganization,
moratorium, fraudulent conveyance or other similar laws now or
hereafter in effect relating to creditors' rights generally and
(ii) general principles of equity (regardless of whether
enforceability is considered in a proceeding at law or in equity)
and (b) the enforceability, under certain circumstances, of
provisions imposing a payment obligation pending the ability of
the Company to comply timely with its registration obligations may
be limited by applicable law;
(vii) The execution and delivery by the Company of the
Offered Securities and each of the Transaction Documents to which
it is a party, and the consummation by the Company of the
transactions contemplated thereby, will not conflict with or
result in any breach or violation of, or constitute a default
under, (A)(i) the Restated Certificate of Incorporation or By-laws
of the Company or (ii) the certificate of incorporation or by-laws
of Clark-Schwebel or (B) any Applicable Law;
(viii) No consent, approval, authorization, order, decree,
registration or qualification of or filing with any court or
governmental authority or agency is required under Applicable Laws
for the valid authorization, issuance, sale and delivery of the
Offered Securities by the Company or is required for the valid
execution and delivery by the Company of the Transaction Documents
and the consummation by the Company of the transactions
contemplated thereby;
(ix) Assuming (i) the accuracy of the representations and
warranties of the Company set forth in Sections 2(s) and (u) of
this Agreement and of the Initial Purchasers' representations and
warranties set forth in Section 4 of this Agreement, (ii) the due
performance by the Company of the covenants and agreements set
forth in Sections 2(s) and (u) and 3(j) of this Agreement and the
due performance by the Initial Purchasers of the covenants and
agreements set forth in Section 4(b) and (c) of this Agreement,
(iii) the Initial Purchasers' compliance with the offering and
transfer procedures and restrictions described in the Offering
Circular, (iv) the accuracy of the representations and warranties
made in accordance with this Agreement and the Offering Circular
by purchasers to whom the Initial Purchasers initially resell the
Offered Securities and (v) that purchasers to whom the Initial
Purchasers initially resell the Offered Securities receive a copy
of the Offering Circular prior to or contemporaneously with such
sale, the offer, sale and delivery of the Offered Securities to
you in the manner contemplated by the Purchase Agreement and the
Offering Circular, and the initial resale of the Offered
Securities by the Initial Purchasers in the manner contemplated in
the Offering Circular and this Agreement, do not require
qualification under the Trust Indenture Act of 1939, as amended,
it being understood that such counsel does not express any
opinions to any subsequent resale of any Offered Security; and
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(x) The Company is not and, after giving effect to the
issuance and sale of the Offered Securities and the application of
the proceeds therefrom as described in the Offering Circular, will
not be an "investment company" as such term is defined in the
Investment Company Act of 1940, as amended.
Such counsel shall also state that such counsel has participated in
conferences with directors, officers and other representatives of the Company,
representatives of the independent public accountants for the Company,
representatives of the Initial Purchasers and representatives of counsel for the
Initial Purchasers, at which conferences the contents of the Offering Document
and related matters were discussed and, although such counsel is not passing
upon and does not assume any responsibility for the accuracy, completeness or
fairness of the statements contained in the Offering Document, and has made no
independent check or verification thereof (except to the extent set forth in
paragraph (ii) above with respect to the description of the Offered Securities)
on the basis of the foregoing, no facts have come to such counsel's attention
which have caused such counsel to believe that the Offering Document, as of its
date and as of the Closing Date, contains an untrue statement of a material fact
or omits to state a material fact necessary in order to make the statements
therein, in light of the circumstances in which they were made, not misleading
(it being understood that such counsel need express no view with respect to the
financial statements and the notes related thereto).
As used in Sections 6(e) and 6(f), the terms "Transaction Documents"
shall mean the Indenture, the Registration Rights Agreement and this Agreement
and "Applicable Laws" shall mean the laws of the State of New York, the Federal
laws of the United States and the General Corporation law of the State of
Delaware.
(g) The Initial Purchasers shall have received from Cravath,
Swaine & Moore, counsel for the Initial Purchasers, such opinion or
opinions, dated the Closing Date, with respect to the incorporation of
the Company, the validity of the Offered Securities offered on such
Closing Date, the Offering Circular, the exemption from registration
for the offer and sale of the Offered Securities by the Company to the
several Initial Purchasers and the resales by the several Initial
Purchasers as contemplated hereby and other related matters as CSFBC
may require, and the Company shall have furnished to such counsel such
documents as they request for the purpose of enabling them to pass upon
such matters.
(h) The Initial Purchasers shall have received a certificate,
dated the Closing Date, of the President or any Vice President and a
principal financial or accounting officer of the Company in which such
officers, to the best of their knowledge after reasonable
investigation, shall state that the representations and warranties of
the Company in this Agreement are true and correct on and as of the
Closing Date with the same effect as if made on the Closing Date; the
Company has complied with all agreements and satisfied all conditions
on its part to be performed or satisfied hereunder at or prior to such
Closing Date; and, subsequent to the date of the most recent financial
statements in the Offering Document, there has been no material adverse
change, nor any development or event involving a prospective material
adverse change, in the condition (financial or other), business,
properties or results of operations of the Company and its Subsidiaries
taken as a whole except as set forth in or contemplated by the Offering
Document or as described in such certificate.
(i) The Initial Purchasers shall have received a letter, dated the
Closing Date, of PricewaterhouseCoopers LLP which meets the
requirements of subsection (a) of this Section, except that the
specified date referred to in such subsection will be a date not more
than three days prior to the Closing Date for the purposes of this
subsection.
(j) Each of the Senior Credit Facility and the indenture governing
the issuance of the Ciba Notes shall have been amended and/or the
Company shall have obtained the necessary
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<PAGE>
consents from the parties thereto in order to avoid any default under
the Senior Credit Facility or such indenture in connection with the
issuance and sale of the Offered Securities.
(k) The Registration Rights Agreement shall have been duly
authorized, executed and delivered by the Company.
The Company shall furnish the Initial Purchasers with such conformed
copies of such opinions, certificates, letters and documents as the Initial
Purchasers reasonably request. CSFBC may in its sole discretion waive compliance
with any condition to the obligations of the Initial Purchasers hereunder.
7. INDEMNIFICATION AND CONTRIBUTION. (a) The Company will indemnify
and hold harmless each Initial Purchaser, its partners, directors and officers
and each person, if any, who controls such Initial Purchaser within the meaning
of Section 15 of the Securities Act, against any losses, claims, damages or
liabilities, joint or several, to which such Initial Purchaser may become
subject, under the Securities Act or the Exchange Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue statement
of any material fact contained in the Offering Document, or any amendment or
supplement thereto or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading, including any losses, claims,
damages or liabilities arising out of or based upon the Company's failure to
perform its obligations under Section 5(a) of this Agreement, and will reimburse
such Initial Purchaser for any legal or other expenses reasonably incurred by
such Initial Purchaser in connection with investigating or defending any such
loss, claim, damage, liability or action as such expenses are incurred;
PROVIDED, HOWEVER, that the Company will not be liable in any such case to the
extent that any such loss, claim, damage, liability or actions in respect
thereof arises out of or is based upon an untrue statement or alleged untrue
statement in or omission or alleged omission from any of such documents in
reliance upon and in conformity with written information furnished to the
Company by any Initial Purchaser through CSFBC specifically for use therein, it
being understood and agreed that the only such information consists of the
information described as such in subsection (b) below; PROVIDED FURTHER,
HOWEVER, that the foregoing indemnity with respect to the Preliminary Offering
Circular shall not inure to the benefit of the Initial Purchaser from whom the
person asserting any such losses, claims, damages, liabilities or actions in
respect thereof purchased Offered Securities to the extent that any such losses,
claims, damages, liabilities or actions in respect thereof of such Initial
Purchaser result from a fact that such Initial Purchaser sold Offered Securities
to a person in an initial resale to whom there was not sent or given, at or
prior to the written confirmation of the sale of such Offered Securities, a copy
of the Offering Circular (as amended or supplemented), if the Company had
previously furnished a copy of such amendments or supplements to such Initial
Purchaser prior to confirmation of the sale of such Offered Securities to such
person by such Initial Purchaser, and the losses, claims, damages, liabilities
or actions in respect thereof of such Initial Purchaser result from an untrue
statement or omission of a material fact contained in the Preliminary Offering
Circular, which was corrected in the Offering Circular.
(b) Each Initial Purchaser will severally and not jointly
indemnify and hold harmless the Company, its directors and officers and
each person, if any, who controls the Company within the meaning of
Section 15 of the Securities Act, against any losses, claims, damages
or liabilities to which the Company may become subject, under the
Securities Act or the Exchange Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in the Offering Document, or
any amendment or supplement thereto, or arise out of or are based upon
the omission or the alleged omission to state therein a material fact
required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they
were made, not misleading, in each case to the extent, but only to the
extent, that such untrue statement or alleged untrue statement or
omission or alleged omission was made in reliance upon and in
conformity with written information furnished to the Company by such
Initial Purchaser through CSFBC specifically for use therein, and will
reimburse any legal or other expenses reasonably incurred by the
Company in connection with investigating or defending any such loss,
15
<PAGE>
claim, damage, liability or action as such expenses are incurred, it
being understood and agreed that the only such information furnished by
any Initial Purchaser consists of the following information in the
Offering Document: paragraphs three, six, nine and ten, and the third
sentence of paragraph eight under the caption "Plan of Distribution";
PROVIDED, HOWEVER, that the Initial Purchasers shall not be liable for
any losses, claims, damages or liabilities arising out of or based upon
the Company's failure to perform its obligations under Section 5(a) of
this Agreement.
(c) Promptly after receipt by an indemnified party under this
Section of notice of the commencement of any action, such indemnified
party will, if a claim in respect thereof is to be made against the
indemnifying party under subsection (a) or (b) above, notify the
indemnifying party of the commencement thereof; but the omission so to
notify the indemnifying party will not relieve it from any liability
which it may have to any indemnified party otherwise than under
subsection (a) or (b) above, except to the extent the indemnifying
party is materially prejudiced by such failure. In case any such action
is brought against any indemnified party and it notifies the
indemnifying party of the commencement thereof, the indemnifying party
will be entitled to participate therein and, to the extent that it may
wish, jointly with any other indemnifying party similarly notified, to
assume the defense thereof, with counsel satisfactory to such
indemnified party (who shall not, except with the consent of the
indemnified party, be counsel to the indemnifying party), and after
notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party will
not be liable to such indemnified party under this Section for any
legal or other expenses subsequently incurred by such indemnified party
in connection with the defense thereof other than reasonable costs of
investigation. In no event shall an indemnifying party be liable for
fees and expenses of more than one counsel (in addition to any local
counsel) separate from their own counsel for all indemnified parties in
connection with any one action or separate but similar or related
actions in the same jurisdiction arising out of the same general
allegations or circumstances. No indemnifying party shall, without the
prior written consent of the indemnified party, effect any settlement
of any pending or threatened action in respect of which any indemnified
party is or could have been a party and indemnity could have been
sought hereunder by such indemnified party unless such settlement
includes an unconditional release of such indemnified party from all
liability on any claims that are the subject matter of such action.
(d) If the indemnification provided for in this Section is
unavailable or insufficient to hold harmless an indemnified party under
subsection (a) or (b) above, then each indemnifying party shall
contribute to the amount paid or payable by such indemnified party as a
result of the losses, claims, damages or liabilities referred to in
subsection (a) or (b) above (i) in such proportion as is appropriate to
reflect the relative benefits received by the Company on the one hand
and the Initial Purchasers on the other from the offering of the
Offered Securities or (ii) if the allocation provided by clause (i)
above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in
clause (i) above but also the relative fault of the Company on the one
hand and the Initial Purchaser on the other in connection with the
statements or omissions which resulted in such losses, claims, damages
or liabilities as well as any other relevant equitable considerations.
The relative benefits received by the Company on the one hand and the
Initial Purchasers on the other shall be deemed to be in the same
proportion as the total net proceeds from the offering (before
deducting expenses) received by the Company bear to the total discounts
and commissions received by the Initial Purchasers from the Company
under this Agreement. The relative fault shall be determined by
reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to
state a material fact relates to information supplied by the Company
or the Initial Purchasers and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such
untrue statement or omission. The amount paid by an indemnified party
as a result of the losses, claims, damages or liabilities referred to
in the first sentence of this subsection (d) shall be deemed to
include any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any
action or claim which is the subject of this subsection (d).
Notwithstanding the provisions of this subsection (d), such Initial
Purchaser shall not be required to contribute any amount in excess of
the amount by which the total price at which the Offered Securities
purchased by it were resold exceeds the amount of any damages which
such Initial Purchaser has otherwise been required to pay by reason of
such
16
<PAGE>
untrue or alleged untrue statement or omission or alleged omission.
The Initial Purchasers' obligations in this subsection (d) to
contribute are several in proportion to their respective purchase
obligations and not joint.
(e) The obligations of the Company under this Section shall be in
addition to any liability which the Company may otherwise have and
shall extend, upon the same terms and conditions, to each person, if
any, who controls any Initial Purchaser within the meaning of the
Securities Act or the Exchange Act; and the obligations of the Initial
Purchasers under this Section shall be in addition to any liability
which the respective Initial Purchasers may otherwise have and shall
extend, upon the same terms and conditions, to each person, if any, who
controls the Company within the meaning of the Securities Act or the
Exchange Act.
8. DEFAULT OF INITIAL PURCHASERS. If any Initial Purchaser or
Purchasers default in their obligations to purchase Offered Securities and the
aggregate principal amount of Offered Securities that such defaulting Initial
Purchaser or Purchasers agreed but failed to purchase does not exceed 10% of the
total principal amount of Offered Securities, CSFBC may make arrangements
satisfactory to the Company for the purchase of such Offered Securities by other
persons, including any of the Initial Purchasers, but if no such arrangements
are made by the Closing Date, the non-defaulting Initial Purchasers shall be
obligated severally, in proportion to their respective commitments hereunder, to
purchase the Offered Securities that such defaulting Initial Purchasers agreed
but failed to purchase. If any Initial Purchaser or Purchasers so default and
the aggregate principal amount of Offered Securities with respect to which such
default or defaults occur exceeds 10% of the total principal amount of Offered
Securities and arrangements satisfactory to CSFBC and the Company for the
purchase of such Offered Securities by other persons are not made within 36
hours after such default, this Agreement will terminate without liability on the
part of any non-defaulting Initial Purchaser or the Company, except as provided
in Section 9. As used in this Agreement, the term "INITIAL PURCHASER" includes
any person substituted for a Initial Purchaser under this Section. Nothing
herein will relieve a defaulting Initial Purchaser from liability for its
default.
9. SURVIVAL OF CERTAIN REPRESENTATIONS AND OBLIGATIONS. The
respective indemnities, agreements, representations, warranties and other
statements of the Company or its officers and of the several Initial Purchasers
set forth in or made pursuant to this Agreement will remain in full force and
effect, regardless of any investigation, or statement as to the results thereof,
made by or on behalf of any Initial Purchaser, the Company or any of their
respective representatives, officers or directors or any controlling person, and
will survive delivery of and payment for the Securities. If for any reason the
purchase of the Offered Securities by the Initial Purchasers is not consummated,
the Company shall remain responsible for the expenses to be paid or reimbursed
by it pursuant to Section 5 and the respective obligations of the Company and
the Initial Purchasers pursuant to Section 7 shall remain in effect and if any
Offered Securities have been purchased hereunder the representations and
warranties in Section 2 and all obligations under Section 5 shall also remain in
effect. If the purchase of the Offered Securities by the Initial Purchasers is
not consummated for any reason other than solely because of the occurrence of
any event specified in clause (iv), (v) or (vi) of Section 6(d), the Company
will reimburse the Initial Purchasers for all out-of-pocket expenses (including
fees and disbursements of counsel) reasonably incurred by them in connection
with the offering of the Offered Securities.
10. NOTICES. All communications hereunder will be in writing and, if
sent to the Initial Purchasers will be mailed, delivered or telegraphed and
confirmed to the Initial Purchasers, c/o Credit Suisse First Boston Corporation,
Eleven Madison Avenue, New York, N.Y. 10010-3629, Attention: Investment Banking
Department - Transactions Advisory Group, or, if sent to the Company, will be
mailed, delivered or telegraphed and confirmed to it at Hexcel Corporation, Two
Stamford Plaza, 281 Tresser Boulevard, Stamford, CT 06901, Attention: General
Counsel; PROVIDED, HOWEVER, that any notice to an Initial Purchaser pursuant to
Section 7 will be mailed, delivered or telegraphed and confirmed to such Initial
Purchaser.
17
<PAGE>
11. SUCCESSORS. This Agreement will inure to the benefit of and be
binding upon the parties hereto and their respective successors and the officers
and directors and controlling persons referred to in Section 7, and no other
person will have any right or obligation hereunder, except that holders of
Offered Securities shall be entitled to enforce the agreements for their benefit
contained in the second and third sentences of Section 5(b) hereof against the
Company as if such holders were parties hereto.
12. REPRESENTATION OF INITIAL PURCHASERS. You will act for the several
Initial Purchasers in connection with this purchase, and any action under this
Agreement taken by you jointly or by CSFBC will be binding upon all of the
Initial Purchasers.
13. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all such
counterparts shall together constitute one and the same Agreement.
14. APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED
IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAWS.
The Company hereby submits to the non-exclusive jurisdiction of the
Federal and state courts in the Borough of Manhattan in The City of New York in
any suit or proceeding arising out of or relating to this Agreement or the
transactions contemplated hereby.
18
<PAGE>
If the foregoing is in accordance with the Initial Purchasers'
understanding of our agreement, kindly sign and return to the Company one of the
counterparts hereof, whereupon it will become a binding agreement among the
Company and the Initial Purchasers in accordance with its terms.
Very truly yours,
HEXCEL CORPORATION,
by: /s/ Bruce D. Herman
-------------------------------
Name: Bruce D. Herman
Title: Treasurer
The foregoing Purchase Agreement
is hereby confirmed and accepted as
of the date first above written.
CREDIT SUISSE FIRST BOSTON CORPORATION
SALOMON SMITH BARNEY INC.
Acting on behalf of themselves and as the
Representatives of the several Initial Purchasers
CREDIT SUISSE FIRST BOSTON CORPORATION
by: /s/ Joseph D. Carrabino, Jr.
--------------------------------------------
Name: Joseph D. Carrabino, Jr.
Title: Managing Director
19
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT OF
INITIAL PURCHASERS OFFERED SECURITIES
------------------ ------------------
<S> <C>
Credit Suisse First Boston Corporation....................... $156,000,000
Salomon Smith Barney Inc..................................... $ 84,000,000
-------------
Total............................. $240,000,000
</TABLE>
20
<PAGE>
SCHEDULE B
<TABLE>
<CAPTION>
SUBSIDIARY PLACE OF INCORPORATION
---------- ----------------------
<S> <C>
Clark-Schwebel Corporation Delaware
Hexcel Composites Limited United Kingdom
Hexcel Fabrics S.A. France
Hexcel Composites S.A. France
Hexcel Composites S.A. Spain
</TABLE>
21
<PAGE>
Exhibit 4.5(c)
THIRD SUPPLEMENTAL INDENTURE dated as of
September 15, 1998 (this "Supplemental Indenture"),
to the Indenture dated as of February 29, 1996 (the
"Indenture"), between HEXCEL CORPORATION, a Delaware
corporation (the "Company"), and U.S. BANK TRUST
NATIONAL ASSOCIATION (formerly known as First Trust
of California, National Association), a national
banking association, as trustee (the "Trustee"), as
previously supplemented. Capitalized terms used but
not defined in this Supplemental Indenture shall have
the meanings ascribed to them in the Indenture.
WHEREAS, the Company desires to amend and waive certain
provisions of the Indenture, among other things, in respect of (i) the Company's
new Credit Agreement (as defined in Section 1(b) below) and (ii) the
Clark-Schwebel Acquisition (as defined in Section 1(a) below);
WHEREAS, Section 9.02 of the Indenture authorizes the Company
and the Trustee to amend and waive certain provisions of the Indenture with the
consent of the Securityholders;
WHEREAS, Ciba Specialty Chemicals Inc., a corporation
organized under the laws of Switzerland ("Ciba"), is the Holder of all of the
Securities; and
WHEREAS, Ciba and the Company have agreed to modify and waive
the terms of the Securities as set forth in this Supplemental Indenture, and
accordingly, Ciba consents to this Supplemental Indenture.
NOW, THEREFORE, the Company and the Trustee hereby agree for
the equal and ratable benefit of the Securityholders as follows:
SECTION 1. AMENDMENT OF INDENTURE. (a) Section 1.01 of the
Indenture is hereby amended by adding thereto the following definitions in their
proper alphabetical order:
"'ASAHI-SCHWEBEL' means Asahi-Schwebel Co., Ltd., a
joint venture in which the Company or a Subsidiary of the
Company will own an interest after giving effect to the
Clark-Schwebel Acquisition."
<PAGE>
"'ASAHI-SCHWEBEL (TAIWAN)' means Asahi-Schwebel
(Taiwan) Co, Ltd., a joint venture between Asahi-Schwebel and
AlliedSignal."
"'ASAHI-SCHWEBEL INTERGLAS (PHILIPPINES)' means
Asahi-Schwebel Interglas Corporation (Philippines), a proposed
joint venture between Asahi-Schwebel and Interglas."
"'ASIAN COMPOSITE MANUFACTURING' means Asian
Composite Manufacturing Sdn. Bhd., a proposed joint venture
among the Company, The Boeing Company, Sime Darby Berhad and
Malaysia Helicopter Services."
"'BHA AERO COMPOSITE PARTS' means BHA Aero Composite
Parts Co., Ltd., a proposed joint venture among the Company,
The Boeing Company and Aviation Industries of China."
"'CLARK-SCHWEBEL ACQUISITION' means the acquisition
and lease of certain assets of Clark-Schwebel Holdings, Inc.
and its subsidiaries by the Company or a Subsidiary of the
Company pursuant to (i) that certain Asset Purchase Agreement,
dated as of July 25, 1998, by and among Stamford CS
Acquisition Corp., Clark-Schwebel Holdings, Inc.,
Clark-Schwebel, Inc. and the Company, and (ii) that certain
Lease Agreement, attached as Exhibit H to such Asset Purchase
Agreement, to be entered into by and between CSI Trust, as
landlord, and the Company or a Subsidiary of the Company, as
tenant, as each of the same may be amended, supplemented or
otherwise modified from time to time."
"'CLARK-SCHWEBEL JOINT VENTURES' means (i)
Asahi-Schwebel, (ii) Asahi-Schwebel (Taiwan), (iii)
Asahi-Schwebel Interglas (Philippines), (iv) Clark-Schwebel
Tech-Fab and (v) Interglas."
"'CLARK-SCHWEBEL TECH-FAB' means Clark-Schwebel
Tech-Fab Company, a New York partnership and a joint venture
in which the Company or a Subsidiary of the Company will own
an interest after giving effect to the Clark-Schwebel
Acquisition."
"'COMPANY STOCK REPURCHASE PROGRAM' means the
purchase from time to time by the Company of its Capital Stock
not to exceed $50,000,000 in the aggregate from and after
August 5, 1998."
2
<PAGE>
"'INTERGLAS' means CS Interglas AG, a German stock
corporation."
"'POLELINE ASSET MANAGEMENT' means Poleline Asset
Management, LLC, a California limited liability company and a
joint venture in which Hexcel Beta Corp. owns a 50% interest."
(b) The definition of "Credit Agreement" contained in Section
1.01 of the Indenture is hereby amended to read as follows:
"'CREDIT AGREEMENT' means, collectively, the Credit
Agreement dated as of September 15, 1998, among the Company,
certain of its Subsidiaries, the institutions from time to
time party thereto as Lenders, Citibank, N.A. (or any
successor thereto), in its separate capacity as collateral
agent for the Lenders and Credit Suisse First Boston (or any
successor thereto), in its separate capacity as administrative
agent and documentation agent for the Lenders, including any
related notes, letters of credit, guarantees, collateral
documents, instruments and agreements executed in connection
therewith, and in each case as the same may from time to time
be amended, renewed, replaced, refunded, supplemented, or
otherwise modified at the option of the parties thereto
(including, without limitation, any extension of maturity
thereof or increase in commitments or principal amounts
eligible to be borrowed thereunder), and any other agreement
pursuant to which any of the Indebtedness, commitments,
obligations, costs, expenses, fees, reimbursements and other
indemnities payable or owing thereunder may be replaced or
refinanced."
(c) The definition of "Existing Joint Ventures" contained in
Section 1.01 of the Indenture is hereby amended to read as follows:
"'EXISTING JOINT VENTURES' means (i) Knytex, (ii)
DIC, (iii) Fyfe and (iv) the Clark-Schwebel Joint Ventures."
3
<PAGE>
(d) The definition of "Permitted Investment" contained in
Section 1.01 of the Indenture is hereby amended by deleting the word "and" after
the end of clause (vi) thereof and adding new clauses (viii) and (ix) thereto to
read as follows:
"; (viii) the assets of Clark-Schwebel Holdings, Inc. and its
subsidiaries in connection with the Clark-Schwebel
Acquisition; and (ix) Interglas."
(e) Sections 4.03(b)(vi) and 4.03(b)(x) of the Indenture are
hereby amended by deleting each reference to "Section 13.1(j)" therein and
replacing it with "Section 14.2(g)".
(f) Section 4.03(b)(viii) of the Indenture is hereby amended
by deleting the reference to "$12,500,000" therein and substituting
"$100,000,000" therefor.
(g) Section 4.03(b)(xiii) of the Indenture is hereby amended
to read as follows:
"(xiii) Guarantees relating to the Acquisition or the
Clark-Schwebel Acquisition;"
(h) Section 4.03(b) of the Indenture is hereby amended by (A)
deleting the word "or" at the end of clause (xv) thereof, (B) deleting the "."
at the end of clause (xvi) thereof and replacing it with the phrase "; or" and
(C) adding a new clause (xvii) thereto to read as follows:
"(xvii) Indebtedness of a Clark-Schwebel Joint
Venture outstanding on the date such Clark-Schwebel Joint
Venture becomes a Subsidiary."
(i) Section 4.04(b) of the Indenture is hereby amended by (A)
deleting the word "or" at the end of clause (ix) thereof, (B) deleting the "."
at the end of clause (x) thereof and replacing it with a ";" and (C) adding new
clauses (xi) and (xii) thereto to read as follows:
"(xi) the purchase from time to time by the Company
of its Capital Stock (A) with the proceeds of the exercise by
grantees under any equity-based incentive plan or (B) pursuant
to the Company Stock Repurchase Program; or
4
<PAGE>
(xii) the purchase, redemption, retirement or other
acquisition of the Capital Stock of Interglas."
(j) Clause (A) of Section 4.07(a) of the Indenture is hereby
amended to read as follows:
"(A) any transaction between the Company or any of its
Subsidiaries and (i) any Permitted Holder, (ii) Hexcel
Foundation so long as such foundation remains a not-for-profit
institution for the purposes of California law, (iii) Fyfe,
(iv) Hexcel-DIC Partnership, (v) Knytex, (vi) Poleline Asset
Management, (vii) BHA Aero Composite Parts, (viii) Asian
Composite Manufacturing, (ix) any Clark-Schwebel Joint Venture
and (x) any director or officer of Interglas in connection
with the acquisition of Interglas Capital Stock;"
SECTION 2. WAIVER. Any Default or Event of Default arising
under the Indenture in connection with the consummation of the Clark-Schwebel
Acquisition and the transactions contemplated thereby are hereby waived.
SECTION 3. CONFIRMATION. Except as hereby expressly amended or
waived, the Indenture is in all respects ratified and confirmed and all the
terms, conditions and provisions thereof shall remain in full force and effect.
SECTION 4. EFFECTIVENESS. This Supplemental Indenture shall
take effect immediately up on its execution and delivery by the Company, the
Trustee and Ciba.
SECTION 5. COUNTERPARTS. This Supplemental Indenture may be
executed in any number of counterparts, each of which, when so executed, shall
be deemed to be an original, but all of which shall together constitute but one
contract.
SECTION 6. EXECUTION. Delivery of an executed counterpart of a
signature page by facsimile transmission shall be effective as delivery of a
manually executed counterpart of this Supplemental Indenture.
SECTION 7. APPLICABLE LAW. THIS SUPPLEMENTAL INDENTURE SHALL
BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW
YORK.
5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Supplemental Indenture to be duly executed by their duly authorized officers,
all as of the date and year first above.
HEXCEL CORPORATION
by
-------------------------
Name:
Title:
U.S. BANK TRUST NATIONAL
ASSOCIATION
by
-------------------------
Name:
Title:
CONSENTED AND AGREED TO BY:
CIBA SPECIALTY CHEMICALS INC.
by
-----------------------------
Name:
Title:
by
-----------------------------
Name:
Title:
6
<PAGE>
OFFICERS' CERTIFICATE
The undersigned hereby certify that they are duly elected
officers of Hexcel Corporation (the "Company"), and in such capacities they
state the following with respect to the Third Supplemental Indenture, dated as
of September ____, 1998 (the "Supplemental Indenture"), between the Company and
U.S. Bank Trust National Association (formerly known as First Trust of
California, National Association), as trustee (the "Trustee"), which supplements
the Indenture, dated as of February 29, 1996 as previously supplemented (the
"Indenture"), between the Company and the Trustee with respect to the Increasing
Rate Senior Subordinated Notes due 2003 (the "Notes") of the Company. Ciba
Specialty Chemicals Inc. has consented to the Supplemental Indenture.
Based upon the foregoing and the investigation referred to
below, the undersigned certify that:
1. The undersigned have read the Supplemental Indenture and
Section 9.02 of the Indenture.
2. The foregoing investigation was, in the opinion of the
undersigned, sufficient to enable to undersigned the express the opinion whether
the provisions of Section 9.02 of the Indenture have been complied with; and
3. The undersigned are of the opinion that the Supplemental
Indenture is permitted by Section 9.02 of the indenture and that all conditions
precedent under the Indenture to the execution of the Supplemental Indenture
have been complied with.
IN WITNESS WHEREOF, the undersigned have executed this
Officer's Certificate as of the ____ day of September, 1998.
--------------------------
Name:
Title:
--------------------------
Name:
Title:
7
<PAGE>
Exhibit 4.5(d)
FOURTH SUPPLEMENTAL INDENTURE dated as of
January 15, 1999 (this "Supplemental Indenture"), to
the Indenture dated as of February 29, 1996 (the
"Indenture"), between HEXCEL CORPORATION, a Delaware
corporation (the "Company"), and U.S. BANK TRUST
NATIONAL ASSOCIATION (formerly known as First Trust
of California, National Association), a national
banking association, as trustee (the "Trustee"), as
previously supplemented. Capitalized terms used but
not defined in this Supplemental Indenture shall have
the meanings ascribed to them in the Indenture.
WHEREAS, the Company desires to amend and have waived certain
provisions of the Indenture, among other things, in respect of the Company's
issuance of its Senior Subordinated Notes (as defined in Section 1(a) below);
WHEREAS, Section 9.02 of the Indenture authorizes the Company
and the Trustee to amend and waive certain provisions of the Indenture with the
consent of the Securityholders;
WHEREAS, Ciba Specialty Chemicals Inc., a corporation
organized under the laws of Switzerland ("Ciba"), is the Holder of all of the
Securities; and
WHEREAS, Ciba and the Company have agreed to modify and waive
the terms of the Securities as set forth in this Supplemental Indenture, and
accordingly, Ciba consents to this Supplemental Indenture.
NOW, THEREFORE, the Company and the Trustee hereby agree for
the equal and ratable benefit of the Securityholders as follows:
SECTION 1. AMENDMENT OF INDENTURE. (a) Section 1.01 of the
Indenture is hereby amended by adding thereto the following definitions in their
proper alphabetical order:
"'SENIOR SUBORDINATED NOTE INDENTURE' means the
indenture pursuant to which the Senior Subordinated Notes will
be issued."
"'SENIOR SUBORDINATED NOTES' means the 9 3/4% Senior
Subordinated Notes due 2009 of the Company in the aggregate
principal
<PAGE>
amount not to exceed $240,000,000 and issued pursuant to the
Senior Subordinated Note Indenture."
(b) Clause (1) of Section 4.05 of the Indenture is hereby
amended to read as follows:
"(1) any encumbrance or restriction pursuant to the
Credit Agreement, this Indenture, the Senior Subordinated Note
Indenture and any agreement in effect at or entered into at
the time of the Closing;"
SECTION 2. WAIVER. Any Default or Event of Default arising
under the Indenture in connection with the consummation of the issuance of the
Senior Subordinated Notes and the transactions contemplated thereby are hereby
waived.
SECTION 3. CONFIRMATION. Except as hereby expressly amended or
waived, the Indenture is in all respects ratified and confirmed and all the
terms, conditions and provisions thereof shall remain in full force and effect.
SECTION 4. EFFECTIVENESS. This Supplemental Indenture shall
take effect immediately up on its execution and delivery by the Company, the
Trustee and Ciba.
SECTION 5. COUNTERPARTS. This Supplemental Indenture may be
executed in any number of counterparts, each of which, when so executed, shall
be deemed to be an original, but all of which shall together constitute but one
contract.
SECTION 6. EXECUTION. Delivery of an executed counterpart of a
signature page by facsimile transmission shall be effective as delivery of a
manually executed counterpart of this Supplemental Indenture.
SECTION 7. APPLICABLE LAW. THIS SUPPLEMENTAL INDENTURE SHALL
BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW
YORK.
2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Supplemental Indenture to be duly executed by their duly authorized officers,
all as of the date and year first above.
HEXCEL CORPORATION
by
-------------------------
Name:
Title:
U.S. BANK TRUST NATIONAL
ASSOCIATION
by
-------------------------
Name:
Title:
CONSENTED AND AGREED TO BY:
CIBA SPECIALTY CHEMICALS INC.
by
------------------------------
Name:
Title:
by
------------------------------
Name:
Title:
3
<PAGE>
OFFICERS' CERTIFICATE
The undersigned hereby certify that they are duly elected
officers of Hexcel Corporation (the "Company"), and in such capacities they
state the following with respect to the Fourth Supplemental Indenture, dated as
of January 15, 1999 (the "Supplemental Indenture"), between the Company and U.S.
Bank Trust National Association (formerly known as First Trust of California,
National Association), as trustee (the "Trustee"), which supplements the
Indenture, dated as of February 29, 1996 as previously supplemented (the
"Indenture"), between the Company and the Trustee with respect to the Increasing
Rate Senior Subordinated Notes due 2003 (the "Notes") of the Company. Ciba
Specialty Chemicals Inc. has consented to the Supplemental Indenture.
Based upon the foregoing and the investigation referred to
below, the undersigned certify that:
1. The undersigned have read the Supplemental Indenture and
Section 9.02 of the Indenture.
2. The foregoing investigation was, in the opinion of the
undersigned, sufficient to enable to undersigned the express the opinion whether
the provisions of Section 9.02 of the Indenture have been complied with; and
3. The undersigned are of the opinion that the Supplemental
Indenture is permitted by Section 9.02 of the indenture and that all conditions
precedent under the Indenture to the execution of the Supplemental Indenture
have been complied with.
IN WITNESS WHEREOF, the undersigned have executed this
Officer's Certificate as of the 15th day of January, 1999.
--------------------------
Name:
Title:
--------------------------
Name:
Title:
4
<PAGE>
Exhibit 5.1
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
919 THIRD AVENUE
NEW YORK, NY 10022
(212) 735-3000
February 2, 1999
Hexcel Corporation
Two Stamford Plaza
281 Tresser Boulevard
Stamford, Connecticut 06901-3238
Re: Hexcel Corporation
REGISTRATION STATEMENT ON FORM S-4
Ladies and Gentlemen:
We have acted as special counsel to Hexcel Corporation, a Delaware
corporation (the "Company"), in connection with the public offering of
$240,000,000 aggregate principal amount of the Company's 9 3/4% Senior
Subordinated Notes due 2009 (the "Exchange Notes"). The Exchange Notes are to be
issued pursuant to an exchange offer (the "Exchange Offer") in exchange for a
like principal amount of the issued and outstanding 9 3/4% Senior Subordinated
Notes due 2009 of the Company (the "Original Notes") under an Indenture dated as
of January 21, 1999 (the "Indenture"), between the Company and The Bank of New
York, as Trustee (the "Trustee"), as contemplated by the Registration Rights
Agreement dated as of January 21, 1999 (the "Registration Rights Agreement"), by
and among the Company, Credit Suisse First Boston Corporation and Salomon Smith
Barney Inc.
This opinion is being furnished in accordance with the requirements of
Item 601(b)(5) of Regulation S-K under the Securities Act of 1933, as amended
(the "Act").
<PAGE>
Hexcel Corporation
February 2, 1999
Page 2
In connection with this opinion, we have examined originals or
copies, certified or otherwise identified to our satisfaction, of (i) the
Registration Statement on Form S-4 to be filed with the Securities and
Exchange Commission (the "Commission") on the date hereof under the Act (the
"Registration Statement"); (ii) an executed copy of the Registration Rights
Agreement; (iii) an executed copy of the Indenture; (iv) the Restated
Certificate of Incorporation of the Company; (v) the Restated By-Laws of the
Company, as amended to date; (vi) certain resolutions adopted by the Board of
Directors of the Company relating to the Exchange Offer, the issuance of the
Original Notes and the Exchange Notes, the Indenture and related matters;
(vii) the Form T-1 of the Trustee filed as an exhibit to the Registration
Statement; and (viii) the form of the Exchange Notes. We have also examined
originals or copies, certified or otherwise identified to our satisfaction,
of such records of the Company and such agreements, certificates of public
officials, certificates of officers or other representatives of the Company
and others, and such other documents, certificates and records as we have
deemed necessary or appropriate as a basis for the opinions set forth herein.
In our examination, we have assumed the legal capacity of all natural
persons, the genuineness of all signatures, the authenticity of all documents
submitted to us as originals, the conformity to original documents of all
documents submitted to us as certified, conformed or photostatic copies and
the authenticity of the originals of such latter documents. In making our
examination of executed documents or documents to be executed, we have
assumed that the parties thereto, other than the Company, had or will have
the power, corporate or other, to enter into and perform all obligations
thereunder and have also assumed the due authorization by all requisite
action, corporate or other, and execution and delivery by such parties of
such documents and the validity and binding effect on such parties. As to any
facts material to the opinions expressed herein which we have not inde
pendently established or verified, we have relied upon statements and
representations of officers and other representatives of the Company and
others.
<PAGE>
Hexcel Corporation
February 2, 1999
Page 3
Members of our firm are admitted to the bar in the State of New York,
and we do not express any opinion as to the laws of any other jurisdiction other
than the Delaware General Corporation Law.
Based upon and subject to the foregoing and the limitations,
qualifications, exceptions and assumptions set forth herein, we are of the
opinion that when the Exchange Notes (in the form examined by us) have been
duly executed and authenticated in accordance with the terms of the Indenture
and have been delivered upon consummation of the Exchange Offer against
receipt of Original Notes surrendered in exchange therefor in accordance with
the terms of the Exchange Offer, the Exchange Notes will constitute valid and
binding obligations of the Company, enforceable against the Company in
accordance with their terms, except to the extent that enforcement thereof may
be limited by (1) bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance or other similar laws now or hereafter in effect relating to
creditors' rights generally and (2) general principles of equity (regardless
of whether enforceability is considered in a proceeding at law or in equity).
In rendering the opinion set forth above, we have assumed that the
execution and delivery by the Company of the Indenture and the Exchange Notes
and the performance by the Company of its obligations thereunder do not and will
not violate, conflict with or constitute a default under (i) any agreement or
instrument to which the Company or its properties is subject (except that we do
not make the assumption set forth in this clause (i) with respect to the
Company's Restated Certificate of Incorporation, the Company's Restated By-Laws,
the Indenture or the Registration Rights Agreement), (ii) any law, rule, or
regulation to which the Company is subject (except that we do not make the
assumption set forth in this clause (ii) with respect to the Delaware General
Corporation Law and those laws, rules and regulations of the State of New York
and of the United States of America, in each case, which, in our experience,
are normally applicable to transactions of the type contemplated by the Exchange
Offer, but without our having made any special investigation with respect to any
other laws, rules or regulations), (iii) any judicial or regulatory
<PAGE>
Hexcel Corporation
February 2, 1999
Page 4
order or decree of any governmental authority, or (iv) any consent, approval,
license, authorization or validation of, or filing, recording or registration
with, any governmental authority.
We hereby consent to the filing of this opinion with the Commission as
an exhibit to the Registration Statement. We also consent to the reference to
our firm under the caption "Legal Matters" in the Registration Statement. In
giving this consent, we do not thereby admit that we are included in the
category of persons whose consent is required under Section 7 of the Act or the
rules and regulations of the Commission.
Very truly yours,
/s/ SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
<PAGE>
Exhibit 10.1(g)
FIRST AMENDMENT
FIRST AMENDMENT, dated as of December 31, 1998 (this
"AMENDMENT"), to the Second Amended and Restated Credit Agreement, dated as of
September 15, 1998 (as amended, supplemented or otherwise modified from time to
time, the "CREDIT AGREEMENT"), among Hexcel Corporation (the "COMPANY") and the
Foreign Borrowers from time to time party thereto (together with the Company,
the "BORROWERS"), the banks and other financial institutions from time to time
parties thereto (the "LENDERS"), Citibank, N.A., as Documentation Agent, and
Credit Suisse First Boston, as Administrative Agent (the "ADMINISTRATIVE
AGENT").
W I T N E S S E T H:
WHEREAS, pursuant to the Credit Agreement, the Lenders have
agreed to make, and have made, certain loans and other extensions of credit to
the Borrowers; and
WHEREAS, the Borrowers have requested, and, upon this
Amendment becoming effective, the Lenders have agreed, that certain provisions
of the Credit Agreement be amended in the manner provided for in this Amendment.
NOW, THEREFORE, for valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and in consideration of the
premises and mutual agreements contained herein, the parties hereto hereby agree
as follows:
SECTION I. AMENDMENTS
I.1. DEFINED TERMS. Unless otherwise defined herein,
capitalized terms which are defined in the Credit Agreement are used herein as
defined therein.
I.2. AMENDMENT TO SUBSECTION 1.1. Subsection 1.1 of the Credit
Agreement is hereby amended, effective simultaneously with the issuance of
Subordinated Indebtedness contemplated under subsection 2.1 hereof, by inserting
in proper alphabetical order the following new definitions:
"SENIOR DEBT": all Indebtedness other than Subordinated
Indebtedness.
"SENIOR DEBT LEVERAGE RATIO": for any period of four
consecutive fiscal quarters, the ratio of Senior Debt of the Company
and its Subsidiaries on a consolidated basis as of the last day of such
period to EBITDA of the Company and its Subsidiaries for such period.
<PAGE>
"SUBORDINATED INDEBTEDNESS": Indebtedness of the Company and
its Subsidiaries permitted pursuant to subsections 14.2(f) and (k).
I.3. AMENDMENT TO SUBSECTION 14.1. Subsection 14.1 of the
Credit Agreement is hereby amended, effective simultaneously with the issuance
of Subordinated Indebtedness contemplated under subsection 2.1 hereof, by:
(a) deleting subsection 14.1(b) in its entirety and inserting
in lieu thereof the following new subsection 14.1(b):
"(b) MAXIMUM LEVERAGE RATIO. Permit the Leverage Ratio of the
Company and its Subsidiaries on the last day of any fiscal quarter of
the Company occurring during a period set forth below to be greater
than the ratio set forth opposite such period:
<TABLE>
<CAPTION>
--------------------------------------------------------------------
Period Ratio
--------------------------------------------------------------------
<S> <C>
Closing Date - June 30, 2000 4.75 to 1.0
July 1, 2000 - thereafter 4.50 to 1.0"
--------------------------------------------------------------------
</TABLE>
(b) inserting a new subsection 14.1(d) as follows:
"(d) MAXIMUM SENIOR DEBT LEVERAGE RATIO. Permit the Senior
Debt Leverage Ratio of the Company and its Subsidiaries on the last day
of any fiscal quarter of the Company occurring during a period set
forth below to be greater than the ratio set forth opposite such
period:
<TABLE>
<CAPTION>
-------------------------------------------------------------------
Period Ratio
--------------------------------------------------------------------
<S> <C>
Closing Date - June 30, 2000 2.50 to 1.0
July 1, 2000 - thereafter 2.25 to 1.0"
--------------------------------------------------------------------
</TABLE>
I.4. AMENDMENT TO SUBSECTION 14.5. Subsection 14.5 of the
Credit Agreement is hereby amended by (a) deleting "and" at the end of
subsection 14.5(b); (b) deleting the period (".") at the end of subsection
14.5(c) and inserting in lieu thereof "; and"; and (c) inserting the following
new subsection 14.5(d):
"(d) any Wholly-owned Subsidiary of (i) the Company or (ii)
any other Wholly-owned Subsidiary of the Company, which has no material
assets or liabilities, may be liquidated, wound up or dissolved."
I.5. AMENDMENT TO SUBSECTION 14.14. Subsection 14.14(b) of the
Credit Agreement is hereby amended, effective simultaneously with the issuance
of Subordinated Indebtedness contemplated under subsection 2.1 hereof, by
deleting therefrom "the Subordinated Debentures, the Subordinated Debenture
Indenture, the Subordinated Convertible Notes, the
<PAGE>
Subordinated Convertible Notes Indenture", and inserting in lieu thereof "any
Subordinated Indebtedness".
I.6. AMENDMENT TO SUBSECTION 17.2. Subsection 17.2(a)(i) of
the Credit Agreement is hereby amended by inserting, on the second line thereof,
immediately after "consummation of" and immediately before "any Net Proceeds"
the following: "(x) any liquidation, winding up or dissolution permitted by
subsection 14.5(d), upon delivery to the Administrative Agent of a certificate
of a Responsible Officer of the Company certifying that such Subsidiary has been
liquidated, wound up, or dissolved, or (y)".
SECTION II. CONSENT TO TERMS OF SUBORDINATED INDEBTEDNESS
II.1. CONSENT TO TERMS OF PROPOSED SUBORDINATED DEBT. Pursuant
to subsection 14.2(k) of the Credit Agreement, the Lenders hereby consent to the
issuance and sale by the Company of Subordinated Indebtedness having gross cash
proceeds of at least $250,000,000; PROVIDED that (i) the terms and conditions of
such Subordinated Indebtedness shall be substantially those provided on Annex A
attached hereto, (ii) such Subordinated Indebtedness shall be issued and sold on
or before February 28, 1999 and (iii) the net proceeds of such issuance shall be
applied FIRST, to pay fees and expenses related to the issuance of the
Subordinated Indebtedness, SECOND, to repay the Subordinated Ciba Notes, and
THIRD, to prepay ratably Tranche A Loans and Tranche B Loans outstanding under
the Credit Agreement.
SECTION III. MISCELLANEOUS
III.1. CONDITIONS TO EFFECTIVENESS OF AMENDMENT. This
Amendment shall become effective as of the date first set forth above upon the
Administrative Agent having received counterparts of this Amendment duly
executed and delivered by each Borrower, the Documentation Agent, the
Administrative Agent and the Majority Lenders.
III.2. AMENDMENT FEE. The Company shall pay to the
Administrative Agent, for the account of each Lender executing this Amendment on
or before December 31, 1998, an amendment fee equal to .25% of each such
Lender's applicable (i) Commitment, in the case of Revolving Credit Commitment,
European Loan Commitment or European Overdraft Commitment and (ii) outstanding
Loans (after giving effect to the issuance of Subordinated Indebtedness and
prepayment of Loans contemplated in subsection 2.1 hereof), in the case of
Tranche A Loans and Tranche B Loans; PROVIDED that no such fee shall be payable
if the issuance of such Subordinated Indebtedness does not occur. Such amendment
fee shall be payable on the date that the Company receives the gross cash
proceeds from the issuance of such Subordinated Indebtedness.
<PAGE>
III.3. REPRESENTATIONS AND WARRANTIES. The Company, as of the
date hereof and after giving effect to the amendments contained herein, hereby
confirms, reaffirms and restates the representations and warranties made by it
and each Foreign Borrower in Section 11 of the Credit Agreement and otherwise in
the Credit Documents to which it is a party; PROVIDED that each reference to the
Credit Agreement therein shall be deemed to be a reference to the Credit
Agreement after giving effect to this Amendment.
III.4. LIMITED EFFECT. The execution, delivery and
effectiveness of this Amendment shall not, except as expressly provided herein,
operate as a waiver of any right, power or remedy of any Lender or the
Administrative Agent under any of the Credit Documents, nor constitute a waiver
or amendment of any provisions of any of the Credit Documents. Except as
expressly modified herein, all of the provisions and covenants of the Credit
Agreement and the other Credit Documents are and shall continue to remain in
full force and effect in accordance with the terms thereof and are hereby in all
respects ratified and confirmed.
III.5. COUNTERPARTS. This Amendment may be executed by one or
more of the parties hereto in any number of separate counterparts (which may
include counterparts delivered by facsimile transmission) and all of said
counterparts taken together shall be deemed to constitute one and the same
instrument. Any executed counterpart delivered by facsimile transmission shall
be effective as for all purposes hereof.
III.6. GOVERNING LAW. THIS AMENDMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this First
Amendment to be duly executed and delivered by their respective proper
and duly authorized officers as of the day and year first above
written.
HEXCEL CORPORATION
HEXCEL (U.K.) LIMITED
HEXCEL COMPOSITES LIMITED
HEXCEL S.A. (France)
HEXCEL FABRICS S.A.
HEXCEL COMPOSITES S.A. (Belgium)
HEXCEL COMPOSITES S.A. (France)
SALVER S.R.L.
HEXCEL COMPOSITES GMBH (Austria)
HEXCEL COMPOSITES S.A. (Spain)
HEXCEL COMPOSITES GMBH (Germany)
By:
-----------------------------------
Title:
<PAGE>
CREDIT SUISSE FIRST BOSTON, as
Administrative Agent and Arranger
By:
-----------------------------------
Title:
By:
-----------------------------------
Title:
CITIBANK, N.A., as Documentation Agent
and as a Lender
By:
-----------------------------------
Title:
By:
-----------------------------------
Title:
CREDIT SUISSE FIRST BOSTON, as a Lender
By:
-----------------------------------
Title:
By:
-----------------------------------
Title:
CREDIT SUISSE FIRST BOSTON,
as a Local Lender
By:
-----------------------------------
Title:
By:
-----------------------------------
Title:
<PAGE>
CREDIT SUISSE FIRST BOSTON
AKTIENGESELLSCHAFT, as a Local Lender
By:
-----------------------------------
Title:
By:
-----------------------------------
Title:
AERIES FINANCE LTD.
By:
-----------------------------------
Title:
AMARA - 2 FINANCE LTD.
By:
-----------------------------------
Title:
ARCHIMEDES FUNDING II, Ltd.
By: ING Capital Advisors, Inc.
as Collateral Manager
By:
-----------------------------------
Title:
BALANCED HIGH-YIELD FUND I LTD.
By: BHF Bank Aktiengesellshaft, acting through
its New York Branch, as attorney-in-fact
By:
-----------------------------------
Title:
By:
-----------------------------------
Title:
<PAGE>
THE BANK OF NEW YORK
By:
-----------------------------------
Title:
BANQUE NATIONALE DE PARIS
By:
-----------------------------------
Title:
By:
-----------------------------------
Title:
BANQUE WORMS CAPITAL CORP.
By:
-----------------------------------
Title:
CAPTIVA FINANCE LTD.
By:
-----------------------------------
Title:
CHANCELLOR/TRITON CBO, LIMITED
By: INVESCO Secured Management, Inc.
as Collateral Manager
By:
-----------------------------------
Title:
THE CHASE MANHATTAN BANK
By:
-----------------------------------
Title:
<PAGE>
CHAIO TUNG BANK
By:
-----------------------------------
Title:
CREDIT AGRICOLE INDOSUEZ
By:
-----------------------------------
Title:
By:
-----------------------------------
Title:
CREDIT LYONNAIS NEW YORK BRANCH
By:
-----------------------------------
Title:
CYPRESSTREE FLOATING RATE FUND
By: CypressTree Investment Management
Company, Inc. as Portfolio Manager
By:
-----------------------------------
Title:
KZH CYPRESSTREE-1 LLC
By:
-----------------------------------
Title:
<PAGE>
CYPRESSTREE INVESTMENT FUND, LLC
By: CypressTree Investment Management
Company, Inc. its Managing Member
By:
-----------------------------------
Title:
CYPRESSTREE INVESTMENT
PARTNERS I, LTD.
By: CypressTree Investment Management
Company, Inc. as Portfolio Manager
By:
-----------------------------------
Title:
CYPRESSTREE INSTITUTIONAL FUND, LLC
By: CypressTree Investment Management
Company, Inc. its Managing Member
By:
-----------------------------------
Title:
DAI-ICHI KANGYO BANK
By:
-----------------------------------
Title:
DEBT STRATEGIES FUND II, INC.
By:
-----------------------------------
Title:
DEUTSCHE BANK AG NEW YORK BRANCH
AND/OR CAYMAN ISLANDS BRANCH
By:
-----------------------------------
Title:
By:
-----------------------------------
Title:
<PAGE>
ERSTE BANK DER OESTERREICHISCHEN SPARKASSEN AG
By:
-----------------------------------
Title:
THE FIRST NATIONAL BANK OF CHICAGO
By:
-----------------------------------
Title:
FIRST UNION NATIONAL BANK
By:
-----------------------------------
Title:
GENERAL ELECTRIC CAPITAL CORPORATION
By:
-----------------------------------
Title:
BATTERSON PARK CBO 1
By: General Re - New England Asset
Management, Inc., as Collateral
Manager
By:
-----------------------------------
Title:
IMPERIAL CREDIT
By:
-----------------------------------
Title:
<PAGE>
INDUSTRIAL BANK OF JAPAN LIMITED, NEW YORK BRANCH
By:
-----------------------------------
Title:
KEYBANK NATIONAL ASSOCIATION
By:
-----------------------------------
Title:
KZH ING-2 LLC
By:
-----------------------------------
Title:
KZH ING-3 LLC
By:
-----------------------------------
Title:
KZH SHOSHONE LLC
By:
-----------------------------------
Title:
KZH SOLEIL-2 LLC
By:
-----------------------------------
Title:
KZH III LLC
By:
-----------------------------------
Title:
<PAGE>
MERITA BANK Plc
By:
-----------------------------------
Title:
By:
-----------------------------------
Title:
METROPOLITAN LIFE INSURANCE COMPANY
By:
-----------------------------------
Title:
MORGAN STANLEY DEAN WITTER PRIME INCOME TRUST
By:
-----------------------------------
Title:
MOUNTAIN CLO TRUST
By:
-----------------------------------
Title:
OXFORD STRATEGIC INCOME FUND
By: Eaton Vance Management,
as Investment Advisor
By:
-----------------------------------
Title:
SOCIETE GENERALE
By:
-----------------------------------
Title:
UNION BANK OF CALIFORNIA N.A.
By:
-----------------------------------
Title:
<PAGE>
VAN KAMPEN SENIOR FLOATING RATE FUND
By:
-----------------------------------
Title:
WACHOVIA BANK
By:
-----------------------------------
Title:
MORGAN GUARANTY TRUST COMPANY OF NEW YORK
By:
-----------------------------------
Title:
SENIOR DEBT PORTFOLIO
By: Boston Management and Research, as
Investment Manager
By:
-----------------------------------
Title:
<PAGE>
MERRILL LYNCH SENIOR FLOATING RATE FUND, INC.
By:
-----------------------------------
Title:
MERRILL LYNCH PRIME RATE PORTFOLIO
By: Merrill Lynch Asset Management, L.P., as
Investment Advisor
By:
-----------------------------------
Title:
MERRILL LYNCH GLOBAL INVESTMENT
SERIES: INCOME STRATEGIES PORTFOLIO
By: Merrill Lynch Asset Management, L.P. as
Investment Advisor
By:
-----------------------------------
Title:
DEBT STRATEGIES FUND II, INC.
By:
-----------------------------------
Title:
<PAGE>
Exhibit 10.1(h)
CREDIT FIRST
SUISSE BOSTON CREDIT SUISSE FIRST BOSTON
Eleven Madison Avenue
New York, NY 10010-3629
To: Lenders to Hexcel Corporation
From: Credit Suisse First Boston, as Administrative Agent
Date: January 15, 1999
Re: Hexcel Issuance of High Yield Debt
- --------------------------------------------------------------------------------
Reference is made to the First Amendment, dated as of December
31, 1998 (the "AMENDMENT"), to the Second Amended and Restated Credit Agreement,
dated as of September 15, 1998, among Hexcel Corporation (the "COMPANY") and the
Foreign Borrowers from time to time party thereto, the banks and other financial
institutions from time to time parties thereto (the "LENDERS"), Citibank, N.A.,
as Documentation Agent, and Credit Suisse First Boston, as Administrative Agent.
Terms defined in the Credit Agreement shall have their defined meanings when
used herein.
In subsection 2.1 of the Amendment, the Lenders consented, on
certain terms and conditions, to the Company's issuance of Subordinated
Indebtedness having gross cash proceeds of at least $250,000,000. Today the
Company has priced $240,000,000 of such Subordinated Indebtedness, and asks your
consent to the decreased amount of such issuance and, notwithstanding the
provisions of subsection 10.5(g) of the Credit Agreement, the application of the
net proceeds of such issuance FIRST, to pay fees and expenses related to the
issuance of the Subordinated Indebtedness, SECOND, to prepay ratably
$227,500,000 of the Tranche A Loans and Tranche B Loans outstanding under the
Credit Agreement, and THIRD, any balance remaining to be retained by the
Company.
The Company has also requested that we consent to their
amending the Subordinated Ciba Notes Indenture to allow for this Subordinated
Indebtedness.
Please show your consent to the foregoing by signing below for
your institution and returning this signed memo by facsimile to Richard Carey of
Credit Suisse First Boston (fax: 212/325-8228) NO LATER THAN 5:00 P.M. TODAY.
Thank you for your prompt attention.
CONSENTED TO BY:
- --------------------------------------
(institution)
By:
-----------------------------------
Name:
Title:
<PAGE>
Exhibit 10.29(a)
This Amendment No. 1 ("Amendment No. 1") to the Registration
Rights Agreement (the "Registration Rights Agreement"), dated as
of February 29, 1996 by and between Ciba-Geigy Limited (which has
since assigned the Registration Rights Agreement to Ciba
Specialty Chemicals Holding Inc., a Swiss Corporation ("Ciba")),
and Hexcel Corporation, a Delaware corporation ("Hexcel") is
hereby made and entered into as of the 29th day of December, 1998
by and between Ciba and Hexcel.
WHEREAS, Ciba and Hexcel desire to amend the Registration Rights
Agreement;
WHEREAS, defined terms used herein and not otherwise defined herein
shall have the meaning ascribed to such term in the Registration Rights
Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and
undertakings contained herein and in the Registration Rights Agreement and
for other good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, the parties hereto hereby agree as follows:
1. Section 1 of the Registration Rights Agreement is hereby amended
by adding the following defined term immediately after the definition of
"Shelf Registration Statement" and immediately before the definition of
"Third Installment":
""SHELF REQUEST" has the meaning set forth in Section 2(a) hereof."
2. Section 2(a) of the Registration Rights Agreement is hereby
amended by deleting the first clause of Section 2(a) up to, but not
including, the proviso and replacing such clause with the following:
"Upon the written request of Ciba (the "Shelf Request"), Hexcel shall prepare
and, not later than 60 days after receipt of the Shelf Request, shall file
with the SEC, and thereafter shall use its commercially reasonable effort to
cause to be declared effective under the Securities Act on or prior to the
60th day following receipt of the Shelf Request, a Shelf Registration
Statement relating to the offer and sale by Ciba and the Ciba Entities of all
Registrable
<PAGE>
Securities permitted to be registered on Form S-3 as part of such Shelf
Registration Statement in the manner or manners elected by Ciba and set forth
in such Shelf Registration Statement;"
3. Section 2(b) of the Registration Rights Agreement is hereby
amended by deleting Section 2(b) in its entirety and replacing such Section
with the following:
"(b) Once the Shelf Registration Statement has been declared effective
under the Securities Act, Hexcel shall use commercially reasonable efforts to
keep the Shelf Registration Statement continuously effective during the
remainder of the Registration Period and to permit Ciba to use such Shelf
Registration Statement to distribute Registrable Securities in the manners
selected by Ciba."
4. Section 2(c) of the Registration Rights Agreement is hereby
amended by deleting Section 2(c) in its entirety and replacing such Section
with the following:
"(c) Without limiting the foregoing, once the Shelf Registration Statement
has been declared effective under the Securities Act, Hexcel shall be deemed
not to have made commercially reasonable efforts to keep the Shelf
Registration Statement effective during the remainder of the Registration
Period if Hexcel voluntarily takes any action that would r esult in Ciba or
any Ciba Entity not being able to offer and sell Registrable Securities that
are then eligible under this Agreement to be offered and sold unless (i) such
action is required by applicable law, rule, regulation, or legal proceeding
or (ii) such action is consistent with the provisions of Section 5 hereof.
2
<PAGE>
IN WITNESS WHEREOF, Ciba, on behalf of itself and the Ciba Entities,
and Hexcel by their duly authorized representative(s) have caused this
Amendment No. 1 to be executed as of the day and year first above written.
CIBA SPECIALTY CHEMICALS HOLDING INC.
By:
----------------------------------
Name:
Title
By:
----------------------------------
Name:
Title
HEXCEL CORPORATION
By:
----------------------------------
Name:
Title
3
<PAGE>
Exhibit 12.1
Hexcel Corporation
Computation of Ratio of Earnings to Fixed Charges
<TABLE>
<CAPTION>
Nine Months Ended
For the year ended December 31, September 30,
------------------------------------------------------------------------
1993 1994 1995 1996 1997 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Income (loss) from continuing operations before income
taxes (73,848) (24,494) 6,514 (15,754) 50,752 76,288 31,941
Interest expense, including amortization of debt issuance
costs 8,862 11,846 8,682 21,537 25,705 23,167 18,288
Portion of rental expense deemed to represent interest 1,177 1,225 957 1,541 1,520 1,197 1,140
----------------------------------------------------------------------
Total fixed charges 10,039 13,071 9,639 23,078 27,225 24,364 19,428
Earnings before fixed charges (63,809) (11,423) 16,153 7,324 77,977 100,652 51,369
Fixed charges 10,039 13,071 9,639 23,078 27,225 24,364 19,428
Ratio of earnings to fixed charges -- -- 1.7x -- 2.9x 4.1x 2.6x
Deficiency of earnings to fixed charges 73,848 24,494 -- 15,754 -- -- --
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Exhibit 21.1
SUBSIDIARIES OF HEXCEL CORPORATION
ACM Holding Corporation (Delaware)
Clark-Schwebel Corporation (Delaware)
Clark-Schwebel Group Hong Kong (Hong Kong)
Clark-Schwebel Holding Corp. (Delaware)
Confection et Diffusion de Stores et Rideaux (France)
CS Tech-Fab Holding Inc. (Delaware)
Hexcel (UK) Limited (United Kingdom)
Hexcel Beta Corp. (Delaware)
Hexcel Chemical Products Limited (United Kingdom)
Hexcel China Holdings (Mauritius)
Hexcel Composites GmbH (Austria)
Hexcel Composites GmbH (Germany)
Hexcel Composites Limited (United Kingdom)
Hexcel Composites S.A. (Belgium)
Hexcel Composites S.A. (France)
Hexcel Composites, S.A. (Spain)
Hexcel do Brasil Servicos S/C Ltda (Brazil)
Hexcel Fabrics S.A. (France)
Hexcel Far East (California)
Hexcel Foreign Sales Corporation (Barbados)
Hexcel Foundation (California)
Hexcel Holding B.V. (Netherlands)
Hexcel International (California)
Hexcel Omega (California)
Hexcel Pacific Rim Corporation (California)
Hexcel Pacific Rim Corporation (Delaware)
Hexcel Pottsville Corporation (Delaware)
Hexcel S.A. (France)
Hexcel Technologies Inc. (Delaware)
Salver S.r.l. (Italy)
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-4 of Hexcel Corporation of our report dated
January 28, 1998, except as to Aggregate Maturities of Notes Payable in Note
7 which is as of March 5, 1998, relating to the financial statements of
Hexcel Corporation, which appears in such Prospectus. We also consent to the
reference to us under the heading "Experts" in such Prospectus.
/s/ PricewaterhouseCoopers LLP
- ------------------------------
PricewaterhouseCoopers LLP
San Jose, California
February 1, 1999
<PAGE>
Exhibit 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Hexcel Corporation on
Form S-4 of our report dated February 28, 1997, appearing in the Prospectus,
which is part of this Registration Statement. We also consent to the
reference to us under the heading "Experts" in such Prospectus.
/s/ DELOITTE & TOUCHE LLP
- --------------------------------
DELOITTE & TOUCHE LLP
Oakland, California
February 1, 1999
<PAGE>
EXHIBIT 23.3
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the use of our
report, and to all references to our firm, included in or made a part of this
registration statement.
/s/ ARTHUR ANDERSEN
- --------------------------
Arthur Andersen LLP
Charlotte, North Carolina,
February 1, 1999.
<PAGE>
EXHIBIT 23.4
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Hexcel Corporation on
Form S-4 of our report dated February 9, 1996 (February 24, 1996 as to Note
2), on the statements of income and cash flows of Fort Mill A Inc. for the
fiscal year ended December 30, 1995, appearing in the Prospectus, which is
part of this Registration Statement.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
/s/ DELOITTE & TOUCHE LLP
- -----------------------------
DELOITTE & TOUCHE LLP
Charlotte, North Carolina
February 1, 1999
<PAGE>
================================================================================
FORM T-1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2) |__|
----------------
THE BANK OF NEW YORK
(Exact name of trustee as specified in its charter)
New York 13-5160382
(State of incorporation (I.R.S. employer
if not a U.S. national bank) identification no.)
One Wall Street, New York, N.Y. 10286
(Address of principal executive offices) (Zip code)
----------------
HEXCEL CORPORATION
(Exact name of obligor as specified in its charter)
Delaware 94-1109521
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
Two Stamford Plaza
281 Tresser Boulevard
Stamford, Connecticut 06901
(Address of principal executive offices) (Zip code)
----------------
9-3/4% Senior Subordinated Notes due 2009
(Title of the indenture securities)
================================================================================
<PAGE>
1. GENERAL INFORMATION. FURNISH THE FOLLOWING INFORMATION AS TO THE TRUSTEE:
(a) NAME AND ADDRESS OF EACH EXAMINING OR SUPERVISING AUTHORITY TO WHICH
IT IS SUBJECT.
- --------------------------------------------------------------------------------
Name Address
- --------------------------------------------------------------------------------
Superintendent of Banks of the State of 2 Rector Street, New York,
New York N.Y. 10006, and Albany, N.Y. 12203
Federal Reserve Bank of New York 33 Liberty Plaza, New York,
N.Y. 10045
Federal Deposit Insurance Corporation Washington, D.C. 20429
New York Clearing House Association New York, New York 10005
(b) WHETHER IT IS AUTHORIZED TO EXERCISE CORPORATE TRUST POWERS.
Yes.
2. AFFILIATIONS WITH OBLIGOR.
IF THE OBLIGOR IS AN AFFILIATE OF THE TRUSTEE, DESCRIBE EACH SUCH
AFFILIATION.
None.
16. List of Exhibits.
EXHIBITS IDENTIFIED IN PARENTHESES BELOW, ON FILE WITH THE COMMISSION, ARE
INCORPORATED HEREIN BY REFERENCE AS AN EXHIBIT HERETO, PURSUANT TO
RULE 7a-29 UNDER THE TRUST INDENTURE ACT OF 1939 (THE "ACT") AND
17 C.F.R. 229.10(d).
1. A copy of the Organization Certificate of The Bank of New York
(formerly Irving Trust Company) as now in effect, which contains the
authority to commence business and a grant of powers to exercise
corporate trust powers. (Exhibit 1 to Amendment No. 1 to Form T-1
filed with Registration Statement No. 33-6215, Exhibits 1a and 1b to
Form T-1 filed with Registration Statement No. 33-21672 and Exhibit 1
to Form T-1 filed with Registration Statement No. 33-29637.)
4. A copy of the existing By-laws of the Trustee. (Exhibit 4 to Form
T-1 filed with Registration Statement No. 33-31019.)
6. The consent of the Trustee required by Section 321(b) of the Act.
(Exhibit 6 to Form T-1 filed with Registration Statement No.
33-44051.)
7. A copy of the latest report of condition of the Trustee published
pursuant to law or to the requirements of its supervising or
examining authority.
-2-
<PAGE>
SIGNATURE
Pursuant to the requirements of the Act, the Trustee, The Bank of New
York, a corporation organized and existing under the laws of the State of New
York, has duly caused this statement of eligibility to be signed on its
behalf by the undersigned, thereunto duly authorized, all in The City of New
York, and State of New York, on the 1st day of February, 1999.
THE BANK OF NEW YORK
By: /s/ VAN K. BROWN
---------------------------------------
Name: VAN K. BROWN
Title: ASSISTANT VICE PRESIDENT
<PAGE>
Consolidated Report of Condition of
THE BANK OF NEW YORK
of 48 Wall Street, New York, N.Y. 10286
And Foreign and Domestic Subsidiaries,
a member of the Federal Reserve System, at the close of business June 30,
1998, published in accordance with a call made by the Federal Reserve Bank of
this District pursuant to the provisions of the Federal Reserve Act.
ASSETS Dollar Amounts
in Thousands
Cash and balances due from depository institutions:
Noninterest-bearing balances and currency and coin $7,301,241
Interest-bearing balances 1,385,944
Securities:
Held-to-maturity securities 1,000,737
Available-for-sale securities 4,240,655
Federal funds sold and Securities purchased under agreements
to resell 971,453
Loans and lease financing receivables:
Loans and leases, net of unearned
income.............................................. 38,788,269
LESS: Allowance for loan and lease losses........... 632,875
LESS: Allocated transfer risk reserve............... 0
Loans and leases, net of unearned income, allowance, and reserve 38,155,394
Assets held in trading accounts 1,307,562
Premises and fixed assets (including capitalized leases) 670,445
Other real estate owned 13,598
Investments in unconsolidated subsidiaries and associated companies 215,024
Customers' liability to this bank on acceptances outstanding 974,237
Intangible assets 1,102,625
Other assets 1,944,777
Total assets $59,283,692
<PAGE>
LIABILITIES
Deposits:
In domestic offices $26,930,258
Noninterest-bearing 11,579,390
Interest-bearing 15,350,868
In foreign offices, Edge and
Agreement subsidiaries, and IBFs 16,117,854
Noninterest-bearing 187,464
Interest-bearing 15,930,390
Federal funds purchased and Securities sold under agreements
to repurchase 2,170,238
Demand notes issued to the U.S.Treasury 300,000
Trading liabilities 1,310,867
Other borrowed money:
With remaining maturity of one year or less 2,549,479
With remaining maturity of more than one year through three years 0
With remaining maturity of more than three years 46,654
Bank's liability on acceptances executed and outstanding 983,398
Subordinated notes and debentures 1,314,000
Other liabilities 2,295,520
Total liabilities 54,018,268
EQUITY CAPITAL
Common stock 1,135,284
Surplus 731,319
Undivided profits and capital reserves 3,385,227
Net unrealized holding gains (losses) on
available-for-sale securities 51,233
Cumulative foreign currency translation adjustments (37,639)
Total equity capital 5,265,424
Total liabilities and equity capital $59,283,692
I, Robert E. Keilman, Senior Vice President and Comptroller of the
above-named bank do hereby declare that this Report of Condition has been
prepared in conformance with the instructions issued by the Board of
Governors of the Federal Reserve System and is true to the best of my
knowledge and belief.
Robert E. Keilman
We, the undersigned directors, attest to the correctness of this Report
of Condition and declare that it has been examined by us and to the best of our
knowledge and belief has been prepared in conformance with the instructions
issued by the Board of Governors of the Federal Reserve System and is true and
correct.
J. Carter Bacot )
Thomas A. Renyi ) Directors
Alan R. Griffith )
<PAGE>
LETTER OF TRANSMITTAL
HEXCEL CORPORATION
OFFER FOR ALL OUTSTANDING
9 3/4% SENIOR SUBORDINATED NOTES DUE 2009
IN EXCHANGE FOR
9 3/4% SENIOR SUBORDINATED NOTES DUE 2009
WHICH HAVE BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED,
PURSUANT TO THE PROSPECTUS, DATED , 1999
- --------------------------------------------------------------------------------
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M. NEW YORK CITY TIME, ON
, 1999, UNLESS EXTENDED (THE "EXPIRATION DATE"). TENDERS MAY BE
WITHDRAWN PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE.
---------------------------------------------------------------------------
DELIVERY TO: The Bank of New York, EXCHANGE AGENT
<TABLE>
<S> <C>
BY HAND OR OVERNIGHT DELIVERY: BY REGISTERED OR CERTIFIED MAIL:
The Bank of New York The Bank of New York
101 Barclay Street 101 Barclay Street, 7E
Corporate Trust Services Window New York, NY 10286
Ground Level Attention: Reorganization Section
New York, NY 10286
Attention: Reorganization Section
</TABLE>
FOR INFORMATION CALL:
(212) 815-6333
BY FACSIMILE TRANSMISSION
(FOR ELIGIBLE INSTITUTIONS ONLY):
(212) 571-3080
CONFIRM BY TELEPHONE:
(212) 815-6333
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE, OR
TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE, WILL
NOT CONSTITUTE A VALID DELIVERY.
The undersigned acknowledges that he or she has received and reviewed the
Prospectus, dated , 1999 (the "Prospectus"), of Hexcel Corporation, a
Delaware corporation (the "Company"), and this Letter of Transmittal (the
"Letter"), which together constitute the Company's offer (the "Exchange Offer")
to exchange an aggregate principal amount of up to $240,000,000 of the Company's
9 3/4% Senior Subordinated Notes due 2009 (the "Exchange Notes") which have been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
for a like principal amount of the Company's issued and outstanding 9 3/4%
Senior Subordinated Notes due 2009 (the "Original Notes") from the registered
holders thereof (the "Holders").
For each Original Note accepted for exchange, the Holder of such Original
Note will receive an Exchange Note having a principal amount equal to that of
the surrendered Original Note. The Exchange Notes will bear interest from the
most recent date to which interest has been paid on the Original Notes or, if no
interest has been paid on the Original Notes, from January 21, 1999.
Accordingly, registered Holders of Exchange Notes on the relevant record date
for the first interest payment date following the consummation of the Exchange
Offer will receive interest accruing from the most recent date to which interest
has been paid or, if no interest has been paid, from January 21, 1999. Original
Notes accepted for exchange will cease to accrue interest from and after the
date of consummation of the Exchange Offer. Holders of Original Notes whose
Original Notes are accepted for exchange will not receive any payment in respect
of accrued interest on such Original Notes otherwise payable on any interest
payment date the record date for which occurs on or after consummation of the
Exchange Offer.
This Letter is to be completed by a holder of Original Notes either if
certificates are to be forwarded herewith or if a tender of certificates for
Original Notes, if available, is to be made by book-entry transfer to the
account maintained by the Exchange Agent at The Depository Trust Company (the
"Book-Entry Transfer Facility") pursuant
<PAGE>
to the procedures set forth in "The Exchange Offer--Book-Entry Transfer" section
of the Prospectus. Holders of Original Notes whose certificates are not
immediately available, or who are unable to deliver their certificates or
confirmation of the book-entry tender of their Original Notes into the Exchange
Agent's account at the Book-Entry Transfer Facility (a "Book-Entry
Confirmation") and all other documents required by this Letter to the Exchange
Agent on or prior to the Expiration Date, must tender their Original Notes
according to the guaranteed delivery procedures set forth in "The Exchange
Offer--Guaranteed Delivery Procedures" section of the Prospectus. See
Instruction 1. Delivery of documents to the Book-Entry Transfer Facility does
not constitute delivery to the Exchange Agent.
The undersigned has completed the appropriate boxes below and signed this
Letter to indicate the action the undersigned desires to take with respect to
the Exchange Offer.
List below the Original Notes to which this Letter relates. If the space
provided below is inadequate, the certificate numbers and principal amount of
Original Notes should be listed on a separate signed schedule affixed hereto.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
DESCRIPTION OF ORIGINAL NOTES 1 2 3
- ---------------------------------------------------------------------------------------------------------------
AGGREGATE
PRINCIPAL PRINCIPAL
NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S) CERTIFICATE AMOUNT OF AMOUNT
(PLEASE FILL IN, IF BLANK) NUMBER(S)* ORIGINAL NOTE(S) TENDERED**
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------
-------------------------------------------------------------
-------------------------------------------------------------
TOTAL
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
* Need not be completed if Original Notes are being tendered by book-entry
transfer.
** Unless otherwise indicated in this column, a holder will be deemed to have
tendered ALL of the Original Notes represented by the Original Notes
indicated in column 2. See Instruction 2. Original Notes tendered hereby
must be in denominations of principal amount of $1,000 and any integral
multiple thereof. See Instruction 1.
- --------------------------------------------------------------------------------
/ / CHECK HERE IF TENDERED ORIGINAL NOTES ARE BEING DELIVERED BY BOOK-ENTRY
TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE
BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING:
Name of Tendering Institution
----------------------------------------------------------------------------
Account Number
----------------------------------------------------------------------------
Transaction Code Number
----------------------------------------------------------------------------
/ / CHECK HERE IF TENDERED ORIGINAL NOTES ARE BEING DELIVERED PURSUANT TO A
NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND
COMPLETE THE FOLLOWING:
Name(s) of Registered Holder(s)
----------------------------------------------------------------------------
Window Ticket Number (if any)
----------------------------------------------------------------------------
Date of Execution of Notice of Guaranteed Delivery
----------------------------------------------------------------------------
Name of Institution Which Guaranteed Delivery
----------------------------------------------------------------------------
IF DELIVERED BY BOOK-ENTRY TRANSFER, COMPLETE THE FOLLOWING:
Account Number
----------------------------------------------------------------------------
Transaction Code Number
----------------------------------------------------------------------------
/ / CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO.
Name:
- --------------------------------------------------------------------------------
Address:
----------------------------------------------------------------------------
----------------------------------------------------------------------------
2
<PAGE>
If the undersigned is not a broker-dealer, the undersigned represents that
it is not engaged in, and does not intend to engage in, a distribution of
Exchange Notes. If the undersigned is a broker-dealer that will receive Exchange
Notes for its own account in exchange for Original Notes that were acquired as a
result of market-making activities or other trading activities, it acknowledges
that it will deliver a prospectus meeting the requirements of the Securities Act
in connection with any resale of such Exchange Notes; however, by so
acknowledging and by delivering such a prospectus, the undersigned will not be
deemed to admit that it is an "underwriter" within the meaning of the Securities
Act. If the undersigned is a broker-dealer that will receive Exchange Notes, it
represents that the Original Notes to be exchanged for the Exchange Notes were
acquired as a result of market-making activities or other trading activities.
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
Upon the terms and subject to the conditions of the Exchange Offer, the
undersigned hereby tenders to the Company the aggregate principal amount of
Original Notes indicated above. Subject to, and effective upon, the acceptance
for exchange of the Original Notes tendered hereby, the undersigned hereby
sells, assigns and transfers to, or upon the order of, the Company all right,
title and interest in and to such Original Notes as are being tendered hereby.
The undersigned hereby irrevocably constitutes and appoints the Exchange
Agent as the undersigned's true and lawful agent and attorney-in-fact with
respect to such tendered Original Notes, with full power of substitution, among
other things, to cause the Original Notes to be assigned, transferred and
exchanged. The undersigned hereby represents and warrants that the undersigned
has full power and authority to tender, sell, assign and transfer the Original
Notes, and to acquire Exchange Notes issuable upon the exchange of such tendered
Original Notes, and that, when the same are accepted for exchange, the Company
will acquire good and unencumbered title thereto, free and clear of all liens,
restrictions, charges and encumbrances and not subject to any adverse claim when
the same are accepted by the Company. The undersigned hereby further represents
that any Exchange Notes acquired in exchange for Original Notes tendered hereby
will have been acquired in the ordinary course of business of the person
receiving such Exchange Notes, whether or not such person is the undersigned,
that neither the Holder of such Original Notes nor any such other person is
participating in, intends to participate in or has an arrangement or
understanding with any person to participate in the distribution of such
Exchange Notes and that neither the Holder of such Original Notes nor any such
other person is an "affiliate," as defined in Rule 405 under the Securities Act,
of the Company.
The undersigned acknowledges that this Exchange Offer is being made in
reliance on interpretations by the staff of the Securities and Exchange
Commission (the "SEC"), as set forth in no-action letters issued to third
parties, that the Exchange Notes issued pursuant to the Exchange Offer in
exchange for the Original Notes may be offered for resale, resold and otherwise
transferred by Holders thereof (other than any such Holder that is an
"affiliate" of the Company within the meaning of Rule 405 under the Securities
Act), without compliance with the registration and prospectus delivery
provisions of the Securities Act, provided that such Exchange Notes are acquired
in the ordinary course of such Holders' business and such Holders have no
arrangement with any person to participate in the distribution of such Exchange
Notes. However, the SEC has not considered the Exchange Offer in the context of
a no-action letter and there can be no assurance that the staff of the SEC would
make a similar determination with respect to the Exchange Offer as in other
circumstances. If the undersigned is not a broker-dealer, the undersigned
represents that it is not engaged in, and does not intend to engage in, a
distribution of Exchange Notes and has no arrangement or understanding to
participate in a distribution of Exchange Notes. If any Holder is an affiliate
of the Company, is engaged in or intends to engage in or has any arrangement or
understanding with respect to the distribution of the Exchange Notes to be
acquired pursuant to the Exchange Offer, such Holder (i) could not rely on the
applicable interpretations of the staff of the SEC and (ii) must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale
3
<PAGE>
transaction. If the undersigned is a broker-dealer that will receive Exchange
Notes for its own account in exchange for Original Notes, it represents that the
Original Notes to be exchanged for the Exchange Notes were acquired by it as a
result of market-making activities or other trading activities and acknowledges
that it will deliver a prospectus meeting the requirements of the Securities Act
in connection with any resale of such Exchange Notes; however, by so
acknowledging and by delivering a prospectus meeting the requirements of the
Securities Act, the undersigned will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
The undersigned will, upon request, execute and deliver any additional
documents deemed by the Company to be necessary or desirable to complete the
sale, assignment and transfer of the Original Notes tendered hereby. All
authority conferred or agreed to be conferred in this Letter and every
obligation of the undersigned hereunder shall be binding upon the successors,
assigns, heirs, executors, administrators, trustees in bankruptcy and legal
representatives of the undersigned and shall not be affected by, and shall
survive, the death or incapacity of the undersigned. This tender may be
withdrawn only in accordance with the procedures set forth in "The Exchange
Offer--Withdrawal Rights" section of the Prospectus.
Unless otherwise indicated herein in the box entitled "Special Issuance
Instructions" below, please deliver the Exchange Notes (and, if applicable,
substitute certificates representing Original Notes for any Original Notes not
exchanged) in the name of the undersigned or, in the case of a book-entry
delivery of Original Notes, please credit the account indicated above maintained
at the Book-Entry Transfer Facility. Similarly, unless otherwise indicated under
the box entitled "Special Delivery Instructions" below, please send the Exchange
Notes (and, if applicable, substitute certificates representing Original Notes
for any Original Notes not exchanged) to the undersigned at the address shown
above in the box entitled "Description of Original Notes."
THE UNDERSIGNED, BY COMPLETING THE BOX ENTITLED "DESCRIPTION OF ORIGINAL
NOTES" ABOVE AND SIGNING THIS LETTER, WILL BE DEEMED TO HAVE TENDERED THE
ORIGINAL NOTES AS SET FORTH IN SUCH BOX ABOVE.
4
<PAGE>
- -------------------------------------------
SPECIAL ISSUANCE INSTRUCTIONS
(SEE INSTRUCTIONS 3 AND 4)
-----------------------------------------------
To be completed ONLY if certificates for Original Notes not exchanged
and/or Exchange Notes are to be issued in the name of and sent to someone
other than the person or persons whose signature(s) appear(s) on this Letter
above, or if Original Notes delivered by book-entry transfer which are not
accepted for exchange are to be returned by credit to an account maintained
at the Book-Entry Transfer Facility other than the account indicated above.
Issue Exchange Notes and/or Original Notes to:
Name(s) ____________________________________________________________________
(PLEASE TYPE OR PRINT)
__________________________________________________________________________
(PLEASE TYPE OR PRINT)
Address ____________________________________________________________________
____________________________________________________________________________
(ZIP CODE)
(COMPLETE SUBSTITUTE FORM W-9)
/ / Credit unexchanged Original Notes delivered by book-entry transfer to
the Book-Entry Transfer Facility account set forth below.
____________________________________________________________________________
(BOOK-ENTRY TRANSFER FACILITY
ACCOUNT NUMBER, IF APPLICABLE)
- ------------------------------------------------------
- ------------------------------------------------------
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 3 AND 4)
-----------------------------------------------
To be completed ONLY if certificates for Original Notes not exchanged
and/or Exchange Notes are to be sent to someone other than the person or
persons whose signature(s) appear(s) on this Letter above or to such person
or persons at an address other than shown in the box entitled "Description
of Original Notes" on this Letter above.
Mail Exchange Notes and/or Original Notes to:
Name(s) ____________________________________________________________________
(PLEASE TYPE OR PRINT)
__________________________________________________________________________
(PLEASE TYPE OR PRINT)
Address ____________________________________________________________________
____________________________________________________________________________
(ZIP CODE)
- -----------------------------------------------------
IMPORTANT: THIS LETTER OR A FACSIMILE HEREOF (TOGETHER WITH THE CERTIFICATES
FOR ORIGINAL NOTES OR A BOOK-ENTRY CONFIRMATION AND ALL OTHER REQUIRED DOCUMENTS
OR THE NOTICE OF GUARANTEED DELIVERY) MUST BE RECEIVED BY THE EXCHANGE AGENT
PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE.
5
<PAGE>
PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL
CAREFULLY BEFORE COMPLETING ANY BOX ABOVE.
- --------------------------------------------------------------------------------
PLEASE SIGN HERE
- --------------------------------------------------------------------------------
6
<PAGE>
- --------------------------------------------------------------------------------
(TO BE COMPLETED BY ALL TENDERING HOLDERS)
(COMPLETE ACCOMPANYING SUBSTITUTE FORM W-9 BELOW)
X ____________________________________________________________________, 1999
X ____________________________________________________________________, 1999
(SIGNATURE(S) OF OWNER) (DATE)
Area Code and Telephone Number__________________________________________
If a holder is tendering any Original Notes, this Letter must be signed
by the registered holder(s) as the name(s) appear(s) on the certificate(s)
for the Original Notes or by any person(s) authorized to become registered
holder(s) by endorsements and documents transmitted herewith. If signature
is by a trustee, executor, administrator, guardian, officer or other person
acting in a fiduciary or representative capacity, please set forth full
title. See Instruction 3.
Name(s): _______________________________________________________________
(PLEASE TYPE OR PRINT)
Capacity: _____________________________________________________________
Address: _______________________________________________________________
________________________________________________________________________
(INCLUDING ZIP CODE)
SIGNATURE GUARANTEE
(IF REQUIRED BY INSTRUCTION 3)
Signature(s) Guaranteed by
an Eligible Institution: _______________________________________________
(AUTHORIZED SIGNATURE)
________________________________________________________________________
(TITLE)
________________________________________________________________________
(NAME AND FIRM)
Dated: ___________________________________________________________, 1999
- --------------------------------------------------------------------------------
7
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER FOR THE
9 3/4% SENIOR SUBORDINATED NOTES DUE 2009 OF HEXCEL CORPORATION
IN EXCHANGE FOR THE
9 3/4% SENIOR SUBORDINATED NOTES DUE 2009 OF HEXCEL CORPORATION
WHICH HAVE BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED
1. DELIVERY OF THIS LETTER AND NOTES; GUARANTEED DELIVERY PROCEDURES.
This Letter is to be completed by holders of Original Notes either if
certificates are to be forwarded herewith or if tenders are to be made pursuant
to the procedures for delivery by book-entry transfer set forth in "The Exchange
Offer--Book-Entry Transfer" section of the Prospectus. Certificates for all
physically tendered Original Notes, or Book-Entry Confirmation, as the case may
be, as well as a properly completed and duly executed Letter (or manually signed
facsimile hereof) and any other documents required by this Letter, must be
received by the Exchange Agent at the address set forth herein on or prior to
the Expiration Date, or the tendering holder must comply with the guaranteed
delivery procedures set forth below. Original Notes tendered hereby must be in
denominations of principal amount of $1,000 and any integral multiple thereof.
Holders whose certificates for Original Notes are not immediately available
or who cannot deliver their certificates and all other required documents to the
Exchange Agent on or prior to the Expiration Date, or who cannot complete the
procedure for book-entry transfer on a timely basis, may tender their Original
Notes pursuant to the guaranteed delivery procedures set forth in "The Exchange
Offer-- Guaranteed Delivery Procedures" section of the Prospectus. Pursuant to
such procedures, (i) such tender must be made through an Eligible Institution,
(ii) prior to 5:00 P.M., New York City time, on the Expiration Date, the (as
defined below) Exchange Agent must receive from such Eligible Institution a
properly completed and duly executed Letter (or a facsimile thereof) and Notice
of Guaranteed Delivery, substantially in the form provided by the Company (by
facsimile transmission, mail or hand delivery), setting forth the name and
address of the holder of Original Notes and the amount of Original Notes
tendered, stating that the tender is being made thereby and guaranteeing that
within three New York Stock Exchange ("NYSE") trading days after the Expiration
Date, the certificates for all physically tendered Original Notes, in proper
form for transfer, or a Book-Entry Confirmation, as the case may be, and any
other documents required by this Letter will be deposited by the Eligible
Institution with the Exchange Agent, and (iii) the certificates for all
physically tendered Original Notes, in proper form for transfer, or a Book-Entry
Confirmation, as the case may be, and all other documents required by this
Letter, must be received by the Exchange Agent within three NYSE trading days
after the Expiration Date.
The method of delivery of this Letter, the Original Notes and all other
required documents is at the election and risk of the tendering holders, but the
delivery will be deemed made only when actually received or confirmed by the
Exchange Agent. If Original Notes are sent by mail, it is suggested that the
mailing be registered mail, properly insured, with return receipt requested,
made sufficiently in advance of the Expiration Date to permit delivery to the
Exchange Agent prior to 5:00 P.M., New York City time, on the Expiration Date.
See "The Exchange Offer" section of the Prospectus.
2. PARTIAL TENDERS (NOT APPLICABLE TO NOTEHOLDERS WHO TENDER BY BOOK-ENTRY
TRANSFER).
If less than all of the Original Notes evidenced by a submitted certificate
are to be tendered, the tendering holder(s) should fill in the aggregate
principal amount of Original Notes to be tendered in the box above entitled
"Description of Original Notes--Principal Amount Tendered." A reissued
certificate representing the balance of nontendered Original Notes will be sent
to such tendering holder, unless
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otherwise provided in the appropriate box on this Letter, promptly after the
Expiration Date. ALL OF THE ORIGINAL NOTES DELIVERED TO THE EXCHANGE AGENT WILL
BE DEEMED TO HAVE BEEN TENDERED UNLESS OTHERWISE INDICATED.
3. SIGNATURES ON THIS LETTER; BOND POWERS AND ENDORSEMENTS; GUARANTEE OF
SIGNATURES.
If this Letter is signed by the registered holder of the Original Notes
tendered hereby, the signature must correspond exactly with the name as written
on the face of the certificates without any change whatsoever.
If any tendered Original Notes are owned of record by two or more joint
owners, all of such owners must sign this Letter.
If any tendered Original Notes are registered in different names on several
certificates, it will be necessary to complete, sign and submit as many separate
copies of this Letter as there are different registrations of certificates.
When this Letter is signed by the registered holder or holders of the
Original Notes specified herein and tendered hereby, no endorsements of
certificates or separate bond powers are required. If, however, the Exchange
Notes are to be issued, or any untendered Original Notes are to be reissued, to
a person other than the registered holder, then endorsements of any certificates
transmitted hereby or separate bond powers are required. Signatures on such
certificate(s) must be guaranteed by an Eligible Institution.
If this Letter is signed by a person other than the registered holder or
holders of any certificate(s) specified herein, such certificate(s) must be
endorsed or accompanied by appropriate bond powers, in either case signed
exactly as the name or names of the registered holder or holders appear(s) on
the certificate(s) and signatures on such certificate(s) must be guaranteed by
an Eligible Institution.
If this Letter or any certificates or bond powers are signed by trustees,
executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and, unless waived by the Company,
proper evidence satisfactory to the Company of their authority to so act must be
submitted.
ENDORSEMENTS ON CERTIFICATES FOR ORIGINAL NOTES OR SIGNATURES ON BOND POWERS
REQUIRED BY THIS INSTRUCTION 3 MUST BE GUARANTEED BY A FIRM THAT IS A FINANCIAL
INSTITUTION (INCLUDING MOST BANKS, SAVINGS AND LOAN ASSOCIATIONS AND BROKERAGE
HOUSES) THAT IS A PARTICIPANT IN THE SECURITIES TRANSFER AGENTS MEDALLION
PROGRAM, THE NEW YORK STOCK EXCHANGE MEDALLION SIGNATURE PROGRAM OR THE STOCK
EXCHANGES MEDALLION PROGRAM (EACH AN "ELIGIBLE INSTITUTION").
SIGNATURES ON THIS LETTER NEED NOT BE GUARANTEED BY AN ELIGIBLE INSTITUTION,
PROVIDED THE ORIGINAL NOTES ARE TENDERED: (I) BY A REGISTERED HOLDER OF ORIGINAL
NOTES (WHICH TERM, FOR PURPOSES OF THE EXCHANGE OFFER, INCLUDES ANY PARTICIPANT
IN THE BOOK-ENTRY TRANSFER FACILITY SYSTEM WHOSE NAME APPEARS ON A SECURITY
POSITION LISTING AS THE HOLDER OF SUCH ORIGINAL NOTES) WHO HAS NOT COMPLETED THE
BOX ENTITLED "SPECIAL ISSUANCE INSTRUCTIONS" OR "SPECIAL DELIVERY INSTRUCTIONS"
ON THIS LETTER, OR (II) FOR THE ACCOUNT OF AN ELIGIBLE INSTITUTION.
4. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS.
Tendering holders of Original Notes should indicate in the applicable box
the name and address to which Exchange Notes issued pursuant to the Exchange
Offer and or substitute certificates evidencing Original Notes not exchanged are
to be issued or sent, if different from the name or address of the person
signing this Letter. In the case of issuance in a different name, the employer
identification or social security number of the person named must also be
indicated. Noteholders tendering Original Notes by book-entry transfer may
request that Original Notes not exchanged be credited to such account maintained
at the Book-Entry Transfer Facility as such noteholder may designate hereon. If
no such instructions are given,
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such Original Notes not exchanged will be returned to the name and address of
the person signing this Letter.
5. TAXPAYER IDENTIFICATION NUMBER.
Federal income tax law generally requires that a tendering holder whose
Original Notes are accepted for exchange must provide the Company (as payor)
with such holder's correct Taxpayer Identification Number ("TIN") on Substitute
Form W-9 below, which in the case of a tendering holder who is an individual, is
his or her social security number. If the Company is not provided with the
current TIN or an adequate basis for an exemption from backup withholding, such
tendering holder may be subject to a $50 penalty imposed by the Internal Revenue
Service. In addition, the Exchange Agent may be required to withhold 31% of the
amount of any reportable payments made after the exchange to such tendering
holder of Exchange Notes. If withholding results in an overpayment of taxes, a
refund may be obtained.
Exempt holders of Original Notes (including, among others, all corporations
and certain foreign individuals) are not subject to these backup withholding and
reporting requirements. See the enclosed Guidelines of Certification of Taxpayer
Identification Number on Substitute Form W-9 (the "W-9 Guidelines") for
additional instructions.
To prevent backup withholding, each tendering holder of Original Notes must
provide its correct TIN by completing the Substitute Form W-9 set forth below,
certifying, under penalties of perjury, that the TIN provided is correct (or
that such holder is awaiting a TIN) and that (i) the holder is exempt from
backup withholding, or (ii) the holder has not been notified by the Internal
Revenue Service that such holder is subject to backup withholding as a result of
a failure to report all interest or dividends or (iii) the Internal Revenue
Service has notified the holder that such holder is no longer subject to backup
withholding. If the tendering holder of Original Notes is a nonresident alien or
foreign entity not subject to backup withholding, such holder must give the
Exchange Agent a completed Form W-8, Certificate of Foreign Status. These forms
may be obtained from the Exchange Agent. If the Original Notes are in more than
one name or are not in the name of the actual owner, such holder should consult
the W-9 Guidelines for information on which TIN to report. If such holder does
not have a TIN, such holder should consult the W-9 Guidelines for instructions
on applying for a TIN, check the box in Part 2 of the Substitute Form W-9 and
write "applied for" in lieu of its TIN. Note: Checking this box and writing
"applied for" on the form means that such holder has already applied for a TIN
or that such holder intends to apply for one in the near future. If the box in
Part 2 of the Substitute Form W-9 is checked, the Exchange Agent will retain 31%
of reportable payments made to a holder during the sixty (60) day period
following the date of the Substitute Form W-9. If the holder furnishes the
Exchange Agent with his or her TIN within sixty (60) days of the Substitute Form
W-9, the Exchange Agent will remit such amounts retained during such sixty (60)
day period to such holder and no further amounts will be retained or withheld
from payments made to the holder thereafter. If, however, such holder does not
provide its TIN to the Exchange Agent within such sixty (60) day period, the
Exchange Agent will remit such previously withheld amounts to the Internal
Revenue Service as backup withholding and will withhold 31% of all reportable
payments to the holder thereafter until such holder furnishes its TIN to the
Exchange Agent.
6. TRANSFER TAXES.
The Company will pay all transfer taxes, if any, applicable to the transfer
of Original Notes to it or its order pursuant to the Exchange Offer. If,
however, Exchange Notes and/or substitute Original Notes not exchanged are to be
delivered to, or are to be registered or issued in the name of, any person other
than the registered holder of the Original Notes tendered hereby, or if tendered
Original Notes are registered in the name of any person other than the person
signing this Letter, or if a transfer tax is imposed for any reason other than
the transfer of Original Notes to the Company or its order pursuant to the
Exchange Offer, the amount of any such transfer taxes (whether imposed on the
registered holder or any other persons) will be payable by the tendering holder.
If satisfactory evidence of payment of such taxes or
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exemption therefrom is not submitted herewith, the amount of such transfer taxes
will be billed directly to such tendering holder.
EXCEPT AS PROVIDED IN THIS INSTRUCTION 6, IT WILL NOT BE NECESSARY FOR
TRANSFER TAX STAMPS TO BE AFFIXED TO THE ORIGINAL NOTES SPECIFIED IN THIS
LETTER.
7. WAIVER OF CONDITIONS.
The Company reserves the absolute right to waive satisfaction of any or all
conditions enumerated in the Prospectus.
8. NO CONDITIONAL TENDERS.
No alternative, conditional, irregular or contingent tenders will be
accepted. All tendering holders of Original Notes, by execution of this Letter,
shall waive any right to receive notice of the acceptance of their Original
Notes for exchange.
Neither the Company, the Exchange Agent nor any other person is obligated to
give notice of any defect or irregularity with respect to any tender of Original
Notes nor shall any of them incur any liability for failure to give any such
notice.
9. MUTILATED, LOST, STOLEN OR DESTROYED ORIGINAL NOTES.
Any holder whose Original Notes have been mutilated, lost, stolen or
destroyed should contact the Exchange Agent at the address indicated above for
further instructions.
10. WITHDRAWAL RIGHTS.
Tenders of Original Notes may be withdrawn at any time prior to 5:00 P.M.,
New York City time, on the Expiration Date.
For a withdrawal of a tender of Original Notes to be effective, a written
notice of withdrawal must be received by the Exchange Agent at the address set
forth above prior to 5:00 P.M., New York City time, on the Expiration Date. Any
such notice of withdrawal must (i) specify the name of the person having
tendered the Original Notes to be withdrawn (the "Depositor"), (ii) identify the
Original Notes to be withdrawn (including certificate number or numbers and the
principal amount of such Original Notes), (iii) contain a statement that such
holder is withdrawing his election to have such Original Notes exchanged, (iv)
be signed by the holder in the same manner as the original signature on the
Letter by which such Original Notes were tendered (including any required
signature guarantees) or be accompanied by documents of transfer to have the
Trustee with respect to the Original Notes register the transfer of such
Original Notes in the name of the person withdrawing the tender and (v) specify
the name in which such Original Notes are registered, if different from that of
the Depositor. If Original Notes have been tendered pursuant to the procedure
for book-entry transfer set forth in "The Exchange Offer-- Book-Entry Transfer"
section of the Prospectus, any notice of withdrawal must specify the name and
number of the account at the Book-Entry Transfer Facility to be credited with
the withdrawn Original Notes and otherwise comply with the procedures of such
facility. All questions as to the validity, form and eligibility (including time
of receipt) of such notices will be determined by the Company, whose
determination shall be final and binding on all parties. Any Original Notes so
withdrawn will be deemed not to have been validly tendered for exchange for
purposes of the Exchange Offer and no Exchange Notes will be issued with respect
thereto unless the Original Notes so withdrawn are validly retendered. Any
Original Notes that have been tendered for exchange but which are not exchanged
for any reason will be returned to the Holder thereof without cost to such
Holder (or, in the case of Original Notes tendered by book-entry transfer into
the Exchange Agent's account at the Book-Entry Transfer Facility pursuant to the
book-entry transfer procedures set forth in "The Exchange Offer--Book-Entry
Transfer" section of the
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Prospectus, such Original Notes will be credited to an account maintained with
the Book-Entry Transfer Facility for the Original Notes) as soon as practicable
after withdrawal, rejection of tender or termination of the Exchange Offer.
Properly withdrawn Original Notes may be retendered by following the procedures
described above at any time on or prior to 5:00 P.M., New York City time, on the
Expiration Date.
11. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES.
Questions relating to the procedure for tendering, as well as requests for
additional copies of the Prospectus and this Letter, and requests for Notices of
Guaranteed Delivery and other related documents may be directed to the Exchange
Agent, at the address and telephone number indicated above.
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TO BE COMPLETED BY ALL TENDERING HOLDERS
(See Instruction 5)
PAYOR'S NAME: THE BANK OF NEW YORK
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PART 1--PLEASE PROVIDE YOUR TIN TIN:
IN THE BOX AT
SUBSTITUTE RIGHT AND CERTIFY BY SIGNING AND Social Security Number or
Form W-9 DATING BELOW. Employer Identification Number
DEPARTMENT OF THE
TREASURY
INTERNAL REVENUE SERVICE
PART 2--TIN APPLIED FOR / /
PAYOR'S REQUEST FOR CERTIFICATION: UNDER THE PENALTIES OF PERJURY, I CERTIFY THAT:
TAXPAYER
IDENTIFICATION NUMBER (1) the number shown on this form is my correct TIN (or I am
("TIN") AND waiting for a number to be issued to me),
CERTIFICATION (2) I am not subject to backup withholding either because: (a) I
am exempt from backup withholding, or (b) I have not been notified
by the Internal Revenue Service (the "IRS") that I am subject
to backup withholding as a result of a failure to report all
interest or dividends, or (c) the IRS has notified me that I
am no longer subject to backup withholding, and
(3) any other information provided on this form is true and
correct.
SIGNATURE DATE
You must cross out item (2) of the above certification if you have been notified by the IRS
that you are subject to backup withholding because of underreporting of interest or
dividends on your tax return and you have not been notified by the IRS that you are no
longer subject to backup withholding.
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YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX
IN PART 2 OF SUBSTITUTE FORM W-9
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number
has not been issued to me, and either (a) I have mailed or delivered an
application to receive a taxpayer identification number to the appropriate
Internal Revenue Service Center or Social Security Administration Office or (b)
I intend to mail or deliver an application in the near future. I understand that
if I do not provide a taxpayer identification number by the time of the
exchange, 31 percent of all reportable payments made to me thereafter will be
withheld until I provide a number.
SIGNATURE DATE
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NOTICE OF GUARANTEED DELIVERY
FOR
HEXCEL CORPORATION
This form or one substantially equivalent hereto must be used to accept the
Exchange Offer of Hexcel Corporation (the "Company") made pursuant to the
Prospectus, dated , 1999 (the "Prospectus"), if certificates for the
outstanding 9 3/4% Senior Subordinated Notes due 2009 of the Company (the
"Original Notes") are not immediately available or if the procedure for
book-entry transfer cannot be completed on a timely basis or time will not
permit all required documents to reach The Bank of New York, as exchange agent
(the "Exchange Agent") prior to 5:00 P.M., New York City time, on the Expiration
Date of the Exchange Offer. Such form may be delivered or transmitted by
facsimile transmission, mail or hand delivery to the Exchange Agent as set forth
below. In addition, in order to utilize the guaranteed delivery procedure to
tender Original Notes pursuant to the Exchange Offer, a completed, signed and
dated Letter of Transmittal (or facsimile thereof) must also be received by the
Exchange Agent prior to 5:00 P.M., New York City time, on the Expiration Date.
Capitalized terms not defined herein are defined in the Prospectus.
DELIVERY TO: The Bank of New York, EXCHANGE AGENT
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BY REGISTERED OR CERTIFIED MAIL: BY HAND OR OVERNIGHT DELIVERY:
The Bank of New York The Bank of New York
101 Barclay Street, 7E 101 Barclay Street
New York, New York 10286 Corporate Trust Services Window
Attention: Reorganization Section Ground Level
New York, New York 10286
Attention: Reorganization Section
</TABLE>
FOR INFORMATION CALL:
(212) 815-6333
BY FACSIMILE TRANSMISSION
(FOR ELIGIBLE INSTITUTIONS ONLY):
(212) 571-3080
CONFIRM BY TELEPHONE:
(212) 815-6333
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE, OR
TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE, WILL
NOT CONSTITUTE A VALID DELIVERY.
<PAGE>
Ladies and Gentlemen:
Upon the terms and conditions set forth in the Prospectus and the
accompanying Letter of Transmittal, the undersigned hereby tenders to the
Company the principal amount of Original Notes set forth below pursuant to the
guaranteed delivery procedure described in "The Exchange Offer--Guaranteed
Delivery Procedures" section of the Prospectus.
Principal Amount of Original Notes Tendered:*
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$
--------------------------------------------
Certificate Nos. (if available): If Original Notes will be delivered by
book-entry transfer to The Depository Trust
------------------------------------------- Company, provide account number.
Total Principal Amount Represented by
Original Notes Certificate(s):
$ Account Number
-------------------------------------------- --------------------------------------------
- -------------------------------------------------------------------------------------------
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ALL AUTHORITY HEREIN CONFERRED OR AGREED TO BE CONFERRED SHALL SURVIVE THE
DEATH OR INCAPACITY OF THE UNDERSIGNED AND EVERY OBLIGATION OF THE UNDERSIGNED
HEREUNDER SHALL BE BINDING UPON THE HEIRS, PERSONAL REPRESENTATIVES, SUCCESSORS
AND ASSIGNS OF THE UNDERSIGNED.
________________________________________________________________________________
PLEASE SIGN HERE
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X --------------------------------- --------------
X --------------------------------- --------------
Signature(s) of Owner(s) Date
or Authorized Signatory
Area Code and Telephone Number:
--------------------------------------------------
</TABLE>
Must be signed by the holder(s) of Original Notes as their name(s) appear(s)
on certificates for Original Notes or on a security position listing, or by
person(s) authorized to become registered holder(s) by endorsement and documents
transmitted with this Notice of Guaranteed Delivery. If signature is by a
trustee, executor, administrator, guardian, attorney-in-fact, officer or other
person acting in a fiduciary or representative capacity, such person must set
forth his or her full title below.
PLEASE PRINT NAME(S) AND ADDRESS(ES)
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Name(s): --------------------------------------------------------------------------
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Capacity: --------------------------------------------------------------------------
Address(es): --------------------------------------------------------------------------
--------------------------------------------------------------------------
--------------------------------------------------------------------------
</TABLE>
- ------------------------
* Must be in denominations of principal amount of $1,000 and any integral
multiple thereof.
<PAGE>
GUARANTEE
(Not to be used for signature guarantee)
The undersigned, a financial institution (including most banks, savings and
loan associations and brokerage houses) that is a participant in the Securities
Transfer Agents Medallion Program, the New York Stock Exchange Medallion
Signature Program or the Stock Exchanges Medallion Program, hereby guarantees
that the certificates representing the principal amount of Original Notes
tendered hereby in proper form for transfer, or timely confirmation of the
book-entry transfer of such Original Notes into the Exchange Agent's account at
The Depository Trust Company pursuant to the procedures set forth in "The
Exchange Offer--Guaranteed Delivery Procedures" section of the Prospectus,
together with any required signature guarantee and any other documents required
by the Letter of Transmittal, will be received by the Exchange Agent at the
address set forth above, no later than three New York Stock Exchange trading
days after the Expiration Date.
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- -------------------------------------------- --------------------------------------------
Name of Firm Authorized Signature
- -------------------------------------------- --------------------------------------------
Address Title
- -------------------------------------------- Name:
--------------------------------------------
Zip Code (Please Type or Print)
Area Code and Tel. No. Dated:
- -------------------------------------------- --------------------------------------------
</TABLE>
NOTE: DO NOT SEND CERTIFICATES FOR ORIGINAL NOTES WITH THIS FORM. CERTIFICATES
FOR ORIGINAL NOTES SHOULD BE SENT ONLY WITH A COPY OF YOUR PREVIOUSLY
EXECUTED LETTER OF TRANSMITTAL.
<PAGE>
HEXCEL CORPORATION
OFFER FOR ALL OUTSTANDING
9 3/4% SENIOR SUBORDINATED NOTES DUE 2009
IN EXCHANGE FOR
9 3/4% SENIOR SUBORDINATED NOTES DUE 2009,
WHICH HAVE BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933,
AS AMENDED
TO OUR CLIENTS:
Enclosed for your consideration is a Prospectus, dated , 1999 (the
"Prospectus"), and the related Letter of Transmittal (the "Letter of
Transmittal"), relating to the offer (the "Exchange Offer") of Hexcel
Corporation (the "Company") to exchange its 9 3/4% Senior Subordinated Notes due
2009, which have been registered under the Securities Act of 1933, as amended
(the "Exchange Notes"), for its outstanding 9 3/4% Senior Subordinated Notes due
2009 (the "Original Notes"), upon the terms and subject to the conditions
described in the Prospectus and the Letter of Transmittal. The Exchange Offer is
being made in order to satisfy certain obligations of the Company contained in
the Registration Rights Agreement dated January 21, 1999, by and among the
Company and the initial purchasers referred to therein.
This material is being forwarded to you as the beneficial owner of the
Original Notes held by us for your account but not registered in your name. A
TENDER OF SUCH ORIGINAL NOTES MAY ONLY BE MADE BY US AS THE HOLDER OF RECORD AND
PURSUANT TO YOUR INSTRUCTIONS.
Accordingly, we request instructions as to whether you wish us to tender on
your behalf the Original Notes held by us for your account, pursuant to the
terms and conditions set forth in the enclosed Prospectus and Letter of
Transmittal.
Your instructions should be forwarded to us as promptly as possible in order
to permit us to tender the Original Notes on your behalf in accordance with the
provisions of the Exchange Offer. The Exchange Offer will expire at 5:00 P.M.,
New York City time, on , 1999, unless extended by the Company. Any
Original Notes tendered pursuant to the Exchange Offer may be withdrawn at any
time before the Expiration Date.
Your attention is directed to the following:
1. The Exchange Offer is for any and all Original Notes.
2. The Exchange Offer is subject to certain conditions set forth in the
Prospectus in the section captioned "The Exchange Offer--Certain Conditions
to the Exchange Offer."
3. Any transfer taxes incident to the transfer of Original Notes from
the holder to the Company will be paid by the Company, except as otherwise
provided in the Instructions in the Letter of Transmittal.
4. The Exchange Offer expires at 5:00 P.M., New York City time, on
, 1999, unless extended by the Company.
If you wish to have us tender your Original Notes, please so instruct us by
completing, executing and returning to us the instruction form on the back of
this letter. THE LETTER OF TRANSMITTAL IS FURNISHED TO YOU FOR INFORMATION ONLY
AND MAY NOT BE USED DIRECTLY BY YOU TO TENDER ORIGINAL NOTES.
<PAGE>
INSTRUCTIONS WITH RESPECT TO
THE EXCHANGE OFFER
The undersigned acknowledge(s) receipt of your letter and the enclosed
material referred to therein relating to the Exchange Offer made by Hexcel
Corporation with respect to its Original Notes.
This will instruct you to tender the Original Notes held by you for the
account of the undersigned, upon and subject to the terms and conditions set
forth in the Prospectus and the related Letter of Transmittal.
Please tender the Original Notes held by you for my account as indicated
below:
9 3/4% Senior Subordinated Notes due 2009 $
(Aggregate Principal Amount of Original Notes)
/ / Please do not tender any Original Notes held by you for my
account.
Dated: , 1999
Signature(s): __________________________________________________________________
Print Name(s) here: ____________________________________________________________
(Print Address(es)): ___________________________________________________________
(Area Code and Telephone Number(s)): ___________________________________________
(Tax Identification or Social Security Number(s)): _____________________________
None of the Original Notes held by us for your account will be tendered
unless we receive written instructions from you to do so. Unless a specific
contrary instruction is given in the space provided, your signature(s) hereon
shall constitute an instruction to us to tender all the Original Notes held by
us for your account.
<PAGE>
HEXCEL CORPORATION
OFFER FOR ALL OUTSTANDING
9 3/4% SENIOR SUBORDINATED NOTES DUE 2009
IN EXCHANGE FOR
9 3/4% SENIOR SUBORDINATED NOTES DUE 2009,
WHICH HAVE BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933,
AS AMENDED
To: BROKERS, DEALERS, COMMERCIAL BANKS,
TRUST COMPANIES AND OTHER NOMINEES:
Hexcel Corporation (the "Company") is offering, upon and subject to the
terms and conditions set forth in the Prospectus, dated , 1999 (the
"Prospectus"), and the enclosed Letter of Transmittal (the "Letter of
Transmittal"), to exchange (the "Exchange Offer") its 9 3/4% Senior Subordinated
Notes due 2009, which have been registered under the Securities Act of 1933, as
amended, for its outstanding 9 3/4% Senior Subordinated Notes due 2009 (the
"Original Notes"). The Exchange Offer is being made in order to satisfy certain
obligations of the Company contained in the Registration Rights Agreement dated
January 21, 1999, by and among the Company and the initial purchasers referred
to therein.
We are requesting that you contact your clients for whom you hold Original
Notes regarding the Exchange Offer. For your information and for forwarding to
your clients for whom you hold Original Notes registered in your name or in the
name of your nominee, or who hold Original Notes registered in their own names,
we are enclosing the following documents:
1. Prospectus dated , 1999;
2. The Letter of Transmittal for your use and for the information of
your clients;
3. A Notice of Guaranteed Delivery to be used to accept the Exchange
Offer if certificates for Original Notes are not immediately available or
time will not permit all required documents to reach the Exchange Agent
prior to the Expiration Date (as defined below) or if the procedure for
book-entry transfer cannot be completed on a timely basis;
4. A form of letter which may be sent to your clients for whose account
you hold Original Notes registered in your name or the name of your nominee,
with space provided for obtaining such clients' instructions with regard to
the Exchange Offer;
5. Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9; and
6. Return envelopes addressed to The Bank of New York, the Exchange
Agent for the Exchange Offer.
YOUR PROMPT ACTION IS REQUESTED. THE EXCHANGE OFFER WILL EXPIRE AT 5:00
P.M., NEW YORK CITY TIME, ON , 1999, UNLESS EXTENDED BY THE COMPANY
(THE "EXPIRATION DATE"). ORIGINAL NOTES TENDERED PURSUANT TO THE EXCHANGE OFFER
MAY BE WITHDRAWN AT ANY TIME BEFORE THE EXPIRATION DATE.
To participate in the Exchange Offer, a duly executed and properly completed
Letter of Transmittal (or facsimile thereof), with any required signature
guarantees and any other required documents, should be sent to the Exchange
Agent and certificates representing the Original Notes should be delivered to
the Exchange Agent, all in accordance with the instructions set forth in the
Letter of Transmittal and the Prospectus.
If a registered holder of Original Notes desires to tender, but such
Original Notes are not immediately available, or time will not permit such
holder's Original Notes or other required documents to reach the
<PAGE>
Exchange Agent before the Expiration Date, or the procedure for book-entry
transfer cannot be completed on a timely basis, a tender may be effected by
following the guaranteed delivery procedures described in the Prospectus under
the caption "The Exchange Offer--Guaranteed Delivery Procedures."
The Company will, upon request, reimburse brokers, dealers, commercial banks
and trust companies for reasonable and necessary costs and expenses incurred by
them in forwarding the Prospectus and the related documents to the beneficial
owners of Original Notes held by them as nominee or in a fiduciary capacity. The
Company will pay or cause to be paid all stock transfer taxes applicable to the
exchange of Original Notes pursuant to the Exchange Offer, except as set forth
in Instruction 6 of the Letter of Transmittal.
Any inquiries you may have with respect to the Exchange Offer, or requests
for additional copies of the enclosed materials, should be directed to The Bank
of New York, the Exchange Agent for the Exchange Offer, at its address and
telephone number set forth on the front of the Letter of Transmittal.
Very truly yours,
HEXCEL CORPORATION
NOTHING HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU OR ANY
PERSON AS AN AGENT OF THE COMPANY OR THE EXCHANGE AGENT, OR AUTHORIZE YOU OR ANY
OTHER PERSON TO USE ANY DOCUMENT OR MAKE ANY STATEMENTS ON BEHALF OF EITHER OF
THEM WITH RESPECT TO THE EXCHANGE OFFER, EXCEPT FOR STATEMENTS EXPRESSLY MADE IN
THE PROSPECTUS OR THE LETTER OF TRANSMITTAL.
Enclosures
2
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER OF SUBSTITUTE FORM W-9
GUIDELINES FOR DETERMINING THE PROPERTY IDENTIFICATION NUMBER TO GIVE THE
PAYER.-- Social Security numbers have nine digits separated by two hyphens: i.e.
000-00-000. Employer identification numbers have nine digits separated by only
one hyphen: i.e. 00-0000000. The table below will help determine the number to
give the payer.
<TABLE>
<CAPTION>
- -------------------------------------------------------
<S> <C>
GIVE THE
SOCIAL
FOR THIS TYPE SECURITY
OF ACCOUNT: NUMBER OF--
- -------------------------------------------------------
1. An individual's account The individual
2. Two or more individuals The actual owner of the
(joint account) account or, if combined
funds, any one of the
individuals(1)
3. Husband and wife (joint The actual owner of the
account) account or, if joint
funds, either person(1)
4. Custodian account of a The minor(2)
minor (Uniform Gift to
Minors Act)
5. Adult and minor (joint The adult or, if the
account) minor is the only
contributor, the minor(1)
6. Account in the name of The ward, minor, or
guardian or committee for a incompetent person(3)
designated ward, minor, or
incompetent person
7. a. The usual revocable The grantor-trustee(1)
savings trust account
(grantor is also
trustee)
b. So-called trust account The actual owner(1)
that is not a legal or
valid trust under State
law
8. Sole proprietorship The owner(4)
account
<CAPTION>
- -------------------------------------------------------
GIVE THE
SOCIAL
FOR THIS TYPE SECURITY
OF ACCOUNT: NUMBER OF--
<S> <C>
- -------------------------------------------------------
9. A valid trust, estate, or The legal entity (Do not
pension trust furnish the identifying
number of the personal
representative or trustee
unless the legal entity
itself is not designated
in the account title.)(5)
10. Corporate account The corporation
11. Religious, charitable, The organization
or educational organization
account
12. Partnership account held The partnership
in the name of the business
13. Association, club, or The organization
other tax-exempt
organization
14. A broker or registered The broker or nominee
nominee
15. Account with the The public entity
Department of Agriculture in
the name of a public entity
(such as a State or local
government, school district,
or prison) that receives
agricultural program
payments
</TABLE>
- ------------------------
(1) List first and circle the name of the person whose number you furnish.
(2) Circle the minor's name and furnish the minor's social security number.
(3) Circle the ward's, minor's or incompetent person's name and furnish such
person's social security number.
(4) Show the name of the owner.
(5) List first and circle the name of the legal trust, estate, or pension trust.
NOTE:If no name is circled when there is more than one name, the number will be
considered to be that of the first name listed.
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER OF SUBSTITUTE FORM W-9
PAGE 2
OBTAINING A NUMBER
If you don't have a taxpayer identification number or you don't know your
number, obtain Form SS-5, Application for a Social Security Number Card, or Form
SS-4, Application for Employer Identification Number, at the local office of the
Social Security Administration or the Internal Revenue Service and apply for a
number.
PAYEES EXEMPT FROM BACKUP WITHHOLDING
Payees specifically exempted from backup withholding on ALL payments include the
following:
- A corporation.
- A financial institution.
- An organization exempt from tax under section 501(a), or an individual
retirement plan.
- The United States or any agency or instrumentality thereof.
- A State, the District of Columbia, a possession of the United States, or
any subdivision or instrumentality thereof.
- A foreign government, a political subdivision of a foreign government, or
any agency or instrumentality thereof.
- An international organization or any agency, or instrumentality thereof.
- A registered dealer in securities or commodities registered in the U.S. or
a possession of the U.S.
- A real estate investment trust.
- A common trust fund operated by a bank under section 584(a).
- An exempt charitable remainder trust, or a nonexempt trust described in
section 4947(a)(1).
- An entity registered at all times under the Investment Company Act of
1940.
- A foreign central bank of issue.
Payments of dividends and patronage dividends not generally subject to
backup withholding include the following:
- Payments to nonresident aliens subject to withholding under section 1441.
- Payments to partnerships not engaged in a trade or business in the U.S.
and which have at least one nonresident partner.
- Payments of patronage dividends where the amount received is not paid in
money.
- Payments made by certain foreign organizations.
- Payments made to a nominee.
Payments of interest not generally subject to backup withholding include the
following:
- Payments of interest on obligations issued by individuals. Note: You may
be subject to backup withholding of this interest is $600 or more and is
paid in the course of the payer's trade or business and you have not
provided your correct taxpayer identification number to the payer.
- Payments of tax-exempt interest (including exempt-interest dividends under
section 852).
- Payments described in section 6049(b)(5) to non-resident aliens.
- Payments on tax-free covenant bonds under section 1451.
- Payments made by certain foreign organizations.
- Payments made to a nominee.
Exempt payees described above should file Form W-9 to avoid possible erroneous
backup withholding. FILE THIS FORM WITH THE PAYER, FURNISH YOUR TAXPAYER
IDENTIFICATION NUMBER, WRITE "EXEMPT" ON THE FACE OF THE FORM, AND RETURN IT TO
THE PAYER. IF THE PAYMENTS ARE INTEREST, DIVIDENDS, OR PATRONAGE DIVIDENDS, ALSO
SIGN AND DATE THE FORM.
Certain payments other than interest, dividends, and patronage dividends,
that are not subject to information reporting are also not subject to backup
withholding. For details, see the regulations under sections 6041, 6041(a),
6045, and 6050A.
PRIVACY ACT NOTICE--Section 6109 requires most recipients of dividend,
interest, or other payments to give taxpayer identification numbers to payers
who must report the payments to IRS. IRS uses the numbers for identification
purposes. Payers must be given the numbers whether or not recipients are
required to file tax returns. Beginning January 1, 1984, payers must generally
withhold 20% of taxable interest, dividend, and certain other payments to a
payee who does not furnish a taxpayer identification number to a payer. Certain
penalties may also apply.
PENALTIES
(1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER.--If you fail
to furnish your taxpayer identification number to a payer, you are subject to a
penalty of $50 for each such failure unless your failure is due to reasonable
cause and not to willful neglect.
(2) FAILURE TO REPORT CERTAIN DIVIDEND AND INTEREST PAYMENTS.--If you fail to
include any portion of an includible payment for interest, dividends, or
patronage dividends in gross income, such failure will be treated as being due
to negligence and will be subject to a penalty of 5% on any portion of an
under-payment attributable to that failure unless there is clear and convincing
evidence to the contrary.
(3) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING.--If you
make a false statement with no reasonable basis which results in no imposition
of backup withholding, you are subject to a penalty of $500.
(4) CRIMINAL PENALTY FOR FALSIFYING INFORMATION.--Falsifying certifications or
affirmations may subject you to criminal penalties including fines and/or
imprisonment.
FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE
SERVICE.
