ACCESSION NUMBER: 0001047469-99-012335
CONFORMED SUBMISSION TYPE: 10-K
PUBLIC DOCUMENT COUNT: 16
CONFORMED PERIOD OF REPORT: 19981231
FILED AS OF DATE: 19990327
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: HEXCEL CORP /DE/
CENTRAL INDEX KEY: 0000717605
STANDARD INDUSTRIAL CLASSIFICATION: METAL FORGING & STAMPINGS [3460]
IRS NUMBER: 941109521
STATE OF INCORPORATION: DE
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: 10-K
SEC ACT: SEC
FILE NUMBER: 001-08472
FILM NUMBER: 99578068
BUSINESS ADDRESS:
STREET 1: 281 TRESSER BOULEVARD
STREET 2: C/O TWO STAMFORD PLZ
CITY: STAMFORD
STATE: CT
ZIP: 06901
BUSINESS PHONE: 2039690666
MAIL ADDRESS:
STREET 1: 5794 W LAS POSITAS BLVD
CITY: PLEASANTON
STATE: CA
ZIP: 945888781
<PAGE>
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
- - --------------------------------------------------------------------------------
x
- - --------------------------------------------------------------------------------
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1999
or
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
Transition Report Pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934
For the transition period from to
Commission File Number 1-8472
Hexcel Corporation
(Exact name of registrant as specified in its charter)
Delaware 94-1109521
(State of Incorporation) (I.R.S. Employer Identification No.)
281 Tresser Boulevard
Stamford, Connecticut 06901
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code: (203) 969-0666
Securities registered pursuant to Section
12(b) of the Act:
<TABLE>
<CAPTION>
Title of each class Name of each exchange on which registered
- - ---------------------- -------------------------------------------------
<S> <C>
COMMON STOCK NEW YORK STOCK EXCHANGE
PACIFIC STOCK EXCHANGE
</TABLE>
Securities registered pursuant to Section 12(g) of the Act:
7% CONVERTIBLE SUBORDINATED NOTES DUE 2003
7% CONVERTIBLE SUBORDINATED DEBENTURES DUE 2011
9 3/4% SENIOR SUBORDINATED NOTES DUE 2009
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value as of March 23, 2000 of voting stock held by
nonaffiliates of the registrant: $95,092,581
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
of reorganization confirmed by a U.S. Bankruptcy Court. Yes X No
The number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
Class Outstanding as of March 23, 2000
- - -------------------- ----------------------------------
<S> <C>
COMMON STOCK 36,607,842
</TABLE>
Documents Incorporated by Reference:
Proxy Statement for Annual Meeting of Stockholders (to the extent specified
herein) -- Part III.
================================================================================
<PAGE>
PART I
ITEM 1. Business.
General Development of Business
Hexcel Corporation, founded in 1946, was incorporated in California in
1948, and reincorporated in Delaware in 1983. Hexcel Corporation, together with
its subsidiaries (herein referred to as "Hexcel" or the "Company"), is a leading
producer of advanced structural materials. The Company develops, manufactures
and markets lightweight, high-performance reinforcement products, composite
materials and engineered products for use in the commercial aerospace, space and
defense, electronics, and industrial markets. The Company's products 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, trucks,
windmill blades, reinforcements for bridges and other structures, window blinds,
skis and snowboards, golf clubs, fishing poles, tennis rackets and bicycles.
The Company serves international markets through manufacturing facilities
and sales offices located in the United States and Europe, and through sales
offices located in Europe, Asia, Australia and South America. The Company is
also a member of six joint ventures, four of which manufacture and market
reinforcement products and composite materials in Europe, Asia and the United
States, and two of which will manufacture composite structures and interiors in
Asia.
In December, the Company announced a review of strategic alternatives for
its Engineered Products business, including a possible sale. The review is part
of the Company's on-going efforts to optimize Hexcel's business portfolio as the
world's leading advanced structural materials company.
Recent Acquisition History
Hexcel acquired the industrial fabrics business of Clark-Schwebel, Inc. and
its subsidiaries ("Clark-Schwebel") on September 15, 1998. The business acquired
from Clark-Schwebel is engaged in the manufacture and sale of high-quality
fiberglass fabrics, which are used to make PCBs for electronic equipment such as
computers, cellular telephones, televisions and automobiles. This business also
produces high-performance specialty products for use in insulation, filtration,
wall and facade claddings, soft body armor and reinforcements for composite
materials.
The acquisition of the Clark-Schwebel business was an important strategic
transaction for Hexcel. The acquisition established Hexcel as a leading global
materials supplier to the electronics and telecommunications industries, which
the Company believes have attractive long-term growth potential. Furthermore,
the acquisition added to Hexcel's revenue base and has further diversified the
Company's business beyond the historically cyclical commercial aerospace market.
On September 30, 1997, the Company acquired from Fiberite, Inc.
("Fiberite") its satellite business consisting of intangible assets and
inventory, and certain non-exclusive worldwide rights to other composite
materials technologies. The Fiberite acquisition expanded Hexcel's existing role
as a supplier of carbon fiber, prepreg and honeycomb to launch vehicle and space
satellite programs and expanded the Company's offering of prepregs for
commercial and military aerospace applications.
Further discussion of the Company's business acquisitions is contained
under the caption "Management's Discussion and Analysis of Financial Condition
and Results of Operations," and in Notes 1 and 2 to the accompanying
consolidated financial statements included in this Annual Report on Form 10-K.
1
<PAGE>
Business Segments and Overview
Hexcel is a vertically integrated manufacturer of products within a single
industry: Advanced Structural Materials. Hexcel's advanced structural materials
business is organized around three strategic business segments: reinforcement
products, composite materials and engineered products. The following table
identifies, by each of these segments, the Company's principal products and
examples of the primary end-uses:
<TABLE>
<CAPTION>
- - -------------------------------- ------------------------ ------------------------------------------------------------
BUSINESS SEGMENTS PRODUCTS PRIMARY END-USE
- - -------------------------------- ------------------------ ------------------------------------------------------------
<S> <C> <C>
REINFORCEMENT Carbon Fibers o Raw materials for industrial fabrics and prepregs
PRODUCTS o Filament winding for various space, defense and
industrial applications
Industrial Fabrics o Printed circuit boards
o Raw materials for prepregs and honeycomb
o Various marine applications
o Window blinds
o Insulation
o Metal and fume filtration systems
o Soft body armor
o Civil engineering and construction applications
- - -------------------------------- ------------------------ -----------------------------------------------------------
COMPOSITE MATERIALS Prepregs o Raw materials for composite structures and
interiors
o Semi-finished aircraft components
o Munitions and defense systems
o Skis, snowboards, golf club shafts, fishing rods
and tennis rackets
Structural Adhesives o Bonding of structural materials and components,
including composite panels
Honeycomb, o Raw materials for composite structures and
Honeycomb interiors
Parts & Composite o Semi-finished aircraft components used in:
Panels Helicopter blades
Aircraft surfaces (flaps,wing tips, elevators and
fairings
High-speed ferries, truck and train components
Automotive components
Space shuttle doors
- - -------------------------------- ------------------------ ------------------------------------------------------------
ENGINEERED PRODUCTS Composite Structures o Aircraft structures and finished aircraft
components, including:
Wing-to-body and flap track fairings
Radomes
Engine cowls and inlet ducts
Wing panels
Interiors o OEM and retrofit aircraft interiors, including:
Overhead storage compartments
Lavatories
Sidewalls and ceilings
- - -------------------------------- ------------------------ ------------------------------------------------------------
</TABLE>
2
<PAGE>
Reinforcement Products
The Reinforcement Products business segment manufactures and markets carbon
fibers and industrial fabrics. Hexcel expanded this business segment in 1998
with the acquisition of the Clark-Schwebel business.
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
other applications such as golf club shafts and tennis racquets.
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. These fabrics are sold 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. These
fabrics are also used internally by Hexcel to manufacture prepregs and other
composite materials.
Hexcel's net sales and pro forma net sales of reinforcement products to
third party customers, after giving effect to the acquisition of the
Clark-Schwebel business as if the transaction had occurred at the beginning of
1997, were as follows:
<TABLE>
<CAPTION>
- - -------------------------------------------------------------------- ------------------ ------------ ---------------
(In millions) 1999 1998 1997
- - -------------------------------------------------------------------- ------------------ ------------ ---------------
- - -------------------------------------------------------------------- ------- ---------- --- -------- ------ --------
<S> <C> <C> <C>
Net sales $ 330.9 $ 224.8 $ 171.1
Pro forma net sales 330.9 370.6 411.3
- - -------------------------------------------------------------------- ------- ---------- --- -------- ------ --------
</TABLE>
The decrease in pro forma net sales over the last two years was the result
of various factors, starting with a reduction in demand for PCBs in 1998, due to
a change in the electronics industry inventory cycle, reduced Asian market
demand and increased competition from Asian and other producers in western
markets. This resulted in a rapid reduction in prices for glass fabrics in early
1999. In 1999, sales of reinforcement fabrics for composite materials also
declined as The Boeing Company ("Boeing") began to reduce aircraft build rates
in the second half of the year from the record levels achieved in 1998.
Approximately 25%, 37% and 42% of the Company's production of
reinforcement products was used internally to manufacture composite materials in
1999, 1998, and 1997, respectively. The percentage of production of
reinforcement products for internal use has decreased over the last two years
due to the acquisition of the Clark-Schwebel business.
<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------------
Reinforcement Products
- - --------------------------------------------------------------------------------
KEY CUSTOMERS MANUFACTURING FACILITIES
- - --------------------------------------------------------------------------------
<S> <C>
Cytec Fiberite Anderson, SC
Isola Decatur, AL
Nelco Decines, France
Piad Les Avenieres, France
DHB Salt Lake City, UT
Second Chance Seguin, TX
Von Roll Statesville, NC
Washington, GA
- - --------------------------------------------------------------------------------
</TABLE>
3
<PAGE>
Composite Materials
The Composite Materials business segment has worldwide responsibility for
manufacturing and marketing prepregs, structural adhesives, honeycomb, specially
machined honeycomb parts and composite panels.
Prepregs and Structural Adhesives: Prepregs are manufactured for sale to
third party customers and for use by Hexcel in manufacturing other composite
materials and structures, including finished components for aircraft structures
and interiors. Prepregs are manufactured by combining high performance
reinforcement fabrics or unidirectional fibers with a resin matrix to form a
composite material with exceptional structural properties not present in either
of the constituent materials. Industrial fabrics used in the manufacture of
prepregs include S-2(R) and E-type fiberglass, carbon, aramid, quartz, ceramic,
Thorstrand(R), polyethylene and other specialty reinforcements. Resin matrices
include bismaleimide, cyanate ester, epoxy, phenolic, polyester, polyimide and
other specialty resins.
Hexcel designs and markets a comprehensive range of Redux(R) 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 generally 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
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 the Company
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. Hexcel
also sells 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
industrial uses. In addition, the Company produces honeycomb for its Engineered
Products business segment for use in manufacturing finished parts for airframe
manufacturers.
Hexcel's net sales of composite materials to third party customers were
$605.9 million in 1999, $658.0 million in 1998, and $581.0 million in 1997. Net
sales for composite materials are highly dependent upon commercial aircraft
build rates as further discussed under the under the captions "Markets and
Customers" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations." Approximately 2% of the Company's production of
composite materials are used internally to manufacture composite structures and
interiors.
4
<PAGE>
<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------------
Composite Materials
- - --------------------------------------------------------------------------------
KEY CUSTOMERS MANUFACTURING FACILITIES
- - --------------------------------------------------------------------------------
<S> <C>
United States: United States:
Boeing Burlington, WA
CFAN Casa Grande, AZ
Embraer Gilbert, AZ
Hawker de Havilland Lancaster, OH
Lockheed Martin Livermore, CA
Northrop Grumman Pottsville, PA
Rohr Salt Lake City, UT
United Technologies
Europe:
Europe: Dagneux, France
Aerospatiale Duxford, England
Alenia Linz, Austria
British Aerospace Parla, Spain
CASA Swindon, England
DaimlerChrylser Aerospace Welkenraedt, Belgium
- - --------------------------------------------------------------------------------
</TABLE>
The Company also operates sales offices in Sydney, Australia; Singapore;
Shanghai, China; Sao Paulo, Brazil; Munich, Germany; and Saronno, Italy.
Engineered Products
The Engineered Products business segment has worldwide responsibility for
manufacturing and marketing composite structures and interiors, primarily for
use in the aerospace industry. As previously discussed, in December 1999, the
Company announced its intention to explore strategic alternatives for its
Engineered Products business, including a possible sale.
Composite Structures: Composite structures and structural parts are
manufactured from a variety of composite and other materials (including
prepregs, honeycomb and structural adhesives) using such manufacturing processes
as resin transfer molding, autoclave processing, multi-axis numerically
controlled machining, press laminating, heat forming and other composite
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.
Aircraft Interiors: The interiors operations of the Engineered Products
business segment design and produce innovative, lightweight, high-strength
composite interior systems for aircraft. Aircraft interior products, which
include overhead storage bins, lavatories, sidewalls and ceilings, are sold to
Boeing and other airframe manufacturers for production of certain aircraft and
to airlines for replacement of existing interior components. With increasing
airline traffic and the trend of increased use of rolling carry-on luggage,
airlines are increasingly requesting larger overhead storage bins. The Company
has developed a patented bin extension kit to increase the size of certain
single-aisle aircraft overhead storage bins, which increases their capacity to
accommodate these larger bags. This product is being marketed to the world's
airlines.
Hexcel's net sales of engineered products to third party customers were
$214.7 million in 1999, $206.2 million in 1998, and $184.8 million in 1997. The
improvement in engineered products net sales primarily reflects the production
of structural and interior components outsourced to Hexcel by Boeing from 1997
to 1998, and expanding sales of retrofit interior products from 1998 to 1999.
5
<PAGE>
<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------------
Engineered Products
- - --------------------------------------------------------------------------------
KEY CUSTOMERS MANUFACTURING FACILITIES
- - --------------------------------------------------------------------------------
<S> <C>
Boeing Bellingham, WA
Continental Airlines Kent, WA
Northrop Grumman
Qantas
United Airlines
- - --------------------------------------------------------------------------------
</TABLE>
Further discussion of Hexcel's business operations and operating segments
are contained under the caption "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and in Note 16 to the
accompanying consolidated financial statements included in this Annual Report on
Form 10-K.
Joint Ventures
In 1999, Hexcel, Boeing and Aviation Industries of China formed a joint
venture, BHA Aero Composite Parts Co., Ltd., to manufacture composite parts for
secondary structures and interior applications for commercial aircraft. Hexcel
has a 33% equity ownership interest in this joint venture, which is located in
Tianjin, China. Also in 1999, Hexcel formed another joint venture, Asian
Composites Manufacturing Sdn. Bhd., with Boeing, Sime Link Sdn. Bhd., and
Malaysia Helicopter Services Bhd. (now known as Naluri Berhadto), to manufacture
composite parts for secondary structures for commercial aircraft. Hexcel has a
25% equity ownership interest in this joint venture, which is located in Alar
Setor, Malaysia. Products manufactured by both joint ventures will be shipped to
Hexcel's customers worldwide, and it is anticipated that the first parts will be
delivered to customers in 2001.
As part of the acquired Clark-Schwebel business, the Company acquired
equity ownership interests in three joint ventures: a 43.6% share in
CS-Interglas AG ("CS-Interglas"), headquartered in Germany; a 43.3% share in
Asahi-Schwebel Co., Ltd. ("Asahi-Schwebel"), headquartered in Japan; and a 50.0%
share in Clark-Schwebel Tech-Fab Company ("CS Tech-Fab"), headquartered in the
United States. CS-Interglas and Asahi-Schwebel are fiberglass fabric producers
serving the European and Asian electronics industry as well as other markets for
fiberglass fabrics. CS Tech-Fab manufactures non-woven materials for roofing,
construction and other specialty applications.
In addition, Hexcel has 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.
Business Acquisition and Consolidation Programs
Since 1996, Hexcel has implemented, or begun to implement, three business
acquisition and consolidation programs. The primary purpose of these programs is
to integrate acquired businesses by rationalizing manufacturing facilities,
creating centers of manufacturing excellence, and combining various
administrative functions with existing operations. For the years ended December
31, 1999, 1998 and 1997, Hexcel recorded business acquisition and consolidation
expenses of $20.1 million, $12.7 million and $25.3 million, respectively, in
relation to these plans as well as other costs associated with the Company's
acquisitions. Further discussion of the Company's business acquisition and
consolidation plans is contained under the caption "Management's Discussion and
Analysis of Financial Condition and Results of Operations," and in Note 3 to the
accompanying consolidated financial statements included in this Annual Report on
Form 10-K.
6
<PAGE>
Lean Enterprise
In 1998, Hexcel initiated its Lean Enterprise program, which is designed to
create a common way of managing the Company, with a focus on creating value for
the Company's customers and eliminating waste throughout the value chain. The
goals of the program are faster processing of customer orders and deliveries,
faster manufacturing cycle times, shorter equipment set-up and clean-down times,
lower manufacturing rejects and warranty claims, 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 Lean Enterprise program is also systematically
linked with key initiatives, such as Six Sigma, to improve quality and the
effectiveness of global procurement activities. This program has been a
contributor to Hexcel's reduction in working capital and capital spending in
1999.
Electronic Commerce
Hexcel's strategy for the development and implementation of electronic
commerce ("e-commerce") in its business is focused on four critical areas:
- - - Streamlining the procurement of raw materials, supplies and certain
services, and enhancing the Company's purchasing leverage.
- - - Effectively managing the Company's interactions with the trade exchanges
being developed by some of the Company's customers.
- - - Leveraging e-commerce technologies to accelerate the development of new
market opportunities and product applications for advanced structural
materials.
- - - Using Internet-based technologies to integrate the Company's legacy
information systems in order to enhance customer service, improve
supply-chain management and reduce information processing costs.
The integration of e-commerce into the Company's business processes is
expected to be an ongoing activity.
Raw Materials and Production Activities
Due to the vertically integrated nature of Hexcel's operations, the Company
produces several materials used in the manufacture of certain industrial
fabrics, composite materials and engineered products, as well as the
polyacrylonitrile ("PAN") precursor material used in the manufacture of carbon
fibers. The Company consumed internally approximately 49% and 25% of its carbon
fiber and industrial fabric production, respectively, in 1999. However, the
Company purchases most of the raw materials used in production from third
parties. 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 currently anticipate, could have a material adverse effect on
operations.
Hexcel's production activities are generally based on a combination of
"make-to-order" and "make-to-forecast" production requirements. The Company
coordinates closely with key suppliers in an effort to avoid raw material
shortages and excess inventories.
7
<PAGE>
Research and Technology; Patents and Know-How
Hexcel's Research and Technology ("R&T") departments support the Company's
core businesses worldwide. Through R&T activities, the Company maintains
expertise in chemical formulation and curatives, fabric forming and textile
architectures, advanced composite structures, process engineering, application
development analysis and testing of composite materials, computational design
and prediction, and other scientific disciplines related to the Company's
worldwide business base. Additionally, Hexcel's R&T function performs a limited
amount of contract research and development in the U.S. and Europe for
strategically important customers and government agencies in the areas of carbon
fiber ceramics, high temperature polymers, advanced textiles and composite
structures manufacturing.
Hexcel's products rely primarily on the Company's expertise in materials
science, textiles, process engineering and polymer chemistry. Consistent with
market demand, the Company has been placing more emphasis on cost effective
product design and lean manufacturing in recent years. Towards this end, the
Company has entered into formal and informal alliances, as well as licensing and
teaming arrangements, with several customers, suppliers, external agencies and
laboratories. Management believes that the Company possesses unique capabilities
to design, develop and manufacture composite materials and structures. In
addition to the rights to certain technologies obtained as part of the Fiberite
transaction, the Company owns and maintains in excess of 100 patents worldwide,
has licensed many key technologies, and has granted technology licenses and
patent rights to several third parties in connection with joint ventures and
joint development programs. It is the Company's policy to actively enforce its
proprietary rights. The Company believes that the patents and know-how rights
currently owned or licensed by the Company are adequate for the conduct of its
business.
Hexcel spent $24.8 million for research and technology in 1999,
$23.7 million in 1998 and $18.4 million in 1997. These expenditures were
expensed as incurred.
Markets and Customers
Hexcel's products 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 three years ended December 31:
<TABLE>
<CAPTION>
- - ---------------------------------------------------------------- ----------------- ---------------- -----------------
1999 1998 1997
- - ---------------------------------------------------------------- ----------------- ---------------- -----------------
<S> <C> <C> <C>
Net Sales by Market
Commercial aerospace 57% 62% 64%
Space and defense 11 13 9
Electronics 14 8 5
Industrial 18 17 22
- - ---------------------------------------------------------------- ----------------- ---------------- -----------------
Total 100% 100% 100%
- - ---------------------------------------------------------------- ----------------- ---------------- -----------------
Net Sales by Geography
United States 57% 54% 56%
U.S. exports 8 9 8
International 35 37 36
- - ---------------------------------------------------------------- ----------------- ---------------- -----------------
Total 100% 100% 100%
- - ---------------------------------------------------------------- ----------------- ---------------- -----------------
</TABLE>
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. Accordingly, the
demand for advanced structural material products is closely correlated to the
demand for commercial aircraft.
8
<PAGE>
Commercial aerospace activity fluctuates in relation to two principal
factors. First, the number of revenue passenger miles flown by the airlines
affects the size of the airline fleets and generally follows the level of
overall economic activity. The second 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 as
well as public concern 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 Industrie
("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 557 in 1997, 788 in 1998, and a record 914
in 1999. Based on published projections, combined deliveries are expected to
decline to approximately 800 in 2000 and to between 700 and 800 in 2001,
following a peak in 1999.
Set forth below are historical deliveries as published by Boeing and
Airbus:
<TABLE>
<CAPTION>
- - ---------------------------------------------------------------------------------------------------------------------
1992 1993 1994 1995 1996 1997 1998 1999
- - ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Boeing/McDonnell Douglas 573 409 311 256 271 375 559 620
Airbus 157 138 127 124 126 182 229 294
- - ---------------------------------------------------------------------------------------------------------------------
Total 730 547 438 380 397 557 788 914
- - ---------------------------------------------------------------------------------------------------------------------
</TABLE>
Approximately 28%, 35% and 36% of Hexcel's 1999, 1998, and 1997 net sales,
respectively, were identifiable as sales to Boeing and related subcontractors.
Of the 28% of sales attributable to Boeing and its subcontractors, 25% and 3%
related to commercial aerospace and space and defense market applications,
respectively. Approximately 10%, 11% and 10% of Hexcel's 1999, 1998 and 1997 net
sales, respectively, were identifiable as sales to Airbus and related
subcontractors. On a pro forma basis, after giving effect to the acquisition of
the acquired Clark-Schwebel business as if the transaction had occurred at the
beginning of 1997, approximately 32% and 10% of Hexcel's 1998 net sales were to
Boeing and its subcontractors and Airbus and its subcontractors, respectively.
The percentage decline in sales to Boeing in 1999 was a result of declining
commercial aircraft deliveries, as well as procurement and manufacturing
improvement initiatives of key aerospace customers. The loss of all or a
significant portion of the business with Boeing or Airbus could have a material
adverse effect on sales and earnings.
Depending on the product, orders placed with Hexcel are received anywhere
between one and eighteen months prior to delivery of the aircraft to the
customer. Based on published projections, combined deliveries for Boeing and
Airbus are expected to decline from a peak of 914 in 1999 to approximately 800
in 2000, and further to between 700 and 800 in 2001. Hexcel delivers product
into the Boeing supply chain on average about six months prior to aircraft
delivery. As the Company supplies its products ahead of the delivery of a
commercial aircraft, it began to see the impact of reduced Boeing production
rates in the second quarter of 1999. The Company's sales to regional and
business aircraft manufacturers, as well as to the aircraft aftermarket, are
expected to continue to grow.
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
composite materials and structures 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, however, there are a number
of potentially significant military aircraft programs in various stages of
development or initial production that utilize advanced structural materials.
9
<PAGE>
The Company is currently qualified to supply materials to a broad range of
military aircraft and helicopters scheduled to enter full-scale production in
the near future. These programs include V-22 (Osprey) tilt-roter, F/A-18E/F
(Hornet), F-22 (Raptor), C-17 transport, European Fighter Aircraft (Typhoon),
RAH-66 (Comanche) and NH90 helicopter.
Contracts to supply materials for military and some commercial projects
contain provisions for termination at the convenience of the U.S. government or
the buyer. In the case of such a termination, Hexcel is entitled to recover
reasonable incurred cost plus a provision for profit on the incurred cost. In
addition, the Company is subject to U.S. government cost accounting standards,
which are applicable to companies with more than $25 million of government
contract or subcontract awards each year.
Electronics
The acquisition of the Clark-Schwebel business provides Hexcel with a
global platform to supply the electronics industry, which the Company believes
has attractive long-term growth potential. The Company is the largest producer
of fine, lightweight fiberglass fabrics used in the fabrication of multilayer
PCBs, with an estimated 45% market share in the U.S. and 25% market share in
Europe. In addition to its U.S. businesses, the Company 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. Fiberglass fabrics are a
critical component used in the production of PCBs, which are integral to most
advanced electronic products, including computers, telecommunications equipment,
advanced cable television equipment, network servers, televisions, automotive
equipment and home appliances.
Industrial Markets
Hexcel has focused its participation in industrial markets in areas where
the application of advanced structural material technology offers significant
benefits to the end user. As a result, the Company has chosen to focus on select
opportunities where high performance is the key product criterion. Future
opportunities and growth depend primarily upon the success of the individual
programs and industries in which the Company has elected to participate. Within
industrial markets, key applications include surface transportation
(automobiles, trucks, mass transit and high-speed rail and marine applications),
wind energy, civil engineering, skis, snowboards, golf club shafts, fishing
rods, tennis rackets and bicycles. Hexcel's participation in these markets is a
valuable complement to its commercial and military aerospace businesses, and the
Company is committed to pursuing the utilization of advanced structural material
technology in its industrial markets.
Further discussion of Hexcel's markets and customers, including certain
risks, uncertainties and other factors with respect to "forward-looking
statements" about those markets and customers, is contained under the caption
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Sales and Marketing
A staff of salaried market managers, product managers and salespeople sell
and market Hexcel products directly to customers worldwide. The Company also
uses independent distributors and manufacturer representatives for certain
products, markets and regions.
Competition
In the production and sale of advanced structural materials, Hexcel
competes with numerous U.S. and international companies on a worldwide basis.
The broad markets for the Company's products are highly competitive, and the
Company has focused on both specific markets and specialty products within
markets to obtain market share. In addition to competing directly with companies
offering similar products, the Company competes with substitute structural
materials such as structural foam, wood, metal, and concrete. Depending upon the
10
<PAGE>
material and markets, relevant competitive factors include price, delivery,
service, quality and product performance.
Environmental Matters
To date, environmental control regulations have not had a significant
adverse effect on overall operations. A discussion of environmental matters is
contained under the caption, "Legal Proceedings," and in Note 14 to the
accompanying consolidated financial statements included in this Annual Report on
Form 10-K.
Employees
As of December 31, 1999, Hexcel employed 6,328 full-time employees,
compared with 7,139 and 5,597 as of December 31, 1998 and 1997, respectively.
The decrease from the end of 1998 to the end of 1999 was primarily attributable
to Hexcel's business acquisition and consolidation programs, including the
closure of a facility in Cleveland, Georgia, and the disposition of a business
in Brindisi, Italy. The increase from the end of 1997 to the end of 1998 was
primarily attributable to the acquisition of the Clark-Schwebel business, which
added approximately 1,300 employees to Hexcel's workforce.
ITEM 2. Properties
Hexcel owns and leases manufacturing facilities and sales offices located
throughout the United States and in other countries as noted below. The
corporate offices and principal corporate support activities for the Company are
located in leased facilities in Stamford, Connecticut and Pleasanton,
California. The Company's corporate research and technology administration and
certain composite materials laboratories are located in Dublin, California. In
the second half of 2000, the Company will relocate all of its activities from
its Pleasanton, California, facility to the Company's nearby Dublin, California,
facility.
11
<PAGE>
The following table lists the manufacturing facilities of Hexcel by
geographic location, approximate square footage, and principal products
manufactured. This table does not include manufacturing facilities owned by
entities in which the Company has a joint venture interest.
<TABLE>
<CAPTION>
Manufacturing Facilities
Approximate
Facility Location Square Footage Principal Products
<S> <C> <C>
United States:
Anderson, South Carolina 432,000 Industrial fabrics
Bellingham, Washington 188,000 Interiors
Burlington, Washington 73,000 Honeycomb Parts
Casa Grande, Arizona 307,000 Honeycomb and Honeycomb Parts
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 457,000 Carbon Fibers; Prepregs
Seguin, Texas 204,000 Industrial fabrics
Statesville, North Carolina 553,000 Electronic fabrics; Industrial fabrics
Washington, Georgia 160,000 Electronic fabrics
International:
Dagneux, France 130,000 Prepregs
Decines, France 90,000 Industrial fabrics
Duxford, United Kingdom 440,000 Prepregs; Honeycomb and Honeycomb Parts
Les Avenieres, France 476,000 Electronic fabrics; Industrial fabrics
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.
As part of Hexcel's business consolidation programs, the Company closed a
facility in Cleveland, Georgia, and disposed of a facility in Brindisi, Italy,
in 1999.
ITEM 3. Legal Proceedings
Hexcel is involved in litigation, investigations and claims arising out of
the conduct of its business, including those relating to commercial
transactions, as well as to environmental, health and safety matters. The
Company estimates and accrues 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 that
12
<PAGE>
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
The Company is 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.
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. Because
CERCLA provides for joint and several liability, the Company could be
responsible for all remediation costs at such sites, even if it is one of many
potentially responsible parties ("PRPs"). While the Company believes, based on
the amount and the nature of its waste, and the number of other financially
viable PRPs, that its liability in connection with such matters will not be
material, the Company has nonetheless accrued an estimate of its liability with
respect to this matter.
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 its consolidated balance sheets. The ultimate cost of
remediating the Lodi site will depend on developing circumstances.
Hexcel was 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 Company's Kent, Washington, site
by the U.S. Environmental Protection Agency. Under the terms of the cost-sharing
agreement, the Company was obligated to reimburse the previous owner for a
portion of the cost of the required remediation activities. Management has
determined that the cost-sharing agreement terminated on December 22, 1998;
however, the other party disputes this determination. The Company's estimate of
the remaining costs associated with the cleanup of this site is accrued in its
consolidated balance sheets.
Hexcel is aware of a grand jury investigation being conducted by the
Antitrust Division of the United States Department of Justice with respect to
the carbon fiber and carbon fiber prepreg industries. The Department of Justice
appears to be reviewing the pricing of all manufacturers of carbon fiber and
carbon fiber prepreg since 1993. The Company, along with other manufacturers of
these products, has received a grand jury subpoena requiring production of
documents to the Department of Justice. The Company is not in a position to
predict the direction or outcome of the investigation; however, it is
cooperating with the Department of Justice.
In 1999, Hexcel was joined in a purported class action lawsuit alleging
antitrust violations in the sale of carbon fiber, carbon fiber industrial
fabrics and carbon fiber prepreg. The Company was one of many manufacturers
joined in the lawsuit, which was spawned from the Department of Justice
investigation. The lawsuit is in its preliminary stage and the Company is not in
a position to predict the outcome, but believes that the lawsuit is without
merit as to the Company.
13
<PAGE>
ITEM 4. Submission of Matters to a Vote of Security Holders
None.
PART II
ITEM 5. Market for Registrant's Common Equity and Related Stockholder Matters
Hexcel common stock is traded on the New York and Pacific Stock Exchanges.
The range of high and low sales prices of Hexcel common stock on the New York
Stock Exchange Composite Tape is contained in Note 17 to the accompanying
consolidated financial statements included in this Annual Report on Form 10-K
and is incorporated herein by reference.
Hexcel did not declare or pay any dividends in 1999, 1998, or 1997. The
payment of dividends is generally prohibited under the terms of certain of the
Company's credit agreements.
On March 23, 2000, there were 1,684 holders of record of Hexcel common
stock.
ITEM 6. Selected Financial Data
The information required by Item 6 is contained on page 30 of this Form
10-K under the caption "Selected Financial Data" and is incorporated herein by
reference.
ITEM 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The information required by Item 7 is contained on pages 31 to 46 of this
Form 10-K under "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and is incorporated herein by reference.
ITEM 7A. Quantitative and Qualitative Discussion Disclosures about Market Risk
The information required by Item 7A is contained under the heading "Market
Risks" on page 44 of this Form 10-K and is incorporated herein by reference.
ITEM 8. Consolidated Financial Statements and Supplementary Data
The information required by Item 8 is contained on pages 47 to 79 of this
Form 10-K under "Consolidated Financial Statements and Supplementary Data" and
is incorporated herein by reference. The report of the independent public
accountants for the years ended December 31, 1999, 1998 and 1997 is contained on
page 50 of this Form 10-K under the caption "Report of Independent Accountants"
and is incorporated herein by reference.
14
<PAGE>
PART III
ITEM 10. Directors and Executive Officers of the Registrant:
(a) Listed below are the directors of Hexcel as of March 24, 2000, the
positions with the Company held by them and a brief description of each
director's prior business experience.
<TABLE>
<CAPTION>
Director
Name Age Since Position(s) With Hexcel
- - ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
John J. Lee...................... 63 1993 Chairman of the Board; Chief Executive Officer; Director
Harold E. Kinne............... 60 1998 President; Chief Operating Officer; Director
Robert S. Evans............... 55 1999 Director
Marshall S. Geller............ 60 1994 Director
Walter D. Hosp................. 42 2000 Director
John J. McGraw............... 59 1999 Director
Martin Riediker................ 47 1999 Director
Lewis Rubin.................... 62 1999 Director
Stanley Sherman............... 61 1996 Director
Martin L. Solomon............ 63 1996 Director
- - ----------------------------------------------------------------------------------------------------------
</TABLE>
JOHN J. LEE, age 63, 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. Mr. Lee also serves as Chairman of the Nominating Committee and as a
member of the Finance Committee of Hexcel. He has served as Chairman of the
Board, President and Chief Executive Officer of Lee Development Corporation, a
merchant banking company, since 1987 and an adviser to the Clipper Group, a
private investment partnership, since 1993. He is also a director of Crane Co.
and other various privately-held corporations. Mr. Lee was a director of XTRA
Corporation, a transportation equipment leasing company, from 1990 to 1996 and a
director of Hvide Marine Inc., a marine support and transportation services
company from 1994 to October 1999.
HAROLD E. KINNE, age 60, 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 and a member of the corporate
management committee of Ciba Specialty Chemicals Corporation ("CSC"), a wholly
owned affiliate of Ciba Specialty Chemicals Holding Inc. ("Ciba"), from 1996 to
June 1998. Mr. Kinne also held the same positions in Ciba-Geigy Corporation
("CGC") and was a director of 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.
ROBERT S. Evans, age 55, has been a director of Hexcel since November 1999.
He is Chairman and CEO and a Director of Crane Co., a New York Stock Exchange
company. Crane Co. is a diversified manufacturer of engineered industrial
products serving a number of industrial markets including aerospace and
specialty materials markets in which Hexcel does not participate. Mr. Evans has
been Chairman and CEO of Crane Co. since 1984 and a director since 1979. In
addition, Mr. Evans is also a director of Fansteel, Inc., HBD Industries Inc.,
Southdown Corporation, and Chairman of Huttig Building Products.
MARSHALL S. GELLER, age 60, served as Co-Chairman of the Board of Directors
of Hexcel from February 1995 to February 1996 and has been a director of Hexcel
since August 1994. Mr. Geller also serves as Chairman of the Audit Committee and
as a member of the 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 &
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<PAGE>
Company, an investment banking firm, from 1988 to 1990; and a Senior Managing
Director of Bear, Stearns & Co., Inc., an investment banking firm, from 1967 to
1988. Mr. Geller is currently a director of Ballantyne of Omaha, Inc., Players
International, Value Vision International, Inc., iMall Inc., DataLink Systems
Corp., Cabletel Communications Corp., Stroud's, Inc. and various other
privately-held corporations and charitable organizations.
WALTER D. HOSP, age 42, has been a director of Hexcel since February 2000.
Mr. Hosp also serves as a member of the Executive Compensation and Finance
Committees of Hexcel. Mr. Hosp is Vice President, Chief Financial Officer and a
member of the Board of Directors of CSC. Mr. Hosp served as Vice President and
Treasurer of CGC from 1994 to 1996, and served as Director, Corporate Finance of
CGC from 1990 to 1996. Mr. Hosp also serves on the Board of Directors and is
Treasurer of The United Way of Westchester & Putnam Counties and is on the New
York Advisory Board of The Factory Mutual Insurance Company.
JOHN J. McGRAW, age 59, has been a director of Hexcel since February 1999.
Mr. McGraw also serves as a member of the Nominating and Technology Committees
of Hexcel. Mr. McGraw is Vice President, General Counsel, Secretary and a member
of the Board of Directors of CSC. Mr. McGraw served as Vice President, General
Counsel and Secretary of CGC from 1986 to 1996 and was a member of the Board of
Directors and of the Finance Committee of CGC from 1989 to 1996. Mr. McGraw also
serves on the Board of Directors of the Westchester Legal Aid Society.
MARTIN RIEDIKER, age 47, has been a director of Hexcel since February 1999.
Mr. Riediker also serves as a member of the Nominating and Technology Committees
of Hexcel. Mr. Riediker is Global President of Ciba's Consumer Care Division and
a member of Ciba's Executive Committee. Mr. Riediker was appointed Head of
Ciba-Geigy Limited's ("CGL") Ciba Chemical Division in 1995. From 1994 to 1995
he served as head of CGC's U.S. Polymers Division and as a Management Committee
member of CGC in the U.S.
LEWIS RUBIN, age 62, has been a director of Hexcel since November 1999. He
also served on Hexcel's Board from 1993 to 1995. Mr. Rubin also serves as member
of the Audit Committee of Hexcel. Mr. Rubin is President and CEO and a Director
of XTRA Corporation, a New York Stock Exchange company, serving in those
positions since 1990. XTRA Corporation is a leading global transportation
equipment lessor with operations in highway, domestic inter-modal and marine
container markets. From 1988 to 1990, he was a consultant with Lewis Rubin
Associates, a consulting firm advising the transportation equipment industry.
From 1984 to 1988, Mr. Rubin served as President and Chief Executive Officer of
Gelco CTI Container Services, a subsidiary of Gelco Corporation, a diversified
international management services corporation, and as an Executive Vice
President of Gelco Corporation. From 1981 to 1983, Mr. Rubin was President and
Chief Executive Officer of Flexi-Van Corporation, a company engaged in the
leasing of intermodal transportation equipment.
STANLEY SHERMAN, age 61, has been a director of Hexcel since February 1996.
Mr. Sherman also serves as Chairman of the Executive Compensation Committee and
as a member of the Finance Committee of Hexcel. Mr. Sherman is President and
Chief Executive Officer of CSC and Chairman of the Board of Ciba Specialty
Chemicals (Canada). Mr. Sherman served as a director and Vice President and
Chief Financial Officer of CGC from 1991 to 1996, and was a member of the
Finance Committee and the Corporate Management Committee of CGC's Board of
Directors. From 1986 to 1991, Mr. Sherman served as Vice President-Corporate
Planning of CGC. Mr. Sherman also serves on the Board of Directors of the
Chemical Manufacturers Association and the Westchester Educational Coalition.
MARTIN L. SOLOMON, age 63, has been a director of Hexcel since May 1996.
Mr. Solomon also 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
16
<PAGE>
1996, Managing Partner of Value Equity Associates I, L.P., an investment
partnership, from 1988 to 1990, and was an investment analyst and portfolio
manager of Steinhardt Partners, an investment partnership, from 1985 to 1987.
Mr. Solomon has been a director of XTRA Corporation since 1990 and a director of
MFN Corp. since 1999. Mr. Solomon is also a director of various privately-held
corporations and civic organizations.
(b) Listed below are the executive officers and other senior management of
Hexcel as of March 24, 2000, the positions held by them and a brief
description of their business experience. For additional information
concerning Messrs. Lee and Kinne, see Item 10(a).
<TABLE>
<CAPTION>
Executive
Officer
Name Age Since Position(s) With Hexcel
- - ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
John J. Lee.................. 63 1993 Chairman of the Board; Chief Executive Officer; Director
Harold E. Kinne............ 60 1998 President; Chief Operating Officer; Director
Stephen C. Forsyth....... 44 1994 Executive Vice President; Chief Financial Officer
Ira J. Krakower............ 59 1996 Senior Vice President; General Counsel; Secretary
Kirk G. Forbeck............ 39 1999 Corporate Controller; Chief Accounting Officer
Joseph H. Shaulson....... 34 1996 Vice President of Planning and Integration
Justin P.S. Taylor......... 46 1996 Vice President, Manufacturing and Environmental, Health and Safety
William D. Bennison..... 55 1998 President of the Fabrics business unit
James N. Burns............ 60 1996 President of the Fibers business unit
William Hunt.............. 57 1996 President of the Composites Materials business unit
David R. Tanonis......... 43 1999 President of Structures and Interiors business unit
</TABLE>
STEPHEN C. FORSYTH, age 44, 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 has held other general management
positions with Hexcel from 1980 to 1994. Mr. Forsyth joined Hexcel in 1980. Mr.
Forsyth also serves as a director of CS-Interglas AG.
IRA J. KRAKOWER, age 59, 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.
Kirk G. Forbeck, age 39, has served as the Corporate Controller and Chief
Accounting Officer since September 1999, Director of Financial Planning and
Analysis from 1997 to 1999, Assistant Corporate Controller from 1993 to 1997,
and Senior Financial Analyst from 1991 to 1992. Prior to joining Hexcel in 1991,
Mr. Forbeck worked at Coopers and Lybrand, where he was employed for six years.
JOSEPH H. SHAULSON, age 34, 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.
JUSTIN P. S. TAYLOR, age 46, has served as Vice President of Manufacturing
and Environmental, Health and Safety since June 1999. From April 1996 to June
1999, Mr. Taylor served as President of Hexcel's Structures and Interiors
business unit, and from July 1995 to April 1996 as a member of CGL's strategic
planning unit. Prior to July 1995, Mr. Taylor held various management positions
in the Heath Tecna Division of CGC.
17
<PAGE>
WILLIAM D. BENNISON, age 55, has served as President of Hexcel's Fabrics
business unit since November 1998. Prior to joining Hexcel in September 1998,
Mr. Bennison was President of Clark-Schwebel, Inc. from September 1991 to August
1998. Mr. Bennison also serves as President of Clark-Schwebel Tech-Fab Company
and as a director of CS-Interglas AG and Asahi-Schwebel Co., Ltd. Mr. Bennison
was President of BGF Industries and its predecessor, Burlington Glass Fabrics
Co., from 1981 to 1989.
JAMES N. BURNS, age 60, 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.
WILLIAM HUNT, age 57, has served as President of Hexcel's Composites
Materials business unit since November 1998 and as President of the former
Hexcel EuroMaterials business unit from February 1996 to October 1998. Mr. Hunt
served as President of the EuroMaterials unit of the Ciba Composites Business
from 1991 to February 1996 and as Managing Director of Ciba-Geigy Plastics
("CGP") from 1990 to 1991. Prior to joining CGP in 1990, Mr. Hunt held various
other technical and managerial positions, including the position of Managing
Director of Illford Limited (Photographic) Co.
DAVID R. TANONIS, age 43, has served as President of Hexcel's Structures
and Interiors business unit since June 1999. Mr. Tanonis served as Vice
President of Hexcel's Structures and Interiors business unit, responsible for
the interiors business, from February 1996 to June 1999 and as the Vice
President of Interiors in the Heath Tecna Division of CGC prior to February
1996. Mr. Tanonis has held various technical and managerial positions with Heath
Tecna since 1987. Mr. Tanonis held various management positions with Polymer
Engineering, Inc. from 1978 to 1987.
(c) There are no family relationships among any of Hexcel's directors or
executive officers.
ITEM 11. Executive Compensation
The information required in Item 11 will be contained in Hexcel's
definitive Proxy Statement for the 2000 Annual Meeting of Stockholders. Such
information is incorporated herein by reference.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management
The information required in Item 12 will be contained in Hexcel's
definitive Proxy Statement for the 2000 Annual Meeting of Stockholders. Such
information is incorporated herein by reference.
18
<PAGE>
ITEM 13. Certain Relationships and Related Transactions
The information required in Item 13 will be contained in Hexcel's
definitive Proxy Statement for the 2000 Annual Meeting of Stockholders. Such
information is incorporated herein by reference.
PART IV
ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
a. Financial Statements
The consolidated financial statements of Hexcel, notes thereto, and report
of independent accountants are listed on page 47 of this Annual Report on
Form 10-K and are incorporated herein by reference.
b. Financial Statement Schedules
Financial statement schedules have not been included inasmuch as the
information required has been adequately disclosed in the underlying
consolidated financial statements.
c. Reports on Form 8-K
Current Report on Form 8-K dated January 20, 2000 relating to a Press
Release issued by the Company reporting on fourth-quarter and year-end
results.
Current Report on Form 8-K dated December 8, 1999 relating to the Company's
review of strategic options for its Engineered Products business.
c. Exhibits
Exhibit No. Description
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).
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<PAGE>
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 the Company'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).
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
(incorporated herein by reference to Exhibit 2.5(b) to the
Company's Registration Statement on Form S-4 (No.
333-71601), filed on February 2, 1999).
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,
Registration No. 1-08472).
20
<PAGE>
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,
Registration No. 1-08472).
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 93/4% Senior Subordinated Notes due
2009 (incorporated herein by reference to Exhibit 4.1 to the
Company's Registration Statement on Form S-4 (No.
333-71601), filed on February 2, 1999).
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
(incorporated herein by reference to Exhibit 4.2 to the
Company's Registration Statement on Form S-4 (No.
333-71601), filed on February 2, 1999).
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 93/4% Senior Subordinated Notes due 2009 (incorporated
herein by reference to Exhibit 4.3 to the Company's
Registration Statement on Form S-4 (No. 333-71601), filed on
February 2, 1999).
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. (incorporated herein by reference
to Exhibit 4.5(c) to the Company's Registration Statement on
Form S-4 (No. 333-71601), filed on March 12, 1999).
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 (incorporated herein by reference
to Exhibit 4.5(d) to the Company's Registration Statement on
Form S-4 (No. 333-71601), filed on March 12, 1999).
21
<PAGE>
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).
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).
22
<PAGE>
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 (incorporated herein by reference to
Exhibit 10.1(g) to the Company's Registration Statement on
Form S-4 (No. 333-71601), filed on March 12, 1999).
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 (incorporated herein by reference to Exhibit 10.1(h) to
the Company's Registration Statement on Form S-4 (No.
333-71601), filed on March 12, 1999).
10.1(i) Second Amendment dated August 13, 1999 to the Second Amended
and Restated Credit Agreement by and among Hexcel
Corporation and the Foreign Borrowers from time to time
parties 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. (incorporated herein by reference to
Exhibit 10.3 of the Company's Quarterly Report on Form 10-Q
for the Quarter ended June 30, 1999).
10.1(j) Third Amendment dated March 7, 2000 to the Second Amended
and Restated Credit Agreement by and among Hexcel
Corporation and the Foreign Borrowers from time to time
parties 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(k) Amended and Restated Collateral Agreement dated March 7,
2000 to the Second Amended and Restated Credit Agreement by
and among Hexcel Corporation and the Foreign Borrowers from
time to time parties 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.
10.2 Schedule to the ISDA Master Agreement between Credit
Lyonnais (New York Branch) and Hexcel Corporation, dated as
of September 15, 1998.
10.2(a) Confirmation dated October 22, 1998 relating to transaction
entered into pursuant to ISDA Master Agreement between
Credit Lyonnais (New York Branch) and Hexcel Corporation,
dated as of September 15, 1998.
10.3 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).
10.3(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(b) Hexcel Corporation Incentive Stock Plan, as amended and
restated on January 30, 1997, and further amended on
December 10, 1997 and March 25, 1999 (incorporated herein by
23
<PAGE>
reference to Exhibit 4.3 of the Company's Registration
Statement on Form S-8 filed on July 26, 1999).
10.3(c) Hexcel Corporation Incentive Stock Plan, as amended and
restated on January 30, 1997, and further amended on
December 10, 1997, March 25, 1999 and December 2, 1999.
10.3(d) Hexcel Corporation Incentive Stock Plan, as amended and
restated on February 3, 2000 (incorporated herein by
reference to Annex A of the Company's Proxy Statement dated
March 31, 2000).
10.4 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, Registration No.
333-57223).
10.5 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(a) Hexcel Corporation Management Stock Purchase Plan, as
amended on March 25, 1999 (incorporated herein by reference
to Exhibit 4.3 of the Company's Registration Statement on
Form S-8 filed on July 26, 1999).
10.5(b) Hexcel Corporation Management Stock Purchase Plan, as
amended on March 25, 1999 and December 2, 1999.
10.5(c) Hexcel Corporation Management Stock Purchase Plan, as
amended and restated on February 3, 2000 (incorporated
herein by reference to Annex B of the Company's Proxy
Statement dated March 31, 2000).
10.6 Hexcel Corporation Management Incentive Compensation Plan
(incorporated herein by reference to Annex A of the
Company's Proxy Statement dated April 20, 1998).
10.7 Form of Employee Option Agreement Special Executive Grant
(1999) dated December 2, 1999.
10.8 Form of Employee Option Agreement (1999) dated December 2,
1999.
10.9 Form of Employee Option Agreement (1999) (incorporated
herein by reference to Exhibit 10.1 of the Company's
Quarterly Report on Form 10-Q for the Quarter ended March
31, 1999).
10.10 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).
10.11 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).
10.12 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).
10.13 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).
24
<PAGE>
10.14 Form of Retainer Fee Option Agreement for Non-Employee
Directors (1999).
10.15 Form of Retainer Fee Option Agreement for Non-Employee
Directors (1998) (incorporated herein by reference to
Exhibit 10.11 to Hexcel's Annual Report on Form 10-K for the
fiscal year ended December 31, 1998).
10.16 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).
10.17 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).
10.18 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).
10.19 Form of Performance Accelerated Restricted Stock Unit
Agreement (Special Executive Grant December 2, 1999).
10.20 Form of Performance Accelerated Restricted Stock Unit
Agreement (December 2, 1999).
10.21 Form of Performance Accelerated Restricted Stock Unit
Agreement (1999) (incorporated herein by reference to
Exhibit 10.2 to Hexcel's Quarterly Report on Form 10-Q for
the Quarter ended March 31, 1999).
10.22 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).
10.23 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).
10.24 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).
10.25 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).
10.26 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).
10.27 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).
10.28 Form of Performance Accelerated Stock Option Agreement
(Director) (incorporated herein by reference to Exhibit 10.6
25
<PAGE>
to Hexcel's Quarterly Report on Form 10-Q for the Quarter
ended June 30, 1997).
10.29 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).
10.30 Form of Grant of Restricted Stock Unit Agreement
(incorporated herein by reference to Exhibit 10.3 to
Hexcel's Quarterly Report on Form 10-Q for the Quarter ended
March 31, 1999).
10.31 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).
10.32 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).
10.33 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).
10.33(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).
10.33(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).
10.33(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).
10.33(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).
10.33(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).
10.33(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).
10.33(g) Split Dollar Agreement dated as of January 21, 1999 among
Hexcel, John J. Lee and certain Trustees (incorporated
herein by reference to Exhibit 10.4 to the Company's
Quarterly Report on Form 10-Q for the Quarter ended March
31, 1999).
10.33(h) Executive Severance Agreement between Hexcel and John J. Lee
dated as of February 3, 1999 (incorporated herein by
reference to Exhibit 10.5 to the Company's Quarterly Report
on Form 10-Q for the Quarter ended March 31, 1999).
26
<PAGE>
10.33(i) Letter dated December 2, 1999 from Hexcel Corporation to
John J. Lee, regarding the Company's Management Incentive
Compensation Plan for 1999.
10.34 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).
10.34(a) Letter dated December 2, 1999 from Hexcel Corporation to
Harold E. Kinne, regarding the Company's Management
Incentive Compensation Plan for 1999.
10.35 Letter dated December 2, 1999 from Hexcel Corporation to
Stephen C. Forsyth, regarding the Company's Management
Incentive Compensation Plan for 1999.
10.36 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).
10.37 Form of Executive Severance Agreement between Hexcel and
certain executive officers dated as of February 3, 1999
(incorporated herein by reference to Exhibit 10.6 to the
Company's Quarterly Report on Form 10-Q for the Quarter
ended March 31, 1999).
10.38 Form of Executive Severance Agreement between Hexcel and
certain executive officers dated as of February 3, 1999
(incorporated herein by reference to Exhibit 10.7 to the
Company's Quarterly Report on Form 10-Q for the Quarter
ended March 31, 1999).
10.39 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).
10.40 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).
10.40(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 (incorporated herein by reference to
Exhibit 10.29(a) to the Company's Registration Statement on
Form S-4 (No. 333-71601), filed on March 12, 1999).
10.41 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).
10.42 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).
10.43 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).
27
<PAGE>
12.1 Statement regarding the computation of ratio of earnings to
fixed charges for the Company (electronic filing only).
21.1 Subsidiaries of the Company
23 Consent of Independent Accountants - PricewaterhouseCoopers
LLP.
27 Financial Data Schedule (electronic filing only).
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Stamford, State of Connecticut.
<TABLE>
HEXCEL CORPORATION
<S> <C>
March 24, 2000 By: /s/ JOHN J. LEE
-------------------------------------
John J. Lee, Chief Executive Officer
</TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ JOHN J. LEE Chairman of the March 24, 2000
- - -------------------------------------------- Board of Directors and
(John J. Lee) Chief Executive Officer
(Principal Executive Officer)
/s/ HAROLD E. KINNE President, Chief Operating Officer March 24, 2000
- - -------------------------------------------- and Director
(Harold E. Kinne)
/s/ STEPHEN C. FORSYTH Executive Vice President and March 24, 2000
- - -------------------------------------------- Chief Financial Officer
(Stephen C. Forsyth) (Principal Financial Officer)
/s/ KIRK G. FORBECK Corporate Controller March 24, 2000
- - -------------------------------------------- (Principal Accounting Officer)
(Kirk G. Forbeck)
28
<PAGE>
/s/ ROBERT S. EVANS Director March 24, 2000
- - --------------------------------------------
(Robert S. Evans)
/s/ MARSHALL S. GELLER Director March 24, 2000
- - --------------------------------------------
(Marshall S. Geller)
/s/ WALTER D. HOSP Director March 24, 2000
- - --------------------------------------------
(Walter D. Hosp)
/s/ JOHN J. McGRAW Director March 24, 2000
- - --------------------------------------------
(John J. McGraw)
/s/ MARTIN RIEDIKER Director March 24, 2000
- - --------------------------------------------
(Martin Riediker)
/s/ LEWIS RUBIN Director March 24, 2000
- - --------------------------------------------
(Lewis Rubin)
/s/ STANLEY SHERMAN Director March 24, 2000
- - --------------------------------------------
(Stanley Sherman)
/s/ MARTIN L. SOLOMON Director March 24, 2000
- - --------------------------------------------
(Martin L. Solomon)
</TABLE>
29
<PAGE>
Selected Financial Data
(In millions, except per share data)
The following table summarizes selected financial data for continuing
operations as of and for the five years ended December 31:
<TABLE>
<CAPTION>
- - ---------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
- - ---------------------------------------------------------------------------------------------------------------------
Statement of Operations Data:
<S> <C> <C> <C> <C> <C>
Net sales $ 1,151.5 $ 1,089.0 $ 936.9 $ 695.2 $ 350.2
Cost of sales 909.0 817.7 714.3 553.9 283.1
-------------------------------------------------------------------------
Gross margin 242.5 271.3 222.6 141.3 67.1
Selling, general and administrative
expenses 128.7 117.9 102.4 79.4 41.7
Research and technology expenses 24.8 23.7 18.4 16.7 7.6
Business acquisition and
consolidation expenses 20.1 12.7 25.3 42.4 -
-------------------------------------------------------------------------
Operating income 68.9 117.0 76.5 2.8 17.8
Interest expense 73.9 38.7 25.8 21.6 8.7
Other income, net - - - (3.0) (0.8)
Bankruptcy reorganization expenses - - - - 3.4
-------------------------------------------------------------------------
Income (loss) from continuing
operations before income taxes (5.0) 78.3 50.7 (15.8) 6.5
Recovery of (provision for) income taxes 1.7 (28.4) 22.9 (3.4) (3.3)
Equity in income and write-down in
investments in affiliated companies (20.0) 0.5 - - -
=========================================================================
Income (loss) from continuing
operations $ (23.3) $ 50.4 $ 73.6 $ (19.2) $ 3.2
=========================================================================
Income (loss) per share from
continuing operations:
Basic $ (0.64) $ 1.38 $ 2.00 $ (0.58) $ 0.21
Diluted $ (0.64) $ 1.24 $ 1.74 $ (0.58) $ 0.20
=========================================================================
- - ---------------------------------------------------------------------------------------------------------------------
Balance Sheet Data:
Current assets $ 327.8 $ 439.0 $ 387.1 $ 316.9 $ 128.1
Non-current assets 934.1 965.2 424.5 384.8 102.5
=========================================================================
Total assets $ 1,261.9 $ 1,404.2 $ 811.6 $ 701.7 $ 230.6
=========================================================================
Current liabilities $ 210.5 $ 219.4 $ 186.4 $ 188.8 $ 66.5
Long-term liabilities 781.3 882.4 375.3 333.6 115.7
Stockholders' equity 270.1 302.4 249.9 179.3 48.4
=========================================================================
Total liabilities and stockholders'
equity $ 1,261.9 $ 1,404.2 $ 811.6 $ 701.7 $ 230.6
=========================================================================
- - ---------------------------------------------------------------------------------------------------------------------
Other Data:
Cash dividends per share - - - - -
Shares outstanding at year-end, less
treasury stock 36.6 36.4 36.9 36.6 18.1
- - ---------------------------------------------------------------------------------------------------------------------
<FN>
A discussion of the impact of business acquisitions on selected financial data is contained in Notes 1, 2 and 3 to the
accompanying consolidated financial statements.
</FN>
</TABLE>
30
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
Business Overview
-----------------------------------------------------------------------------------------------------------------
Year Ended December 31,
---------------------------------------------------------------
Pro Forma
(In millions, except per share data) 1999 1998 (d) 1998 1997
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 1,151.5 $ 1,234.8 $ 1,089.0 $ 936.9
Gross margin % 21.1% 24.7% 24.9% 23.8%
Adjusted operating income % (a) 7.7% 11.9% 11.9% 10.9%
Adjusted EBITDA (b) $ 150.4 $ 208.4 177.2 $ 137.6
Business acquisition & consolidation expenses $ 20.1 $ 12.7 12.7 $ 25.3
Net income (loss) $ (23.3) $ 49.5 50.4 $ 73.6
Adjusted net income (c) $ 9.6 $ 57.6 59.2 $ 47.6
-----------------------------------------------------------------------------------------------------------------
Diluted net income (loss) per share $ (0.64) $ 1.22 1.24 $ 1.74
Adjusted diluted net income per share (c) $ 0.26 $ 1.40 1.43 $ 1.17
-----------------------------------------------------------------------------------------------------------------
<FN>
(a) Excludes business acquisition and consolidation ("BA&C") expenses.
(b) Excludes BA&C expenses, interest, taxes, depreciation, amortization, and
equity in income and write-down in investments in affiliated companies. See
"Financial Condition and Liquidity" for a reconciliation of net income
(loss) to EBITDA and Adjusted EBITDA.
(c) Excludes BA&C expenses and other acquisition related costs, net of
applicable tax benefits, and a write-down in an investment in an affiliated
company, and assumes a U.S. effective tax provision of 36% in 1997.
(d) Pro forma results give effect to the September 1998 acquisition of Clark-
Schwebel as if the transaction had occurred at the beginning of 1998.
</FN>
</TABLE>
Hexcel's 1999 operating results were significantly below 1998, reflecting
the impact of declining aircraft production rates at The Boeing Company
("Boeing") as well as manufacturing and inventory adjustments in excess of
production rate changes by a number of aerospace customers in the U.S., Europe
and certain export markets. In addition, 1999 results were adversely affected by
price reductions, which were made early in the year for certain aerospace
products and electronics fabrics in response to market conditions, and by
significant increases in the installed capacity of the carbon fiber industry,
which made it difficult for Hexcel to sell its own excess carbon fiber capacity.
These factors were only partially offset by increased sales of aircraft interior
products and services, improved demand for fabrics used in electronics and
ballistics applications, particularly in the second half of the year, and
continued growth in the use of composite materials for wind energy and
automotive applications.
In response to these difficult conditions, Hexcel intensified its efforts
to reduce costs, improve operating cash flow and pay down debt. In September
1999, the Company announced a new business consolidation program designed to
eliminate excess capacity and overhead, improve manufacturing focus and yields,
and create additional centers of manufacturing excellence. This program is
intended to build upon the success of the Company's previous business
consolidation activities which, together with ongoing "Lean Enterprise"
initiatives aimed at continuous productivity improvement, enabled the Company to
reduce its total labor and overhead costs by approximately $25 million in 1999.
Additional cost savings of more than $20 million are expected in 2000.
Progress during the year in improving manufacturing cycle times and working
capital management enabled Hexcel to generate $86.8 million of free cash flow
(measured as the change in debt net of cash). As a result, the Company was able
to exceed its debt reduction target and preserve financial flexibility in spite
of disappointing operating results. Although Hexcel does not expect a comparable
amount of free cash flow in 2000, the Company does expect to generate ongoing
incremental improvements in the use of both working capital and capital assets.
31
<PAGE>
Looking forward to 2000, Hexcel anticipates less volatility in customer
demand and continued benefits from business consolidation and Lean Enterprise
activities. Boeing has publicly indicated that it may be able to sustain
aircraft production at the current rate of about 480 per year, due in part to
the continued economic recovery in Asia, while Airbus Industrie ("Airbus") is
projecting a modest increase in aircraft deliveries to more than 300 per year.
At the same time, independent forecasts indicate continued growth in the
production of regional and business aircraft, as well as in a number of
significant military aerospace programs projected to begin moving into
full-scale production towards the end of the year.
Hexcel also expects moderate volume growth in the sale of lightweight
fabrics used in the manufacture of multi-layer printed circuit boards ("PCBs"),
driven by the growth of electronic infrastructure for the Internet and consumer
demand for personal electronic devices. The Company will also continue to pursue
new applications for reinforcement products and composite materials in
high-growth industrial markets. Sales of product for wind energy, automotive and
ballistics applications are all expected to grow in 2000.
In December 1999, Hexcel announced that it has begun to explore strategic
alternatives for its Engineered Products business segment, including a possible
sale. This review is being conducted in connection with an overall assessment of
the strategic opportunities and investment needs of each segment of the
Company's business. The objective of this assessment is to determine how the
Company can further prioritize its management focus and optimize its business
portfolio.
Business Acquisitions
Acquired Clark-Schwebel Business
Hexcel acquired the industrial fabrics business of Clark-Schwebel, Inc. and
its subsidiaries ("Clark-Schwebel") on September 15, 1998. The business acquired
from Clark-Schwebel is engaged in the manufacture and sale of high-quality
fiberglass fabrics, which are used to make PCBs for electronic equipment such as
computers, cellular telephones, televisions and automobiles. This business also
produces high-performance specialty products for use in insulation, filtration,
wall and facade claddings, soft body armor and reinforcements for composite
materials. At the date of acquisition, Clark-Schwebel operated four
manufacturing facilities in the southeastern U.S. and had approximately 1,300
full-time employees.
As part of this acquisition, Hexcel also acquired Clark-Schwebel's equity
ownership interests in the following three joint ventures:
- - - a 43.6% share in CS-Interglas AG ("CS-Interglas"), headquartered in
Germany, together with fixed-price options to increase this equity interest
to 84.0%. Hexcel's acquisition of the CS-Interglas equity interest and
related options was completed on December 23, 1998;
- - - a 43.3% share in Asahi-Schwebel Co., Ltd. ("Asahi-Schwebel"), headquartered
in Japan, which in turn owns interests in two joint ventures in Taiwan: a
50% interest in Nittobo Norplex Oak Co., Ltd. and a 51% interest in
Asahi-Schwebel Taiwan; and
- - - a 50.0% share in Clark-Schwebel Tech-Fab Company ("CS Tech-Fab"),
headquartered in the United States.
CS-Interglas and Asahi-Schwebel are fiberglass fabric producers serving the
European and Asian electronics and telecommunications industries. CS Tech-Fab
manufactures non-woven materials for roofing, construction and other specialty
applications. The exercise price of the options to increase the Company's equity
interest in CS-Interglas was significantly higher than their fair market value,
and as a result, Hexcel allowed the options to expire unexercised on December
31, 1999.
The acquisition of the Clark-Schwebel business was an important strategic
transaction for Hexcel. The acquisition established Hexcel as a leading global
materials supplier to the electronics and telecommunications industries, which
32
<PAGE>
the Company believes have attractive long-term growth potential. Furthermore,
the acquisition added to Hexcel's revenue base and has further diversified the
Company's business beyond the historically cyclical commercial aerospace market.
The acquisition of Clark-Schwebel's industrial fabrics business was
completed pursuant to an asset purchase agreement dated July 25, 1998, as
amended by and among Hexcel, Stamford CS Acquisition Corp., and Clark-Schwebel
(the "Asset Purchase Agreement"). Under the Asset Purchase Agreement, Hexcel
acquired the net assets of the business, other than certain excluded assets and
liabilities, in exchange for approximately $473 million in cash. Hexcel also
agreed to lease $50.0 million of property, plant and equipment used in the
acquired business from an affiliate of Clark-Schwebel, pursuant to a long-term
lease with purchase options. Refer to "Financial Resources" for a discussion of
acquisition financing.
Acquired Fiberite Assets
On September 30, 1997, the Company acquired from Fiberite, Inc.
("Fiberite") its satellite business consisting of intangible assets and
inventory, and certain non-exclusive worldwide rights to other prepreg
technologies, for $37.0 million in cash. Substantially all of the $37.0 million
purchase price, less an $8.0 million write-off of acquired in-process research
and technology, was allocated to intangible assets.
The above acquisitions were accounted for under the purchase method of
accounting. Accordingly, the consolidated balance sheets, statements of
operations, stockholders' equity and comprehensive income, and cash flows
include the financial position, results of operations and cash flows of the
businesses acquired as of such dates and for such periods that these businesses
were owned by Hexcel. Further discussion and analysis of the Company's business
acquisitions is contained in Notes 1 and 2 to the accompanying consolidated
financial statements.
Results of Operations
1999 Compared to 1998
Net Sales: Net sales for 1999 were $1,151.5 million, compared with net
sales for 1998 of $1,089.0 million. The 1998 results include those of the
acquired Clark-Schwebel business from the date of acquisition, September 15,
1998, through December 31, 1998. On a pro forma basis, after giving effect to
the acquisition of the acquired Clark-Schwebel business as if the transaction
had occurred at the beginning of 1998, 1998 sales were $1,234.8 million. The 7%
decrease in 1999 net sales relative to 1998 pro forma net sales was primarily
due to declining aircraft production rates by Boeing, inventory adjustments in
excess of build rate changes by aerospace customers, price reductions in early
1999 for certain aerospace products and electronic fabrics, and a decrease in
carbon fiber sales due to the impact of excess installed industry capacity. On a
constant currency basis, 1999 sales would not have been materially different
than reported.
Net sales for 1999 and pro forma net sales for 1998, by product group and
market segment, were as follows:
<TABLE>
<CAPTION>
- - ------------------------------------ --------------- ----------------- --------------- -------------- ----------------
Commercial Space &
(In millions) Aerospace Defense Electronics Industrial Total
- - ------------------------------------ --------------- ----------------- --------------- -------------- ----------------
<S> <C> <C> <C> <C> <C>
1999 Net Sales
Reinforcement products $ 52.0 $ 18.2 $ 166.4 $ 94.3 $ 330.9
Composite materials 387.9 101.0 - 117.0 605.9
Engineered products 201.7 13.0 - - 214.7
- - ------------------------------------ --- ----------- ---- ------------ --- ----------- -- ----------- ----- ----------
Total $ 641.6 $ 132.2 $ 166.4 $ 211.3 $ 1,151.5
57% 11% 14% 18% 100%
- - ------------------------------------ --- ----------- ---- ------------ --- ----------- -- ----------- ----- ----------
Pro Forma 1998 Net Sales
Reinforcement products $ 61.6 $ 26.4 $ 179.3 $ 103.3 $ 370.6
Composite materials 450.6 104.0 - 103.4 658.0
Engineered products 195.0 11.2 - - 206.2
- - ------------------------------------ --- ----------- ---- ------------ --- ----------- -- ----------- ----- ----------
Total $ 707.2 $ 141.6 $ 179.3 $ 206.7 $ 1,234.8
57% 11% 15% 17% 100%
- - ------------------------------------ --- ----------- ---- ------------ --- ----------- -- ----------- ----- ----------
</TABLE>
33
<PAGE>
Commercial aerospace net sales for 1999 were $641.6 million, compared to
$707.2 million for 1998, on a pro forma basis. The 9% decline in commercial
aerospace net sales was largely attributable to:
- - - Declining aircraft production rates by Boeing in anticipation of lower
aircraft deliveries in 2000. Hexcel delivers product into the Boeing supply
chain on average about six months prior to aircraft delivery. Boeing
delivered 620 aircraft in 1999, but has publicly announced that it expects
to deliver about 480 aircraft in 2000.
- - - Inventory adjustments in excess of build rate changes by aerospace
customers in the U.S., Europe and certain export markets, in connection
with their efforts to improve working capital and reduce manufacturing
cycle times. Although Boeing and some of the Company's other customers have
indicated that they do not anticipate further inventory adjustments in
excess of build rate changes, the impact from some customers seeking to
reduce inventories as they improve production cycle times and productivity
is anticipated to continue in 2000.
- - - Price reductions in early 1999 for certain aerospace products, in response
to market conditions.
Approximately 28% and 32% of Hexcel's 1999 and 1998 pro forma net sales,
respectively, were identifiable as sales to Boeing and related subcontractors.
Of the net sales attributable to Boeing and its subcontractors in 1999, 25% and
3% related to commercial aerospace and space and defense market applications,
respectively. Approximately 10% of Hexcel's 1999 and 1998 pro forma net sales
were identifiable as sales to Airbus and related subcontractors. Reported
commercial aircraft deliveries by Boeing and Airbus improved significantly in
1999, from a combined 788 aircraft in 1998 to 914 aircraft in 1999, including
620 and 294 deliveries from Boeing and Airbus, respectively. Based on published
projections, combined deliveries for Boeing and Airbus are expected to decline
to approximately 800 in 2000, and to between 700 and 800 in 2001.
As a result of the decline in aircraft production rates that began in the
second quarter of 1999, Hexcel expects net sales to the commercial aerospace
market to be moderately lower in 2000 than in 1999. However, the revenue decline
attributable to these changes in production rates is expected to be partially
offset by improved sales to regional and business aircraft manufacturers, as
well as to the aircraft aftermarket.
Space and defense net sales for 1999 decreased 7% from pro forma net sales
for 1998, reflecting a decrease in sales of reinforcement products and composite
materials to select military and space programs. This decrease is attributable
to the conclusion of specific contracts, as well as to the impact of declining
demand for satellites and satellite launch vehicles in response to recent launch
failures and concerns about the financial viability of certain satellite
ventures.
Furthermore, Hexcel's carbon fiber manufacturing capacity utilization was
only 50% to 60% in 1999, compared to 90% or higher for much of 1998. Initially,
this reduction was due to inventory corrections by space and defense customers,
who purchased and/or ordered more carbon fiber than they needed in response to
significant carbon fiber supply shortages in 1997. However, 1999 sales were also
impacted by the changes in the commercial aerospace market as well as by the
overhang of new global production capacity added by Japanese producers. With the
high level of fixed costs in this business, reduced production output
significantly impacts the profitability of the business.
Despite these short-term impacts, Hexcel anticipates growth in carbon fiber
sales towards the end of 2000 and into 2001, as new military aircraft and launch
vehicle programs, in both the U.S. and Europe, enter full-scale production. The
military market uses a higher percentage of advanced structural materials and
higher value products than the commercial aerospace market. The Company is
currently qualified to supply materials to a broad range of military aircraft
and helicopters scheduled to enter full-scale production in the near future.
These programs include V-22 (Osprey) tilt-roter, F/A-18E/F (Hornet), F-22
(Raptor), C-17 transport, European Fighter Aircraft (Typhoon), RAH-66 (Comanche)
and NH90 helicopter. In addition, Hexcel is working to qualify the use of its
own carbon fiber in a broader range of its commercial aerospace prepreg
products.
34
<PAGE>
1999 net sales to electronics markets decreased 7% from pro forma net sales
for 1998. In the second and third quarters of 1998, the electronics industry
experienced a worldwide reduction in sales volume, primarily resulting from
inventory adjustments across the supply chain. Towards the end of the third
quarter and into the fourth quarter of 1998, Hexcel experienced increased order
volume for woven fiberglass products used in electronic PCB applications,
suggesting an end to the inventory correction. However, intense competition from
manufacturers in Asia and Europe continued to place pressure on volumes and
prices for these products. A reduction in demand for PCBs in 1998, due both to a
change in the electronics industry inventory cycle and reduced Asian market
demand, led Asian and other producers of electronic glass fabrics and laminates
to seek western markets for their products. This resulted in a rapid reduction
in prices for glass fabrics in the fourth quarter of 1998 and the first quarter
of 1999, reducing the profitability of this market to Hexcel.
However, in the second half of 1999, Hexcel saw demand for lightweight
electronic fabrics used in multi-layer PCB applications start to grow. The
Company anticipates that this growth will continue in 2000. Market forecasts
suggest that the demand for electronic fabrics used in multi-layer boards will
grow at two to three times GDP annually over the next few years. Pricing remains
depressed, but as demand grows worldwide, particularly in Asia, and as capacity
utilization improves, prices should begin to rise.
Industrial net sales in 1999 increased 2% from pro forma net sales for
1998. The increase was primarily attributable to:
- - - Increased sales of aramid and specialty fabrics for ballistics
applications, in response to increased demand for lightweight protective
vests by police forces and the U.S. military.
- - - Growth in sales of composite materials for wind energy applications, which
nearly doubled from 1998 to 1999, and are expected to continue to grow in
2000.
- - - Increased sales of composite materials to the automotive industry,
reflecting the Company's development of new product applications for
automotive customers.
These positive factors were partially offset by reduced sales of carbon
fiber for industrial applications, due to the impact of excess industry
capacity, as well as lower sales for certain recreation applications.
Gross Margin: Gross margin for 1999 was $242.5 million, or 21.1% of net
sales, compared with $271.3 million, or 24.9% of net sales, for 1998. On a pro
forma basis, gross margin for 1998 was 24.7% of net sales. The decrease in 1999
gross margin relative to 1998 is the result of reduced sales volume and price
reductions, as discussed above, and the associated reduction in the absorption
of fixed factory costs. These factors were partially mitigated by reductions in
labor and overhead costs, as well as negotiated reductions in the prices of
certain raw materials.
Selling, General and Administrative ("SG&A") Expenses: SG&A expenses were
$128.7 million in 1999, or 11.1% of net sales. This compared to $117.9 million,
or 10.8% of net sales for 1998. The aggregate dollar increase in SG&A was
primarily attributable to the acquired Clark-Schwebel business.
Research and Technology ("R&T") Expenses: R&T expenses were $24.8 million
in 1999, or 2.2% of net sales. This compared to $23.7 million, or 2.2% of net
sales for 1998. The aggregate dollar increase in R&T was primarily attributable
to the acquired Clark-Schwebel business.
Operating Income: Operating income decreased from $117.0 million, or 10.8%
of net sales, in 1998 to $68.9 million, or 6.0% of net sales, in 1999. The
aggregate decrease in operating income includes a $7.4 million increase in
business acquisition and consolidation expenses. Excluding business acquisition
and consolidation expenses, operating income as a percentage of sales decreased
from 11.9% in 1998 to 7.7% in 1999. The decrease was primarily due to the
reduction in sales volumes and prices, and the related gross margin impact.
35
<PAGE>
Interest Expense: Interest expense was $73.9 million, or 6.4% of net sales,
for 1999 compared to $38.7 million, or 3.6% of net sales, for 1998. The increase
in interest expense was primarily due to the increase in outstanding debt
relating to the acquisition of the Clark-Schwebel business.
Recovery of (Provision for) Income Taxes: In 1999, the recovery of income
taxes was $1.7 million, compared to a provision for income taxes of $28.4
million in 1998. The effective income tax rate was 34% and 36% for 1999 and
1998, respectively.
Equity in Income and Write-down in Investments in Affiliated Companies:
Competitive conditions in the electronics market resulting from the Asian
economic situation also impacted the performance of Hexcel's joint ventures in
1999. As a result, the Company recognized a nominal amount of equity in income
of affiliated companies in 1999.
In the third quarter of 1999, the Company wrote down its investment in one
of these joint ventures, CS-Interglas, by $20.0 million to its estimated fair
market value. The write-down was the result of management's decision to allow
its fixed-price options to increase its equity investment in CS-Interglas, from
43.6% to 84%, to expire unexercised, and an assessment that an
other-than-temporary decline in the investment occurred due to its deteriorating
financial condition. The amount of the write-down was determined based on
available market information and appropriate valuation methodologies. The
Company did not record a deferred tax benefit on the write-down because of
limitations imposed by foreign tax laws on the Company's ability to realize a
tax benefit.
<TABLE>
<CAPTION>
Net Income (Loss) and Net Income (Loss) Per Share:
-----------------------------------------------------------------------------------------------------------------
Pro Forma
(In millions, except per share data) 1999 1998 1998
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income (loss) $(23.3) $ 49.5 $ 50.4
Diluted net income (loss) per share $(0.64) $ 1.22 $ 1.24
Diluted net income (loss) per share, excluding goodwill amortization $(0.40) $ 1.40 $ 1.34
Adjusted diluted net income (loss) per share, excluding BA&C expenses and
other acquisition-related costs, and a write-down in an investment in an
affiliated company $ 0.26 $ 1.40 $ 1.43
Diluted weighted average shares outstanding 36.4 45.7 45.7
-----------------------------------------------------------------------------------------------------------------
</TABLE>
The decrease in the number of diluted weighted average shares outstanding
in 1999, relative to 1998, is attributable to the exclusion of 9.0 million
potential common shares relating to the convertible subordinated notes, due
2003, the convertible subordinated debentures, due 2011, and stock options that
were antidilutive in the 1999 period. Refer to Note 13 to the accompanying
consolidated financial statements for the calculation and the number of shares
used for diluted net income (loss) per share.
1998 Compared to 1997
Net Sales: Pro forma net sales for 1998 and 1997, after giving effect to
the acquisition of the Clark-Schwebel business as if the transaction had
occurred at the beginning of 1997, were $1,234.8 million and $1,177.1 million,
respectively. Actual net sales for 1998 were $1,089.0 million, versus $936.9
million for 1997. The actual results for 1998 include the results of the
acquired Clark-Schwebel business from the date of acquisition, September 15,
1998, through December 31, 1998. Excluding the results of the acquired
Clark-Schwebel business, 1998 sales were approximately $1,030.6 million, a 10%
increase over 1997. On a constant currency basis, 1998 sales would not have been
materially different than reported.
36
<PAGE>
Pro forma net sales for 1998 and 1997, as well as actual net sales for 1998
and 1997, by product group and market segment were, as follows:
<TABLE>
<CAPTION>
- - --------------------------------------- -------------- ---------------- -------------- -------------- ---------------
Commercial Space &
(In millions) Aerospace Defense Electronics Industrial Total
- - --------------------------------------- -------------- ---------------- -------------- -------------- ---------------
1998 Pro Forma Net Sales
<S> <C> <C> <C> <C> <C>
Reinforcement products $ 61.6 $ 26.4 $179.3 $103.3 $ 370.6
Composite materials 450.6 104.0 - 103.4 658.0
Engineered products 195.0 11.2 - - 206.2
- - --------------------------------------- -------------- ---------------- -------------- -------------- ---------------
Total $707.2 $141.6 $179.3 $206.7 $1,234.8
57% 11% 15% 17% 100%
- - --------------------------------------- -------------- ---------------- -------------- -------------- ---------------
1997 Pro Forma Net Sales
Reinforcement products $ 49.5 $ 13.9 $203.8 $144.1 $ 411.3
Composite materials 403.9 64.2 - 112.9 581.0
Engineered products 169.8 10.2 - 4.8 184.8
- - --------------------------------------- -------------- ---------------- -------------- -------------- ---------------
Total $623.2 $ 88.3 $203.8 $261.8 $1,177.1
53% 7% 17% 23% 100%
- - --------------------------------------- -------------- ---------------- -------------- -------------- ---------------
</TABLE>
The 13% growth in pro forma net sales to the commercial aerospace market
from 1997 to 1998 was largely attributable to increased sales of composite
materials and reflected the increase in commercial aircraft build rates by
Boeing and Airbus. The increase also reflected an improvement in the Engineered
Products segment's shipments of retrofit interiors to airline customers.
<TABLE>
<CAPTION>
- - --------------------------------------- -------------- ---------------- -------------- -------------- ---------------
Commercial Space &
(In millions) Aerospace Defense Electronics Industrial Total
- - --------------------------------------- -------------- ---------------- -------------- -------------- ---------------
1998 Net Sales
- - --------------------------------------- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Reinforcement products $ 24.5 $ 26.4 $ 85.2 $ 88.7 $ 224.8
Composite materials 450.6 104.0 - 103.4 658.0
Engineered products 195.0 11.2 - - 206.2
- - --------------------------------------- -------------- ---------------- -------------- -------------- ---------------
Total $670.1 $141.6 $ 85.2 $192.1 $1,089.0
62% 13% 8% 17% 100%
- - --------------------------------------- -------------- ---------------- -------------- -------------- ---------------
1997 Net Sales
Reinforcement products $ 23.7 $ 13.9 $ 48.3 $ 85.2 $ 171.1
Composite materials 403.9 64.2 - 112.9 581.0
Engineered products 169.8 10.2 - 4.8 184.8
- - --------------------------------------- -------------- ---------------- -------------- -------------- ---------------
Total $597.4 $ 88.3 $ 48.3 $202.9 $ 936.9
64% 9% 5% 22% 100%
- - --------------------------------------- -------------- ---------------- -------------- -------------- ---------------
</TABLE>
Approximately 35% and 36% of Hexcel's 1998 and 1997 actual net sales,
respectively, were identifiable as sales to Boeing and related subcontractors.
Of the 35% of sales attributable to Boeing and its subcontractors, 32% and 3%
related to commercial aerospace and space and defense market applications,
respectively. Approximately 11% and 10% of Hexcel's 1998 and 1997 net sales,
respectively, were identifiable as sales to Airbus and related subcontractors.
Reported commercial aircraft deliveries by Boeing and Airbus improved
significantly in 1998, from a combined 557 aircraft in 1997 to 788 aircraft in
1998, including 559 and 229 deliveries from Boeing and Airbus, respectively.
Depending on the product, orders placed with Hexcel are received anywhere
between one and eighteen months prior to delivery of the aircraft to the
customer, with an average lead time of about six months.
Space and defense pro forma net sales increased 60% from 1997 to 1998,
reflecting an increase in sales of reinforcement products and composite
materials to select military and space programs, as well as the Company's
acquisition of Fiberite's satellite business on September 30, 1997.
Pro forma electronics net sales decreased 12% from 1997 to 1998. In the
second and third quarters of 1998, the electronics industry, including Hexcel,
experienced a worldwide reduction in sales volume, primarily resulting from
inventory adjustments across the supply chain. Towards the end of the third
quarter and into the fourth quarter of 1998, the Company experienced increased
order volume for woven fiberglass products used in electronic PCB applications,
suggesting an end to the inventory correction. However, intense competition from
manufacturers located in Asia continued to place pressure on volumes and prices
37
<PAGE>
for these products. The Company was successful in partially offsetting these
price reductions by obtaining lower raw material prices.
Pro forma industrial net sales decreased 21% from 1997 to 1998, primarily
reflecting a reduction in the level of soft body armor sales to various
government agencies and reduced customer demand for certain products in this
market.
Gross Margin: Gross margin for 1998 was $271.3 million, or 24.9% of net
sales, compared with $222.6 million, or 23.8% of net sales, for 1997. Excluding
the acquired Clark-Schwebel business, 1998 gross margin was also 24.9%. The
improvement in 1998 gross margin relative to 1997 was the result of higher sales
volume and the benefit from the Company's 1996 business consolidation program.
While gross margin for 1998 increased over 1997, on a quarterly trend basis, the
Company's gross margin percentage leveled off as the Company's 1996 business
consolidation program approached completion and commercial aerospace growth
flattened.
SG&A Expenses: SG&A expenses were $117.9 million in 1998, or 10.8% of net
sales. This compared to $102.4 million, or 10.9% of net sales for 1997. The
aggregate dollar increase in SG&A was primarily attributable to the increased
sales volume in commercial aerospace and the acquired Clark-Schwebel business.
R&T Expenses: R&T expenses were $23.7 million in 1998, or 2.2% of net
sales. This compared to $18.4 million, or 2.0% of net sales for 1997. The
aggregate dollar increase in R&T was attributable to additional expenditures in
1998 resulting from an increased commitment to R&T activities, and to a lesser
extent, the acquired Clark-Schwebel business.
Operating Income: Operating income increased from $76.5 million, or 8.2% of
net sales, in 1997 to $117.0 million, or 10.7% of net sales, in 1998. The
aggregate increase in operating income reflected the higher sales volume,
improved gross margins, a $12.6 million decrease in business acquisition and
consolidation expenses and $7.6 million from the acquired Clark-Schwebel
business. Excluding business acquisition and consolidation expenses, operating
income as a percentage of sales increased from 10.9% in 1997 to 11.9% in 1998.
Interest Expense: Interest expense was $38.7 million, or 3.6% of net sales,
for 1998 compared to $25.8 million, or 2.7% of net sales, for 1997. The increase
in interest expense was primarily due to the additional financing required for
the acquired 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.
Recovery of (Provision for) Income Taxes: The effective income tax rate for
1998 was 36%. For the year ended December 31, 1997, the recovery of income taxes
was $22.9 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
regarding the Company's ability to generate 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
had been recorded for the first nine months of 1997 due to the utilization of
net operating loss carryforwards.
Equity in Income of Affiliated Companies: As part of the acquired
Clark-Schwebel business, net income for 1998 included $0.5 million of equity in
income from affiliated companies.
38
<PAGE>
<TABLE>
<CAPTION>
Net Income and Net Income Per Share:
------------------------------------------------------------------------------------------------------------------
(In millions, except per share data) 1998 1997
------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net income $ 50.4 $ 73.6
Diluted net income per share $ 1.24 $ 1.74
Diluted net income per share, excluding goodwill amortization $ 1.34 $ 1.77
Adjusted diluted net income per share, excluding BA&C expenses and other
acquisition-related costs, and assuming a U.S. effective tax rate of 36% in $ 1.43 $ 1.17
1997
Diluted weighted average shares outstanding 45.7 46.0
------------------------------------------------------------------------------------------------------------------
<FN>
See Note 13 to the accompanying consolidated financial statements for the
calculation, including the number of shares used, of diluted net income per
share.
</FN>
</TABLE>
Financial Condition and Liquidity
Financial Resources
In connection with the acquisition of the industrial fabrics business of
Clark-Schwebel on September 15, 1998, Hexcel obtained a new global credit
facility (the "Senior Credit Facility") to: (a) fund the purchase of the
Clark-Schwebel business; (b) refinance the Company's existing revolving credit
facility; and (c) provide for ongoing working capital and other financing
requirements of the Company. The Senior Credit Facility was subsequently amended
on January 21, 1999, August 13, 1999 and March 7, 2000, to accommodate, among
other things, the issuance of $240.0 million of 9.75% senior subordinated notes
and the impact of the decline in the Company's operating results on certain
financial covenants.
Effective with the March 7, 2000, amendment, the Senior Credit Facility
provides Hexcel with approximately $516.5 million of borrowing capacity, subject
to certain limitations. Interest on outstanding borrowings ranges from 0.75% to
3.00% in excess of the applicable London interbank rate, or at the option of the
Company, from 0.0% to 2.00% 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 that ranges from 0.23% to 0.50% per annum of the total facility.
The Senior Credit Facility is secured by a pledge of shares of certain of
Hexcel's subsidiaries, as well as a security interest in certain U.S. accounts
receivable, inventories, and machinery and equipment. Further, under certain
defined circumstances, the Company has agreed to provide the lenders with a
security interest in certain additional U.S. accounts receivable, inventories,
machinery and equipment, and land and buildings on September 30, 2000.
For the years ended December 31, 1999, 1998 and 1997, interest on
outstanding borrowings under Hexcel's Senior Credit Facility, or previous
revolving credit facility, bore interest at approximately 0.30% to 2.75% in
excess of the applicable London interbank rate, or at the option of Hexcel, 0.0%
to 1.75% in excess of the base rate of the administrative agent for the lenders,
and was subject to a commitment fee ranging from approximately 0.20% to 0.50%
per annum of the total facility.
Hexcel believes that the Senior Credit Facility, as amended, is sufficient
to fund its worldwide operations in 2000. The Senior Credit Facility is
scheduled to expire in September 2004, except for approximately $98 million
which is due for repayment in September 2005. 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.
In February 1999, the Company redeemed $12.5 million of its increasing rate
senior subordinated notes payable to a related party. Such repayment was
financed with borrowings under the Company's Senior Credit Facility.
Further discussion of the Company's financial resources is contained in
Note 7 to the accompanying consolidated financial statements.
39
<PAGE>
Other Financial Commitments
In 1999, Hexcel, Boeing and Aviation Industries of China formed a joint
venture, BHA Aero Composite Parts Co., Ltd., to manufacture composite parts for
secondary structures and interior applications for commercial aircraft. Hexcel
has a 33% equity ownership interest in this joint venture, which is located in
Tianjin, China. Also in 1999, Hexcel formed another joint venture, Asian
Composites Manufacturing Sdn. Bhd., with Boeing, Sime Link Sdn. Bhd., and
Malaysia Helicopter Services Bhd. (now known as Naluri Berhadto), to manufacture
composite parts for secondary structures for commercial aircraft. Hexcel has a
25% equity ownership interest in this joint venture, which is located in Alar
Setor, Malaysia. Products manufactured by both joint ventures will be shipped to
Hexcel's customers worldwide, and it is anticipated that the first parts will be
delivered to customers in 2001. Hexcel has commitments to invest approximately
$10.7 million in these joint ventures, which are part of the Company's
Engineered Products business segment, and to provide additional loan guarantees
of $13.7 million. These commitments are expected to be made in increments
through 2002.
Mandatory redemption of the Company's 7.0% convertible subordinated
debentures, due 2011, 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.
In 1998, Hexcel entered into a $50.0 million capital lease for property,
plant and equipment used in the acquired Clark-Schwebel business. The lease
expires in September 2006 and includes various purchase options.
Capital Expenditures
Capital expenditures were $35.6 million in 1999, compared with $66.5
million in 1998 and $57.4 million in 1997. Pro forma 1998 capital expenditures
were approximately $70 million. The decrease in 1999 expenditures from 1998
reflects reduced spending due to changing market conditions, the benefits from
Hexcel's Lean Enterprise program, and a commitment by the Company to reduce its
debt. The Company expects its capital spending in 2000 to approximate $35 to $40
million.
Adjusted EBITDA, Cash Flows and Ratio of Earnings to Fixed Charges
1999: Earnings before business acquisition and consolidation expenses,
interest, taxes, depreciation, amortization, and equity in income and write-down
in investments in affiliated companies ("Adjusted EBITDA") in 1999 were $150.4
million. Net cash provided by operating activities was $133.7 million, as $61.3
million of non-cash depreciation and amortization, a $20.0 million non-cash
write-down in an investment in an affiliated company, $80.9 million of working
capital reductions and $20.1 million of BA&C expenses more than offset $23.3
million of net loss, $15.8 million of non-cash deferred income taxes, and cash
used by all other operating activities. The decrease in working capital reflects
lower levels of receivables and inventory due to aggressive working capital
management, the Company's Lean Enterprise program and lower sales volumes.
Net cash used for investing activities was $40.3 million, primarily
reflecting the Company's capital expenditures and investments in affiliated
companies. Net cash used for financing activities was $99.5 million, reflecting
net debt reduction and $11.0 million of debt issuance costs primarily pertaining
to the issuance of the senior subordinated notes, due 2009.
1998: Adjusted EBITDA for 1998 was $177.2 million. Pro forma Adjusted
EBITDA, giving effect to the acquisition of the Clark-Schwebel business as if
the transaction had occurred at the beginning of the year, was approximately
$208 million. Net cash provided by operating activities was $93.8 million, as
$50.4 million of net income and $54.4 million of non-cash depreciation,
amortization and deferred income taxes were partially offset by increased
working capital of $14.5 million.
40
<PAGE>
Net cash used for investing activities was $539.2 million, primarily
reflecting $472.8 million of net cash paid for the Clark-Schwebel business, and
$66.5 million of capital expenditures. Net cash provided by financing activities
was $440.7 million, primarily reflecting $459.7 million of net funds borrowed
under the Senior Credit Facility, including the financing of the acquisition of
the Clark-Schwebel business, offset in part by the repurchase of $10.0 million
of treasury stock and $10.3 million of debt issuance costs primarily incurred to
obtain the Senior Credit Facility.
1997: Adjusted EBITDA for 1997 was $137.6 million, and pro forma Adjusted
EBITDA was approximately $188 million. Net cash provided from operations was
$29.2 million, as $73.6 million of net income and $35.8 million of depreciation
and amortization were offset by $33.2 million of non-cash deferred income taxes
and a $46.7 million increase in working capital. Net cash used for investing
activities was $82.9 million, including $57.4 for capital expenditures and $37.0
million of cash paid for the Fiberite transaction, which were partially offset
by $13.5 million of proceeds from the sale of a facility and the sale of a 50%
interest in a joint venture. These investing activities were funded by cash from
operations and $57.2 million of borrowings under a revolving credit facility.
Adjusted EBITDA and pro forma Adjusted EBITDA have been presented to
provide a measure of Hexcel's operating performance that is commonly used by
investors and financial analysts to analyze and compare companies. Adjusted
EBITDA may not be comparable to similarly titled financial measures of other
companies. Adjusted EBITDA and pro forma Adjusted EBITDA do not represent
alternative measures of the Company's cash flows or operating income, and should
not be considered in isolation or as substitutes for measures of performance
presented in accordance with generally accepted accounting principles.
A reconciliation of net income (loss) to EBITDA and Adjusted EBITDA for
1999, 1998 and 1997 is as follows:
<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------------------------------------------------
(In millions) 1999 1998 1997
- - --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income (loss) $ (23.3) $ 50.4 $ 73.6
Provision for (recovery of) income taxes (1.7) 28.4 (22.9)
Interest expense 73.9 38.7 25.8
Depreciation and amortization 61.3 47.5 35.8
Equity in income and write-down of investments in
affiliated companies 20.0 (0.5) -
Other 0.1 - -
- - --------------------------------------------------------------------------------------------------------------------
EBITDA 130.3 164.5 112.3
Business acquisition and consolidation expenses 20.1 12.7 25.3
- - --------------------------------------------------------------------------------------------------------------------
Adjusted EBITDA $ 150.4 $ 177.2 $ 137.6
- - --------------------------------------------------------------------------------------------------------------------
Ratio of earnings to fixed charges 0.7x 2.9x 2.8x
- - --------------------------------------------------------------------------------------------------------------------
</TABLE>
The decrease in the earnings to fixed charges ratios from 1998 to 1999
reflects the Company's lower operating income, higher interest costs and
business acquisition and consolidation expenses. The ratio of earnings to fixed
charges is equal to net income (loss), excluding income taxes and interest
expense, divided by interest expense. Interest expense includes approximately
one-third of the Company's rental expense.
41
<PAGE>
Business Acquisition and Consolidation Programs
Since 1996, Hexcel has implemented, or begun to implement, three business
acquisition and consolidation ("BA&C") programs. The primary purpose of these
programs is to integrate acquired businesses by rationalizing manufacturing
facilities, creating centers of manufacturing excellence, and combining various
administrative functions with existing operations. Activity for these programs
for the three years ending December 31, 1999, as well as a discussion on each of
the programs, are as follows:
<TABLE>
<CAPTION>
- - ------------------------------------------------- ------------- ------------- ----------- --------------- -----------
September December Fiberite
1999 1998 1996 Transaction &
(In millions) Program Program Program Other Total
- - ------------------------------------------------- ------------- ------------- ----------- --------------- -----------
<S> <C> <C> <C> <C> <C>
Balance as of January 1, 1997 $ - $ - $ 25.4 $ - $ 25.4
BA&C expenses - - 12.3 13.0 25.3
Cash expenditures - - (20.6) (13.0) (33.6)
Non-cash usage, including asset write-downs - - (4.9) - (4.9)
- - ------------------------------------------------- -- ---------- -- ---------- --- ------- ---- ------- ---- ---------
Balance as of December 31, 1997 - - 12.2 - 12.2
BA&C expenses - 5.6 6.4 0.7 12.7
Cash expenditures - (0.6) (7.4) (0.7) (8.7)
Non-cash usage, including asset write-downs - - (8.0) (8.0)
- - ------------------------------------------------- -- ---------- -- ---------- --- ------- ---- ------- ---- ---------
Balance as of December 31, 1998 - 5.0 3.2 - 8.2
BA&C expenses 15.4 4.7 - - 20.1
Cash expenditures (0.5) (6.5) (2.5) - (9.5)
Non-cash usage, including asset write-downs (11.8) (2.2) - - (14.0)
Reclassification of foreign government grant
payable to accrued liabilities - - (0.7) - (0.7)
- - ------------------------------------------------- -- ---------- -- ---------- --- ------- ---- ------- ---- ---------
Balance as of December 31, 1999 $ 3.1 $ 1.0 $ - $ - $ 4.1
- - ------------------------------------------------- -- ---------- -- ---------- --- ------- ---- ------- ---- ---------
</TABLE>
September 1999 Program
On September 27, 1999, Hexcel announced a new BA&C program that entails a
further rationalization of manufacturing facilities for certain product lines.
The objectives of this program are to eliminate excess capacity and overhead,
improve manufacturing focus and yields, and create additional centers of
manufacturing excellence. Specific actions contemplated by this BA&C program
include consolidating the production of certain product lines, including
relocating equipment and requalifying the respective product lines; vacating
certain leased facilities; and consolidating the Company's Composite Materials
business segment's U.S. marketing, research and technology, and administrative
functions into one location. The consolidation program calls for the elimination
of approximately 400 positions (primarily manufacturing), and a total reduction
in occupied floor space of over 250,000 square feet. The consolidation program
impacts all of the Company's business segments and is anticipated to be
substantially complete in 2001, with annualized operating cost savings of more
than $24 million.
Total expenses and cash expenditures for this program are expected to
approximate $33 million and $27 million, respectively. Expected cash
expenditures include $6.0 million of capital expenditures. As of December 31,
1999, the Company had recorded $15.4 million of BA&C expenses for this program,
including $11.8 million of non-cash write-downs on equipment. The write-downs
have reduced the applicable equipment to their estimated net realizable value.
December 1998 Program
In December 1998, Hexcel announced consolidation actions within its
Reinforcement Products and Composite Materials business segments. These actions
included the integration of the Company's existing fabrics business with the
U.S. operations of the acquired Clark-Schwebel business, and the combination of
its U.S., European and Pacific Rim Composite Materials businesses into a single
global business unit. The objectives of these actions were to eliminate
redundancies, improve manufacturing planning and enhance customer service. The
Company substantially completed these actions in the first quarter of 1999,
resulting in the elimination of approximately 100 operating, sales, marketing
42
<PAGE>
and administrative positions. Estimated annual cash savings from these business
consolidation activities, which the Company has already begun to realize, are
approximately $10 million.
On March 16, 1999, Hexcel expanded its actions relating to the integration
of the acquired Clark-Schwebel business with the announcement of the closure of
its Cleveland, Georgia, facility, which, at that time, employed approximately
100 manufacturing positions. This facility produced fabrics for the electronics
market, and the majority of its production equipment has been relocated to the
Company's Anderson, South Carolina, facility. The closure of this facility,
which was completed on September 3, 1999, was the result of current competitive
conditions in the global market for electronic fiberglass materials and was not
expected at the time of the acquisition of the Clark-Schwebel business. The
closure of this facility is expected to generate $3.5 million in annualized
savings.
During 1999, the Company recorded $4.7 million of BA&C expenses for the
December 1998 program, including $2.2 million of non-cash write-downs of
equipment that was disposed of; costs associated with the closing and relocation
of certain equipment from the Company's Cleveland, Georgia, facility; and
employee severance for administrative positions relating to the consolidation of
the Composite Materials business segment.
1996 Program
In 1996, Hexcel announced plans to consolidate its operations over a period
of three years. The objective of the program was to integrate acquired assets
and operations into Hexcel, and to reorganize its manufacturing and research
activities around strategic centers dedicated to select product technologies.
The BA&C program was also intended to eliminate excess manufacturing capacity
and redundant administrative functions. Hexcel expected this consolidation
program to take approximately three years to complete, in part because of
aerospace industry requirements to "qualify" specific equipment and
manufacturing facilities for the manufacture of certain products. These
qualification requirements increase the complexity, cost and time of moving
equipment and rationalizing manufacturing activities. Specific actions of the
consolidation program included the elimination of approximately 245
manufacturing, marketing and administrative positions, the closure of a
facility, the consolidation of Hexcel's manufacturing operations in Europe, the
consolidation of Hexcel's U.S. special process manufacturing activities, and the
integration of sales, marketing and administrative resources. Total expenses for
the 1996 program were $61.1 million, or $6.4 million more than Hexcel's original
estimate, and total cash expenditures were $42.1 million. The additional
expenses were primarily the result of a non-cash write-down of the carrying
value of Hexcel's wholly-owned Italian subsidiary, as more fully discussed
below, which was recorded in 1998.
As part of the 1996 BA&C program, Hexcel disposed of its operations in
Brindisi, Italy (the "Italian Operations"). Since its acquisition in 1996, the
Italian Operations had immaterial revenues, incurred operating losses, and had
not been strategically important to Hexcel. Consequently, Hexcel periodically
evaluated the recoverability of its carrying value pursuant to Statement of
Financial Accounting Standard No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of." In 1998, Hexcel
again evaluated the recoverability of the carrying value of its Italian
Operations in light of its continuing operating losses and certain offers
received from interested buyers. In assessing whether an impairment had
occurred, Hexcel considered the offers received, as well as the future
undiscounted cash flows related to its Italian Operations. As a result, Hexcel
recorded a charge of $5.6 million in 1998 for an asset impairment related to its
Italian Operations, which was included in BA&C expenses. The estimate of fair
value used in determining the impairment charge was based on the offers received
from the interested buyers. In 1999, the Company disposed of its Italian
Operations for net proceeds that approximated amounts accrued. The Company
accounted for its Italian Operations under its Engineered Products business
segment.
Due to the timing of the 1996 BA&C program, and the fact that the
consolidation of existing and acquired businesses occurred at the same time
Hexcel was experiencing an increase in its commercial aerospace market, the
exact amount of annual savings attributable to this program is difficult to
43
<PAGE>
isolate. However, Hexcel believes that the cost savings achieved equaled or
exceeded the target of $32 million per year. The program was a key contributor
to the improvement in the Company's operating margins in 1998 and 1997.
Fiberite Transaction and Other BA&C Expenses
The acquisition of the Fiberite assets was substantially downsized from an
original agreement whereby the Company had, subject to certain terms and
conditions, committed to purchase selected assets and businesses of Fiberite for
approximately $300 million. As a result of the downsized transaction, the
Company wrote off $5.0 million of acquisition and financing costs to BA&C
expenses in 1997. In addition, the Company expensed $8.0 million of acquired
in-process research and technology purchased from Fiberite, which is also
included in 1997 BA&C expenses.
Further discussion and analysis of the Company's business acquisition and
consolidation programs is contained in Note 3 to the accompanying consolidated
financial statements.
Market Risks
The Company's financial position, results of operations and cash flows are
subject to market risks, which primarily include fluctuations in interest rates
and exchange rate variability.
Interest Rate Risks
Hexcel's long-term debt bears interest at both fixed and variable rates. As
a result, the Company's results of operations are affected by interest rate
changes on its variable rate debt. Assuming a 10% favorable and a 10%
unfavorable change in the underlying weighted average interest rates of the
Company's variable rate debt, the 1999 net loss of $23.3 million would have been
$22.0 million and $24.6 million, respectively.
In order to partially mitigate risks in interest rate fluctuations, in
1998, Hexcel entered into a five-year interest rate cap agreement which covers a
notional amount of $50.0 million of the Company's variable rate debt under the
Senior Credit Facility. In addition, on January 21, 1999, the Company issued
$240.0 million of 9.75% senior subordinated notes, due 2009. Net proceeds of
approximately $231 million from this offering were used to redeem variable rate
amounts owed under the Senior Credit Facility.
Foreign Currency Risks
Hexcel is subject to foreign currency exchange rate risk relating to
receipts from customers and payments to suppliers using non-local or
"non-functional" currencies. In general, the Company maintains a "naturally
hedged" position where it balances customer receipts and supplier payments with
similar currencies. Net exposures are hedged by purchasing foreign currency
forward contracts. Consistent with the nature of the economic hedge of such
foreign exchange contracts, any unrealized gain or loss would be offset by
corresponding decreases or increases, respectively, of the underlying
transaction being hedged. As of December 31, 1999, the Company had limited net
exposure in relation to its non-functional currencies as well as a limited
amount of outstanding foreign exchange contracts. Accordingly, the impact of a
10% appreciation and a 10% depreciation of the U.S. dollar against the Company's
net non-functional currencies and foreign exchange contracts would not represent
a material potential gain or loss in fair value, net loss or cash flows.
The primary currencies for which the Company has foreign currency
translation exchange rate exposure are the Euro and the British pound. The
Company does not participate in hedging activities to offset translation effects
of changes in foreign exchange rates on the Company's consolidated financial
position, results of operations and cash flows. The impact of a 10% appreciation
or 10% depreciation of the U.S. dollar against the Company's net underlying
foreign currency translation exposures could be significant.
44
<PAGE>
Other Risks
As of December 31, 1999, the aggregate fair values of the Company's senior
subordinated notes, due 2009, convertible subordinated notes, due 2003, and the
convertible subordinated debentures, due 2011, were $205.2 million, $80.1
million and $18.5 million, respectively. The convertible debt securities are
convertible into Hexcel common stock at a price of $15.81 and $30.72 per share,
respectively. Fair values were estimated on the basis of quoted market prices,
although trading in these debt securities is limited and may not reflect fair
value. Due to the conversion feature in these debt securities, fair values are
subject to fluctuations based on the value of the Company's stock and the
Company's credit rating, as well as changes in interest rates for debt
securities with similar terms.
Assuming that all other factors remain constant, the fair values of the
Company's convertible subordinated notes, due 2003, and the convertible
subordinated debentures, due 2011, would be approximately $88.1 million and
$20.2 million, respectively, assuming a 10% favorable change in the market price
of the Company's stock, and $72.1 million and $16.7 million, respectively,
assuming a 10% unfavorable change in market price.
Recently Issued Accounting Standards
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition," which
provides guidance on the recognition, presentation, and disclosure of revenue in
financial statements filed with the SEC. SAB 101 outlines the basic criteria
that must be met in order to recognize revenue, and provides guidance for
disclosures related to revenue recognition policies. At this time, management is
still assessing the impact of SAB 101 on Hexcel's financial position and results
of operations.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"). SFAS 133 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, which will be adopted on January 1,
2001, is not expected to have a material impact on Hexcel's consolidated
financial statements.
Year 2000 Readiness Disclosure
In 1998, Hexcel developed and began to implement a six-phase plan to
address the ability of its information technology systems and other technology
devices with embedded microprocessors (collectively "Business Systems and
Devices") to recognize and process dates starting with the year 2000 and beyond
(the "Year 2000"). The implementation of this plan was substantially completed
prior to December 31, 1999. Monitoring and testing activities continued in
January and February 2000. As of March 24, 2000, the Company has not experienced
any significant information processing errors or operational failures in its
Business Systems and Devices attributable to the Year 2000 issue. Furthermore,
the Company has not experienced any significant disruptions in the procurement
of materials and services from suppliers, in the manufacture of products by the
Company's manufacturing facilities, or in the sale and delivery of products to
customers.
The total estimated costs to address the Company's Year 2000 issues,
including the costs of ensuring that the Company's Business Systems and Devices
were Year 2000 compliant, were approximately $4.4 million, of which $4.2 million
had been incurred as of December 31, 1999. Remaining expenditures of $0.2
million are expected to be completed in the first quarter of 2000.
45
<PAGE>
Forward-Looking Statements and Risk Factors
This annual report includes forward-looking statements within the meaning
of the Private Securities Litigation Reform Act of 1995. These statements relate
to analyses and other information that are based on forecasts of future results
and estimates of amounts not yet determinable. These statements also relate to
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. Such statements are based on current expectations,
are inherently uncertain, and are subject to changing assumptions.
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 inventory adjustments in excess
of build rate changes by aerospace customers; (c) expectations regarding growth
in sales to regional and business aircraft manufacturers, and to the aircraft
aftermarket; (d) expectations regarding the growth in the production of military
aircraft, helicopters and launch vehicle programs in 2000 and beyond, as well as
the impact of such growth on carbon fibers sales; (e) expectations regarding the
growth in demand for electronics fabrics used in multi-layer PCBs, as well as
future industry capacity utilization and pricing trends in the electronics
fabrics industry; (f) expectations regarding growth in demand for lightweight
protective vests made of aramid and specialty fabrics; (g) expectations
regarding growth in sales of composite materials for wind energy, automotive and
other industrial applications; (h) estimates of changes in net sales by market
compared to 1999; (i) expectations regarding manufacturing productivity and
operating expenses, including the estimated cost reductions and other benefits
of the Company's business acquisition and consolidation programs and Lean
Enterprise initiatives; (j) estimates of the timing, expenses and cash
expenditures required to complete the September 1999 business consolidation
program; (k) expectations regarding working capital trends, capital expenditures
and investments in joint ventures; (l) the evaluation of strategic alternatives
for the Engineered Products business segment, including a possible sale; (m) the
sufficiency of the Senior Credit Facility and other financial resources to fund
the Company's worldwide operations in 2000; (n) the impact of various market
risks, including fluctuations in the interest rates underlying the Company's
variable-rate debt, fluctuations in currency exchange rates and fluctuations in
the market price of the Company's common stock; (o) expectations regarding the
remaining expenditures related to and the potential impact of the Year 2000
issue; and (p) expectations regarding the Company's electronic commerce
strategy.
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: changes
in general economic and business conditions; changes in current pricing and cost
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; and the availability, terms and
deployment of capital.
If one or more of these risks or uncertainties materialize, or if
underlying assumptions prove incorrect, actual results may vary materially from
those expected, estimated or projected. In addition to other factors that affect
Hexcel's operating results and financial position, neither past financial
performance nor the Company's expectations should be considered reliable
indicators of future performance. Investors should not use historical trends to
anticipate results or trends in future periods. Further, the Company's stock
price is subject to volatility. Any of the factors discussed above could have an
adverse impact on the Company's stock price. In addition, failure of sales or
income in any quarter to meet the investment community's expectations, as well
as broader market trends, can have an adverse impact on the Company's stock
price. The Company does not undertake an obligation to update its
forward-looking statements or risk factors to reflect future events or
circumstances.
46
<PAGE>
Consolidated Financial Statements
<TABLE>
<CAPTION>
Description Page
- - ------------------------------------------------------------------------------------------------------------ ---------
<S> <C>
Management Responsibility for Consolidated Financial Statements 48
Report of Independent Accountants 49
Consolidated Financial Statements:
Consolidated Balance Sheets as of December 31, 1999 and 1998 50
Consolidated Statements of Operations for each of the three years ended December 31, 1999 51
Consolidated Statements of Stockholders' Equity and Comprehensive Income
for each of the three years ended December 31, 1999 52
Consolidated Statements of Cash Flows for each of the three years ended December 31, 1999 53
Notes to the Consolidated Financial Statements 54- 79
</TABLE>
47
<PAGE>
Management Responsibility for Consolidated Financial Statements
Hexcel management has prepared and is responsible for the consolidated
financial statements and the related financial data contained in this report.
These financial statements, which include estimates, were prepared in accordance
with generally accepted accounting principles. Management uses its best judgment
to ensure that such statements reflect fairly the consolidated financial
position, results of operations and cash flows of the Company.
Hexcel maintains accounting and other control systems which management
believes provide reasonable assurance that financial records are reliable for
purposes of preparing financial statements, and that assets are safeguarded and
accounted for properly. Underlying this concept of reasonable assurance is the
premise that the cost of control should not exceed benefits derived from
control.
The Audit Committee of the Board of Directors reviews and monitors the
financial reports and accounting practices of Hexcel. These reports and
practices are reviewed regularly by management and by the Company's independent
accountants, PricewaterhouseCoopers LLP, in connection with the audit of the
Company's financial statements. The Audit Committee, composed solely of outside
directors, meets periodically, separately and jointly, with management and the
independent accountants.
/s/ JOHN J. LEE
John J. Lee
Chief Executive Officer
/s/ STEPHEN C. FORSYTH
Stephen C. Forsyth
Chief Financial Officer
/s/ KIRK G. FORBECK
Kirk G. Forbeck
Chief Accounting Officer
48
<PAGE>
Report of Independent Accountants
To the Board of Directors and
Stockholders of Hexcel Corporation:
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, of stockholders' equity and
comprehensive income and of cash flows present fairly, in all material respects,
the financial position of Hexcel Corporation and its subsidiaries at December
3l, 1999 and 1998, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 1999 in conformity with
accounting principles generally accepted in the United States. 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 of these statements in accordance with
auditing standards generally accepted in the United States, 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 audits provide a reasonable basis
for the opinion expressed above.
/s/ PRICEWATERHOUSECOOPERS LLP
PricewaterhouseCoopers LLP
San Jose, California
January 18, 2000, except as to
Senior Credit Facility in Note 7
which is as of March 7, 2000
49
<PAGE>
<TABLE>
<CAPTION>
Hexcel Corporation and Subsidiaries
Consolidated Balance Sheets
As of December 31,
- - --------------------------------------------------------------------------------------------------------------------
(In millions, except per share data) 1999 1998
- - --------------------------------------------------------------------------------------------------------------------
Assets
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 0.2 $ 7.5
Accounts receivable 158.6 188.4
Inventories 153.7 213.2
Prepaid expenses and other assets 5.1 10.1
Deferred tax asset 10.2 19.8
- - --------------------------------------------------------------------------------------------------------------------
Total current assets 327.8 439.0
Net property, plant and equipment 392.1 432.6
Goodwill and other purchased intangibles, net of accumulated
amortization of $24.9 in 1999 and $11.7 in 1998 411.2 425.4
Investments in affiliated companies and other assets 130.8 107.2
- - --------------------------------------------------------------------------------------------------------------------
Total assets $ 1,261.9 $ 1,404.2
- - --------------------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Current liabilities:
Notes payable and current maturities of capital lease obligations $ 34.3 $ 26.9
Accounts payable 80.3 81.8
Accrued compensation and benefits 38.4 42.2
Other accrued liabilities 57.5 68.5
- - --------------------------------------------------------------------------------------------------------------------
Total current liabilities 210.5 219.4
Long-term notes payable and capital lease obligations 712.5 802.4
Indebtedness to related parties 24.1 35.7
Other non-current liabilities 44.7 44.3
- - --------------------------------------------------------------------------------------------------------------------
Total liabilities 991.8 1,101.8
- - --------------------------------------------------------------------------------------------------------------------
Commitments and contingent liabilities (see notes)
Stockholders' equity:
Preferred stock, no par value, 20.0 shares of stock authorized,
no stock issued or outstanding in 1999 and 1998 - -
Common stock, $0.01 par value, 100.0 shares of stock authorized,
shares of stock issued and outstanding of 37.4 in 1999 and 37.2 in 1998 0.4 0.4
Additional paid-in capital 273.6 271.5
Retained earnings 11.6 34.9
Accumulated other comprehensive income (loss) (4.8) 6.3
- - --------------------------------------------------------------------------------------------------------------------
280.8 313.1
Less- treasury stock, at cost, 0.8 shares of stock in 1999 and 1998 (10.7) (10.7)
- - --------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 270.1 302.4
- - --------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 1,261.9 $ 1,404.2
- - --------------------------------------------------------------------------------------------------------------------
<FN>
The accompanying notes are an integral part of these consolidated financial
statements.
</FN>
</TABLE>
50
<PAGE>
<TABLE>
<CAPTION>
Hexcel Corporation and Subsidiaries
Consolidated Statements of Operations
For the Years Ended December 31,
- - --------------------------------------------------------------------------------------------------------------------
(In millions, except per share data) 1999 1998 1997
- - --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $ 1,151.5 $ 1,089.0 $ 936.9
Cost of sales 909.0 817.7 714.3
- - --------------------------------------------------------------------------------------------------------------------
Gross margin 242.5 271.3 222.6
Selling, general and administrative expenses 128.7 117.9 102.4
Research and technology expenses 24.8 23.7 18.4
Business acquisition and consolidation expenses 20.1 12.7 25.3
- - --------------------------------------------------------------------------------------------------------------------
Operating income 68.9 117.0 76.5
Interest expense 73.9 38.7 25.8
- - --------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes (5.0) 78.3 50.7
Recovery of (provision for) income taxes 1.7 (28.4) 22.9
Equity in income and write-down of investments in affiliated companies (20.0) 0.5 -
- - --------------------------------------------------------------------------------------------------------------------
Net income (loss) $ (23.3) $ 50.4 $ 73.6
- - --------------------------------------------------------------------------------------------------------------------
Net income (loss) per share:
Basic $ (0.64) $ 1.38 $ 2.00
Diluted $ (0.64) $ 1.24 $ 1.74
Weighted average shares:
Basic 36.4 36.7 36.7
Diluted 36.4 45.7 46.0
- - --------------------------------------------------------------------------------------------------------------------
<FN>
The accompanying notes are an integral part of these consolidated financial
statements.
</FN>
</TABLE>
51
<PAGE>
<TABLE>
<CAPTION>
Hexcel Corporation and Subsidiaries
Consolidated Statements of Stockholders' Equity and Comprehensive Income
For the Years Ended December 31, 1999, 1998 and 1997
- - ---------------------------------------------------------------------------------------------------- -------------
Common Stock
-------------------- Retained Accumulated
Additional Earnings Other Total Comprehensive
Paid-in (Accumulated Comprehensive Treasury Stockholders' Income
(In millions) Par Capital Deficit) Income (Loss) Shares Equity (Loss)
- - ---------------------------------------------------------------------------------------------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1997 $ 0.4 $ 260.1 $ (89.1) $ 8.5 $ (0.6) $ 179.3
Net income 73.6 73.6 $ 73.6
Currency translation
adjustment (9.6) (9.6) (9.6)
------------
Comprehensive income 64.0
------------
Activity under stock plans 6.6 6.6
Conversion of senior
subordinated notes 0.1 0.1
Treasury stock purchased (0.1) (0.1)
- - ----------------------------------------------------------------------------------------------------
Balance, December 31, 1997 0.4 266.8 (15.5) (1.1) (0.7) 249.9
Net income 50.4 50.4 50.4
Currency translation
adjustment 7.4 7.4 7.4
------------
Comprehensive income 57.8
------------
Activity under stock plans 4.6 4.6
Conversion of senior
subordinated notes 0.1 0.1
Treasury stock purchased (10.0) (10.0)
- - ----------------------------------------------------------------------------------------------------
Balance, December 31, 1998 0.4 271.5 34.9 6.3 (10.7) 302.4
Net loss (23.3) (23.3) (23.3)
Currency translation
adjustment (11.1) (11.1) (11.1)
------------
Comprehensive loss $ (34.4)
------------
Activity under stock plans 2.1 2.1
- - ----------------------------------------------------------------------------------------------------
Balance, December 31, 1999 $ 0.4 $ 273.6 $ 11.6 $ (4.8) $ (10.7) $ 270.1
- - ----------------------------------------------------------------------------------------------------
- - ----------------------------------------------------------------------------------------------------
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
</FN>
</TABLE>
52
<PAGE>
<TABLE>
<CAPTION>
Hexcel Corporation and Subsidiaries
Consolidated Statements of Cash Flows
For the Years Ended December 31,
- - ---------------------------------------------------------------------------------------------------------------------
(In millions) 1999 1998 1997
- - ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities
Net income (loss) $ (23.3) $ 50.4 $ 73.6
Reconciliation to net cash provided (used) by:
Depreciation 47.9 37.4 33.2
Amortization 13.4 10.1 2.6
Deferred income taxes (15.8) 6.9 (33.2)
Business acquisition and consolidation expenses 20.1 12.7 25.3
Business acquisition and consolidation payments (9.5) (8.7) (33.6)
Write-off of purchased in-process technologies - - 8.0
Equity in income and write-down of investments in
affiliated companies 20.0 (0.5) -
Changes in assets and liabilities, net of effects of acquisitions:
Decrease (increase) in accounts receivable 16.1 18.2 (37.6)
Decrease (increase) in inventories 49.0 (9.3) (23.8)
Decrease (increase) in prepaid expenses and other assets 1.5 (2.9) 1.7
Increase (decrease) in accounts payable and accrued liabilities 11.9 (17.1) 23.6
Changes in other non-current assets and long-term liabilities 2.4 (3.4) (10.6)
- - ---------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 133.7 93.8 29.2
- - ---------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities
Capital expenditures (35.6) (66.5) (57.4)
Cash paid for business acquisitions - (472.8) (37.0)
Investments in affiliated companies (4.7) (1.3) (2.0)
Dividends received from affiliated companies - 1.4 -
Proceeds from sale of other assets - - 13.5
- - ---------------------------------------------------------------------------------------------------------------------
Net cash used for investing activities (40.3) (539.2) (82.9)
- - ---------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities
Proceeds from credit facilities 37.7 726.0 84.7
Repayments of credit facilities (349.6) (266.3) (27.5)
Proceeds from issuance of long-term debt 240.0 0.3 3.2
Repayments of long-term debt (18.0) (1.8) (9.7)
Debt issuance costs (11.0) (10.3) -
Purchase of treasury stock - (10.0) (0.1)
Activity under stock plans 1.4 2.8 3.4
- - ---------------------------------------------------------------------------------------------------------------------
Net cash provided by (used for) financing activities (99.5) 440.7 54.0
- - ---------------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash and cash equivalents (1.2) 3.2 0.7
- - ---------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (7.3) (1.5) 1.0
Cash and cash equivalents at beginning of year 7.5 9.0 8.0
- - ---------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 0.2 $ 7.5 $ 9.0
- - ---------------------------------------------------------------------------------------------------------------------
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
</FN>
</TABLE>
53
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, 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 producer of advanced structural materials. The Company develops,
manufactures and markets lightweight, high-performance reinforcement products,
composite materials and engineered products for use in commercial aerospace,
space and defense, electronics, and industrial markets. The Company serves
international markets through manufacturing facilities and sales offices located
in the United States and Europe, and through sales offices located in Asia,
Australia and South America. The Company is also a member of six joint ventures,
four of which manufacture and market reinforcement products and composite
materials in Europe, Asia and the United States, and two of which will
manufacture composite structures and interiors in Asia.
As discussed in Note 2, Hexcel acquired the industrial fabrics business of
Clark-Schwebel, Inc. and its subsidiaries ("Clark-Schwebel") on September 15,
1998, including interests in three joint ventures. Hexcel also acquired the
satellite business and rights to certain technologies of Fiberite, Inc.
("Fiberite"), on September 30, 1997. These acquisitions were accounted for under
the purchase method of accounting. Accordingly, the accompanying consolidated
balance sheets, statements of operations, stockholders' equity and comprehensive
income, and cash flows include the financial position, results of operations and
cash flows of the businesses acquired as of such dates and for such periods that
these businesses were owned by Hexcel.
Use of Estimates
The preparation of the accompanying consolidated financial statements in
conformity with generally accepted accounting principles required management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosures of contingent assets and liabilities, as well as the
reported amounts of revenues and expenses. Actual results could differ from
those estimates.
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 consolidated
statements of cash flows.
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. Property, plant and equipment are depreciated over estimated useful
lives, using accelerated and straight-line methods. The estimated useful lives
range from 10 to 40 years for buildings and improvements and from 3 to 20 years
for machinery and equipment.
54
<PAGE>
Goodwill and Other Purchased Intangibles
Goodwill, representing the excess of purchase price and acquisition costs
over the fair value of the net assets of businesses acquired, and other
purchased intangibles, are amortized on a straight-line basis over estimated
economic lives, which are as follows:
<TABLE>
<S> <C>
Goodwill from the acquisition of the Clark-Schwebel business 40 years
Other goodwill 20 years
Other purchased intangibles 10-15 years
</TABLE>
Investments in Affiliated Companies
Investments in affiliated companies consist of equity interests in joint
ventures, which are accounted for using the equity method of accounting.
Debt Financing Costs
Debt financing costs are deferred and amortized over the life of the
related debt, which ranges from 7 to 10 years.
Asset Recoverability
Management periodically reviews the recoverability of all long-term assets,
including the related amortization period, whenever events or changes in
circumstances indicate that the carrying amount of an asset might not be
recoverable. Management determines whether there has been an impairment by
comparing the anticipated undiscounted future net cash flows to the related
asset's carrying value. If an asset is considered impaired, the asset is written
down to fair value, which is determined based either on discounted cash flows or
appraised values, depending on the nature of the asset.
Stock-Based Compensation
Stock-based compensation is accounted for in accordance with Accounting
Principles Board Opinion ("APB") No. 25, "Accounting for Stock Issued to
Employees." Accordingly, compensation expense is not recognized when options are
granted at the fair market value at the date of grant. Hexcel also provides
additional pro forma disclosures as required under Statement of Financial
Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation."
Currency Translation
The assets and liabilities of international 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 Hexcel's consolidated results of operations
in 1999, 1998 or 1997.
Revenue Recognition
Product sales are recognized on the date of shipment. Revenue derived from
design, installation and support services are recognized when the service is
provided or, alternatively, when the product to which the service relates is
delivered to the customer.
55
<PAGE>
Derivative Financial Instruments
Hexcel employs an interest rate cap agreement and foreign currency forward
contracts in the management of its interest rate and currency exposures. The
Company has designated its interest rate cap agreement against a specific debt
instrument and recognizes interest differentials as adjustments to interest
expense as the differentials occur. Realized and unrealized gains and losses
arising from foreign currency forward contracts are recognized in income (loss)
as offsets to gains and losses resulting from the underlying hedged transaction.
The Company does not hold financial instruments for trading purposes.
Concentration of Credit Risk
Financial instruments that potentially subject Hexcel 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 38% and 46% of the Company's 1999 and 1998 net sales,
respectively. The Company performs ongoing 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 on factors surrounding the credit risk of specific
customers, historical trends and other financial information. As of December 31,
1999 and 1998, the allowance for doubtful accounts was $6.0 and $6.8,
respectively. Bad debt expense was $0.7, $0.8 and $0.2 in 1999, 1998 and 1997,
respectively.
Recently Issued Accounting Standards
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition," which
provides guidance on the recognition, presentation, and disclosure of revenue
in financial statements filed with the SEC. SAB 101 outlines the basic criteria
that must be met in order to recognize revenue, and provides guidance for
disclosures related to revenue recognition policies. At this time, management
is still assessing the impact of SAB 101 on Hexcel's financial position and
results of operations.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities". SFAS 133
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, which
will be adopted on January 1, 2001, is not expected to have a material impact
on Hexcel's consolidated financial statements.
Reclassifications
Certain prior year amounts in the accompanying consolidated financial
statements and related notes have been reclassified to conform to the 1999
presentation.
Note 2 - Business Acquisitions
Acquired Clark-Schwebel Business
On September 15, 1998, Hexcel acquired certain assets and assumed certain
operating liabilities from Clark-Schwebel. The business acquired from
Clark-Schwebel is engaged in the manufacture and sale of high-quality fiberglass
fabrics, which are used to make printed circuit boards for electronic equipment
such as computers, cellular telephones, televisions and automobiles. This
business also produces high-performance specialty products for use in
insulation, filtration, wall and facade claddings, soft body armor and
reinforcements for composite materials. At the date of acquisition,
Clark-Schwebel operated four manufacturing facilities in the southeastern U.S.
and had approximately 1,300 full-time employees.
56
<PAGE>
As part of this acquisition, Hexcel also acquired Clark-Schwebel's equity
ownership interests in the following three joint ventures:
- - - a 43.6% share in CS-Interglas AG ("CS-Interglas"), headquartered in
Germany, together with fixed price options to increase this equity interest
to 84%. Hexcel's acquisition of this investment was completed on December
23, 1998;
- - - a 43.3% share in Asahi-Schwebel Co., Ltd. ("Asahi-Schwebel"), headquartered
in Japan, which in turn owns interests in two joint ventures in Taiwan: a
50% interest in Nittobo Norplex Oak Co., Ltd. and a 51% interest in
Asahi-Schwebel Taiwan; and
- - - a 50.0% share in Clark-Schwebel Tech-Fab Company ("CS Tech-Fab"),
headquartered in the United States.
CS-Interglas and Asahi-Schwebel are fiberglass fabric producers serving the
European and Asian electronics and telecommunications industries. CS Tech-Fab
manufactures non-woven materials for roofing, construction and other specialty
applications. The exercise price of the options to increase the equity interest
in CS-Interglas was significantly higher than their fair market value, and as a
result, Hexcel allowed the options to expire unexercised on December 31, 1999.
The acquisition of Clark-Schwebel's industrial fabrics business was
completed pursuant to an asset purchase agreement dated July 25, 1998, as
amended by and among Hexcel, Stamford CS Acquisition Corp., and Clark-Schwebel
(the "Asset Purchase Agreement"). Under the Asset Purchase Agreement, Hexcel
acquired the net assets of the business, other than certain excluded assets and
liabilities, in exchange for approximately $473 in cash. The assets acquired and
the liabilities assumed or incurred were:
<TABLE>
<CAPTION>
Estimated fair value of assets acquired:
<S> <C>
Cash $ 5.0
Accounts receivable 20.2
Inventories 35.5
Net property, plant and equipment 70.0
Investment in joint ventures, intangibles and other assets 68.4
Goodwill 365.3
- - ------------------------------------------------------------------------- ------------------------------------------
Total assets acquired 564.4
- - ------------------------------------------------------------------------- ------------------------------------------
Estimated fair value of liabilities assumed or incurred:
Accounts payable and accrued liabilities 32.5
Capital lease obligations 50.0
Other non-current liabilities 4.1
- - ------------------------------------------------------------------------- ------------------------------------------
Total liabilities assumed or incurred 86.6
- - ------------------------------------------------------------------------- ------------------------------------------
Estimated fair value of net assets acquired $ 477.8
- - ------------------------------------------------------------------------- ------------------------------------------
Less cash acquired (5.0)
- - ------------------------------------------------------------------------- ------------------------------------------
Net cash paid $ 472.8
- - ------------------------------------------------------------------------- ------------------------------------------
</TABLE>
The allocations of the purchase price to the assets acquired and
liabilities assumed or incurred in connection with the Clark-Schwebel business
were based on estimates of fair values. As part of the acquisition, Hexcel
entered into a $50.0 lease for property, plant and equipment used in the
acquired business from an affiliate of Clark-Schwebel, pursuant to a long-term
lease that includes purchase options. Refer to Note 7 for information regarding
acquisition financing.
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 $37.0 in cash.
The acquisition was accounted for using the purchase method. Under this method,
substantially all of the $37.0 purchase price, less an $8.0 write-off of
acquired in-process research and technology, was allocated to intangible assets.
57
<PAGE>
Pro Forma Financial Information (Unaudited)
The pro forma net sales, net income and diluted net income per share of
Hexcel for the years ended December 31, 1998 and 1997, giving effect to the
acquisition of the business from Clark-Schwebel as if it had occurred at the
beginning of the periods presented, were:
<TABLE>
<CAPTION>
- - ------------------------------------------------------------ ----------------- ------------------ -------------------
1998 1997
- - ------------------------------------------------------------ ----------------- ------------------ -------------------
- - ------------------------------------------------------------ -- -------------- --- -------------- -- ----------------
<S> <C> <C>
Pro forma net sales $ 1,234.8 $ 1,177.1
Pro forma net income 49.5 76.3
- - ------------------------------------------------------------ -- -------------- --- -------------- -- ----------------
Pro forma diluted net income per share $ 1.22 $ 1.79
- - ------------------------------------------------------------ -- -------------- --- -------------- -- ----------------
</TABLE>
Pro forma adjustments giving effect to the acquired Fiberite business, as
if it had occurred at the beginning of 1997, would not have had a material
effect on the Company's consolidated financial statements.
Note 3 - Business Acquisition and Consolidation Programs
Since 1996, Hexcel has implemented, or begun to implement, three business
acquisition and consolidation ("BA&C") programs. The primary purpose of these
programs is to integrate acquired businesses by rationalizing manufacturing
facilities, creating centers of manufacturing excellence, and combining various
administrative functions with existing operations. Activity for these programs
for the three years ending December 31, 1999, as well as a detailed discussion
on each of the programs, is as follows:
<TABLE>
<CAPTION>
- - ------------------------------------------------- ------------- ----------- ------------ --------------- ------------
September December Fiberite
1999 1998 1996 Transaction &
Program Program Program Other Total
- - ------------------------------------------------- ------------- ----------- ------------ --------------- ------------
<S> <C> <C> <C> <C> <C>
Balance as of January 1, 1997 $ - $ - $ 25.4 $ - $ 25.4
BA&C expenses - - 12.3 13.0 25.3
Cash expenditures - - (20.6) (13.0) (33.6)
Non-cash usage, including asset write-downs - - (4.9) - (4.9)
- - ------------------------------------------------- --- --------- -- -------- ----- ------ ----- --------- -- ---------
Balance as of December 31, 1997 - - 12.2 - 12.2
BA&C expenses - 5.6 6.4 0.7 12.7
Cash expenditures - (0.6) (7.4) (0.7) (8.7)
Non-cash usage, including asset write-downs - - (8.0) - (8.0)
- - ------------------------------------------------- --- --------- -- -------- ----- ------ ----- --------- -- ---------
Balance as of December 31, 1998 - 5.0 3.2 - 8.2
BA&C expenses 15.4 4.7 - - 20.1
Cash expenditures (0.5) (6.5) (2.5) - (9.5)
Non-cash usage, including asset write-downs (11.8) (2.2) - - (14.0)
Reclassification of foreign government grant
payable to accrued liabilities - - (0.7) - (0.7)
- - ------------------------------------------------- --- --------- -- -------- ----- ------ ----- --------- -- ---------
Balance as of December 31, 1999 $ 3.1 $ 1.0 $ - $ - $ 4.1
- - ------------------------------------------------- --- --------- -- -------- ----- ------ ----- --------- -- ---------
</TABLE>
September 1999 Program
On September 27, 1999, Hexcel announced a BA&C program that entails a
further rationalization of manufacturing facilities for certain product lines.
The objectives of this program are to eliminate excess capacity and overhead,
improve manufacturing focus and yields, and create additional centers of
manufacturing excellence. Specific actions contemplated by this BA&C program
include consolidating the production of certain product lines, including moving
equipment and requalifying the respective product lines; vacating certain leased
facilities; and consolidating the Company's Composite Materials business
segment's U.S. marketing, research and technology, and administrative functions
into one location. The consolidation program calls for the elimination of
approximately 400 positions (primarily manufacturing), and a total reduction in
occupied floor space of over 250,000 square feet. The consolidation program
impacts all of the Company's business segments and is anticipated to be
substantially complete in 2001.
58
<PAGE>
Total expenses and cash expenditures for this program are expected to
approximate $33 and $27, respectively. Expected cash expenditures include $6.0
of capital expenditures. As of December 31, 1999, Hexcel had recorded $15.4 of
BA&C expenses for this program, including $11.8 of non-cash write-downs on
equipment. The write-downs reduced the applicable equipment to their estimated
net realizable value.
Accrued BA&C expenses as of December 31, 1999, and related activity for
this program since the date of announcement, were as follows:
<TABLE>
<CAPTION>
- - --------------------------------------------------------------- ------------------ ---------------- ----------------
Employee Facility &
Severance & Equipment
September 1999 Program Relocation Relocation Total
- - --------------------------------------------------------------- ------------------ ---------------- ----------------
<S> <C> <C> <C>
Balance as of January 1, 1999 $ - $ - $ -
BA&C expenses 3.0 12.4 15.4
Cash expenditures (0.5) - (0.5)
Non-cash usage, including asset write-downs - (11.8) (11.8)
- - --------------------------------------------------------------- ------ ---------- --- ------------ ----- -----------
Balance as of December 31, 1999 $ 2.5 $ 0.6 $ 3.1
- - --------------------------------------------------------------- ------ ---------- --- ------------ ----- -----------
</TABLE>
As of December 31, 1999, accrued expenses for the September 1999 program
primarily reflected accrued severance and costs for early termination of certain
leases. The Company's policy is to pay severance over a period of time rather
than in a lump-sum amount.
December 1998 Program
In December 1998, Hexcel announced consolidation actions within its
Reinforcement Products and Composite Materials business segments. These actions
included the integration of the Company's existing fabrics business with the
U.S. operations of the Clark-Schwebel business, and the combination of the
Company's U.S., European and Pacific Rim composite materials businesses into a
single global business unit. The objectives of these actions were to eliminate
redundancies, improve manufacturing planning, and enhance customer service. The
Company substantially completed these actions in the first quarter of 1999,
which resulted in the elimination of approximately 100 operating, sales,
marketing and administrative positions.
On March 16, 1999, Hexcel expanded its actions relating to the integration
of the acquired Clark-Schwebel business with the announcement of the closure of
its Cleveland, Georgia, facility, which at that time employed approximately 100
manufacturing positions. This facility produced fabrics for the electronics
market, and the majority of its production equipment was relocated to the
Company's Anderson, South Carolina, facility. The closure of this facility,
which was completed on September 3, 1999, was the result of current competitive
conditions in the global market for electronics fiberglass materials, and was
not expected at the time of the acquisition of the Clark-Schwebel business.
During 1999, Hexcel recorded $4.7 of BA&C expenses for the December 1998
program, primarily reflecting $2.2 of non-cash write-downs of equipment that was
disposed of; costs associated with the closing and relocation of certain
equipment from the Company's Cleveland, Georgia, facility; and employee
severance for administrative positions relating to the consolidation of the
Composite Materials business segment.
59
<PAGE>
Accrued BA&C expenses at December 31, 1999 and 1998, and activity for this
program, were as follows:
<TABLE>
<CAPTION>
- - --------------------------------------------------------------- ------------------ ---------------- ----------------
Employee Facility &
Severance & Equipment
December 1998 Program Relocation Relocation Total
- - --------------------------------------------------------------- ------------------ ---------------- ----------------
<S> <C> <C> <C>
Balance as of January 1, 1998 $ - $ - $ -
BA&C expenses 3.3 2.3 5.6
Cash expenditures (0.3) (0.3) (0.6)
- - --------------------------------------------------------------- ------ ---------- ---- ------------ ----- ----------
Balance as of December 31, 1998 3.0 2.0 5.0
BA&C expenses 2.1 2.6 4.7
Cash expenditures (4.1) (2.4) (6.5)
Non-cash usage, including asset write-downs - (2.2) (2.2)
- - --------------------------------------------------------------- ------ ---------- ---- ------------ ----- ----------
Balance as of December 31, 1999 $ 1.0 $ - $ 1.0
- - --------------------------------------------------------------- ------ ---------- ---- ------------ ----- ----------
</TABLE>
As of December 31, 1999, the remaining accrued expenses for this program
primarily reflected severance for former employees of the Cleveland facility as
well as for those administrative employees terminated in the second quarter of
1999. As of December 31, 1998, accrued BA&C expenses for this program primarily
consisted of severance for employees terminated in December 1998, costs for
early lease terminations, and equipment relocation costs incurred but not yet
paid.
1996 Program
In 1996, Hexcel announced plans to consolidate its operations over a period
of three years. The objective of the program was to integrate acquired assets
and operations into the Company, and to reorganize its manufacturing and
research activities around strategic centers dedicated to select product
technologies. The BA&C program was also intended to eliminate excess
manufacturing capacity and redundant administrative functions. The Company
expected this consolidation program to take approximately three years to
complete, in part because of aerospace industry requirements to "qualify"
specific equipment and manufacturing facilities for the manufacture of certain
products. These qualification requirements increase the complexity, cost and
time of moving equipment and rationalizing manufacturing activities. Specific
actions of the consolidation program included the elimination of approximately
245 manufacturing, marketing and administrative positions, the closure of a
facility, the consolidation of Hexcel's manufacturing operations in Europe, the
consolidation of Hexcel's U.S. special process manufacturing activities, and the
integration of sales, marketing and administrative resources. Total expenses
over the life of the 1996 program were $61.1, or $6.4 more than Hexcel's
original estimate, and total cash expenditures were $42.1. The additional
expenses were primarily the result of a non-cash write-down of the carrying
value of Hexcel's wholly-owned Italian subsidiary, as more fully discussed
below, which was recorded in 1998.
As part of the 1996 BA&C program, Hexcel disposed of its operations in
Brindisi, Italy (the "Italian Operations"). Since its acquisition in 1996, the
Italian Operations had immaterial revenues, incurred operating losses, and had
not been strategically important to the Company. Consequently, the Company
periodically evaluated the recoverability of its carrying value pursuant to SFAS
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of." In 1998, Hexcel again evaluated the recoverability of
the carrying value of its Italian Operations in light of its continuing
operating losses and certain offers received from interested buyers. In
assessing whether an impairment had occurred, the Company considered the offers
received, as well as the future undiscounted cash flows related to its Italian
Operations. As a result, Hexcel recorded a charge of $5.6 in 1998 for an asset
impairment related to its Italian Operations, which was included in BA&C
expenses. The estimate of fair value used in determining the impairment charge
was based on the offers received from the interested buyers. In 1999, the
Company disposed of its Italian Operations for net proceeds that approximated
amounts accrued. The Company accounted for its Italian Operations under its
Engineered Products business segment.
60
<PAGE>
In 1998, Hexcel reversed $6.5 of accrued BA&C expenses relating to employee
severance. From 1996 through 1998, during the implementation of the 1996
consolidation program, Hexcel experienced significant increased business volume
in its commercial aerospace market, which enabled Hexcel to reassign employees
who would have otherwise been terminated. As a result, the actual number of
employees terminated was 100 fewer than in the original program, and Hexcel no
longer required the full amount of its BA&C employee severance accrual. Also in
1998, Hexcel incurred additional facility and equipment relocation expenses of
$6.7 relating to its 1996 consolidation program, which were primarily the result
of actual costs for equipment moves exceeding previous estimates.
Accrued BA&C expenses and related activity during the three years ended
December 31, 1999 for this program, were as follows:
<TABLE>
<CAPTION>
- - ------------------------------------------------- ---------------- ----------------- ----------------- ----------------
Employee Facility &
Severance & Equipment
1996 Program Relocation Relocation Other Total
- - ------------------------------------------------- ---------------- ----------------- ----------------- ----------------
<S> <C> <C> <C> <C>
Balance as of January 1, 1997 $ 19.1 $ 5.2 $ 1.1 $ 25.4
BA&C expenses - 7.7 4.6 12.3
Cash expenditures (6.6) (8.8) (5.2) (20.6)
Non-cash usage (2.8) (2.1) - (4.9)
- - ------------------------------------------------- --- ------------ ----- ----------- ------ ---------- ----- ----------
Balance as of December 31, 1997 9.7 2.0 0.5 12.2
BA&C expenses (6.5) 7.3 5.6 6.4
Cash expenditures (0.9) (6.0) (0.5) (7.4)
Non-cash usage 0.5 (2.9) (5.6) (8.0)
- - ------------------------------------------------- --- ------------ ----- ----------- ------ ---------- ----- ----------
Balance as of December 31, 1998 2.8 0.4 - 3.2
Cash expenditures (2.1) (0.4) - (2.5)
Reclassification of foreign government
grant payable to accrued liabilities (0.7) - - (0.7)
- - ------------------------------------------------- --- ------------ ----- ----------- ------ ---------- ----- ----------
Balance as of December 31, 1999 $ - $ - $ - $ -
- - ------------------------------------------------- --- ------------ ----- ----------- ------ ---------- ----- ----------
</TABLE>
As of December 31, 1998, accrued BA&C expenses for this program related to
the Italian Operations' employee retirement costs, as well as to a foreign
government grant received by the Company that is required to be repaid over a
period of five years due to lower employee levels as a result of the
consolidation program. Cash expenditures for the year ended December 31, 1999,
primarily represented the employee retirement costs that were disbursed in
connection with the disposal of the Italian Operations. The program's remaining
accrued expense of $0.7, consisting of the foreign government grant payable, was
transferred to accrued liabilities in the second half of 1999.
Fiberite Transaction and Other BA&C Expenses
The acquisition of the Fiberite assets was substantially downsized from an
original agreement whereby the Company had, subject to certain terms and
conditions, committed to purchase selected assets and businesses of Fiberite for
approximately $300. As a result of the downsized transaction, the Company wrote
off $5.0 of acquisition and financing costs to BA&C expenses in 1997. In
addition, the Company expensed $8.0 of acquired in-process research and
technology purchased from Fiberite, which is also included in the 1997 BA&C
expenses.
61
<PAGE>
Note 4 - Inventories
<TABLE>
<CAPTION>
- - ---------------------------------------------------------------------------------------------------------------------
1999 1998
- - ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Raw materials $ 55.5 $ 90.9
Work in progress 47.8 77.8
Finished goods 50.4 44.5
- - ---------------------------------------------------------------------------------------------------------------------
Inventories $ 153.7 $ 213.2
- - ---------------------------------------------------------------------------------------------------------------------
</TABLE>
Note 5 - Net Property, Plant and Equipment
<TABLE>
<CAPTION>
- - ---------------------------------------------------------------------------------------------------------------------
1999 1998
- - ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Land $ 21.8 $ 22.2
Buildings 152.7 167.1
Equipment 440.0 439.2
- - ---------------------------------------------------------------------------------------------------------------------
Property, plant and equipment 614.5 628.5
Less accumulated depreciation (222.4) (195.9)
- - ---------------------------------------------------------------------------------------------------------------------
Net property, plant and equipment $ 392.1 $ 432.6
- - ---------------------------------------------------------------------------------------------------------------------
</TABLE>
Note 6 - Investments in Affiliated Companies and Other Assets
<TABLE>
<CAPTION>
- - ---------------------------------------------------------------------------------------------------------------------
1999 1998
- - ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Investments in affiliated companies $ 58.7 $ 70.3
Deferred tax asset 37.2 10.5
Deferred debt financing costs, net of accumulated amortization of
$5.0 and $1.8 as of December 31, 1999 and 1998, respectively 19.2 11.5
Prepaid pension asset 8.4 9.5
Other assets 7.3 5.4
- - ---------------------------------------------------------------------------------------------------------------------
Investments in affiliated companies and other assets $ 130.8 $ 107.2
- - ---------------------------------------------------------------------------------------------------------------------
</TABLE>
Investments in Affiliated Companies
As part of the acquired Clark-Schwebel business, the Company acquired
equity ownership interests in three joint ventures: a 43.6% share in
CS-Interglas; a 43.3% share in Asahi-Schwebel; and a 50.0% share in CS Tech-Fab.
In the third quarter of 1999, the Company wrote down its investment in
CS-Interglas by $20.0 to its estimated fair market value. The write-down was the
result of management's decision to allow its fixed-price options to increase its
equity investment in CS-Interglas, from 43.6% to 84%, to expire unexercised, and
an assessment that an other-than-temporary decline in the investment had
occurred due to its deteriorating financial condition. The amount of the
write-down was determined based on available market information and appropriate
valuation methodologies. The Company did not record a deferred tax benefit on
the write-down because of limitations imposed by foreign tax laws on the
Company's ability to realize the tax benefit.
In 1999, Hexcel, Boeing and Aviation Industries of China formed a joint
venture, BHA Aero Composite Parts Co., Ltd., to manufacture composite parts for
secondary structures and interior applications for commercial aircraft. Hexcel
has a 33% equity ownership interest in this joint venture, which is located in
Tianjin, China. Also in 1999, Hexcel formed another joint venture, Asian
Composites Manufacturing Sdn. Bhd., with Boeing, Sime Link Sdn. Bhd., and
Malaysia Helicopter Services Bhd. (now known as Naluri Berhadto), to manufacture
composite parts for secondary structures for commercial aircraft. Hexcel has a
25% equity ownership interest in this joint venture, which is located in Alar
Setor, Malaysia. Products manufactured by both joint ventures will be shipped to
Hexcel's customers worldwide, and it is anticipated that the first parts will be
delivered to customers in 2001. For the year ended December 31, 1999, Hexcel
made cash equity investments totaling $4.7 in these two joint ventures.
62
<PAGE>
Remaining aggregate financial commitments for these joint ventures total
approximately $24.4, of which $16.6, $6.6 and $1.2 are expected to be made in
2000, 2001 and 2002, respectively. These commitments are comprised of a
combination of future equity investments, loans and loan guarantees.
As of December 31, 1999 and 1998, Hexcel owned a 45% equity interest in
DIC-Hexcel Limited ("DHL"), a joint venture with Dainippon Ink and Chemicals,
Inc. ("DIC"). This joint venture is located in Komatsu, Japan, and produces and
sells prepregs, honeycomb, decorative laminates and bulk molding compounds using
technology licensed from Hexcel and DIC. In 1998 and 1997, the Company
contributed $1.3 and $2.0, respectively, to the joint venture, as did DIC.
Hexcel is contingently liable to pay DIC up to $4.5 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.
Note 7 - Notes Payable
<TABLE>
<CAPTION>
- - ---------------------------------------------------------------------------------------------------------------------
1999 1998
- - ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Senior Credit Facility $ 303.0 $ 618.2
European credit and overdraft facilities 14.8 16.3
Senior subordinated notes, due 2009 240.0 -
Convertible subordinated notes, due 2003 114.4 114.4
Convertible subordinated debentures, due 2011 25.6 25.6
Various notes payable 0.4 0.7
- - ---------------------------------------------------------------------------------------------------------------------
Total notes payable 698.2 775.2
Capital lease obligations 48.6 54.1
Senior subordinated notes payable to a related party, net of unamortized
discount of $0.9 and $1.8 as of December 31, 1999 and 1998, respectively 24.1 35.7
- - ---------------------------------------------------------------------------------------------------------------------
Total notes payable, capital lease obligations and
indebtedness to a related party $ 770.9 $ 865.0
- - ---------------------------------------------------------------------------------------------------------------------
Notes payable and current maturities of long-term liabilities $ 34.3 $ 26.9
Long-term notes payable and capital lease obligations, less current maturities 712.5 802.4
Indebtedness to a related party 24.1 35.7
- - ---------------------------------------------------------------------------------------------------------------------
Total notes payable, capital lease obligations and
indebtedness to a related party $ 770.9 $ 865.0
- - ---------------------------------------------------------------------------------------------------------------------
</TABLE>
Senior Credit Facility
In connection with the acquisition of the industrial fabrics business of
Clark-Schwebel on September 15, 1998, Hexcel obtained a new global credit
facility (the "Senior Credit Facility") to: (a) fund the purchase of the
Clark-Schwebel business; (b) refinance the Company's existing revolving credit
facility; and (c) provide for ongoing working capital and other financing
requirements of the Company. The Senior Credit Facility was subsequently amended
on January 21, 1999, August 13, 1999 and March 7, 2000, to accommodate, among
other things, the issuance of $240.0 of 9.75% senior subordinated notes and the
impact of the decline in the Company's operating results on certain financial
covenants.
Effective with the March 7, 2000, amendment, the Senior Credit Facility
provides Hexcel with approximately $516.5 of borrowing capacity, subject to
certain limitations. Interest on outstanding borrowings ranges from 0.75% to
3.00% in excess of the applicable London interbank rate, or at the option of the
Company, from 0.0% to 2.00% 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 that ranges from 0.23% to 0.50% per annum of the total facility.
The Senior Credit Facility is secured by a pledge of shares of certain of
Hexcel's subsidiaries, as well as a security interest in certain U.S. accounts
receivable, inventories, and machinery and equipment. Further, under certain
defined circumstances, the Company has agreed to provide the lenders with a
security interest in certain additional U.S. accounts receivable, inventories,
63
<PAGE>
machinery and equipment, and land and buildings on September 30, 2000. The
Company is subject to various financial covenants and restrictions under the
Senior Credit Facility, including a limitation on the redemption of capital
stock and a general prohibition against the payment of dividends. The Senior
Credit Facility is scheduled to expire in September 2004, except for
approximately $98, which is due for repayment in September 2005.
For the years ended December 31, 1999, 1998 and 1997, interest on
outstanding borrowings under Hexcel's Senior Credit Facility, or previous
revolving credit facility, bore interest at approximately 0.30% to 2.75% in
excess of the applicable London interbank rate, or at the option of Hexcel, 0.0%
to 1.75% in excess of the base rate of the administrative agent for the lenders,
and was subject to a commitment fee ranging from approximately 0.20% to 0.50%
per annum of the total facility. As a result of obtaining the Senior Credit
Facility in 1998, the Company wrote off approximately $1.6 of capitalized debt
financing costs, which is included in "interest expense" in the accompanying
consolidated statement of operations for 1998.
As of December 31, 1999 and 1998, the Company had an interest rate cap
agreement outstanding which covered a notional amount of $50.0 of the Senior
Credit Facility, providing a maximum fixed rate of 5.5% on the applicable London
interbank rate. The cost of the interest rate cap is being amortized to interest
expense over the term of the contract, and the unamortized amount approximated
fair value as of December 31, 1999 and 1998.
European Credit and Overdraft Facilities
In addition to the Senior 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 are primarily
uncommitted facilities that are terminable at the discretion of the lenders. The
interest rates on these credit and overdraft facilities for the years ended
December 31, 1999, 1998 and 1997 ranged from 3.0% to 6.6% per annum.
Senior Subordinated Notes, due 2009
On January 21, 1999, the Company issued $240.0 of 9.75% senior subordinated
notes, due 2009. The senior subordinated notes are general unsecured obligations
of Hexcel.
Convertible Subordinated Notes, due 2003
The convertible subordinated notes carry an annual interest rate of 7.0%,
are due in 2003 and are convertible into Hexcel common stock at a conversion
price of $15.81 per share, subject to adjustment under certain conditions. The
convertible subordinated notes are redeemable as of August 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.
Convertible Subordinated Debentures, due 2011
The 7.0% convertible subordinated debentures, due 2011, are redeemable by
Hexcel prior to maturity. Mandatory redemption is scheduled to begin in 2002
through annual sinking fund requirements. The debentures are convertible prior
to maturity into common shares of the Company at $30.72 per share.
Senior Subordinated Notes Payable to a Related Party
The senior subordinated notes payable to a related party, are payable to a
significant shareholder and subsidiaries of the shareholder, and are general
unsecured obligations of Hexcel. Effective February 1999, these notes bear
interest at a rate of 10.5% per annum, a rate which will increase by 0.5% per
annum each February thereafter until the notes mature in 2003. Prior to February
1999, these notes bore interest at a rate of 7.5% per annum.
64
<PAGE>
In 1999, Hexcel repaid $12.5 of its senior subordinated notes payable to a
related party. As a result of the repayment, Hexcel wrote off $0.6 of
unamortized discount, which is included in "interest expense" in the
accompanying consolidated statement of operations for 1999.
Aggregate Maturities of Notes Payable and Indebtedness to a Related Party
The table below reflects aggregate maturities of notes payable and
indebtedness to a related party:
<TABLE>
<CAPTION>
Payable during years ending December 31:
- - ------------------------------------------------------------------------------- -----------------
<S> <C>
2000 $ 29.2
2001 47.5
2002 57.8
2003 202.6
2004 125.2
2005 and thereafter 260.9
- - ------------------------------------------------------------------------------- ---- ------------
Total notes payable and indebtedness to a related party $ 723.2
- - ------------------------------------------------------------------------------- ---- ------------
</TABLE>
Estimated Fair Values of Notes Payable
The Senior Credit Facility and the various European credit facilities
outstanding as of December 31, 1999 and 1998, are variable-rate debt
obligations. Accordingly, the estimated fair values of each of these debt
obligations approximate their respective book values. The aggregate fair values
of the Company's other notes payable are as follows:
<TABLE>
<CAPTION>
- - ---------------------------------------------------------------------------------------------------------------------
1999 1998
- - ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Senior subordinated notes, due 2009 $ 205.2 $ -
Convertible subordinated notes, due 2003 80.1 96.1
Convertible subordinated debentures, due 2011 18.5 19.0
- - ---------------------------------------------------------------------------------------------------------------------
<FN>
The aggregate fair values of the above notes payable were estimated on the
basis of quoted market prices; however, trading in these securities is limited
and may not reflect fair value.
</FN>
</TABLE>
Note 8 - Leasing Arrangements
Assets, accumulated depreciation, and related liability balances under
capital leasing arrangements, as of December 31, 1999 and 1998, were:
<TABLE>
<CAPTION>
- - ---------------------------------------------------------------------------------------------------------------------
1999 1998
- - ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Property, plant and equipment $ 63.0 $ 67.2
Less accumulated depreciation (15.0) (6.6)
- - ---------------------------------------------------------------------------------------------------------------------
Net property, plant and equipment $ 48.0 $ 60.6
- - ---------------------------------------------------------------------------------------------------------------------
Capital lease obligations $ 48.6 $ 54.1
Less current maturities (5.1) (4.9)
- - ---------------------------------------------------------------------------------------------------------------------
Long-term capital lease obligations, net $ 43.5 $ 49.2
- - ---------------------------------------------------------------------------------------------------------------------
</TABLE>
Certain sales and administrative offices, data processing equipment and
manufacturing facilities are leased under operating leases. Rental expense under
operating leases was $9.4 in 1999, $8.2 in 1998 and $7.4 in 1997.
65
<PAGE>
Future minimum lease payments as of December 31, 1999 were:
<TABLE>
<CAPTION>
- - -----------------------------------------------------------------------------------------------------------------------------------
Type of Lease
---------------- -----------------
Payable during years ending December 31: Capital Operating
- - ----------------------------------------------------------------------------------
--- ------------ ---- ------------
<S> <C> <C>
2000 $ 9.1 $ 4.8
2001 8.9 3.2
2002 8.8 2.2
2003 8.6 1.3
2004 8.5 1.0
2005 and thereafter 19.3 4.2
- - ---------------------------------------------------------------------------------- --- ------------ ---- ------------
Total minimum lease payments $ 63.2 $ 16.7
- - ---------------------------------------------------------------------------------- --- ------------ ---- ------------
<FN>
Total minimum capital lease payments include $14.6 of imputed interest.
</FN>
</TABLE>
Note 9 - Related Parties
In addition to the senior subordinated notes payable to a related party,
transactions and balances with a significant shareholder, or subsidiaries of the
significant shareholder, as of and for the years ended December 31, 1999, 1998
and 1997, were as follows:
<TABLE>
<CAPTION>
- - ---------------------------------------------------------------- ----------------- ---------------- -----------------
1999 1998 1997
- - ---------------------------------------------------------------- ----------------- ---------------- -----------------
- - ---------------------------------------------------------------- --- ------------- --- ------------ ---- ------------
<S> <C> <C> <C>
Raw material purchases $ 32.6 $ 37.7 $ 34.3
Interest expense 2.7 2.8 2.8
Net sales - - 5.6
- - ---------------------------------------------------------------- --- ------------- --- ------------ ---- ------------
Accounts payable $ 3.1 $ 3.3
Accrued interest payable 0.9 0.9
- - ---------------------------------------------------------------- --- ------------- --- ------------
</TABLE>
Note 10 - Retirement and Other Postretirement Benefit Plans
Retirement Plans
Hexcel maintains defined benefit retirement plans covering most U.S. and
certain European employees, as well as retirement savings plans covering
eligible U.S. employees. The defined benefit retirement plans are based on years
of service and employee compensation under either a career average or final pay
benefits method. Hexcel's funding policy is to contribute the minimum amount
required by applicable regulations. In addition, the Company participates in a
union sponsored multi-employer pension plan covering certain U.S. employees with
union affiliations.
Under the retirement savings plans, eligible U.S. employees may contribute
up to 16% of their compensation to an individual retirement savings account.
Hexcel makes matching contributions equal to 50% of employee contributions, not
to exceed 3% of employee compensation. In addition, the Company makes profit
sharing contributions when the Company meets or exceeds certain annual
performance targets.
66
<PAGE>
The net pension expense for all of these defined benefit and retirement
savings plans, for the years ended December 31, 1999, 1998 and 1997, were:
<TABLE>
<CAPTION>
- - ----------------------------------------------------------------- ----------------- ---------------- -----------------
1999 1998 1997
- - ----------------------------------------------------------------- ----------------- ---------------- -----------------
<S> <C> <C> <C>
Defined benefit retirement plans $ 6.3 $ 5.2 $ 4.0
Multi-employer pension plan 0.4 0.3 0.3
Retirement savings plans- matching contributions 3.4 3.0 2.4
Retirement savings plans- profit sharing and incentive
contributions 5.4 5.3 3.6
- - ----------------------------------------------------------------- ---- ------------ --- ------------ ---- ------------
Net pension expense $ 15.5 $ 13.8 $ 10.3
- - ----------------------------------------------------------------- ---- ------------ --- ------------ ---- ------------
</TABLE>
Other Postretirement Benefit Plans
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, as well as senior executives and other certain U.S.
employees, are eligible for benefits. Benefits are available to eligible
employees who retire on or after age 58 after rendering at least 15 years of
service to Hexcel. 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.
As part of the acquisition of the Clark-Schwebel business, the Company
assumed a defined benefit postretirement medical plan, which covers
substantially all salaried and nonsalaried employees of this business. 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 net periodic cost of Hexcel's defined benefit retirement and U.S.
postretirement plans for the years ended December 31, 1999, 1998 and 1997, were:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------
U.S. Plans European Plans
-------------------------------------------------------------------------------
Defined Benefit Retirement Plans 1999 1998 1997 1999 1998 1997
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Service cost - benefits
earned during the year $ 3.6 $ 3.3 $ 2.3 $ 2.7 $ 2.1 $ 1.9
Interest cost on projected
benefit obligation 1.5 1.2 0.8 2.4 2.3 2.2
Expected return on plan assets (1.0) (0.8) (0.7) (14.4) (4.4) (6.8)
Net amortization and deferral 0.7 0.6 0.3 10.8 0.9 4.0
-----------------------------------------------------------------------------------------------------------------------
Net periodic pension cost $ 4.8 $ 4.3 $ 2.7 $ 1.5 $ 0.9 $ 1.3
-----------------------------------------------------------------------------------------------------------------------
Postretirement Plans - U.S. Plans 1999 1998 1997
-----------------------------------------------------------------------------------------------------------------------
Service cost - benefits earned during the year $ 0.2 $ 0.1 $ 0.1
Interest cost on projected benefit obligation 0.9 0.7 0.7
Net amortization and deferral (0.3) (0.3) (0.2)
-----------------------------------------------------------------------------------------------------------------------
Net periodic postretirement benefit cost $ 0.8 $ 0.5 $ 0.6
-----------------------------------------------------------------------------------------------------------------------
</TABLE>
67
<PAGE>
The benefit obligation, fair value of plan assets, funded status, and
amounts recognized in the consolidated financial statements for Hexcel's defined
benefit retirement plans and U.S. postretirement plans, as of and for the years
ended December 31, 1999 and 1998, were:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------
Defined Benefit Retirement Plans
Postretirement Plans
---------------------------------------------------------------------------------
U.S. Plans European Plans
---------------------------------------------------------------------------------
1999 1998 1999 1998 1999 1998
-----------------------------------------------------------------------------------------------------------------------
Change in benefit obligation:
<S> <C> <C> <C> <C> <C> <C>
Benefit obligation- beginning of
year $ 21.5 $ 14.9 $ 47.1 $ 32.6 $ 13.4 $ 10.8
Service cost 3.6 3.3 2.7 2.1 0.2 0.1
Interest cost 1.5 1.2 2.4 2.3 0.9 0.7
Plan participants' contributions - - 0.5 0.5 0.1 -
Introduction of a new plan - 1.2 - - - -
Plan from the acquired Clark-
Schwebel business - - - - - 4.1
Actuarial loss (gain) (4.1) 1.8 (7.5) 9.1 (0.8) (1.9)
Benefits paid (1.0) (0.8) (0.4) (0.2) (0.9) (0.5)
Other (0.1) (0.1) 0.2 0.7 0.1 0.1
-----------------------------------------------------------------------------------------------------------------------
Benefit obligation- end of year 21.4 21.5 45.0 47.1 13.0 13.4
-----------------------------------------------------------------------------------------------------------------------
Change in plan assets:
Fair value of plan assets-
beginning of year 11.5 8.3 51.7 44.6 - -
Actual return on plan assets 1.8 1.5 13.1 4.9 - -
Employer contributions 1.2 2.5 1.2 1.2 0.7 0.5
Plan participants' contributions - - 0.5 0.5 0.1 -
Benefits paid (1.0) (0.8) (0.4) (0.2) (0.8) (0.5)
Other 0.1 - 0.1 0.7 - -
-----------------------------------------------------------------------------------------------------------------------
Fair value of plan assets- end of year 13.6 11.5 66.2 51.7 - -
-----------------------------------------------------------------------------------------------------------------------
Funded status:
Benefit obligation in excess of
(less than) plan assets (7.8) (10.0) 21.2 4.6 (13.0) (13.4)
Unrecognized actuarial loss (gain) 0.1 2.4 (12.1) 4.9 (0.7) (0.5)
Unrecognized net liability 0.2 0.1 - - - -
Unrecognized prior service cost (2.7) 0.8 - - (5.1) (4.8)
-----------------------------------------------------------------------------------------------------------------------
Prepaid (accrued) benefit cost $ (10.2) $ (6.7) $ 9.1 $ 9.5 $ (18.8) $ (18.7)
-----------------------------------------------------------------------------------------------------------------------
</TABLE>
The accumulated benefit obligation for pension plans with accumulated
benefit obligations in excess of plan assets were $18.6 and $18.9 as of December
31, 1999 and 1998, respectively. In 1998, the Company updated certain
assumptions with respect to its European plans, resulting in an actuarial loss.
Amortization of this loss and other prior service costs is calculated on a
straight-line basis over the expected future years of service of the plans'
active participants. Assets for the defined benefit pension plans generally
consist of publicly traded securities, bonds and cash investments.
As of December 31, 1999 and 1998, the prepaid benefit cost was included in
"investments in affiliated companies and other assets" in the accompanying
consolidated balance sheets. For the same periods, the accrued benefit cost was
included in "accrued compensation and benefits" and "other non-current
liabilities" in the accompanying consolidated balance sheets.
68
<PAGE>
Assumptions used to estimate the actuarial present value of benefit
obligations, as of December 31, 1999, 1998 and 1997, were:
<TABLE>
<CAPTION>
- - --------------------------------------------------------------- ------------------ ---------------- -----------------
1999 1998 1997
- - --------------------------------------------------------------- ------------------ ---------------- -----------------
U.S. defined benefit retirement plans:
<S> <C> <C> <C>
Discount rates 8.0% 7.0% 7.0%
Rate of increase in compensation 4.5% 4.5% 4.5%
Expected long-term rate of return on plan assets 9.0% 9.0% 9.0%
European defined benefit retirement plans:
Discount rates 5.8% - 6.0% 5.5% - 5.8% 6.5% - 7.0%
Rates of increase in compensation 2.0% - 4.0% 1.5% - 4.0% 2.0% - 5.0%
Expected long-term rates of return on plan assets 6.5% - 7.0% 6.5% - 7.0% 6.5% - 7.5%
Postretirement benefit plans:
Discount rates 7.0% - 8.0% 6.8% - 7.0% 7.0%
- - --------------------------------------------------------------- ------------------ ---------------- -----------------
</TABLE>
For measurement purposes, the annual rate of increase in the per capita
cost of covered health care benefits were assumed at 7.0 % to 10.2% for medical,
and 5.0% for dental and vision for 1999. These rates were assumed to decrease
gradually to 5.5% to 7.8%, and remain at 5.0%, respectively, by the year 2003.
The table below presents the impact of a one-percentage-point increase and
a one-percentage-point decrease in the assumed health care cost trend on the
total of service and interest cost components, and on the postretirement benefit
obligation.
<TABLE>
<CAPTION>
- - ---------------------------------------------------------------------------------- ---------------- ------------------
1999 1998
- - ---------------------------------------------------------------------------------- ---------------- ------------------
One-percentage-point increase:
<S> <C> <C>
Effect on total service and interest cost components $ 0.1 $ 0.1
Effect on postretirement benefit obligation 0.8 0.8
One-percentage-point decrease:
Effect on total service and interest cost components (0.1) (0.1)
Effect on postretirement benefit obligation (0.7) (0.7)
- - ---------------------------------------------------------------------------------- ----- ---------- ------- ----------
</TABLE>
69
<PAGE>
Note 11 - Income Taxes
Recovery of (Provision for) Income Taxes
Income (loss) before income taxes and the recovery of (provision for)
income taxes, for the years ended December 31, 1999, 1998 and 1997, were:
<TABLE>
<CAPTION>
- - --------------------------------------------------------------- ----------------- ---------------- -----------------
1999 1998 1997
- - --------------------------------------------------------------- ----------------- ---------------- -----------------
Income (loss) before income taxes:
<S> <C> <C> <C>
U.S. $ (47.5) $ 30.6 $ 24.2
International 42.5 47.7 26.5
- - --------------------------------------------------------------- --- ------------- ---- ----------- --- -------------
Total income (loss) before income taxes $ (5.0) $ 78.3 $ 50.7
- - --------------------------------------------------------------- --- ------------- ---- ----------- --- -------------
Recovery of (provision for) income taxes:
Current:
U.S. $ 0.8 $ (6.3) $ (0.8)
International (14.9) (15.2) (9.5)
- - --------------------------------------------------------------- --- ------------- ---- ----------- --- -------------
Current provision for income taxes (14.1) (21.5) (10.3)
- - --------------------------------------------------------------- --- ------------- ---- ----------- --- -------------
Deferred:
U.S. 17.1 (4.7) 33.9
International (1.3) (2.2) (0.7)
- - --------------------------------------------------------------- --- ------------- ---- ----------- --- -------------
Deferred recovery of (provision for) income taxes 15.8 (6.9) 33.2
- - --------------------------------------------------------------- --- ------------- ---- ----------- --- -------------
Total recovery of (provision for) income taxes $ 1.7 $ (28.4) $ 22.9
- - --------------------------------------------------------------- --- ------------- ---- ----------- --- -------------
</TABLE>
A reconciliation of the recovery of (provision for) income taxes at the
U.S. federal statutory income tax rate of 35% to the effective income tax rate,
for the years ended December 31, 1999, 1998 and 1997, is as follows:
<TABLE>
<CAPTION>
- - --------------------------------------------------------------- ---------------- ----------------- -----------------
1999 1998 1997
- - --------------------------------------------------------------- ---------------- ----------------- -----------------
<S> <C> <C> <C>
Recovery (provision) at U.S. federal statutory rate $ 1.8 $ (27.4) $ (17.8)
U.S. state taxes, less federal tax benefit 1.1 (0.8) (0.5)
Impact of different international tax rates,
adjustments to income tax accruals and other (1.5) (1.4) (18.7)
Valuation allowance 0.3 1.2 59.9
- - --------------------------------------------------------------- --- ------------ ----- ----------- --- -------------
Total recovery of (provision for) income taxes $ 1.7 $ (28.4) $ 22.9
- - --------------------------------------------------------------- --- ------------ ----- ----------- --- -------------
</TABLE>
In 1997, in accordance with SFAS No. 109, "Accounting for Income Taxes" , 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
concerning the Company's ability to generate sufficient future taxable income to
realize these assets. In 1997, the Company reversed $59.9 of its valuation
allowance reserve as follows: $17.0 due to current year profitable U.S.
operations; $39.0 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 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 Belgian operations.
The Company has made no U.S. income tax provision for approximately $70.4
of undistributed earnings of international subsidiaries as of December 31, 1999.
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.
70
<PAGE>
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, 1999 and 1998, were:
<TABLE>
<CAPTION>
- - ---------------------------------------------------------------------------------- ----------------- ----------------
1999 1998
- - ---------------------------------------------------------------------------------- ----------------- ----------------
<S> <C> <C>
Net operating loss carryforwards $ 36.3 $ 19.2
Reserves and other, net 27.8 25.1
Accrued business acquisition and consolidation expenses 1.5 3.0
Accelerated depreciation and amortization (18.5) (15.1)
Valuation allowance (6.4) (7.3)
- - ---------------------------------------------------------------------------------- --- ------------- --- ------------
Net deferred tax asset $ 40.7 $ 24.9
- - ---------------------------------------------------------------------------------- --- ------------- --- ------------
</TABLE>
Net Operating Loss Carryforwards
As of December 31, 1999, Hexcel had net operating loss ("NOL")
carryforwards for U.S. federal and Belgium income tax purposes of approximately
$91.0 and $1.5, respectively. The U.S. NOL carryforwards, which are available to
offset future taxable income, expire at various dates through the year 2019. As
a result of a change in ownership that occurred in connection with the purchase
of a business in 1996, the Company has a limitation on the utilization of $49.0
of U.S. NOL carryforwards of approximately $12.0 per year.
Note 12 - Stockholders' Equity
<TABLE>
<CAPTION>
Common Stock Outstanding
- - ------------------------------------------------------------ ----------------------- -------------- ----------------
(Number of shares) 1999 1998 1997
- - ------------------------------------------------------------ ----------------------- -------------- ----------------
Common stock:
<S> <C> <C> <C>
Balance, beginning of year 37.2 36.9 36.6
Activity under stock plans 0.2 0.3 0.3
- - ------------------------------------------------------------ ----------------------- -------------- ----------------
Balance, end of year 37.4 37.2 36.9
- - ------------------------------------------------------------ ----------------------- -------------- ----------------
Treasury stock:
Balance, beginning of year 0.8 - -
Repurchased - 0.8 -
- - ------------------------------------------------------------ ----------------------- -------------- ----------------
Balance, end of year 0.8 0.8 -
- - ------------------------------------------------------------ ----------------------- -------------- ----------------
Common stock outstanding 36.6 36.4 36.9
- - ------------------------------------------------------------ ----------------------- -------------- ----------------
</TABLE>
In 1998, Hexcel's Board of Directors approved plans to repurchase up to
$20.0 of the Company's common stock. During the year ended December 31, 1998,
the Company repurchased 0.8 shares of its common stock at an average cost of
$12.32 per share, for a total of $10.0. The Board of Directors may also approve
additional stock buybacks from time to time, subject to market conditions and
the terms of the Company's credit agreements and indentures.
Stock-Based Incentive Plans
Hexcel has various stock option and management incentive plans for eligible
employees, officers, directors and consultants. These plans provide for awards
in the form of stock options, stock appreciation rights, restricted stock,
restricted stock units and other stock-based awards. Options to purchase common
stock are generally granted at the fair market value on the date of grant.
Substantially all of these options have a ten-year term and generally vest over
a three-year period. In 1998, Hexcel's stockholders approved various amendments
to the Company's stock-based incentive plans, which increased the aggregate
number of shares of stock issuable under these plans by 4.5 to 7.4.
71
<PAGE>
As of December 31, 1999, 1998 and 1997, Hexcel had outstanding a total of
0.9, 0.5 and 0.4 of performance accelerated restricted stock units ("PARS"),
respectively. PARS are convertible to an equal number of shares of Hexcel common
stock and generally vest in increments over a seven-year period, subject to
certain terms of employment and other circumstances that may accelerate the
vesting period. As of December 31, 1999, 1998 and 1997, 0.1, 0.3 and 0.3 PARS
were vested, respectively. In 1999, 0.3 PARS were converted into shares of
Hexcel common stock. Approximately $0.5, $1.7 and $3.3 of compensation expense
was recognized in 1999, 1998 and 1997, respectively, with respect to the PARS
and certain other stock-based incentive plans.
Stock option data for the three years ended December 31, 1999, 1998 and
1997, were:
<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------------- --------------- -------------------
Weighted
Average
Number of Exercise
Options Price
- - ---------------------------------------------------------------------------------- -------------- ----- -------------
<S> <C> <C>
Options outstanding as of January 1, 1997 2.1 $ 10.36
Options granted 3.1 $ 18.24
Options exercised (0.3) $ 9.64
- - ---------------------------------------------------------------------------------- -------------- ----- -------------
Options outstanding as of December 31, 1997 4.9 $ 15.39
Options granted 3.2 $ 12.23
Options exercised (0.2) $ 8.53
Options expired or canceled (2.8) $ 18.52
- - ---------------------------------------------------------------------------------- -------------- ----- -------------
Options outstanding as of December 31, 1998 5.1 $ 12.05
Options granted 1.0 $ 6.57
Options expired or canceled (0.2) $ 11.81
- - ---------------------------------------------------------------------------------- -------------- ----- -------------
Options outstanding as of December 31, 1999 5.9 $ 11.18
- - ---------------------------------------------------------------------------------- -------------- ----- -------------
<FN>
The number of options exercisable as of December 31, 1999, 1998 and 1997
were 2.1, 1.5 and 1.2, respectively, at a weighted average exercise price per
share of $12.02, $11.54 and $9.80, respectively.
</FN>
</TABLE>
The following table summarizes information about stock options outstanding
as of December 31, 1999:
<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>
$ 4.18 - 4.75 0.2 4.9 $ 4.58 0.2 $ 4.58
$ 4.76 - 10.00 1.8 8.7 $ 7.19 0.4 $ 7.81
$ 10.01 - 15.00 3.2 7.9 $ 12.14 1.1 $ 12.45
$ 15.01 - 20.00 0.6 6.5 $ 16.80 0.4 $ 16.71
$ 20.01 - 29.63 0.1 8.0 $ 23.98 - $ 23.99
- - ----- ---------------------- ---------------- ------------------ ----- ------------ ---------------- ---- ------------
$ 4.18 - 29.63 5.9 7.9 $ 11.18 2.1 $ 12.02
- - ----- ---------------------- ---------------- ------------------ ----- ------------ ---------------- ---- ------------
</TABLE>
Employee Stock Purchase Plan ("ESPP")
Hexcel maintains an ESPP, under which 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. The maximum number of common stock reserved
for issuance under the ESPP is 0.2. During 1999, 1998 and 1997, an aggregate
total of 0.1 shares of common stock were issued under the ESPP.
72
<PAGE>
Pro Forma Disclosures
The Company has elected to continue to follow APB Opinion No. 25 for
accounting for its stock-based incentive plans. Had compensation expense for the
Company's stock option plans been determined as prescribed by SFAS 123, pro
forma net income (loss) and related per share amounts would have been as
follows:
<TABLE>
<CAPTION>
- - ----------------------------------------------------------------- ---------------- --------------- ----------------
1999 1998 1997
- - ----------------------------------------------------------------- ---- ----------- --- ----------- --- ------------
Net income (loss):
<S> <C> <C> <C>
As reported $ (23.3) $ 50.4 $ 73.6
Pro forma (25.8) 48.2 67.4
Basic net income (loss) per share:
As reported $ (0.64) $ 1.38 $ 2.00
Pro forma (0.71) 1.31 1.83
Diluted net income (loss) per share:
As reported $ (0.64) $ 1.24 $ 1.74
Pro forma (0.71) 1.19 1.60
- - ----------------------------------------------------------------- ---- ----------- --- ----------- --- ------------
</TABLE>
The weighted average fair value of options granted during 1999, 1998 and
1997 was $6.57, $12.23 and $18.24, respectively. The following ranges of
assumptions were used in the Black-Scholes pricing models for options granted in
1999, 1998 and 1997: risk-free interest of 4.9% to 5.6%; estimated volatility of
40% to 50%; dividend yield of 0.0%; and an expected life of 4 to 5 years.
Note 13 - Net Income (Loss) Per Share
Computations of basic and diluted net income (loss) per share for the years
ended December 31, 1999, 1998 and 1997, are as follows:
<TABLE>
<CAPTION>
- - ---------------------------------------------------------------- ----------------- ---------------- -----------------
1999 1998 1997
- - ---------------------------------------------------------------- ---- ------------ ---- ----------- ----- -----------
<S> <C> <C> <C>
Basic net income (loss) per share:
Net income (loss) $ (23.3) $ 50.4 $ 73.6
- - ---------------------------------------------------------------- ---- ------------ ---- ----------- ----- -----------
Weighted average common shares outstanding 36.4 36.7 36.7
- - ---------------------------------------------------------------- ---- ------------ ---- ----------- ----- -----------
Basic net income (loss) per share $ (0.64) $ 1.38 $ 2.00
- - ---------------------------------------------------------------- ---- ------------ ---- ----------- ----- -----------
Diluted net income (loss) per share:
Net income (loss) $ (23.3) $ 50.4 $ 73.6
Effect of dilutive securities:
Convertible subordinated notes, due 2003 - 5.1 5.1
Convertible subordinated debentures, due 2011 - 1.1 1.1
- - ---------------------------------------------------------------- ---- ------------ ---- ----------- ----- -----------
Adjusted net income (loss) $ (23.3) $ 56.6 $ 79.8
- - ---------------------------------------------------------------- ---- ------------ ---- ----------- ----- -----------
Weighted average common shares outstanding 36.4 36.7 36.7
Effect of dilutive securities:
Stock options - 0.9 1.2
Convertible subordinated notes, due 2003 - 7.2 7.2
Convertible subordinated debentures, due 2011 - 0.9 0.9
- - ---------------------------------------------------------------- ---- ------------ ---- ----------- ----- -----------
Diluted weighted average common shares outstanding 36.4 45.7 46.0
- - ---------------------------------------------------------------- ---- ------------ ---- ----------- ----- -----------
Diluted net income (loss) per share $ (0.64) $ 1.24 $ 1.74
- - ---------------------------------------------------------------- ---- ------------ ---- ----------- ----- -----------
</TABLE>
The convertible subordinated notes, due 2003, the convertible subordinated
debentures, due 2011, and the stock options were excluded from the 1999
computation of diluted net loss per share, as they were antidilutive.
Substantially all of the Company's stock options were included in the
calculation of the diluted net income per share for the years ended December 31,
1998 and 1997.
73
<PAGE>
Note 14 - Contingencies
Hexcel is involved in litigation, investigations and claims arising out of
the conduct of its business, including those relating to commercial
transactions, as well as to environmental, health and safety matters. The
Company estimates and accrues 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 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 it has limited or no liability for cleanup costs at these
sites, and intends to vigorously defend itself in these matters.
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.
Hexcel was 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 Company's Kent, Washington, site
by the U.S. Environmental Protection Agency. Under the terms of the cost-sharing
agreement, the Company was obligated to reimburse the previous owner for a
portion of the cost of the required remediation activities. Management has
determined that the cost-sharing agreement terminated on December 22, 1998;
however, the other party disputes this determination. The Company's estimate of
the remaining costs associated with the cleanup of this site is accrued in the
accompanying consolidated balance sheets.
Other Proceedings
Hexcel is aware of a grand jury investigation being conducted by the
Antitrust Division of the United States Department of Justice with respect to
the carbon fiber and carbon fiber prepreg industries. The Department of Justice
appears to be reviewing the pricing of all manufacturers of carbon fiber and
carbon fiber prepreg since 1993. The Company, along with other manufacturers of
these products, has received a grand jury subpoena requiring production of
documents to the Department of Justice. The Company is not in a position to
predict the direction or outcome of the investigation; however, it is
cooperating with the Department of Justice.
In 1999, Hexcel was joined in a purported class action lawsuit alleging
antitrust violations in the sale of carbon fiber, carbon fiber industrial
fabrics and carbon fiber prepreg. The Company was one of many manufacturers
joined in the lawsuit, which was spawned from the Department of Justice
investigation. The lawsuit is in its preliminary stage and the Company is not in
a position to predict the outcome, but believes that the lawsuit is without
merit as to the Company.
74
<PAGE>
Note 15 - Supplemental Cash Flow Information
Supplemental cash flow information, including non-cash financing and
investing activities, for the years ended December 31, 1999, 1998 and 1997,
consist of the following:
<TABLE>
<CAPTION>
- - ---------------------------------------------------------------- ----------------- ---------------- -----------------
1999 1998 1997
- - ---------------------------------------------------------------- ----------------- ---------------- -----------------
<S> <C> <C> <C>
Cash paid for:
Interest $ 59.1 $ 28.8 $ 22.3
Taxes 17.7 26.4 3.9
- - ---------------------------------------------------------------- ----- ----------- ---- ----------- ----- -----------
Non-cash items:
Common stock issued under incentive plans 0.7 1.9 3.3
Conversion of senior subordinated notes, due 2003 - 0.1 0.1
Capital lease obligation in connection with the
acquisition of the Clark-Schwebel business - 50.0 -
- - ---------------------------------------------------------------- ----- ----------- ---- ----------- ----- -----------
</TABLE>
Note 16 - Segment Information
Hexcel's business segments and related products are as follows:
Reinforcement Products: This segment manufactures and sells carbon fibers
and carbon, glass and aramid fiber fabrics. These reinforcement products
comprise the foundation of most composite materials, parts and structures. The
segment weaves electronic fiberglass fabrics that are a substrate for printed
circuit boards. All of the Company's electronics sales come from reinforcement
fabric sales. This segment also sells products for industrial applications such
as decorative blinds and soft body armor. In addition, this segment sells to the
Company's Composite Materials business segment, and to other third-party
customers in the commercial aerospace and space and defense markets. Sales from
the acquired Clark-Schwebel business are included in this business segment.
Composite Materials: This segment manufactures and sells composite
materials, including prepregs, honeycomb, structural adhesives, sandwich panels
and specially machined honeycomb parts, primarily to the commercial aerospace
and space and defense markets, as well as to industrial markets. This segment
also sells to the Company's Engineered Products business segment.
Engineered Products: This segment manufactures and sells a range of
lightweight, high-strength composite structures and interiors, primarily to the
commercial aerospace and space and defense markets. In December 1999, the
Company announced its intention to explore strategic alternatives for its
Engineered Products business segment, including a possible sale.
The financial results for Hexcel's business segments have been prepared
using a management approach, which is consistent with the basis and manner in
which Hexcel management internally segregates financial information for the
purposes of assisting in making internal operating decisions. Hexcel evaluates
performance based on adjusted income before BA&C expenses, interest and taxes
("Adjusted EBIT"), and generally accounts for intersegment sales based on
arm's-length prices. Corporate and other expenses are not allocated to the
business segments, except to the extent that the expenses can be directly
attributable to the business segments.
75
<PAGE>
The following table presents financial information on the Company's
business segments as of December 31, 1999, 1998 and 1997, and for the years then
ended:
<TABLE>
<CAPTION>
- - ----------------------------------------------------------------------------------------------------------------------
Reinforcement Composite Engineered
Products Materials Products Total
- - ----------------------------------------------------------------------------------------------------------------------
1999
- - ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales to external customers $ 330.9 $ 605.9 $ 214.7 $ 1,151.5
Intersegment sales 111.0 9.0 - 120.0
- - ----------------------------------------------------------------------------------------------------------------------
Total sales 441.9 614.9 214.7 1,271.5
Adjusted EBIT 33.7 68.0 22.4 124.1
Depreciation and amortization 34.4 20.3 3.5 58.2
Equity in income and write-down of
investments in affiliated companies 20.0 - - 20.0
BA&C expenses 6.7 9.7 1.6 18.0
BA&C payments 2.7 3.0 0.3 6.0
Segment assets 712.5 359.3 115.4 1,187.2
Investments in affiliated companies 54.0 - 4.7 58.7
Capital expenditures 14.0 16.1 5.0 35.1
- - ----------------------------------------------------------------------------------------------------------------------
1998
- - ----------------------------------------------------------------------------------------------------------------------
Net sales to external customers $ 224.8 $ 658.0 $ 206.2 $ 1,089.0
Intersegment sales 130.3 11.8 0.1 142.2
- - ----------------------------------------------------------------------------------------------------------------------
Total sales 355.1 669.8 206.3 1,231.2
Adjusted EBIT 57.4 82.7 20.5 160.6
Depreciation and amortization 23.6 17.4 3.3 44.3
Equity in income of affiliated companies 0.5 - - 0.5
BA&C expenses 1.6 3.2 5.5 10.3
BA&C payments 0.6 7.1 - 7.7
Segment assets 788.4 428.2 140.5 1,357.1
Investments in affiliated companies 70.3 - - 70.3
Capital expenditures 21.1 33.3 9.2 63.6
- - ----------------------------------------------------------------------------------------------------------------------
1997
- - ----------------------------------------------------------------------------------------------------------------------
Net sales to external customers $ 171.1 $ 581.0 $ 184.8 $ 936.9
Intersegment sales 124.7 16.7 - 141.4
- - ----------------------------------------------------------------------------------------------------------------------
Total sales 295.8 597.7 184.8 1,078.3
Adjusted EBIT 40.4 83.0 15.9 139.3
Depreciation and amortization 13.8 17.2 2.4 33.4
BA&C expenses 1.7 9.6 - 11.3
BA&C payments 2.8 16.8 - 19.6
Segment assets 221.3 416.2 125.5 763.0
Capital expenditures 23.4 22.8 8.2 54.4
- - ----------------------------------------------------------------------------------------------------------------------
</TABLE>
76
<PAGE>
Reconciliation of Reportable Segments to Consolidated Totals
Reconciliations of the totals reported for the operating segments to the
applicable line items in the Consolidated Financial Statements are as follows:
<TABLE>
<CAPTION>
- - ---------------------------------------------------------------- ----------------- ----------------- -----------------
1999 1998 1997
- - ---------------------------------------------------------------- ----------------- ----------------- -----------------
<S> <C> <C> <C>
Income before income taxes:
Total Adjusted EBIT for reportable segments $ 124.1 $ 160.6 $ 139.3
Less:
Total BA&C expenses for reportable segments 18.0 10.3 11.3
Corporate BA&C expenses 2.1 2.4 14.0
- - ---------------------------------------------------------------- --- ------------- --- ------------- ---- ------------
Total consolidated BA&C expenses 20.1 12.7 25.3
Corporate & other expenses 35.0 30.7 33.3
Interest expense 73.9 38.7 25.8
Eliminations 0.1 0.2 4.2
- - ---------------------------------------------------------------- --- ------------- --- ------------- ---- ------------
Consolidated income (loss) before income taxes (5.0) 78.3 50.7
- - ---------------------------------------------------------------- --- ------------- --- ------------- ---- ------------
Depreciation and amortization:
Total depreciation and amortization for reportable segments 58.2 44.3 33.4
Corporate depreciation and amortization 3.1 3.2 2.4
- - ---------------------------------------------------------------- --- ------------- --- ------------- ---- ------------
Total consolidated depreciation and amortization 61.3 47.5 35.8
- - ---------------------------------------------------------------- --- ------------- --- ------------- ---- ------------
Assets:
Total assets for reportable segments 1,187.2 1,357.1 763.0
Corporate assets 91.3 84.6 86.4
Eliminations (16.6) (37.5) (37.9)
- - ---------------------------------------------------------------- --- ------------- --- ------------- ---- ------------
Total consolidated assets 1,261.9 1,404.2 811.5
- - ---------------------------------------------------------------- ----------------- ----------------- -----------------
Capital expenditures:
Total capital expenditures for reportable segments 35.1 63.6 54.4
Corporate expenditures 0.5 2.9 3.0
- - ---------------------------------------------------------------- --- ------------- --- ------------- ---- ------------
Total consolidated capital expenditures 35.6 66.5 57.4
- - ---------------------------------------------------------------- --- ------------- --- ------------- ---- ------------
BA&C payments:
Total BA&C payments for reportable segments 6.0 7.7 19.6
Corporate BA&C payments 3.5 1.0 14.0
- - ---------------------------------------------------------------- --- ------------- --- ------------- ---- ------------
Total consolidated BA&C payments $ 9.5 $ 8.7 $ 33.6
- - ---------------------------------------------------------------- --- ------------- --- ------------- ---- ------------
</TABLE>
Geographic Data
Sales and long-lived assets, by geographic area, consisted of the following
for the three years ended December 31, 1999, 1998 and 1997:
<TABLE>
<CAPTION>
- - ---------------------------------------------------------------- ----------------- ----------------- -----------------
1999 1998 1997
- - ---------------------------------------------------------------- ----------------- ----------------- -----------------
<S> <C> <C> <C>
Net sales to external customers:
United States $ 744.1 $ 687.6 $ 598.6
International
France 168.1 178.8 165.7
United Kingdom 76.4 66.0 49.4
Other 162.9 156.6 123.2
- - ---------------------------------------------------------------- --- ------------- --- ------------- ---- ------------
Total international 407.4 401.4 338.3
- - ---------------------------------------------------------------- --- ------------- --- ------------- ---- ------------
Total consolidated net sales $ 1,151.5 $ 1,089.0 $ 936.9
- - ---------------------------------------------------------------- --- ------------- --- ------------- ---- ------------
</TABLE>
77
<PAGE>
<TABLE>
<CAPTION>
- - ---------------------------------------------------------------- ----------------- ----------------- -----------------
1999 1998 1997
- - ---------------------------------------------------------------- ----------------- ----------------- -----------------
<S> <C> <C> <C>
Long-lived assets:
United States $ 785.2 $ 831.4 $ 304.2
International
France 38.8 42.2 37.3
United Kingdom 50.0 46.4 43.1
Other 22.9 31.7 30.0
- - ---------------------------------------------------------------- --- ------------- --- ------------- ---- ------------
Total international 111.7 120.3 110.4
- - ---------------------------------------------------------------- --- ------------- --- ------------- ---- ------------
Total consolidated long-lived assets $ 896.9 $ 951.7 $ 414.6
- - ---------------------------------------------------------------- --- ------------- --- ------------- ---- ------------
</TABLE>
Net sales are attributed to geographic areas based on the location in which
the sale originated. U.S. net sales include U.S. exports to non-affiliates of
$91.4, $100.0 and $70.9, for the years ended December 31, 1999, 1998 and 1997,
respectively. Long-lived assets primarily consist of property, plant and
equipment, intangibles, investments in affiliated companies and other assets,
less long-term deferred tax assets.
Significant Customers
To the extent that the end application of net sales can be identified, The
Boeing Company and its subcontractors accounted for approximately 28%, 35% and
36% of 1999, 1998 and 1997 net sales, respectively. Similarly, the Airbus
Industrie consortium and its subcontractors accounted for approximately 10%, 11%
and 10% of 1999, 1998 and 1997 net sales, respectively.
Note 17 - Quarterly Financial Data (Unaudited)
Quarterly financial data for the years ended December 31, 1999 and 1998,
were:
<TABLE>
<CAPTION>
- - ----------------------------------------------- ---------------- ----------------- ---------------- -----------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
- - ----------------------------------------------- -- ------------- --- ------------- -- ------------- --- -------------
1999
- - ----------------------------------------------- -- ------------- --- ------------- -- ------------- --- -------------
<S> <C> <C> <C> <C>
Net sales $ 316.2 $ 292.6 $ 274.1 $ 268.6
Gross margin 70.7 66.3 51.5 54.0
BA&C expenses 2.8 1.4 13.6 2.3
Operating income 27.2 24.8 2.7 14.2
Net income (loss) 5.2 4.3 (30.1) (2.7)
- - ----------------------------------------------- -- ------------- --- ------------- -- ------------- --- -------------
Net income (loss) per share:
Basic $ 0.14 $ 0.12 $ (0.82) $ (0.07)
Diluted 0.14 0.12 (0.82) (0.07)
Dividends per share - - - -
- - ----------------------------------------------- -- ------------- --- ------------- -- ------------- --- -------------
Market price:
High $ 9.60 $ 11.38 $ 9.06 $ 6.06
Low 6.50 6.94 5.81 5.00
- - ----------------------------------------------- -- ------------- --- ------------- -- ------------- --- -------------
</TABLE>
78
<PAGE>
<TABLE>
<CAPTION>
- - ----------------------------------------------- ---------------- ----------------- -- ------------- -----------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
- - ----------------------------------------------- ---------------- ----------------- -- ------------- -----------------
1998
- - ----------------------------------------------- -- ------------- --- ------------- -- ------------- --- -------------
<S> <C> <C> <C> <C>
Net sales $ 256.7 $ 273.5 $ 255.3 $ 303.5
Gross margin 66.1 71.3 61.8 72.1
BA&C expenses - - 0.7 12.0
Operating income 33.7 38.2 27.5 17.6
Net income 17.0 20.0 11.5 1.9
- - ----------------------------------------------- -- ------------- --- ------------- -- ------------- --- -------------
Net income per share:
Basic $ 0.46 $ 0.54 $ 0.31 $ 0.05
Diluted 0.40 0.46 0.29 0.05
Dividends per share - - - -
- - ----------------------------------------------- -- ------------- --- ------------- -- ------------- --- -------------
Market price:
High $ 28.13 $ 31.38 $ 24.38 $ 14.19
Low 21.25 22.63 9.69 7.06
- - ----------------------------------------------- -- ------------- --- ------------- -- ------------- --- -------------
<FN>
Results for the quarters ended September 30, 1998 and December 31, 1998, as
well as each of the quarters in 1999, include the results of the acquired
Clark-Schwebel business, which was acquired on September 15, 1998.
</FN>
</TABLE>
79
<PAGE>
Exhibit 10.1(j)
THIRD AMENDMENT
THIRD AMENDMENT, dated as of March 7, 2000 (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 shall 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. DEFINED TERMS
1.1 Defined Terms. Unless otherwise defined herein,
capitalized terms which are defined in the Credit Agreement are used herein as
defined therein.
1.2 Amendment to subsection 1.1. Subsection 1.1 of the
Credit Agreement is hereby amended:
(a) by deleting therefrom the existing definition of "Leverage
Ratio" and by substituting therefor the following:
"Leverage Ratio": for any period of four consecutive fiscal
quarters, the ratio of (a)(i) Indebtedness of the Company and its
Subsidiaries on a consolidated basis as of the last day of such period
minus (ii) the lesser of (x) the aggregate amount of cash and Cash
Equivalents held by the Company and its Subsidiaries as of such last
day and (y) $10,000,000 to (b) EBITDA of the Company and its
Subsidiaries for such period.
(b) by deleting therefrom the existing definition of "Senior
Debt Leverage Ratio" and by substituting therefor the following:
"Senior Debt Leverage Ratio": for any period of four
consecutive fiscal quarters, the ratio of (a)(i) Senior Debt of the
Company and its Subsidiaries on a consolidated basis as of the last day
of such period minus (ii) the lesser of (x) the aggregate amount of
cash and Cash Equivalents held by the Company and its Subsidiaries as
of such last day and (y) $10,000,000 to (b) EBITDA of the Company and
its Subsidiaries for such period.
(c) by deleting therefrom in its entirety the table of
Leverage Ratios and Applicable Margins contained in the definition of the term
"Applicable Margin" contained therein and by substituting therefor the
following:
80
<PAGE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------
Applicable Margin
Tranche A Loans
Revolving Credit Loans
Swing Line Loans
European Revolving Loans Tranche B Loans
Euro-currency
Leverage Ratio Eurocurrency Loans ABR Loans
Loans ABR Loans
---------------------------------------- --------------------------------- ---------------------------
<S> <C> <C> <C> <C>
Greater than or equal to 5.0 to 1.0 250 b.p. 150 b.p. 300 b.p. 200 b.p.
Greater than or equal to 4.5 to 1.0, 225 b.p. 125 b.p. 275 b.p. 175 b.p.
but less than 5.0 to 1.0
Greater than or equal to 4.0 to 1.0, 200 b.p. 100 b.p. 250 b.p. 150 b.p.
but less than 4.5 to 1.0
Greater than or equal to 3.5 to 1.0, 175 b.p. 75 b.p. 250 b.p. 150 b.p.
but less than 4.0 to 1.0
Greater than or equal to 3.0 to 1.0, 125 b.p. 25 b.p. 200 b.p. 100 b.p.
but less than 3.5 to 1.0
Greater than or equal to 2.5 to 1.0, 87.5 b.p. 0 b.p. 175 b.p. 75 b.p.
but less than 3.0 to 1.0
Less than 2.5 to 1.0 75 b.p. 0 b.p. 175 b.p. 75 b.p.
------------------------------------------------------------------------------------------------------------
</TABLE>
(d) by deleting therefrom the existing definition of "Fixed
Charge Coverage Ratio" and by substituting therefor the following:
"Fixed Charge Coverage Ratio" means the ratio of (i) EBITDA of
the Company and its Subsidiaries for the most recently completed period
of four consecutive fiscal quarters, minus Capital Expenditures paid by
the Company and its Subsidiaries during such period (other than,
subsequent to the date of the Sale (as defined in the Third Amendment
to this Agreement) but prior to December 31, 2001, Capital Expenditures
in an amount not to exceed the Excess Net Proceeds (as defined in the
Third Amendment to this Agreement)), plus Net Proceeds of asset sales
received during such period to the extent not included in the
calculation of EBITDA for such period to (ii) Fixed Charges of the
Company and its Subsidiaries for such period.
SECTION II. CONSENT
2.1 Consent. Anything in subsection 14.6 of the Credit
Agreement to the contrary notwithstanding, the Lenders hereby consent to the
sale on or before September 30, 2000 by the Company of its Engineered Products
Division (the "Division") for consideration which shall include a cash portion
in an amount not less than $150 million of Net Proceeds (the "Sale"); provided
that, anything in subsection 10.5 of the Credit Agreement to the contrary
notwithstanding, (i) on the date of the completion of the Sale, the Borrower
applies the first $150 million of the cash Net Proceeds thereof to prepay the
Tranche A Loans and the Tranche B Loans ratably according to the respective
aggregate then outstanding principal amounts thereof, (ii) with respect to any
amount of such Net Proceeds that is in excess of $150 million (the "Excess Net
Proceeds"), (x) such Excess Net Proceeds shall be available to the Company for
general corporate purposes, including Capital Expenditures and, notwithstanding
the provisions of subsection 14.14 of the Credit Agreement, the prepayment,
repurchase or retirement of Permitted Subordinated Indebtedness, (y) no other
prepayment or Commitment reduction under the Credit Agreement shall be required
as a result of the receipt of the Excess Net Proceeds and (z) with respect to
subsection 10.5(g)(x), such Excess Net Proceeds shall not be considered as part
of the first $25,000,000 of Net Proceeds derived from any Net Proceeds Event and
(iii) for purposes of calculating compliance with the financial covenants
contained in subsection 14.1, for any period in which the Sale is completed, the
Sale and the repayment of any Indebtedness in connection therewith shall be
deemed to have been completed on the first day of such period.
2.2 Release. The Lenders and the Borrowers hereby acknowledge
and agree that, notwithstanding anything to the contrary contained in the Credit
Documents, all of the assets of the Division sold in connection with the Sale
shall, effective simultaneously with the closing of the Sale in accordance with
Section 2.1 of this Amendment, be released from the Liens granted pursuant to
the Credit Documents. Each Lender authorizes and instructs each of the
Administrative Agent and the Documentation Agent to take, and the Administrative
Agent and Documentation Agent shall take, such action as the Company may
reasonably request to evidence such release.
2.3 Consent. Anything in subsection 14.6 of the Credit
Agreement to the contrary notwithstanding, the Lenders hereby consent to the
sale, transfer or other disposition of all or substantially all of the Capital
Stock or assets of CS Interglas AG for fair market value; provided that the Net
Proceeds from such sale, transfer or other disposition are applied in accordance
with the provisions of subsection 10.5(g) of the Credit Agreement.
81
<PAGE>
SECTION III. INITIAL AMENDMENTS
3.1 Financial Covenant Amendments. The Lenders and the
Borrowers hereby agree that on the Effective Date (as defined below) subsection
14.1 of the Credit Agreement shall be amended to read as follows:
"14.1 Financial Condition Covenants .
(a) Minimum Interest Coverage Ratio. Permit the Interest
Coverage 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 less than the ratio set forth opposite such period:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------
Period Ratio
---------------------------------------------------- -------------------
<S> <C>
January 1, 2000 - March 31, 2000 1.80 to 1.0
April 1, 2000 - June 30, 2000 1.80 to 1.0
July 1, 2000 - September 30, 2000 1.80 to 1.0
October 1, 2000 - December 31, 2000 1.85 to 1.0
January 1, 2001 - thereafter 2.50 to 1.0
----------------------------------------------------------------------------
</TABLE>
(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>
January 1, 2000 - March 31, 2000 6.15 to 1.0
April 1, 2000 - June 30, 2000 6.15 to 1.0
July 1, 2000 - September 30, 2000 6.15 to 1.0
October 1, 2000 - December 31, 2000 5.75 to 1.0
January 1, 2001 - March 31, 2001 5.00 to 1.0
April 1, 2001 - June 30, 2001 4.75 to 1.0
July 1, 2001 - thereafter 4.50 to 1.0
----------------------------------------------------------------------------
</TABLE>
(c) Minimum Fixed Charge Coverage Ratio. Permit the Fixed
Charge Coverage 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 less than the ratio set forth opposite such period:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------
Period Ratio
----------------------------------------------------- -------------------
<S> <C>
January 1, 2000 - March 31, 2000 1.00 to 1.0
April 1, 2000 - June 30, 2000 1.00 to 1.0
July 1, 2000 - September 30, 2000 1.00 to 1.0
October 1, 2000 - December 31, 2000 1.00 to 1.0
January 1, 2001 - thereafter 1.20 to 1.0
----------------------------------------------------------------------------
</TABLE>
(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>
January 1, 2000 - March 31, 2000 3.10 to 1.0
April 1, 2000 - June 30, 2000 3.10 to 1.0
July 1, 2000 - September 30, 2000 3.00 to 1.0
October 1, 2000 - December 31, 2000 2.75 to 1.0
January 1, 2001 - June 30, 2001 2.50 to 1.0
July 1, 2001 - thereafter 2.25 to 1.0
----------------------------------------------------------------------------
</TABLE>
3.2 Amendment to Section 13: Section 13 of the Credit
Agreement is hereby amended by inserting the following new subsection 13.10:
82
<PAGE>
13.10 Real Property Mortgage. If by September 30, 2000 the
Company shall not have completed the sale of its Engineered Products
Division for cash in an amount not less than $150 million and satisfied
the other requirements of Section 2.1 of the Third Amendment to the
Credit Agreement, as soon as practicable after September 30, 2000, (a)
execute and deliver a first priority mortgage (other than with respect
to Liens permitted by subsection 14.3 of this Agreement) to secure the
Obligations in form and substance satisfactory to the Documentation
Agent in favor of the Documentation Agent, for the benefit of the
Lenders, covering each parcel of real property then owned in fee by the
Company or its Subsidiary Guarantors, which are Domestic Subsidiaries,
having a fair market value in excess of $1,000,000, (b) provide the
Lenders with title reports covering such interest in real property, in
form and substance reasonably satisfactory to the Documentation Agent,
(c) use reasonable best efforts to obtain any consents or estoppels
reasonably deemed necessary or advisable by the Documentation Agent in
connection with such mortgage or deed of trust, in form and substance
reasonably satisfactory to the Documentation Agent and (d) if requested
by the Documentation Agent, deliver to the Documentation Agent legal
opinions relating to the matters described above, which opinions shall
be in form and substance, and from counsel, reasonably satisfactory to
the Documentation Agent. The real property mortgages referred to in
this subsection 13.10 shall secure the Obligations; provided that, if a
tax shall be imposed on the recording of a mortgage referred to in this
subsection, any such mortgage shall be limited to an amount equal to
100% of the fair market value of the applicable property."
3.3 Commitment Reductions. The Lenders and the Borrowers
hereby agree that on the Effective Date (i) the Aggregate European Loan
Commitment in effect on the Effective Date shall be reduced, in accordance with
subsection 10.11(a) of the Credit Agreement, by $15,000,000, (ii) the Aggregate
Revolving Credit Commitment in effect on the Effective Date shall be reduced, in
accordance with subsection 10.11(a) of the Credit Agreement, by $110,000,000 and
(iii) the Borrowers will comply with the requirements of subsection 10.5 of the
Credit Agreement in connection therewith.
SECTION IV. CONDITIONAL AMENDMENTS
The Lenders and the Borrowers hereby agree that, if the sale
of the Division as specified in Section 2.1 of this Amendment shall have
occurred after the date hereof but on or before September 30, 2000, subsection
14.1 of the Credit Agreement shall be further amended, effective simultaneously
with the closing of the sale of the Division, to read as follows:
"14.1 Financial Condition Covenants .
(a) Minimum Interest Coverage Ratio. Permit the Interest
Coverage 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 less than the ratio set forth opposite such period:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------
Period Ratio
---------------------------------------------------- -------------------
<S> <C>
January 1, 2000 - March 31, 2000 1.85 to 1.0
April 1, 2000 - June 30, 2000 1.85 to 1.0
July 1, 2000 - September 30, 2000 1.85 to 1.0
October 1, 2000 - December 31, 2000 1.85 to 1.0
January 1, 2001 - March 31, 2001 2.00 to 1.0
April 1, 2001 - June 30, 2001 2.00 to 1.0
July 1, 2001 - September 30, 2001 2.25 to 1.0
October 1, 2001 - December 31, 2001 2.25 to 1.0
January 1, 2002 - thereafter 2.50 to 1.0
----------------------------------------------------------------------------
</TABLE>
(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>
January 1, 2000 - March 31, 2000 6.15 to 1.0
April 1, 2000 - June 30, 2000 6.15 to 1.0
July 1, 2000 - September 30, 2000 6.00 to 1.0
October 1, 2000 - December 31, 2000 5.75 to 1.0
January 1, 2001 - March 31, 2001 5.50 to 1.0
April 1, 2001 - June 30, 2001 5.25 to 1.0
July 1, 2001 - September 30, 2001 5.00 to 1.0
October 1, 2001 - December 31, 2001 4.75 to 1.0
January 1, 2002 - thereafter 4.50 to 1.0
----------------------------------------------------------------------------
</TABLE>
83
<PAGE>
(c) Minimum Fixed Charge Coverage Ratio. Permit the Fixed
Charge Coverage 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 less than the ratio set forth opposite such period:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------
Period Ratio
----------------------------------------------------- -------------------
<S> <C>
January 1, 2000 - March 31, 2000 1.00 to 1.0
April 1, 2000 - June 30, 2000 1.00 to 1.0
July 1, 2000 - September 30, 2000 1.00 to 1.0
October 1, 2000 - December 31, 2000 1.00 to 1.0
January 1, 2001 - March 31, 2001 1.15 to 1.0
April 1, 2001 - June 30, 2001 1.15 to 1.0
July 1, 2001 - September 30, 2001 1.15 to 1.0
October 1, 2001 - December 31, 2001 1.15 to 1.0
January 1, 2002 - thereafter 1.20 to 1.0
----------------------------------------------------------------------------
</TABLE>
(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>
January 1, 2000 - March 31, 2000 2.75 to 1.0
April 1, 2000 - June 30, 2000 2.75 to 1.0
July 1, 2000 - September 30, 2000 2.75 to 1.0
October 1, 2000 - December 31, 2000 2.50 to 1.0
January 1, 2001 - March 31, 2001 2.25 to 1.0
April 1, 2001 - June 30, 2001 2.25 to 1.0
July 1, 2001 - September 30, 2001 2.25 to 1.0
October 1, 2001 - December 31, 2001 2.25 to 1.0
January 1, 2002 - thereafter 2.00 to 1.0
---------------------------------------------------------------------------
</TABLE>
SECTION V. MISCELLANEOUS
5.1 Conditions to Effectiveness of Amendment. This Amendment
shall become effective (as of the date first set forth) above on the date (the
"Effective Date") upon:
(a) the Administrative Agent having received counterparts hereof,
duly executed and delivered by each Borrower, the Documentation Agent,
the Administrative Agent, each Subsidiary Guarantor and the Majority
Lenders;
(b) the Company having paid to the Administrative Agent the
Amendment Fee specified in subsection 5.2 of this Amendment;
(c) the Documentation Agent having received counterparts of the
Amended and Restated Collateral Agreement, duly executed and delivered
by the Company and each Subsidiary Guarantor, in a form reasonably
satisfactory to the Administrative Agent and the Company;
(d) the Documentation Agent having received the results of a
recent lien search in each of the jurisdictions where Collateral of
the Company or its Subsidiary Guarantors, which are Domestic
Subsidiaries, is located, and such search having revealed no liens on
any of the Collateral of the Company or such Subsidiary Guarantors
except for liens permitted by subsection 14.3 of the Credit Agreement
or discharged on or prior to the Effective Date pursuant to
documentation satisfactory to the Documentation Agent; and
(e) each document (including any Uniform Commercial Code
financing statement) required by the Security Documents or under law
or reasonably requested by the Documentation Agent to be filed,
registered or recorded in order to create in favor of the
Documentation Agent, for the benefit of the Lenders, a perfected Lien
on the Collateral described therein, prior and superior in right to
any other Person (other than with respect to Liens expressly permitted
by subsection 14.3 of the Credit Agreement) shall be in proper form
for filing, registration or recordation.
5.2 Amendment Fee. The Company shall pay to the Administrative
Agent, for the account of each Lender executing this Amendment on or before
March 7, 2000, an amendment fee (the "Amendment Fee") equal to 12.5 b.p. 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, in the case of Tranche A Loans and Tranche B Loans. Such
Amendment Fee shall be calculated immediately prior to the effectiveness of this
Amendment and shall be payable on the Effective Date.
84
<PAGE>
5.3 Representations and Warranties. The Company, as of the
date hereof and after giving effect to the amendments and consent 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.
5.4 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.
5.5 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.
5.6 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.
IN WITNESS WHEREOF, the parties hereto have caused this Third
Amendment to be duly executed and delivered by their respective proper and duly
authorized officers as of the day and year first above written.
85
<PAGE>
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)
HEXCEL COMPOSITES GMBH (Austria)
HEXCEL COMPOSITES S.A. (Spain)
HEXCEL COMPOSITES GMBH (Germany)
By:
Title:
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:
CREDIT SUISSE FIRST BOSTON, as a Lender
By:
Title:
By:
Title:
AERIES FINANCE II LTD.
By: INVESCO Senior Secured Management, Inc., as Sub-Managing Agent
By:
Title:
AMARA 2 FINANCE, LTD.
By: INVESCO Senior Secured Managment, Inc., as Sub-Adviser
By:
Title:
ARCHIMEDES FUNDING II, Ltd.
By: ING CAPITAL ADVISORS LLC, as Collateral Manager
By:
Title:
BALANCED HIGH-YIELD FUND I LTD.
By: BHF (USA) CAPITAL CORPORATION, as attorney-in-fact
By:
Title:
By:
Title:
THE BANK OF NEW YORK
By:
Title:
BANK ONE, NA
86
<PAGE>
By:
Title:
BANQUE NATIONALE DE PARIS
By:
Title:
By:
Title:
BANQUE WORMS CAPITAL CORPORATION
By:
Title:
By:
Title:
BATTERSON PARK CBO 1
By: GENERAL RE - NEW ENGLAND ASSET MANAGEMENT, INC., as Collateral Manager
By:
Title:
CAPTIVA FINANCE LTD.
By:
Title:
CAPTIVA II FINANCE LTD
By:
Title:
CERES FINANCE LTD.
By: INVESCO Senior Secured Management, Inc., as Sub-Managing Agent
By:
Title
THE CHASE MANHATTAN BANK
By:
Title:
CHAIO TUNG BANK CO., NEW YORK AGENCY
By:
Title:
CREDIT AGRICOLE INDOSUEZ
By:
Title:
By:
Title:
CREDIT LYONNAIS NEW YORK BRANCH
By:
Title:
CYPRESSTREE SENIOR FLOATING RATE FUND
By: CYPRESSTREE INVESTMENT MANAGEMENT COMPANY, INC., as Portfolio Manager
By:
Title:
CYPRESSTREE INVESTMENT FUND, LLC
By: CYPRESSTREE INVESTMENT MANAGEMENT COMPANY, INC., its Managing Member
87
<PAGE>
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:
DEUTSCHE BANK AG NEW YORK BRANCH AND/OR CAYMAN ISLANDS BRANCH
By:
Title:
By:
Title:
ERSTE BANK
By:
Title:
By:
Title:
FIRST UNION NATIONAL BANK
By:
Title:
GALAXY CLO 1999-1, LTD.
By:
Title:
GENERAL ELECTRIC CAPITAL CORPORATION
By:
Title:
THE INDUSTRIAL BANK OF JAPAN, LIMITED, NEW YORK BRANCH
By:
Title:
KEYBANK NATIONAL ASSOCIATION
By:
Title:
KZH CYPRESSTREE-1 LLC
88
<PAGE>
By:
Title:
KZH ING-2 LLC
By:
Title:
KZH ING-3 LLC
By:
Title:
KZH SHOSHONE LLC
By:
Title:
KZH WATERSIDE LLC
By:
Title:
MERITA BANK Plc
By:
Title:
By:
Title:
METROPOLITAN LIFE INSURANCE COMPANY
By:
Title:
MORGAN GUARANTY TRUST COMPANY OF NEW YORK
By:
Title:
NORTH AMERICAN SENIOR FLOATING RATE FUND
By: CYPRESSTREE INVESTMENT MANAGEMENT COMPANY, INC., as Portfolio Manager
By:
Title:
OXFORD STRATEGIC INCOME FUND
By: EATON VANCE MANAGEMENT, as Investment Advisor
By:
Title:
SENIOR DEBT PORTFOLIO
By: BOSTON MANAGEMENT AND RESEARCH, as Investment Advisor
By:
Title:
SOCIETE GENERALE
By:
Title:
STRATA FUNDING, LTD.
By: INVESCO Senior Secured Management, Inc., as Sub-Managing Agent
89
<PAGE>
By:
Title:
UNION BANK OF CALIFORNIA, N.A.
By:
Title:
VAN KAMPEN SENIOR FLOATING RATE FUND
By: VAN KAMPAN INVESTMENT ADVISORY CORP.
By:
Title:
WACHOVIA BANK, N.A.
By:
Title
90
The undersigned Subsidiary Guarantors do hereby consent and agree to
the execution and delivery of this Amendment:
HEXCEL INTERNATIONAL
HEXCEL OMEGA CORPORATION
HEXCEL BETA CORP.
CLARK-SCHWEBEL HOLDING CORP.
CLARK-SCHWEBEL CORPORATION
CS TECH-FAB HOLDING, INC.
By:
Title:
91
<PAGE>
Exhibit 10.1(k)
AMENDED AND RESTATED COLLATERAL AGREEMENT
AMENDED AND RESTATED COLLATERAL AGREEMENT, dated as of March
7, 2000, made by each of the signatories hereto (together with any other entity
that may become a party hereto as provided herein, the "Grantors"), in favor of
CITIBANK, N.A., as Documentation Agent (in such capacity, the "Documentation
Agent") for the banks and other financial institutions (the "Lenders") from time
to time parties 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 Lenders, the Documentation Agent and Credit Suisse First
Boston, as Administrative Agent (the "Administrative Agent").
W I T N E S S E T H:
WHEREAS, the Lenders have agreed to make extensions of credit
from time to time to the Borrowers pursuant to the Credit Agreement;
WHEREAS, each Grantor will directly and indirectly benefit
from the loans and other financial accommodations made to the Borrowers pursuant
to the Credit Agreement;
WHEREAS, the Grantors are parties to the Collateral Agreement,
dated as of September 15, 1998 (as amended, supplemented or otherwise modified
from time to time, the "Existing Collateral Agreement"), with the Documentation
Agent;
WHEREAS, it is a condition precedent to the effectiveness of
the Third Amendment to the Credit Agreement that the Grantors execute and
deliver this Agreement;
WHEREAS, the parties to the Existing Collateral Agreement
desire to amend the Existing Collateral Agreement, but only upon the terms and
subject to the conditions set forth herein, and each of the parties to the
Existing Collateral Agreement, for convenience of reference, has agreed to
restate the Existing Collateral Agreement as so amended; and
WHEREAS, each of the parties hereto is agreeable to the terms
and provisions of the Existing Collateral Agreement as amended and restated
hereby;
NOW, THEREFORE, in consideration of the premises and mutual
covenants herein contained, the parties to the Existing Collateral Agreement
agree that the Existing Collateral Agreement shall be and hereby is amended and
restated in its entirety and the parties hereto hereby agree as follows:
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SECTION 1. DEFINED TERMS
1.1 Definitions. (a) Unless otherwise defined herein, terms
defined in the Credit Agreement and used herein shall have the meanings
given to them in the Credit Agreement, and the following terms are used
herein as defined in the New York UCC: Accounts, Certificated Security,
Chattel Paper, Equipment, Instruments and Inventory.
(b) The following terms shall have the following meanings:
"Agents": collectively, the Administrative Agent and the
Documentation Agent.
"Agreement": this Amended and Restated Collateral Agreement,
as the same may be amended, supplemented or otherwise modified from
time to time.
"Collateral": as defined in Section 3.
"Collateral Account": any collateral account established by
the Documentation Agent as provided in Section 6.1 or 6.4.
"Guarantors": the collective reference to the Company and
the Subsidiary Guarantors.
"Intercompany Note": each note identified on Schedule 3 and
any promissory note evidencing loans made by the Company or any of its
Subsidiaries (other than AcquisitionCo or any of its Subsidiaries) to
AcquisitionCo or any of its Subsidiaries from the proceeds of the
Tranche A Loans and Tranche B Loans and any portion of the Revolving
Loans and the European Loans used to finance the Acquisition.
"Investment Property": all Pledged Stock and all Pledged
Notes.
"Issuers": the collective reference to each Grantor's
Material Subsidiaries which are organized under the laws of any
jurisdiction within the United States of America (other than any such
Subsidiary whose sole purpose is holding the Capital Stock of one or
more of the Company's Foreign Subsidiaries) and are required to be
Grantors hereunder in accordance with Section 13.9 of the Credit
Agreement.
"New York UCC": the Uniform Commercial Code as from time to
time in effect in the State of New York.
"Obligations": as defined in the Credit Agreement.
"Pledged Notes": all Intercompany Notes at any time issued
to any Grantor.
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"Pledged Stock": the shares of Capital Stock listed on
Schedule 2, together with any other shares, stock certificates,
options or rights of any nature whatsoever in respect of the Capital
Stock of any Issuer that may be issued or granted to, or held by, any
Grantor while this Agreement is in effect.
"Proceeds": all "proceeds" as such term is defined in
Section 9-306(1) of the New York UCC and, in any event, shall include,
without limitation, all dividends or other income from the Investment
Property, collections thereon or distributions or payments with
respect thereto.
"Receivable": any right to payment for goods sold or leased
or for services rendered, whether or not such right is evidenced by an
Instrument or Chattel Paper and whether or not it has been earned by
performance (including, without limitation, any Account).
"Securities Act": the Securities Act of 1933, as amended.
1.2 Other Definitional Provisions. (a) The words "hereof,"
"herein", "hereto" and "hereunder" and words of similar import when used in this
Agreement shall refer to this Agreement as a whole and not to any particular
provision of this Agreement, and Section and Schedule references are to this
Agreement unless otherwise specified.
(b) The meanings given to terms defined herein shall be
equally applicable to both the singular and plural forms of such terms.
(c) Where the context requires, terms relating to the
Collateral or any part thereof, when used in relation to a Grantor, shall refer
to such Grantor's Collateral or the relevant part thereof.
SECTION 2. GUARANTEE
2.1 Guarantee. (a) The Company hereby irrevocably and
unconditionally guarantees to the Documentation Agent, for the benefit of the
Agents and the Lenders (and their affiliates and subsidiaries which hold
Obligations), the full and prompt payment when due (whether at maturity or
earlier, by reason of acceleration or otherwise, and at all times thereafter) of
the Obligations of the Foreign Borrowers (including, without limitation,
interest accruing following the commencement of any insolvency or bankruptcy
case or proceeding or other similar case or proceeding in respect of any Foreign
Borrower, at the applicable rate specified in the Credit Agreement, whether or
not such interest is allowed as a claim in such case or proceeding).
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(b) Each Subsidiary Guarantor jointly and severally hereby
irrevocably and unconditionally guarantees to the Documentation Agent, for the
benefit of the Agents and the Lenders (and their affiliates and subsidiaries
which hold Obligations), the full and prompt payment when due (whether at
maturity or earlier, by reason of acceleration or otherwise, and at all times
thereafter) of the Obligations (including, without limitation, interest accruing
following the commencement of any insolvency or bankruptcy case or proceeding or
other similar case or proceeding in respect of any Borrower, at the applicable
rate specified in the Credit Agreement, whether or not such interest is allowed
as a claim in such case or proceeding).
(c) Anything herein or in any other Credit Document to the
contrary notwithstanding, the maximum liability of each Guarantor hereunder and
under the other Credit Documents shall in no event exceed the amount which can
be guaranteed by such Guarantor under applicable federal and state laws relating
to the insolvency of debtors (after giving effect to the right of contribution
established in Section 2.2).
(d) Each Guarantor agrees that the Obligations may at any time
and from time to time exceed the amount of the liability of such Guarantor
hereunder without impairing the guarantee contained in this Section 2 or
affecting the rights and remedies of either Agent or any Lender hereunder.
(e) The guarantee contained in this Section 2 shall remain in
full force and effect until all the Obligations (including, without limitation,
the obligations of each Guarantor under this Agreement) shall have been
satisfied by payment in full, no Letter of Credit shall be outstanding and the
Commitments shall be terminated, notwithstanding that from time to time during
the term of the Credit Agreement the Borrowers may be free from any Obligations.
(f) No payment made by the Borrowers, any of the Guarantors,
any other guarantor or any other Person or received or collected by the
Documentation Agent, the Administrative Agent or any Lender from any of the
Borrowers, any of the Guarantors, any other guarantor or any other Person by
virtue of any action or proceeding or any set-off or appropriation or
application at any time or from time to time in reduction of or in payment of
the Obligations shall be deemed to modify, reduce, release or otherwise affect
the liability of any Guarantor hereunder which shall, notwithstanding any such
payment (other than any payment made by such Guarantor in respect of the
Obligations or any payment received or collected from such Guarantor in respect
of the Obligations), remain liable for the Obligations up to the maximum
liability of such Guarantor hereunder until the Obligations are paid in full, no
Letter of Credit shall be outstanding and the Commitments are terminated.
2.2 Right of Contribution. Each Guarantor hereby agrees that
to the extent that a Guarantor shall have paid more than its proportionate share
of any payment made hereunder, such Guarantor shall be entitled to seek and
receive contribution from and against any other Guarantor hereunder which has
not paid its proportionate share of such payment and each other Guarantor agrees
that it will contribute its proportionate share of such payment to the
applicable Guarantor. Each Guarantor's right of contribution shall be subject to
the terms and conditions of Section 2.3. The provisions of this Section 2.2
shall in no respect limit the obligations and liabilities of any Guarantor to
the Agents and the Lenders, and each Guarantor shall remain liable to the Agents
and the Lenders for the full amount guaranteed by such Guarantor hereunder.
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2.3 No Subrogation. Notwithstanding any payment made by any
Guarantor hereunder or any set-off or application of funds of any Guarantor by
the Agents or any Lender, no Guarantor shall be entitled to be subrogated to any
of the rights of the Agents or any Lender against the Borrowers or any other
Guarantor or any collateral security or guarantee or right of offset held by the
Agents or any Lender for the payment of the Obligations, nor shall any Guarantor
seek or be entitled to seek any contribution or reimbursement from the Borrower
or any other Guarantor in respect of payments made by such Guarantor hereunder,
until all amounts owing to the Agents and the Lenders by the Borrowers on
account of the Obligations are paid in full, no Letter of Credit shall be
outstanding and the Commitments are terminated. If any amount shall be paid to
any Guarantor on account of such subrogation rights at any time when all of the
Obligations shall not have been paid in full, such amount shall be held by such
Guarantor in trust for the Agents and the Lenders, segregated from other funds
of such Guarantor, and shall, forthwith upon receipt by such Guarantor, be
turned over to the Documentation Agent in the exact form received by such
Guarantor (duly indorsed by such Guarantor to the Documentation Agent, if
required), to be applied against the Obligations, whether matured or unmatured,
in such order as the Documentation Agent may determine.
2.4 Amendments, etc. with Respect to the Obligations. To the
extent permitted by applicable law, each Guarantor shall remain obligated
hereunder notwithstanding that, without any reservation of rights against any
Guarantor and without notice to or further assent by any Guarantor, any demand
for payment of any of the Obligations made by an Agent or any Lender may be
rescinded by such Agent or such Lender and any of the Obligations continued, and
the Obligations, or the liability of any other Person upon or for any part
thereof, or any collateral security or guarantee therefor or right of offset
with respect thereto, may, from time to time, in whole or in part, be renewed,
extended, amended, modified, accelerated, compromised, waived, surrendered or
released by an Agent or any Lender, and the Credit Agreement and the other
Credit Documents and any other documents executed and delivered in connection
therewith may be amended, modified, supplemented or terminated, in whole or in
part, as the Documentation Agent (or the Required Lenders or all Lenders, as the
case may be) may deem advisable from time to time, and any collateral security,
guarantee or right of offset at any time held by any Agent or any Lender for the
payment of the Obligations may be sold, exchanged, waived, surrendered or
released. Neither any Agent nor any Lender shall have any obligation to protect,
secure, perfect or insure any Lien at any time held by it as security for the
Obligations or for the guarantee contained in this Section 2 or any property
subject thereto.
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2.5 Guarantee Absolute and Unconditional. To the extent
permitted by applicable law, each Guarantor waives any and all notice of the
creation, renewal, extension or accrual of any of the Obligations and notice of
or proof of reliance by any Agent or any Lender upon the guarantee contained in
this Section 2 or acceptance of the guarantee contained in this Section 2; the
Obligations, and any of them, shall conclusively be deemed to have been created,
contracted or incurred, or renewed, extended, amended or waived, in reliance
upon the guarantee contained in this Section 2; and all dealings between the
Borrowers and any of the Guarantors, on the one hand, and the Agents and the
Lenders, on the other hand, likewise shall be conclusively presumed to have been
had or consummated in reliance upon the guarantee contained in this Section 2.
To the extent permitted by applicable law, each Guarantor waives diligence,
presentment, protest, demand for payment and notice of default or nonpayment to
or upon the Borrowers or any of the Guarantors with respect to the Obligations.
Each Guarantor understands and agrees that the guarantee contained in this
Section 2 shall be construed as a continuing, absolute and unconditional
guarantee of payment without regard to (a) the validity or enforceability of the
Credit Agreement or any other Credit Document, any of the Obligations or any
other collateral security therefor or guarantee or right of offset with respect
thereto at any time or from time to time held by the Agents or any Lender, (b)
any defense, set-off or counterclaim (other than a defense of payment or
performance) which may at any time be available to or be asserted by the
Borrowers or any other Person against the Agents or any Lender, or (c) any other
circumstance whatsoever (with or without notice to or knowledge of the Borrowers
or such Guarantor) which constitutes, or might be construed to constitute, an
equitable or legal discharge of the Borrowers for the Obligations, or of such
Guarantor under the guarantee contained in this Section 2, in bankruptcy or in
any other instance. When making any demand hereunder or otherwise pursuing its
rights and remedies hereunder against any Guarantor, the Agents or any Lender
may, but shall be under no obligation to, make a similar demand on or otherwise
pursue such rights and remedies as it may have against the Borrowers, any other
Guarantor or any other Person or against any collateral security or guarantee
for the Obligations or any right of offset with respect thereto, and any failure
by the Agents or any Lender to make any such demand, to pursue such other rights
or remedies or to collect any payments from the Borrowers, any other Guarantor
or any other Person or to realize upon any such collateral security or guarantee
or to exercise any such right of offset, or any release of the Borrowers, any
other Guarantor or any other Person or any such collateral security, guarantee
or right of offset, shall not relieve any Guarantor of any obligation or
liability hereunder, and shall not impair or affect the rights and remedies,
whether express, implied or available as a matter of law, of the Agents or any
Lender against any Guarantor. For the purposes hereof "demand" shall include the
commencement and continuance of any legal proceedings.
2.6 Reinstatement. The guarantee contained in this Section 2
shall continue to be effective, or be reinstated, as the case may be, if at any
time payment, or any part thereof, of any of the Obligations is rescinded or
must otherwise be restored or returned or repaid in a good faith compromised
settlement of a pending avoidance claim by any Agent or any Lender upon the
insolvency, bankruptcy, dissolution, liquidation or reorganization of the
Borrowers or any Guarantor, or upon or as a result of the appointment of a
receiver, intervenor or conservator of, or trustee or similar officer for, the
Borrowers or any Guarantor or any substantial part of its property, or
otherwise, all as though such payments had not been made.
2.7 Payments. Each Guarantor hereby guarantees that payments
hereunder will be paid to the Documentation Agent without set-off or
counterclaim in Dollars at the office of the Documentation Agent located at 399
Park Avenue, New York, New York 10022.
SECTION 3. GRANT OF SECURITY INTEREST
3.1 Grant of Security Interest. Each Grantor hereby assigns
and transfers to the Documentation Agent, and hereby grants to the Documentation
Agent, for the ratable benefit of the Agents and the Lenders (and their
affiliates and subsidiaries which hold Obligations), a security interest in, all
of the following property now owned or at any time hereafter acquired by such
Grantor or in which such Grantor now has or at any time in the future may
acquire any right, title or interest (collectively, the "Collateral"), as
collateral security for the prompt and complete payment and performance when due
(whether at the stated maturity, by acceleration or otherwise) of such Grantor's
Obligations:
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(a) all Receivables;
(b) all Equipment;
(c) all Inventory;
(d) all Investment Property;
(e) all books and records pertaining to the Collateral; and
(f) to the extent not otherwise included, all Proceeds and
products of any and all of the foregoing and all collateral security and
guarantees given by any Person with respect to any of the foregoing.
Notwithstanding the foregoing, to the extent that the grant of
the security interest specified in this Section 3.1 would otherwise cover
Collateral of the Engineered Products Division (the "Division") of the Company,
such grant shall not become effective unless and until by September 30, 2000 the
Company shall not have completed the sale of the Division for consideration
which shall include a cash portion in an amount not less than $150 million of
Net Proceeds and satisfied the other requirements of Section 2.1(i) of the Third
Amendment to the Credit Agreement. Furthermore, the covenants and
representations and warranties contained in this Agreement that relate to any
Collateral described in the preceding sentence shall not become effective unless
and until the security interest in such assets created hereby shall become
effective pursuant to such preceding sentence.
Notwithstanding anything to the contrary herein, neither the
grant of the security interest specified in this Section 3.1 nor any reference
to Collateral contained in this Agreement shall include any Equipment covered by
the terms and provisions of the Lease Agreement. For the purposes of the
preceding sentence, Equipment shall have the meaning given to such term in the
Lease Agreement.
SECTION 4. REPRESENTATIONS AND WARRANTIES
To induce the Agents and the Lenders to enter into the Credit
Agreement and to induce the Lenders to make their respective extensions of
credit to the Borrowers thereunder, each Grantor hereby represents and warrants
to the Agents and each Lender that:
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4.1 Title; No Other Liens. Except for the security interest
granted to the Documentation Agent for the ratable benefit of the Agents and the
Lenders (and their affiliates and subsidiaries which hold Obligations) pursuant
to this Agreement and the other Liens permitted to exist on the Collateral by
the Credit Agreement, such Grantor owns each item of the Collateral attributable
to such Grantor free and clear of any and all Liens or claims of others. No
financing statement or other public notice with respect to all or any part of
the Collateral is on file or of record in any public office, except such as have
been filed in favor of the Documentation Agent, for the ratable benefit of the
Agents and the Lenders (and their affiliates and subsidiaries which hold
Obligations), pursuant to this Agreement or as are permitted by the Credit
Agreement.
4.2 Perfected First Priority Liens. Except in respect of (i)
any Instruments, Certificated Securities, Chattel Paper or letters of credit not
delivered to the Documentation Agent pursuant to Section 5.1 or (ii) Excluded
Equipment and Excluded Inventory as defined in Section 4.4 and (iii) subject to
compliance with the Federal Assignment of Claims Act of 1940, as amended, or
other similar state statutes as applicable, the security interests granted
pursuant to this Agreement (a) constitute, or upon completion of the filings
specified on Schedule 6 (which, in the case of all filings and other documents
referred to on said Schedule, have been delivered to the Documentation Agent in
completed and duly executed form) will constitute valid perfected security
interests in all of the Collateral in favor of the Documentation Agent, for the
ratable benefit of the Agents and the Lenders (and their affiliates and
subsidiaries which hold Obligations), as collateral security for such Grantor's
Obligations, enforceable in accordance with the terms hereof against all
creditors of such Grantor and any Persons purporting to purchase any Collateral
from such Grantor and (b) are prior to all other Liens on the Collateral in
existence on the date hereof except for other Liens permitted by the Credit
Agreement which have priority over the Liens on the Collateral by operation of
law.
4.3 Chief Executive Office. On the date hereof, such Grantor's
jurisdiction of organization and the location of such Grantor's chief executive
office or sole place of business are specified on Schedule 4.
4.4 Inventory and Equipment. On the date hereof, the Inventory
and the Equipment of such Grantor (other than (i) Equipment located at
residences of sales employees of such Grantor (the aggregate amount of which
shall not exceed $1 million) (the "Excluded Equipment") and (ii) Inventory
delivered on consignment to third parties (the aggregate amount of which shall
not exceed $5 million) (the "Excluded Inventory") and (iii) mobile goods) are
kept at the locations listed on Schedule 5.
4.5 Investment Property. (a) The shares of Pledged Stock
pledged by such Grantor hereunder constitute all the issued and outstanding
shares of all classes of the Capital Stock of each Issuer owned by such Grantor.
(b) All the shares of the Pledged Stock have been duly and
validly issued and are fully paid and nonassessable.
(c) Each of the Pledged Notes constitutes the legal, valid and
binding obligation of the obligor with respect thereto, enforceable in
accordance with its terms, subject to the effects of bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and other similar laws
relating to or affecting creditors' rights generally, general equitable
principles (whether considered in a proceeding in equity or at law) and an
implied covenant of good faith and fair dealing.
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(d) Such Grantor is the record and beneficial owner of, and
has good and marketable title to, the Investment Property pledged by it
hereunder, free of any and all Liens or options in favor of, or claims of, any
other Person, except the security interest created by this Agreement.
(e) The undated stock powers delivered to the Documentation
Agent are duly executed and give the Documentation Agent the authority they
purport to confer.
4.6 Receivables. (a) No amount payable to such Grantor under
or in connection with any Receivable is evidenced by any Instrument or Chattel
Paper which has not been delivered to the Documentation Agent, except for any
such Instruments or Chattel Paper that have face amounts less than $2 million in
the aggregate at any given time.
(b) None of the obligors on any Receivables is a Governmental
Authority under the laws of the United States or any jurisdiction therein,
except for any such Receivables that do not exceed $2 million in the aggregate
at any given time.
(c) The amounts represented by such Grantor to the Lenders
from time to time as owing to such Grantor in respect of the Receivables will at
such times be accurate.
SECTION 5. COVENANTS
Each Grantor covenants and agrees with the Agents and the
Lenders that, from and after the date of this Agreement until the Obligations
shall have been paid in full, no Letter of Credit shall be outstanding and the
Commitments shall have terminated:
5.1 Delivery of Instruments, Certificated Securities and
Chattel Paper. If any amounts payable under or in connection with any of the
Collateral shall be or become evidenced by any Instruments, Certificated
Securities or Chattel Paper, such Instruments, Certificated Securities and
Chattel Paper shall be immediately delivered to the Documentation Agent, duly
indorsed in a manner reasonably satisfactory to the Documentation Agent, to be
held as Collateral pursuant to this Agreement. Notwithstanding anything to the
contrary herein, the preceding sentence of this Section 5.1 shall not apply to
(a) Instruments, Certificated Securities or Chattel Paper that have face amounts
less than $2 million in the aggregate at any given time, except as otherwise
required pursuant to Section 5.7 below or (b) letters of credit supporting any
payments with respect to any Collateral; provided that, at any time after the
occurrence and during the continuance of an Event of Default, at the request of
the Documentation Agent, such Instruments, Certificated Securities, Chattel
Paper and any letters of credit supporting any payment with respect to any
Collateral shall be immediately delivered to the Documentation Agent, duly
indorsed in a manner reasonably satisfactory to the Documentation Agent, to be
held as Collateral pursuant to this Agreement.
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5.2 Maintenance of Insurance. (a) Such Grantor will maintain,
with financially sound and reputable companies, insurance policies (i) insuring
the Inventory and Equipment against loss by fire, explosion, theft and such
other casualties as may be reasonably satisfactory to the Documentation Agent
and (ii) insuring such Grantor, the Documentation Agent and the Lenders against
liability for personal injury and property damage relating to such Inventory and
Equipment, such policies to be in such form and amounts and having such coverage
as may be reasonably satisfactory to the Documentation Agent and the Lenders.
(b) All such insurance shall (i) provide that no cancellation,
material reduction in amount or material change in coverage thereof shall be
effective until at least 30 days after receipt by the Documentation Agent of
written notice thereof, (ii) name the Documentation Agent as insured party or
loss payee, (iii) if reasonably requested by the Documentation Agent, include a
breach of warranty clause and (iv) be reasonably satisfactory in all other
respects to the Documentation Agent.
(c) At any time after the occurrence and during the
continuance of an Event of Default, at the request of the Documentation Agent,
the Company shall deliver to the Documentation Agent and the Lenders a written
report of a reputable insurance broker with respect to such insurance
substantially concurrently with each delivery of the Company's audited annual
financial statements and such supplemental reports with respect thereto as the
Documentation Agent may from time to time reasonably request.
5.3 Payment of Obligations. Such Grantor will pay and
discharge or otherwise satisfy at or before maturity or before they become
delinquent, as the case may be, all taxes, assessments and governmental charges
or levies imposed upon the Collateral or in respect of income or profits
therefrom, as well as all claims of any kind against or with respect to the
Collateral, except that no such charge need be paid if the amount or validity
thereof is currently being contested in good faith by appropriate proceedings,
reserves in conformity with GAAP with respect thereto have been provided on the
books of such Grantor and such proceedings could not reasonably be expected to
result in the sale, forfeiture or loss of any material portion of the Collateral
or any interest therein.
5.4 Maintenance of Perfected Security Interest; Further
Documentation.
(a) Such Grantor shall maintain the security interest created
by this Agreement as a perfected security interest having at least the priority
described in Section 4.2 and shall defend such security interest against the
claims and demands of all Persons whomsoever.
(b) Such Grantor will furnish to the Documentation Agent and
the Lenders from time to time statements and schedules further identifying and
describing the Collateral of such Grantor and such other reports in connection
therewith as the Documentation Agent may reasonably request, all in reasonable
detail.
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(c) At any time and from time to time, upon the written
request of the Documentation Agent, and at the sole expense of such Grantor,
such Grantor will promptly and duly execute and deliver, and have recorded, such
further instruments and documents and take such further actions as the
Documentation Agent may reasonably request for the purpose of obtaining or
preserving the full benefits of this Agreement and of the rights and powers
herein granted, including, without limitation, (i) filing any financing or
continuation statements under the Uniform Commercial Code (or other similar
laws) in effect in any jurisdiction with respect to the security interests
created hereby and (ii) in the case of Investment Property pledged hereunder and
any other relevant Collateral, taking any actions necessary to enable the
Documentation Agent to obtain "control" (within the meaning of the applicable
Uniform Commercial Code) with respect thereto.
5.5 Changes in Locations, Name, etc. Such Grantor will not,
except upon 10 days' prior written notice to the Documentation Agent and
delivery to the Documentation Agent of (a) all additional executed financing
statements and other documents reasonably requested by the Documentation Agent
to maintain the validity, perfection and priority of the security interests
provided for herein and (b) if applicable, a written supplement to Schedule 5
showing any additional location at which Inventory (other than Excluded
Inventory) or Equipment shall be kept:
(i) permit any of the Inventory (other than Excluded
Inventory) or Equipment to be kept at a location other than those
listed on Schedule 5;
(ii) change its jurisdiction of organization or the location
of its chief executive office or sole place of business from that
referred to in Section 4.3, or
(iii) change its name, identity or corporate structure to such
an extent that any financing statement filed by the Documentation Agent
in connection with this Agreement would become misleading.
5.6 Notices. Such Grantor will advise the Documentation Agent
and the Lenders promptly, in reasonable detail, of:
(a) any Lien (other than security interests created hereby or
Liens permitted under the Credit Agreement) on any of the Collateral which would
materially adversely affect the ability of the Documentation Agent to exercise
any of its remedies hereunder; and
(b) of the occurrence of any other event which could
reasonably be expected to have a material adverse effect on the security
interests created hereby.
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5.7 Investment Property. (a) If such Grantor shall become
entitled to receive or shall receive any stock certificate (including, without
limitation, any certificate representing a stock dividend or a distribution in
connection with any reclassification, increase or reduction of capital or any
certificate issued in connection with any reorganization), option or rights in
respect of the Capital Stock of any Issuer, whether in addition to, in
substitution of, as a conversion of, or in exchange for, any shares of the
Pledged Stock, or otherwise in respect thereof, such Grantor shall accept the
same as the agent of the Documentation Agent and the Lenders, hold the same in
trust for the Documentation Agent and the Lenders and deliver the same forthwith
to the Documentation Agent in the exact form received, duly indorsed by such
Grantor to the Documentation Agent, if required, together with an undated stock
power covering such certificate duly executed in blank by such Grantor and with,
if the Documentation Agent so requests, signature guaranteed, to be held by the
Documentation Agent, subject to the terms hereof, as additional collateral
security for the Obligations. Any sums paid upon or in respect of the Investment
Property pledged hereunder upon the liquidation or dissolution of any Issuer
shall be paid over to the Documentation Agent to be held by it hereunder as
additional collateral security for the Obligations, and in case any distribution
of capital shall be made on or in respect of the Investment Property pledged
hereunder or any property shall be distributed upon or with respect to the
Investment Property pledged hereunder pursuant to the recapitalization or
reclassification of the capital of any Issuer or pursuant to the reorganization
thereof, the property so distributed shall, unless otherwise subject to a
perfected security interest in favor of the Documentation Agent, be delivered to
the Documentation Agent to be held by it hereunder as additional collateral
security for the Obligations. If any sums of money or property so paid or
distributed in respect of the Investment Property pledged hereunder shall be
received by such Grantor, such Grantor shall, until such money or property is
paid or delivered to the Documentation Agent, hold such money or property in
trust for the Lenders, segregated from other funds of such Grantor, as
additional collateral security for the Obligations.
(b) Without the prior written consent of the Documentation
Agent, such Grantor will not (i) vote to enable, or take any other action to
permit, any Issuer to issue any stock or other equity securities of any nature
or to issue any other securities convertible into or granting the right to
purchase or exchange for any stock or other equity securities of any nature of
any Issuer, (ii) sell, assign, transfer, exchange, or otherwise dispose of, or
grant any option with respect to, the Investment Property pledged hereunder or
Proceeds thereof (except pursuant to a transaction expressly permitted by the
Credit Agreement), (iii) create, incur or permit to exist any Lien or option in
favor of, or any claim of any Person with respect to, any of the Investment
Property pledged hereunder or Proceeds thereof, or any interest therein, except
for the security interests created by this Agreement or (iv) enter into any
agreement or undertaking restricting the right or ability of such Grantor or the
Documentation Agent to sell, assign or transfer any of the Investment Property
pledged hereunder or Proceeds thereof.
(c) In the case of each Grantor which is an Issuer, such
Issuer agrees that (i) it will be bound by the terms of this Agreement relating
to the Investment Property issued by it and will comply with such terms insofar
as such terms are applicable to it, (ii) it will notify the Documentation Agent
promptly in writing of the occurrence of any of the events described in Section
5.7(a) with respect to the Investment Property issued by it and (iii) the terms
of Sections 6.3(c) and 6.7 shall apply to it, mutatis mutandis, with respect to
all actions that may be required of it pursuant to Section 6.3(c) or 6.7 with
respect to the Investment Property issued by it.
5.8 Receivables. (a) Other than in the ordinary course of
business consistent with its past practice, such Grantor will not (i) grant any
extension of the time of payment of any Receivable, (ii) compromise or settle
any Receivable for less than the full amount thereof, (iii) release, wholly or
partially, any Person liable for the payment of any Receivable, (iv) allow any
credit or discount whatsoever on any Receivable or (v) amend, supplement or
modify any Receivable in any manner that could adversely affect the value
thereof.
(b) Such Grantor will deliver to the Documentation Agent a
copy of each material demand, notice or document received by it that questions
or calls into doubt the validity or enforceability of more than 5% of the
aggregate amount of the then outstanding Receivables.
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SECTION 6. REMEDIAL PROVISIONS
6.1 Certain Matters Relating to Receivables. (a) The
Documentation Agent shall have the right at any time after the occurrence and
during the continuance of an Event of Default to make test verifications of the
Receivables in any reasonable manner and through any reasonable medium that it
reasonably considers advisable, and each Grantor shall furnish all such
assistance and information as the Documentation Agent may reasonably require in
connection with such test verifications.
(b) The Documentation Agent hereby authorizes each Grantor to
collect such Grantor's Receivables and the Documentation Agent may curtail or
terminate said authority at any time after the occurrence and during the
continuance of an Event of Default. If required by the Documentation Agent at
any time after the occurrence and during the continuance of an Event of Default,
any payments of Receivables, when collected by any Grantor, (i) shall be
forthwith (and, in any event, within two Business Days) deposited by such
Grantor in the exact form received, duly indorsed by such Grantor to the
Documentation Agent if required, in a Collateral Account maintained under the
sole dominion and control of the Documentation Agent, subject to withdrawal by
the Documentation Agent for the account of the Lenders only as provided in
Section 6.5, and (ii) until so turned over, shall be held by such Grantor in
trust for the Documentation Agent and the Lenders, segregated from other funds
of such Grantor. Each such deposit of Proceeds of Receivables shall be
accompanied by a report identifying in reasonable detail the nature and source
of the payments included in the deposit.
6.2 Communications with Obligors; Grantors Remain Liable. (a)
The Documentation Agent in its own name or in the name of others may at any time
after the occurrence and during the continuance of an Event of Default
communicate with obligors under the Receivables to verify with them to the
Documentation Agent's satisfaction the existence, amount and terms of any
Receivables.
(b) Upon the request of the Documentation Agent and at any
time after the occurrence and during the continuance of an Event of Default,
each Grantor shall notify obligors on the Receivables that the Receivables have
been assigned to the Documentation Agent for the ratable benefit of the Lenders
and that payments in respect thereof shall be made directly to the Documentation
Agent.
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(c) Anything herein to the contrary notwithstanding, each
Grantor shall remain liable under each of the Receivables to observe and perform
all the conditions and obligations to be observed and performed by it
thereunder, all in accordance with the terms of any agreement giving rise
thereto. Neither the Documentation Agent nor any Lender shall have any
obligation or liability under any Receivable (or any agreement giving rise
thereto) by reason of or arising out of this Agreement or the receipt by the
Documentation Agent or any Lender of any payment relating thereto, nor shall the
Administrative Agent or any Lender be obligated in any manner to perform any of
the obligations of any Grantor under or pursuant to any Receivable (or any
agreement giving rise thereto), to make any payment, to make any inquiry as to
the nature or the sufficiency of any payment received by it or as to the
sufficiency of any performance by any party thereunder, to present or file any
claim, to take any action to enforce any performance or to collect the payment
of any amounts which may have been assigned to it or to which it may be entitled
at any time or times.
6.3 Pledged Stock. (a) Unless an Event of Default under
Section 15(a) of the Credit Agreement shall have occurred and be continuing and
the Documentation Agent shall have given notice to the relevant Grantor of the
Documentation Agent's intent to exercise its corresponding rights pursuant to
Section 6.3(b), each Grantor shall be permitted to receive all cash dividends
paid in respect of the Pledged Stock and all payments made in respect of Pledged
Notes, in each case paid in the normal course of business of the relevant Issuer
and consistent with past practice, to the extent not prohibited by the Credit
Agreement, and to exercise all voting and corporate rights with respect to the
Investment Property pledged hereunder; provided, however, that no vote shall be
cast or corporate right exercised or other action taken which would be
inconsistent with or result in any violation of any provision of the Credit
Agreement, this Agreement or any other Credit Document.
(b) If (x) either (A) an Event of Default under Section 15(a)
of the Credit Agreement shall occur and be continuing or (B) the Obligations of
any Borrower are accelerated and (y) the Documentation Agent shall give notice
of its intent to exercise such rights to the relevant Grantor or Grantors:
(i) the Documentation Agent shall have the right to receive
any and all cash dividends, payments or other Proceeds paid in respect
of the Investment Property pledged hereunder and make application
thereof to the Obligations in such order as the Documentation Agent may
determine; and
(ii) any or all of the Investment Property pledged hereunder
shall be registered in the name of the Documentation Agent or its
nominee, and the Documentation Agent or its nominee may thereafter
exercise (x) following written notice to the relevant Grantor or
Grantors, all voting, corporate and other rights pertaining to such
Investment Property at any meeting of shareholders of the relevant
Issuer or Issuers or otherwise and (y) any and all rights of
conversion, exchange and subscription and any other rights, privileges
or options pertaining to such Investment Property as if it were the
absolute owner thereof (including, without limitation, the right to
exchange at its discretion any and all of the Investment Property
pledged hereunder upon the merger, consolidation, reorganization,
recapitalization or other fundamental change in the corporate structure
of any Issuer, or upon the exercise by any Grantor or the Documentation
Agent of any right, privilege or option pertaining to such Investment
Property, and in connection therewith, the right to deposit and deliver
any and all of the Investment Property pledged hereunder with any
committee, depositary, transfer agent, registrar or other designated
agency upon such terms and conditions as the Documentation Agent may
determine);
all without liability except to account for property actually received by it,
but the Documentation Agent shall have no duty to any Grantor to exercise any
such right, privilege or option and shall not be responsible for any failure to
do so or delay in so doing.
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(c) Each Grantor hereby authorizes and instructs each Issuer
of any Investment Property pledged by such Grantor hereunder to (i) comply with
any instruction received by it from the Documentation Agent in writing that (x)
states that an Event of Default has occurred and is continuing and (y) is
otherwise in accordance with the terms of this Agreement, without any other or
further instructions from such Grantor, and each Grantor agrees that each Issuer
shall be fully protected in so complying, and (ii) unless otherwise expressly
permitted hereby, pay any dividends or other payments with respect to the
Investment Property pledged hereunder directly to the Documentation Agent.
6.4 Proceeds to be Turned Over To Documentation Agent. If an
Event of Default under Section 15(a) of the Credit Agreement shall occur and be
continuing and the Administrative Agent shall have so requested in writing, all
Proceeds received by any Grantor consisting of cash, checks and other near-cash
items shall be held by such Grantor in trust for the Documentation Agent and the
Lenders, segregated from other funds of such Grantor, and shall, forthwith upon
receipt by such Grantor, be turned over to the Documentation Agent in the exact
form received by such Grantor (duly indorsed by such Grantor to the
Documentation Agent, if required). All Proceeds received by the Documentation
Agent hereunder shall be held by the Documentation Agent in a Collateral Account
maintained under its sole dominion and control. All Proceeds while held by the
Documentation Agent in a Collateral Account (or by such Grantor in trust for the
Documentation Agent and the Lenders) shall continue to be held as collateral
security for all the Obligations and shall not constitute payment thereof until
applied as provided in Section 6.5.
6.5 Application of Proceeds. At such intervals as may be
agreed upon by the Grantor and the Documentation Agent, or, if an Event of
Default shall have occurred and be continuing, at any time at the Documentation
Agent's election, the Documentation Agent may apply all or any part of Proceeds
held in any Collateral Account in payment of the Obligations in such order as
the Documentation Agent may elect, and any part of such funds which the
Documentation Agent elects not so to apply and deems not required as collateral
security for the Obligations shall be paid over from time to time by the
Documentation Agent to the Grantors or to whomsoever may be lawfully entitled to
receive the same. Any balance of such Proceeds remaining after the Obligations
shall have been paid in full, no Letters of Credit shall be outstanding and the
Commitments shall have terminated shall be paid over to the Grantors or to
whomsoever may be lawfully entitled to receive the same.
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6.6 Code and Other Remedies. If an Event of Default shall
occur and be continuing, the Documentation Agent, on behalf of the Lenders, may
exercise, in addition to all other rights and remedies granted to them in this
Agreement and in any other instrument or agreement securing, evidencing or
relating to the Obligations, all rights and remedies of a secured party under
the New York UCC or any other applicable law. Without limiting the generality of
the foregoing, to the extent permitted by applicable law, if an Event of Default
under Section 15(a) of the Credit Agreement shall occur and be continuing or the
Obligations of any Borrower shall have been accelerated, the Documentation
Agent, without demand of performance or other demand, presentment, protest,
advertisement or notice of any kind (except any notice required by law referred
to below) to or upon any Grantor or any other Person to the extent permitted by
applicable law (all and each of which demands, defenses, advertisements and
notices are hereby waived), may in such circumstances forthwith collect,
receive, appropriate and realize upon the Collateral, or any part thereof,
and/or may forthwith sell, lease, assign, give option or options to purchase, or
otherwise dispose of and deliver the Collateral or any part thereof (or contract
to do any of the foregoing), in one or more parcels at public or private sale or
sales, at any exchange, broker's board or office of the Documentation Agent or
any Lender or elsewhere upon such terms and conditions as it may deem advisable
and at such prices as it may deem best, for cash or on credit or for future
delivery without assumption of any credit risk. The Documentation Agent or any
Lender shall have the right upon any such public sale or sales, and, to the
extent permitted by law, upon any such private sale or sales, to purchase the
whole or any part of the Collateral so sold, free of any right or equity of
redemption in any Grantor, which right or equity is hereby waived and released.
Each Grantor further agrees, at the Documentation Agent's request, to assemble
the Collateral and make it available to the Documentation Agent at places which
the Documentation Agent shall reasonably select, whether at such Grantor's
premises or elsewhere. The Documentation Agent shall apply the net proceeds of
any action taken by it pursuant to this Section, after deducting all reasonable
costs and expenses of every kind incurred in connection therewith or incidental
to the care or safekeeping of any of the Collateral or in any way relating to
the Collateral or the rights of the Documentation Agent and the Lenders
hereunder, including, without limitation, reasonable attorneys' fees and
disbursements, to the payment in whole or in part of the Obligations, in such
order as the Documentation Agent may elect, and only after such application and
after the payment by the Documentation Agent of any other amount required by any
provision of law, including, without limitation, Section 9-504(1)(c) of the New
York UCC, need the Documentation Agent account for the surplus, if any, to any
Grantor. To the extent permitted by applicable law, each Grantor waives all
claims, damages and demands it may acquire against the Documentation Agent or
any Lender arising out of the exercise by them of any rights hereunder. If any
notice of a proposed sale or other disposition of Collateral shall be required
by law, such notice shall be deemed reasonable and proper if given at least 10
Business Days before such sale or other disposition.
6.7 Registration Rights. (a) If the Documentation Agent shall
determine to exercise its right to sell any or all of the Pledged Stock pursuant
to Section 6.6, and if in the opinion of the Documentation Agent it is necessary
or advisable to have the Pledged Stock, or that portion thereof to be sold,
registered under the provisions of the Securities Act, the relevant Grantor will
cause the Issuer thereof to (i) execute and deliver, and cause the directors and
officers of such Issuer to execute and deliver, all such instruments and
documents, and do or cause to be done all such other acts as may be, in the
opinion of the Documentation Agent, necessary or advisable to register the
Pledged Stock, or that portion thereof to be sold, under the provisions of the
Securities Act, (ii) use its best efforts to cause the registration statement
relating thereto to become effective and to remain effective for a period of one
year from the date of the first public offering of the Pledged Stock, or that
portion thereof to be sold, and (iii) make all amendments thereto and/or to the
related prospectus which, in the opinion of the Documentation Agent, are
necessary or advisable, all in conformity with the requirements of the
Securities Act and the rules and regulations of the Securities and Exchange
Commission applicable thereto. Each Grantor agrees to cause such Issuer to
comply with the provisions of the securities or "Blue Sky" laws of any and all
jurisdictions which the Documentation Agent shall designate and to make
available to its security holders, as soon as practicable, an earnings statement
(which need not be audited) which will satisfy the provisions of Section 11(a)
of the Securities Act.
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(b) Each Grantor recognizes that the Documentation Agent may
be unable to effect a public sale of any or all the Pledged Stock, by reason of
certain prohibitions contained in the Securities Act and applicable state
securities laws or otherwise, and may be compelled to resort to one or more
private sales thereof to a restricted group of purchasers which will be obliged
to agree, among other things, to acquire such securities for their own account
for investment and not with a view to the distribution or resale thereof. Each
Grantor acknowledges and agrees that any such private sale may result in prices
and other terms less favorable than if such sale were a public sale and,
notwithstanding such circumstances, agrees that any such private sale shall be
deemed to have been made in a commercially reasonable manner. The Documentation
Agent shall be under no obligation to delay a sale of any of the Pledged Stock
for the period of time necessary to permit the Issuer thereof to register such
securities for public sale under the Securities Act, or under applicable state
securities laws, even if such Issuer would agree to do so.
(c) Each Grantor agrees to use its best efforts to do or cause
to be done all such other acts as may be necessary to make such sale or sales of
all or any portion of the Pledged Stock pursuant to this Section valid and
binding and in compliance with any and all other applicable Requirements of Law.
Each Grantor further agrees that a breach of any of the covenants contained in
this Section 6.7 will cause irreparable injury to the Documentation Agent and
the Lenders, that the Documentation Agent and the Lenders have no adequate
remedy at law in respect of such breach and, as a consequence, that each and
every covenant contained in this Section shall be specifically enforceable
against such Grantor, and such Grantor hereby waives and agrees not to assert
any defenses against an action for specific performance of such covenants except
for a defense that no Event of Default has occurred under the Credit Agreement.
6.8 Waiver; Deficiency. Each Grantor waives and agrees not to
assert any rights or privileges against the Documentation Agent or any Lender
which it may acquire under Section 9-112 of the New York UCC. Each Grantor shall
remain liable for any deficiency if the proceeds of any sale or other
disposition of the Collateral are insufficient to pay its Obligations subject to
Section 2.1(c) and the reasonable fees and disbursements of any attorneys
employed by any Agent or any Lender to collect such deficiency.
6.9 Notice to Grantor of Sale. Unless any of the Collateral
threatens to decline speedily in value or is or becomes of a type sold on a
recognized market, the Documentation Agent will give the Grantor reasonable
notice of the time and place of any public sale thereof, or of the time after
which any private sale or other intended disposition is to be made. Any sale of
the Collateral conducted in conformity with reasonable commercial practices of
banks, commercial finance companies, insurance companies or other financial
institutions disposing of property similar to the Collateral shall be deemed to
be commercially reasonable. Notwithstanding any provision to the contrary
contained herein, the Grantor agrees that any requirements of reasonable notice
shall be met if such notice is received by the Grantor as provided in Section
8.2 below at least ten (10) Business Days before the time of the sale or
disposition; provided, however, that the Documentation Agent may give any
shorter notice that is commercially reasonable under the circumstances. Any
other requirement of notice, demand or advertisement for sale is waived, to the
extent permitted by law.
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6.10 Other Sales. In view of the fact that federal and state
securities laws may impose certain restrictions on the method by which a sale of
the Collateral may be effected after the occurrence and during the continuation
of an Event of Default set forth in Section 15(a) of the Credit Agreement or
upon acceleration of the Obligations of any Borrower, each Grantor agrees that
upon the occurrence and during the continuation of an Event of Default, the
Documentation Agent may, from time to time, attempt to sell all or any part of
the Collateral by means of a private placement restricting the bidders and
prospective purchasers to those who are qualified and will represent and agree
that they are purchasing for investment only and not for distribution. In so
doing, the Documentation Agent may solicit offers to buy the Collateral, or any
part of it, from a limited number of investors deemed by the Documentation
Agent, in its reasonable judgment, to be financially responsible parties who
might be interested in purchasing the Collateral. If the Documentation Agent
solicits such offers from not less than four (4) such investors, then the
acceptance by the Documentation Agent of the highest offer obtained therefrom
shall be deemed to be a commercially reasonable method of disposing of such
Collateral; provided, however, that this Section does not impose a requirement
that the Documentation Agent solicit offers from four or more investors in order
for the sale to be commercially reasonable.
SECTION 7. THE DOCUMENTATION AGENT
7.1 Documentation Agent's Appointment as Attorney-in-Fact,
etc. (a) Each Grantor hereby irrevocably constitutes and appoints the
Documentation Agent and any officer or agent thereof, with full power of
substitution, as its true and lawful attorney-in-fact with full irrevocable
power and authority in the place and stead of such Grantor and in the name of
such Grantor or in its own name, for the purpose of carrying out the terms of
this Agreement, to take any and all appropriate action and to execute any and
all documents and instruments which may be necessary or desirable to accomplish
the purposes of this Agreement, and, without limiting the generality of the
foregoing, each Grantor hereby gives the Documentation Agent the power and
right, on behalf of such Grantor, without notice to or assent by such Grantor,
to do any or all of the following:
(i) in the name of such Grantor or its own name, or otherwise,
take possession of and indorse and collect any checks, drafts, notes,
acceptances or other instruments for the payment of moneys due with
respect to any Collateral and file any claim or take any action or
proceeding in any court of law or equity or otherwise deemed
appropriate by the Documentation Agent for the purpose of collecting
any and all such moneys due with respect to any Collateral whenever
payable;
(ii) pay or discharge taxes and Liens levied or placed on or
threatened against the Collateral, effect any repairs or any insurance
called for by the terms of this Agreement and pay all or any part of
the premiums therefor and the costs thereof;
(iii) execute, in connection with any sale provided for in
Section 6.6 or 6.7, any indorsements, assignments or other instruments
of conveyance or transfer with respect to the Collateral; and
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(iv) (i) direct any party liable for any payment under any of
the Collateral to make payment of any and all moneys due or to become
due thereunder directly to the Documentation Agent or as the
Documentation Agent shall direct; (ii) ask or demand for, collect, and
receive payment of and receipt for, any and all moneys, claims and
other amounts due or to become due at any time in respect of or arising
out of any Collateral; (iii) sign and indorse any invoices, freight or
express bills, bills of lading, storage or warehouse receipts, drafts
against debtors, assignments, verifications, notices and other
documents in connection with any of the Collateral; (iv) commence and
prosecute any suits, actions or proceedings at law or in equity in any
court of competent jurisdiction to collect the Collateral or any
portion thereof and to enforce any other right in respect of any
Collateral; (v) defend any suit, action or proceeding brought against
such Grantor with respect to any Collateral; (vi) settle, compromise or
adjust any such suit, action or proceeding and, in connection
therewith, give such discharges or releases as the Documentation Agent
may deem appropriate; and (vii) generally, sell, transfer, pledge and
make any agreement with respect to or otherwise deal with any of the
Collateral as fully and completely as though the Documentation Agent
were the absolute owner thereof for all purposes, and do, at the
Documentation Agent's option and such Grantor's expense, at any time,
or from time to time, all acts and things which the Documentation Agent
deems necessary to protect, preserve or realize upon the Collateral and
the Documentation Agent's and the Lenders' security interests therein
and to effect the intent of this Agreement, all as fully and
effectively as such Grantor might do.
Anything in this Section 7.1(a) to the contrary
notwithstanding, the Documentation Agent agrees that it will not exercise any
rights under the power of attorney provided for in this Section 7.1(a) unless an
Event of Default shall have occurred and be continuing.
(b) If any Grantor fails to perform or comply with any of its
agreements contained herein, the Documentation Agent, at its option, but without
any obligation so to do, may perform or comply, or otherwise cause performance
or compliance, with such agreement.
(c) The reasonable expenses of the Documentation Agent
incurred in connection with actions undertaken as provided in this Section 7.1,
together with interest thereon at a rate per annum equal to the highest rate per
annum at which interest would then be payable on any category of past due ABR
Loans under the Credit Agreement, from the date of payment by the Documentation
Agent to the date reimbursed by the relevant Grantor, shall be payable by such
Grantor to the Documentation Agent on demand.
(d) Each Grantor hereby ratifies all that said attorneys shall
lawfully do or cause to be done by virtue hereof. All powers, authorizations and
agencies contained in this Agreement are coupled with an interest and are
irrevocable until this Agreement is terminated and the security interests
created hereby are released.
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7.2 Duty of Documentation Agent. The Documentation Agent's
sole duty with respect to the custody, safekeeping and physical preservation of
the Collateral in its possession, under Section 9-207 of the New York UCC or
otherwise, shall be to deal with it in the same manner as the Documentation
Agent deals with similar property for its own account. Neither the Documentation
Agent, any Lender nor any of their respective officers, directors, employees or
agents shall be liable for failure to demand, collect or realize upon any of the
Collateral or for any delay in doing so or shall be under any obligation to sell
or otherwise dispose of any Collateral upon the request of any Grantor or any
other Person or to take any other action whatsoever with regard to the
Collateral or any part thereof. The powers conferred on the Documentation Agent
and the Lenders hereunder are solely to protect the Documentation Agent's and
the Lenders' interests in the Collateral and shall not impose any duty upon the
Documentation Agent or any Lender to exercise any such powers. The Documentation
Agent and the Lenders shall be accountable only for amounts that they actually
receive as a result of the exercise of such powers, and neither they nor any of
their officers, directors, employees or agents shall be responsible to any
Grantor for any act or failure to act hereunder, except for their own gross
negligence, bad faith or willful misconduct.
7.3 Authority of Documentation Agent. Each Grantor
acknowledges that the rights and responsibilities of the Documentation Agent
under this Agreement with respect to any action taken by the Documentation Agent
or the exercise or non-exercise by the Documentation Agent of any option, voting
right, request, judgment or other right or remedy provided for herein or
resulting or arising out of this Agreement shall, as between the Documentation
Agent and the Lenders, be governed by the Credit Agreement and by such other
agreements with respect thereto as may exist from time to time among them, but,
as between the Documentation Agent and the Grantors, the Documentation Agent
shall be conclusively presumed to be acting as agent for the Lenders with full
and valid authority so to act or refrain from acting, and no Grantor shall be
under any obligation, or entitlement, to make any inquiry respecting such
authority.
SECTION 8. MISCELLANEOUS
8.1 Amendments in Writing. None of the terms or provisions of
this Agreement may be waived, amended, supplemented or otherwise modified except
in accordance with subsection 17.1 of the Credit Agreement.
8.2 Notices. All notices, requests and demands to or upon the
Documentation Agent or any Grantor hereunder shall be effected in the manner
provided for in subsection 17.3 of the Credit Agreement; provided that any such
notice, request or demand to or upon any Subsidiary Guarantor shall be addressed
to such Subsidiary Guarantor at its notice address set forth on Schedule 1
hereto.
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8.3 No Waiver by Course of Conduct; Cumulative Remedies. (a)
Neither any Agent nor any Lender shall by any act (except by a written
instrument pursuant to Section 8.1), delay, indulgence, omission or otherwise be
deemed to have waived any right or remedy hereunder or to have acquiesced in any
Default or Event of Default. No failure to exercise, nor any delay in
exercising, on the part of any Agent or any Lender, any right, power or
privilege hereunder shall operate as a waiver thereof. No single or partial
exercise of any right, power or privilege hereunder shall preclude any other or
further exercise thereof or the exercise of any other right, power or privilege.
A waiver by any Agent or any Lender of any right or remedy hereunder on any one
occasion shall not be construed as a bar to any right or remedy which such Agent
or such Lender would otherwise have on any future occasion. The rights and
remedies herein provided are cumulative, may be exercised singly or concurrently
and are not exclusive of any other rights or remedies provided by law.
(b) All rights, remedies and powers provided under this
Agreement may be exercised only to the extent that exercise thereof does not
violate any applicable provision of law, and all the provisions under this
Agreement are intended to be subject to all applicable mandatory provisions of
law which may be controlling and (subject to Section 8.8) to be limited to the
extent necessary so that they will not render this Agreement invalid,
unenforceable in whole or in part or not entitled to be recorded, registered or
filed under the provisions of any applicable law.
8.4 Enforcement Expenses; Indemnification. (a) Each Guarantor
agrees to pay or reimburse each Lender and Agent for all its reasonable costs
and expenses incurred in collecting against such Guarantor under the guarantee
contained in Section 2 or otherwise enforcing or preserving any rights under
this Agreement and the other Credit Documents to which such Guarantor is a
party, including, without limitation, the reasonable fees and disbursements of
counsel to each Lender and of counsel to each of the Agents.
(b) Each Guarantor agrees to pay, and to save the Agents and
the Lenders harmless from, any and all liabilities with respect to, or resulting
from any delay in paying, any and all stamp, excise, sales or other taxes which
may be payable or determined to be payable with respect to any of the Collateral
or in connection with any of the transactions contemplated by this Agreement.
(c) Each Guarantor agrees to pay, and to save the Agents and
the Lenders and their respective officers, directors, employees, agents,
investment advisors which are under common institutional control with a Lender
and trustees harmless from, any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
of any kind or nature whatsoever with respect to the execution, delivery,
enforcement, performance and administration of this Agreement to the extent the
Borrowers would be required to do so pursuant to subsection 17.6 of the Credit
Agreement.
(d) The agreements in this Section 8.4 shall survive repayment
of the Obligations and all other amounts payable under the Credit Agreement and
the other Credit Documents.
8.5 Successors and Assigns. This Agreement shall be binding
upon the successors and assigns of each Grantor and shall inure to the benefit
of the Agents and the Lenders (and their affiliates and subsidiaries which hold
Obligations) and their successors and assigns; provided that no Grantor may
assign, transfer or delegate any of its rights or obligations under this
Agreement without the prior written consent of the Documentation Agent.
112
<PAGE>
8.6 Set-Off. Each Grantor hereby irrevocably authorizes the
Documentation Agent, the Administrative Agent and each Lender at any time and
from time to time while an Event of Default shall have occurred and be
continuing, without notice to such Grantor or any other Grantor, any such notice
being expressly waived by each Grantor, to set-off and appropriate and apply any
and all deposits (general or special, time or demand, provisional or final), in
any currency, and any other credits, indebtedness or claims, in any currency, in
each case whether direct or indirect, absolute or contingent, matured or
unmatured, at any time held or owing by the Documentation Agent, the
Administrative Agent or such Lender to or for the credit or the account of such
Grantor, or any part thereof in such amounts as the Documentation Agent, the
Administrative Agent or such Lender may elect, against and on account of the
obligations and liabilities of such Grantor to the Documentation Agent, the
Administrative Agent or such Lender hereunder and claims of every nature and
description of the Documentation Agent, the Administrative Agent or such Lender
against such Grantor, in any currency, whether arising hereunder, under the
Credit Agreement, any other Credit Document or otherwise, as the Documentation
Agent, the Administrative Agent or such Lender may elect, whether or not the
Documentation Agent, the Administrative Agent or any Lender has made any demand
for payment and although such obligations, liabilities and claims may be
contingent or unmatured. The Documentation Agent, the Administrative Agent and
each Lender shall notify such Grantor promptly of any such set-off and the
application made by it of the proceeds thereof, provided that the failure to
give such notice shall not affect the validity of such set-off and application.
The rights of the Documentation Agent, the Administrative Agent and each Lender
under this Section 8.6 are in addition to other rights and remedies (including,
without limitation, other rights of set-off) which the Documentation Agent, the
Administrative Agent or such Lender may have.
8.7 Counterparts. This Agreement may be executed by one or
more of the parties to this Agreement on any number of separate counterparts
(including by telecopy), and all of said counterparts taken together shall be
deemed to constitute one and the same instrument.
8.8 Severability. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
8.9 Section Headings. The Section headings used in this
Agreement are for convenience of reference only and are not to affect the
construction hereof or be taken into consideration in the interpretation hereof.
8.10 Integration. This Agreement and the other Credit
Documents represent the agreement of the Grantors, the Documentation Agent and
the Lenders with respect to the subject matter hereof and thereof, and there are
no promises, undertakings, representations or warranties by the Documentation
Agent or any Lender relative to subject matter hereof and thereof not expressly
set forth or referred to herein or in the other Credit Documents.
8.11 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
113
<PAGE>
8.12 Submission To Jurisdiction; Waivers. Each Grantor
hereby irrevocably and unconditionally:
(a) submits for itself and its property in any legal action or
proceeding relating to this Agreement and the other Credit Documents to
which it is a party, or for recognition and enforcement of any judgment
in respect thereof, to the non-exclusive general jurisdiction of the
Courts of the State of New York, the courts of the United States of
America for the Southern District of New York, and appellate courts
from any thereof;
(b) to the extent permitted by applicable law, consents that
any such action or proceeding may be brought in such courts and waives
any objection that it may now or hereafter have to the venue of any
such action or proceeding in any such court or that such action or
proceeding was brought in an inconvenient court and agrees not to plead
or claim the same;
(c) agrees that service of process in any such action or
proceeding may be effected by mailing a copy thereof by registered or
certified mail (or any substantially similar form of mail), postage
prepaid, to such Grantor at its address referred to in Section 8.2 or
at such other address of which the Documentation Agent shall have been
notified pursuant thereto;
(d) agrees that nothing herein shall affect the right to
effect service of process in any other manner permitted by law or shall
limit the right to sue in any other jurisdiction; and
(e) waives, to the maximum extent not prohibited by law, any
right it may have to claim or recover in any legal action or proceeding
referred to in this Section any special, exemplary, punitive or
consequential damages.
8.13 Acknowledgements. Each Grantor hereby acknowledges that:
(a) it has been advised by counsel in the negotiation,
execution and delivery of this Agreement and the other Credit Documents
to which it is a party;
(b) neither any Agent nor any Lender has any fiduciary
relationship with or duty to any Grantor arising out of or in
connection with this Agreement or any of the other Credit Documents,
and the relationship between the Grantors, on the one hand, and the
Agents and Lenders, on the other hand, in connection herewith or
therewith is solely that of debtor and creditor; and
(c) no joint venture is created hereby or by the other Credit
Documents or otherwise exists by virtue of the transactions
contemplated hereby among the Lenders or among the Grantors and the
Lenders.
114
<PAGE>
8.14 Additional Grantors. Each Subsidiary of the Company that
is required to become a party to this Agreement pursuant to subsection 13.9 of
the Credit Agreement shall become a Grantor for all purposes of this Agreement
upon execution and delivery by such Subsidiary of an Assumption Agreement in the
form of Annex 1 hereto.
8.15 Termination of this Security Agreement; Release of
Collateral. (a) The pledge made and the security interest granted by the
Grantors under this Agreement shall terminate upon final payment in full in cash
of the Obligations and the termination of the Commitments under the Credit
Agreement. Upon such termination (other than as a result of the sale of the
Collateral) and at the written request of the relevant Grantor or its successors
or assigns, and at the cost and expense of such Grantor or its successors or
assigns, the Documentation Agent shall execute in a timely manner such
instruments, documents or agreements as are necessary or desirable to terminate
the Documentation Agent's security interest in the Collateral and deliver any
and all Collateral held by the Documentation Agent (including, but not limited
to, any Instruments, Certificated Securities, Chattel Paper, letters of credit,
Pledged Notes, Pledged Stock and stock powers), subject to any disposition made
by the Documentation Agent pursuant to this Agreement.
(b) Notwithstanding anything in this Agreement to the
contrary, the Grantors may, to the extent permitted by the Credit Agreement,
sell, assign, transfer or otherwise dispose of any Collateral. In addition, the
Collateral shall be subject to release from time to time (with the Collateral
referred to in the immediately preceding sentence, the "Released Collateral") in
accordance with Section 17.2 of the Credit Agreement. The Liens under this
Agreement shall terminate with respect to the Released Collateral upon such
sale, transfer, assignment, disposition or release, and, upon the request of the
relevant Grantor, the Documentation Agent shall execute and deliver such
instruments or documents as may be necessary to release the Liens granted
hereunder, provided, however, that (a) the Documentation Agent shall not be
required to execute any such documents on terms which, in its opinion, would
expose it Agent to liability or create any obligation or entail any consequence
other than the release of such Liens without recourse or warranty and (ii) such
release shall not in any manner discharge, affect or impair the Obligations or
any Liens on (or obligations of any Grantor in respect of) all interests
retained by the Grantor, including without limitation, the proceeds of any sale,
all of which shall continue to constitute part of the Collateral unless and
until applied strictly in accordance with the Credit Documents.
8.16 WAIVER OF JURY TRIAL. EACH GRANTOR AGENT AND LENDER (BY
ITS ACCEPTANCE OF THE BENEFITS HEREOF) HEREBY IRREVOCABLY AND UNCONDITIONALLY
WAIVES TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS
AGREEMENT OR ANY OTHER CREDIT DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN.
115
<PAGE>
IN WITNESS WHEREOF, each of the undersigned has caused this
Agreement to be duly executed and delivered as of the date first above written.
HEXCEL CORPORATION
HEXCEL INTERNATIONAL
HEXCEL OMEGA CORPORATION
HEXCEL BETA CORP.
CLARK-SCHWEBEL HOLDING CORP.
CLARK-SCHWEBEL CORPORATION
CS TECH-FAB HOLDING, INC.
By:
Title:
CITIBANK, N.A.
as Documentation Agent
By:
Title:
116
<PAGE>
Schedule 1
NOTICE ADDRESSES OF GUARANTORS
c/o Hexcel Corporation
Two Stamford Plaza
281 Tresser Boulevard
Stamford, Connecticut 06901
Attention: Treasurer
Fax: 208/358-3993
117
<PAGE>
Schedule 2
DESCRIPTION OF PLEDGED STOCK
<TABLE>
<CAPTION>
A. Stock Pledged by Hexcel Corporation
- - --------------------------------------------- --------------------- ----------------------------- ------------------
Issuer Class of Stock Stock Certificate No. No. of Shares
- - --------------------------------------------- --------------------- ----------------------------- ------------------
<S> <C> <C> <C>
Hexcel Pottsville Corporation Common 1 100
Hexcel Beta Corp. Common 1 3,000
Hexcel International Common 2 100
Clark-Schwebel Holding Corp. Common 1 1,000
B. Stock Pledged by Hexcel International
- - ------------------------------------------------------------------------------------------------- ------------------
Issuer Class of Stock Stock Certificate No. No. of Shares
- - --------------------------------------------- --------------------- ----------------------------- ------------------
Hexcel Omega Corporation Common 1 1,000
C. Stock Pledged by Clark-Schwebel Holding Corp.
- - ------------------------------------------------------------------------------------------------- ------------------
Issuer Class of Stock Stock Certificate No. No. of Shares
- - --------------------------------------------- --------------------- ----------------------------- ------------------
Hexcel CS Corporation Common 1 1,000
- - --------------------------------------------- --------------------- ----------------------------- ------------------
D. Stock Pledged by Hexcel CS Corporation
- - ------------------------------------------------------------------------------------------------- ------------------
Issuer Class of Stock Stock Certificate No. No. of Shares
- - --------------------------------------------- --------------------- ----------------------------- ------------------
CS Tech-Fab Holding, Inc. Common 1 1,000
- - --------------------------------------------- --------------------- ----------------------------- ------------------
</TABLE>
118
<PAGE>
Schedule 3
INTERCOMPANY NOTES
1. Promissory Note, dated September 15, 1998, in the principal amount
of US$44,400,000, issued by Clark-Schwebel Holding Corp. and payable to Hexcel
Corporation.
2. Promissory Note, dated September 15, 1998, in the principal amount
of US$400,475,952, issued by Hexcel CS Corporation (to be renamed Clark-Schwebel
Corporation) and payable to Hexcel Corporation.
3. Promissory Note, dated September 15, 1998, in the principal amount
of US$4,200,000, issued by CS Tech-Fab Holding, Inc. and payable to Hexcel
Corporation.
119
<PAGE>
Schedule 4
JURISDICTIONS OF ORGANIZATION AND CHIEF EXECUTIVE OFFICES
<TABLE>
<CAPTION>
Jurisdiction of Location of Chief
Grantor Organization Executive Office
- - ------------------------------------------ -------------------------------- ----------------------------------------
<S> <C> <C>
Hexcel Corporation Delaware Two Stamford Plaza
281 Tresser Boulevard
Stamford, CT 06901
Hexcel International California 5794 West Las Positas Blvd.
Pleasanton, CA 94588
Hexcel Omega Corporation California 5794 West Las Positas Blvd.
Pleasanton, CA 94588
Hexcel Beta Corp. Delaware 5794 West Las Positas Blvd.
Pleasanton, CA 94588
Clark-Schwebel Holding Corp. Delaware Two Stamford Plaza
281 Tresser Boulevard
Stamford, CT 06901
Clark-Schwebel Corporation Delaware 2200 South Murray Avenue
Anderson, SC 29624
CS Tech-Fab Holding, Inc. Delaware 2200 South Murray Avenue
Anderson, SC 29624
- - ------------------------------------------ -------------------------------- ----------------------------------------
</TABLE>
120
<PAGE>
Schedule 5
LOCATIONS OF INVENTORY AND EQUIPMENT
<TABLE>
<CAPTION>
Grantor Locations
- - ----------------------------------------------------------- --------------------------------------------------------
<S> <C>
Hexcel Corporation See attached Exhibit 1 to this Schedule 5.
Hexcel International None.
Hexcel Omega Corporation None.
Hexcel Beta Corp. None.
Clark-Schwebel Holding Corp None.
Clark-Schwebel Corporation See attached Exhibit 1 to this Schedule 5.
CS Tech-Fab Holding, Inc. None.
- - ----------------------------------------------------------- --------------------------------------------------------
</TABLE>
121
<PAGE>
Schedule 6
FILINGS REQUIRED
TO PERFECT SECURITY INTERESTS
Uniform Commercial Code Filings
<TABLE>
<CAPTION>
Name Jurisdictions
- - ----------------------------------------------------------- --------------------------------------------------------
<S> <C>
Hexcel Corporation AL SOS
AZ SOS
CA SOS
CT SOS
DE SOS
GA - Fulton County, White County, Wilkes County
MA SOS / Northborough Town
NC SOS / Iredell County
OH SOS / Fairfield County
PA SOS / Chester County, Schuylkill County
SC SOS
TX SOS
UT SOS
VA SOS / Fairfax County
WA SOS
Clark-Schwebel Corporation CA SOS
CT SOS
DE SOS
GA - White County, Wilkes County
MA SOS / Northborough Town
NC SOS / Iredell County
SC SOS
TX SOS
Clark-Schwebel Holding Corp. CT SOS
DE SOS
SC SOS
CS Tech-Fab Holding, Inc. CT SOS
DE SOS
SC SOS
Hexcel Beta Corp. CA SOS
CT SOS
DE SOS
Hexcel International CA SOS
CT SOS
Hexcel Omega Corporation CA SOS
CT SOS
- - ----------------------------------------------------------- --------------------------------------------------------
</TABLE>
122
<PAGE>
ACKNOWLEDGMENT AND CONSENT1/
The undersigned hereby acknowledges receipt of a copy of the Amended
and Restated Collateral Agreement dated as of March 7, 2000 (the "Agreement"),
made by the Grantors parties thereto for the benefit of Citibank, N.A., as
Documentation Agent. The undersigned agrees for the benefit of the Documentation
Agent and the Lenders (and their affiliates and subsidiaries which hold
Obligations) as follows:
1. The undersigned will be bound by the terms of the Agreement and will
comply with such terms insofar as such terms are applicable to the undersigned.
2. The undersigned will notify the Documentation Agent promptly in
writing of the occurrence of any of the events described in Section 5.7(a) of
the Agreement.
3. The terms of Sections 6.3(c) and 6.7 of the Agreement shall apply to
it, mutatis mutandis, with respect to all actions that may be required of it
pursuant to Section 6.3(c) or 6.7 of the Agreement.
[NAME OF ISSUER]
By:
Name:
Title:
Address for Notices:
Fax:
123
<PAGE>
Annex 1 to
Collateral Agreement
ASSUMPTION AGREEMENT, dated as of ________________, 2000, made
by ______________________________, a ______________ corporation (the "Additional
Grantor"), in favor of CITIBANK, N.A., as Documentation Agent (in such capacity,
the "Documentation Agent") for the banks and other financial institutions (the
"Lenders") parties to the Credit Agreement referred to below. All capitalized
terms not defined herein shall have the meaning ascribed to them in such Credit
Agreement.
W I T N E S S E T H :
WHEREAS, Hexcel Corporation (the "Company") and certain of its
Subsidiaries (together with the Company, the "Borrowers"), the Lenders, the
Documentation Agent and Credit Suisse First Boston, as Administrative Agent,
have entered into a 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");
WHEREAS, in connection with the Credit Agreement, the Company
and certain of its Affiliates (other than the Additional Grantor) have entered
into the Amended and Restated Collateral Agreement, dated as of March 7, 2000
(as amended, supplemented or otherwise modified from time to time, the
"Collateral Agreement") in favor of the Documentation Agent;
WHEREAS, the Credit Agreement requires the Additional
Grantor to become a party to the Collateral Agreement; and
WHEREAS, the Additional Grantor has agreed to execute and
deliver this Assumption Agreement in order to become a party to the Collateral
Agreement;
NOW, THEREFORE, IT IS AGREED:
1. Collateral Agreement. By executing and delivering this
Assumption Agreement, the Additional Grantor, as provided in Section 8.14 of the
Collateral Agreement, hereby becomes a party to the Collateral Agreement as a
Grantor thereunder with the same force and effect as if originally named therein
as a Grantor and, without limiting the generality of the foregoing, hereby
expressly assumes all obligations and liabilities of a Grantor thereunder. The
information set forth in Annex 1-A hereto is hereby added to the information set
forth in the Schedules to the Collateral Agreement. The Additional Grantor
hereby represents and warrants that each of the representations and warranties
contained in Section 4 of the Collateral Agreement is true and correct on and as
the date hereof (after giving effect to this Assumption Agreement) as if made on
and as of such date.
124
<PAGE>
2. Governing Law. THIS ASSUMPTION AGREEMENT SHALL BE GOVERNED
BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF
NEW YORK.
IN WITNESS WHEREOF, the undersigned has caused this Assumption
Agreement to be duly executed and delivered as of the date first above written.
[ADDITIONAL GRANTOR]
By:
Name:
Title:
125
<PAGE>
Annex 1-A to
Assumption Agreement
Supplement to Schedule 1
Supplement to Schedule 2
Supplement to Schedule 3
126
<PAGE>
AMENDED AND RESTATED COLLATERAL AGREEMENT
made by
HEXCEL CORPORATION
and certain of its Subsidiaries
in favor of
CITIBANK, N.A.,
as Documentation Agent
Dated as of March 7, 2000
127
<PAGE>
-iv-
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
SECTION 1. DEFINED TERMS.........................................................................................2
1.1 Definitions.........................................................................................2
1.2 Other Definitional Provisions.......................................................................3
SECTION 2. GUARANTEE.............................................................................................3
2.1 Guarantee...........................................................................................3
2.2 Right of Contribution...............................................................................4
2.3 No Subrogation......................................................................................4
2.4 Amendments, etc. with Respect to the Obligations....................................................5
2.5 Guarantee Absolute and Unconditional................................................................5
2.6 Reinstatement.......................................................................................6
2.7 Payments............................................................................................6
SECTION 3. GRANT OF SECURITY INTEREST............................................................................6
SECTION 4. REPRESENTATIONS AND WARRANTIES........................................................................7
4.1 Title; No Other Liens...............................................................................7
4.2 Perfected First Priority Liens......................................................................8
4.3 Chief Executive Office..............................................................................8
4.4 Inventory and Equipment.............................................................................8
4.5 Investment Property.................................................................................8
4.6 Receivables.........................................................................................9
SECTION 5. COVENANTS.............................................................................................9
5.1 Delivery of Instruments, Certificated Securities and Chattel Paper..................................9
5.2 Maintenance of Insurance............................................................................9
5.3 Payment of Obligations.............................................................................10
5.4 Maintenance of Perfected Security Interest; Further Documentation..................................10
5.5 Changes in Locations, Name, etc....................................................................11
5.6 Notices............................................................................................11
5.7 Investment Property................................................................................11
5.8 Receivables........................................................................................12
SECTION 6. REMEDIAL PROVISIONS..................................................................................13
6.1 Certain Matters Relating to Receivables............................................................13
6.2 Communications with Obligors; Grantors Remain Liable...............................................13
6.3 Pledged Stock......................................................................................14
6.4 Proceeds to be Turned Over To Documentation Agent..................................................15
6.5 Application of Proceeds............................................................................15
6.6 Code and Other Remedies............................................................................15
6.7 Registration Rights................................................................................16
6.8 Waiver; Deficiency.................................................................................17
6.9 Notice to Grantor of Sale..........................................................................17
6.10 Other Sales.......................................................................................18
SECTION 7. THE DOCUMENTATION AGENT..............................................................................18
7.1 Documentation Agent's Appointment as Attorney-in-Fact, etc.........................................18
7.2 Duty of Documentation Agent........................................................................19
7.3 Authority of Documentation Agent...................................................................20
SECTION 8. MISCELLANEOUS........................................................................................20
8.1 Amendments in Writing..............................................................................20
8.2 Notices............................................................................................20
8.3 No Waiver by Course of Conduct; Cumulative Remedies................................................20
8.4 Enforcement Expenses; Indemnification..............................................................21
8.5 Successors and Assigns.............................................................................21
8.6 Set-Off............................................................................................21
8.7 Counterparts.......................................................................................22
8.8 Severability.......................................................................................22
8.9 Section Headings...................................................................................22
8.10 Integration.......................................................................................22
8.11 GOVERNING LAW.....................................................................................22
8.12 Submission To Jurisdiction; Waivers...............................................................23
8.13 Acknowledgements..................................................................................23
8.14 Additional Grantors...............................................................................23
8.15 Termination of this Security Agreement; Release of Collateral.....................................24
8.16 WAIVER OF JURY TRIAL..............................................................................24
</TABLE>
128
<PAGE>
<TABLE>
<CAPTION>
SCHEDULES
<S> <C>
Schedule 1 Notice Addresses
Schedule 2 Pledged Stock
Schedule 3 Intercompany Notes
Schedule 4 Jurisdictions of Organization and Chief Executive Offices
Schedule 5 Inventory and Equipment Locations
Schedule 6 Perfection Matters
</TABLE>
1/ This consent is necessary only with respect to any Issuer which is not
also a Grantor. This consent may be modified or eliminated with respect
to any Issuer that is not controlled by a Grantor. If a consent is
required, its execution and delivery should be included among the
conditions to the initial borrowing specified in the Credit Agreement.
129
<PAGE>
Exhibit 10.3(c)
AMENDMENT TO
HEXCEL CORPORATION
INCENTIVE STOCK PLAN
I. Purpose
This Amendment (the "Amendment") to the Hexcel Corporation Incentive
Stock Plan, as previously amended and restated on January 30, 1997 and further
amended on December 10, 1997 and March 25, 1999 (as so amended and restated, the
"Plan"), amends the Plan on the terms provided herein.
II. Amendment to Capital Stock Subject to the Provisions of this Plan
(a) Unless otherwise defined herein, capitalized terms that are defined in the
Plan are used herein as defined therein.
(b) Section V(a) of the Plan is hereby amended and restated as follows:
"The capital stock subject to the provisions of this Plan shall be
shares of authorized but unissued Common Stock and shares of Common Stock held
as treasury stock. Subject to adjustment in accordance with the provisions of
Section XI, and subject to Section V(c) below, the maximum number of shares of
Common Stock that shall be available for grants of Awards under this Plan shall
be 6,691,251."
III. Effective Date of Amendment
This Amendment became effective upon the approval thereof by the Hexcel
Corporation Board of Directors on December 2, 1999.
HEXCEL CORPORATION
By: /s/ Ira J. Krakower
Name: Ira J. Krakower
Title: Senior Vice President
130
<PAGE>
Exhibit 10.5(b)
AMENDMENT TO
HEXCEL CORPORATION
MANAGEMENT STOCK PURCHASE PLAN
IV. Purpose
This Amendment (the "Amendment") to the Hexcel Corporation Management
Stock Purchase Plan, as previously adopted and effective as of January 1, 1997,
and as amended on March 25, 1999 (the "Plan"), amends the Plan on the terms
provided herein.
V. Amendment to Capital Stock Subject to the Provisions of this Plan
(a) Unless otherwise defined herein, capitalized terms that are defined in the
Plan are used herein as defined therein.
(b) The first paragraph of Section 3 of the Plan is hereby amended and restated
as follows:
"The maximum number of shares of the Stock which shall be reserved for
the grant of Restricted Stock Units under the Plan shall be 150,000, which
number shall be subject to adjustment as provided in Article 7 hereof. Such
shares may be either authorized but unissued shares or shares that shall have
been or may be reacquired by the Company."
VI. Effective Date of Amendment
This Amendment became effective upon the approval thereof by the Hexcel
Corporation Board of Directors on December 2, 1999.
HEXCEL CORPORATION
By: /s/ Ira J. Krakower
Name: Ira J. Krakower
Title: Senior Vice President
131
<PAGE>
Exhibit 10.7
EMPLOYEE OPTION AGREEMENT
(Special Executive Grant)
December 2, 1999
EMPLOYEE OPTION AGREEMENT, dated as of the Grant Date, by and between the
Optionee and Hexcel Corporation (the "Corporation").
W I T N E S S E T H:
WHEREAS, the Corporation has adopted the Hexcel Corporation Incentive Stock Plan
(the "Plan"); and
WHEREAS, the Executive Compensation Committee (the "Committee") of the Board of
Directors of the Corporation (the "Board") has determined that it is desirable
and in the best interest of the Corporation to grant to the Optionee a stock
option as an incentive for the Optionee to advance the interests of the
Corporation;
NOW, THEREFORE, the parties agree as follows:
1. Notice of Grant; Incorporation of Plan. A Notice of Grant is attached hereto
as Annex A and incorporated by reference herein. Unless otherwise provided
herein, capitalized terms used herein and set forth in such Notice of Grant
shall have the meanings ascribed to them in the Notice of Grant and capitalized
terms used herein and set forth in the Plan shall have the meanings ascribed to
them in the Plan. The Plan is incorporated by reference and made a part of this
Employee Option Agreement, and this Employee Option Agreement shall be subject
to the terms of the Plan, as the Plan may be amended from time to time, provided
that any such amendment of the Plan must be made in accordance with Section X of
the Plan. The Option granted herein constitutes an Award within the meaning of
the Plan.
2. Grant of Option. Pursuant to the Plan and subject to the terms and conditions
set forth herein and therein, the Corporation hereby grants to the Optionee the
right and option (the "Option") to purchase all or any part of the Option Shares
of the Corporation's common stock, $.01 par value per share (the "Common
Stock"), which Option is not intended to qualify as an incentive stock option,
as defined in Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code").
3. Purchase Price. The purchase price per share of the Option Shares shall be
the Purchase Price.
4. Term of Option.
(a) Expiration Date; Term. Subject to Section 4(c) below, the Option
shall expire on, and shall no longer be exercisable following, the
tenth anniversary of the Grant Date. The ten-year period from the Grant
Date to its tenth anniversary shall constitute the "Term" of the
Option.
132
<PAGE>
(b) Vesting Period; Exercisability. Subject to Section 4(c) below, the
Option shall vest and become exercisable at the rate of 33-1/3% of the
Option Shares on each of the first three anniversaries of the Grant
Date.
(c) Termination of Employment; Change in Control.
(i) For purposes of the grant hereunder, any transfer of employment by
the Optionee among the Corporation and the Subsidiaries shall not be
considered a termination of employment. If the Optionee's employment
with the Corporation is terminated for Cause (as defined in the last
Section hereof), the Option, whether or not then vested, shall be
automatically terminated as of the date of such termination of
employment. If the Optionee's employment with the Corporation shall
terminate other than by reason of Retirement (as defined in the last
Section hereof), Disability (as defined in the last Section hereof),
death or Cause, the Option (to the extent then vested) may be exercised
at any time within ninety (90) days after such termination (but not
beyond the Term of the Option). The Option, to the extent not then
vested, shall immediately expire upon such termination.
If the Optionee dies or becomes Disabled (A) while employed by the
Corporation or (B) within 90 days after the termination of his or her
employment other than for Cause or Retirement, the Option (to the
extent then vested) may be exercised at any time within one year after
the Optionee's death or Disability (but not beyond the Term of the
Option). The Option, to the extent not then vested, shall immediately
expire upon such death or disability.
If the Optionee's employment terminates by reason of Retirement, the
Option shall (A) become fully and immediately vested and exercisable
and (B) remain exercisable for three years from the date of such
Retirement (but not beyond the Term of the Option).
(ii) In the event of a Change in Control (as defined in the last
Section hereof), the Option shall immediately become fully vested and
exercisable and the post-termination periods of exercisability set
forth in Section 4(c)(i) hereof shall apply, except that the
post-termination period of exercisability shall be extended and the
Option shall remain exercisable for a period of three years from the
date of such termination of employment, if, within two years after a
Change in Control, (A) the Optionee's employment is terminated by the
Company other than by reason of Retirement, Cause, Disability or death
or (B) the Optionee terminates the Optionee's employment for Good
Reason (as defined in the last Section hereof).
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5. Adjustment Upon Changes in Capitalization.
(a) The aggregate number of Option Shares and the Purchase Price shall
be appropriately adjusted by the Committee for any increase or decrease
in the number of issued shares of Common Stock resulting from a
subdivision or consolidation of shares or other capital adjustment, or
the payment of a stock dividend or other increase or decrease in such
shares, effected without receipt of consideration by the Corporation,
or other change in corporate or capital structure. The Committee shall
also make the foregoing changes and any other changes, including
changes in the classes of securities available, to the extent
reasonably necessary or desirable to preserve the intended benefits
under this Employee Option Agreement in the event of any other
reorganization, recapitalization, merger, consolidation, spin-off,
extraordinary dividend or other distribution or similar transaction
involving the Corporation.
(b) Any adjustment under this Section 5 in the number of Option Shares
and the Purchase Price shall apply to only the unexercised portion of
the Option. If fractions of a share would result from any such
adjustment, the adjustment shall be rounded down to the nearest whole
number of shares.
6. Method of Exercising Option and Withholding.
(a) The Option shall be exercised by the delivery by the Optionee to
the Corporation at its principal office (or at such other address as
may be established by the Committee) of written notice of the number of
Option Shares with respect to which the Option is exercised,
accompanied by payment in full of the aggregate Purchase Price for such
Option Shares. Payment for such Option Shares shall be made (i) in U.S.
dollars by personal check, bank draft or money order payable to the
order of the Corporation, or by money transfers or direct account
debits to an account designated by the Corporation; (ii) through the
delivery of shares of Common Stock with a Fair Market Value equal to
the total payment due from the Optionee; (iii) pursuant to a "cashless
exercise" program if such a program is established by the Corporation;
or (iv) by any combination of the methods described in (i) through
(iii) above.
(b) The Corporation's obligation to deliver shares of Common Stock upon
the exercise of the Option shall be subject to the payment by the
Optionee of applicable federal, state and local withholding tax, if
any. The Corporation shall, to the extent permitted by law, have the
right to deduct from any payment of any kind otherwise due to the
Optionee any federal, state or local taxes required to be withheld with
respect to such payment.
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7. Transfer. Except as provided in this Section 7, the Option is not
transferable otherwise than by will or the laws of descent and distribution, and
the Option may be exercised during the Optionee's lifetime only by the Optionee.
Any attempt to transfer the Option in contravention of this Section 7 is void ab
initio. The Option shall not be subject to execution, attachment or other
process. Notwithstanding the foregoing, the Optionee shall be permitted to
transfer the Option to members of his or her immediate family (i.e., children,
grandchildren or spouse), trusts for the benefit of such family members, and
partnerships whose only partners are such family members; provided, however,
that no consideration can be paid for the transfer of the Option and the
transferee of the Option shall be subject to all conditions applicable to the
Option prior to its transfer.
8. No Rights in Option Shares. The Optionee shall have none of the rights of a
stockholder with respect to the Option Shares unless and until shares of Common
Stock are issued upon exercise of the Option.
9. No Right to Employment. Nothing contained herein shall be deemed to confer
upon the Optionee any right to remain as an employee of the Corporation.
10. Governing Law/Jurisdiction. This Employee Option Agreement shall be governed
by and construed in accordance with the laws of the State of Delaware without
reference to principles of conflict of laws.
11. Resolution of Disputes. Any disputes arising under or in connection with
this Employee Option Agreement shall be resolved by binding arbitration before a
single arbitrator, to be held in New York in accordance with the commercial
rules and procedures of the American Arbitration Association. Judgment upon the
award rendered by the arbitrator shall be final and subject to appeal only to
the extent permitted by law. Each party shall bear such party's own expenses
incurred in connection with any arbitration; provided, however, that the cost of
the arbitration, including without limitation, reasonable attorneys' fees of the
Optionee, shall be borne by the Corporation in the event the Optionee is the
prevailing party in the arbitration. Anything to the contrary notwithstanding,
each party hereto has the right to proceed with a court action for injunctive
relief or relief from violations of law not within the jurisdiction of an
arbitrator.
12. Notices. Any notice required or permitted under this Employee Option
Agreement shall be deemed given when delivered personally, or when deposited in
a United States Post Office, postage prepaid, addressed, as appropriate, to the
Optionee at the last address specified in Optionee's employment records, or such
other address as the Optionee may designate in writing to the Corporation, or to
the Corporation, Attention: Corporate Secretary, or such other address as the
Corporation may designate in writing to the Optionee.
13. Failure To Enforce Not a Waiver. The failure of either party hereto to
enforce at any time any provision of this Employee Option Agreement shall in no
way be construed to be a waiver of such provision or of any other provision
hereof.
14. Counterparts. This Employee Option Agreement may be executed in two or more
counterparts, each of which shall be an original but all of which together shall
represent one and the same agreement.
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15. Miscellaneous. This Employee Option Agreement cannot be changed or
terminated orally. This Employee Option Agreement and the Plan contain the
entire agreement between the parties relating to the subject matter hereof. The
section headings herein are intended for reference only and shall not affect the
interpretation hereof.
16. Definitions. For purposes of this Employee Option Agreement:
(I) the term "Beneficial Owner" (and variants thereof) shall have the
meaning given in Rule 13d-3 promulgated under the Exchange Act;
(II) the term "Cause" shall mean (A) the willful and continued failure
by the Optionee to substantially perform the Optionee's duties with the
Corporation (other than any such failure resulting from the Optionee's
incapacity due to physical or mental illness) after a written demand
for substantial performance is delivered to the Optionee by the
Corporation, which demand specifically identifies the manner in which
the Corporation believes that the Optionee has not substantially
performed the Optionee's duties, or (B) the willful engaging by the
Optionee in conduct which is demonstrably and materially injurious to
the Corporation or its subsidiaries, monetarily or otherwise. For
purposes of clauses (A) and (B) of this definition, no act, or failure
to act, on the Optionee's part shall be deemed "willful" unless done,
or omitted to be done, by the Optionee not in good faith and without
the reasonable belief that the Optionee's act, or failure to act, was
in the best interest of the Corporation;
(III) the term "Change in Control" shall mean any of the following
events:
(1)(a) any Person (as defined in this Section) is or
becomes the Beneficial Owner of 20% or more of either (i) the
then outstanding Common Stock of the Corporation (the
"Outstanding Common Stock") or (ii) the combined voting power
of the then outstanding securities entitled to vote generally
in the election of directors of the Corporation (the "Total
Voting Power"); excluding, however, the following: (A) any
acquisition by the Corporation or any of its affiliates or (B)
any acquisition by any employee benefit plan (or related
trust) sponsored or maintained by the Corporation or any of
its affiliates and (b) Ciba (as defined in this Section)
beneficially owns, in the aggregate, a lesser percentage of
the Total Voting Power than such Person beneficially owns; or
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(2) a change in the composition of the Board such
that the individuals who, as of the effective date of this
Employee Option Agreement, constitute the Board (such
individuals shall be hereinafter referred to as the "Incumbent
Directors") cease for any reason to constitute at least a
majority of the Board; provided, however, for purposes of this
definition, that any individual who becomes a director
subsequent to such effective date, whose election, or
nomination for election by the Corporation's stockholders, was
made or approved pursuant to the Governance Agreement (as
defined in this Section) or by a vote of at least a majority
of the Incumbent Directors (or directors whose election or
nomination for election was previously so approved) shall be
considered a member of the Incumbent Board; but, provided,
further, that any such individual whose initial assumption of
office occurs as a result of either an actual or threatened
election contest (as such terms are used in Rule 14a-11 of
Regulation 14A promulgated under the Exchange Act) or other
actual or threatened solicitation of proxies or consents by or
on behalf of a person or legal entity other than the Board
shall not be considered a member of the Incumbent Board; or
(3) the approval by the stockholders of the
Corporation of a reorganization, merger or consolidation or
sale or other disposition of all or substantially all of the
assets of the Corporation ("Corporate Transaction");
excluding, however, such a Corporate Transaction (a) pursuant
to which all or substantially all of the individuals and
entities who are the beneficial owners, respectively, of the
Outstanding Common Stock and Total Voting Power immediately
prior to such Corporate Transaction will beneficially own,
directly or indirectly, more than 50%, respectively, of the
outstanding common stock and the combined voting power of the
then outstanding securities entitled to vote generally in the
election of directors of the company resulting from such
Corporate Transaction (including, without limitation, a
corporation which as a result of such transaction owns the
Corporation or all or substantially all of the Corporation's
assets either directly or through one or more subsidiaries) in
substantially the same proportions as their ownership
immediately prior to such Corporate Transaction of the
Outstanding Common Stock and Total Voting Power, as the case
may be, or (b) after which no Person beneficially owns a
greater percentage of the combined voting power of the then
outstanding securities entitled to vote generally in the
election of directors of such corporation than does Ciba; or
(4) Ciba shall become the Beneficial Owner of more
than 57.5% of the Total Voting Power; or
(5) the approval by the stockholders of the
Corporation of a complete liquidation or dissolution of the
Corporation;
(IV) the term "Ciba" shall mean Ciba Specialty Chemicals Holding Inc.,
a Swiss corporation, together with its affiliates holding Corporation
voting securities pursuant to Section 4.01(b) of the Governance
Agreement;
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(V) the term "Disability (or becoming Disabled)" shall mean that, as a
result of the Optionee's incapacity due to physical or mental illness
or injury, he or she shall not have performed all or substantially all
of his or her usual duties as an employee of the Corporation for a
period of more than one-hundred-fifty (150) days in any period of
one-hundred-eighty (180) consecutive days;
(VI) the term "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended from time to time;
(VII) the term "Good Reason" for termination by the Optionee of the
Optionee's employment shall mean the occurrence (without the Optionee's
express written consent) of any one of the following acts by the
Corporation, or failures by the Corporation to act, unless, in the case
of any act or failure to act described in paragraphs (1), (5) or (6)
below, such act or failure to act is corrected prior to the date of
termination of the Optionee's employment:
(1) a significant adverse alteration in the
nature or status of the Optionee's responsibilities, position
or authority from those in effect immediately prior to the
Change in Control;
(2) a reduction by the Corporation in the
Optionee's annual base salary as in effect on the date hereof
or as the same may be increased from time to time;
(3) the relocation of the Optionee's
principal place of employment to a location more than fifty
(50) miles from the Optionee's principal place of employment
immediately prior to the Change in Control or the
Corporation's requiring the Optionee to work anywhere other
than at such principal place of employment (or permitted
relocation thereof) except for required travel on the
Corporation's business to an extent substantially consistent
with the Optionee's present business travel obligations;
(4) the failure by the Corporation to pay to
the Optionee any portion of the Optionee's current
compensation, or to pay to the Optionee any portion of an
installment of deferred compensation under any deferred
compensation program of the Corporation, within seven (7) days
of the date such compensation is due;
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(5) the failure by the Corporation to
continue in effect any compensation plan in which the Optionee
participates immediately prior to the Change in Control which
is material to the Optionee's total compensation, or any
substitute plans adopted prior to the Change in Control,
unless an equitable arrangement (embodied in an ongoing
substitute or alternative plan) has been made with respect to
such plan, or the failure by the Corporation to continue the
Optionee's participation therein (or in such substitute or
alternative plan) on a basis not materially less favorable,
both in terms of the amount or timing of payment of benefits
provided and the level of the Optionee's participation
relative to other participants, as existed immediately prior
to the Change in Control; or
(6) the failure by the Corporation to
continue to provide the Optionee with benefits substantially
similar to those enjoyed by the Optionee under any of the
Corporation's pension, savings, life insurance, medical,
health and accident, or disability plans in which the Optionee
was participating immediately prior to the Change in Control
(except for across-the-board changes similarly affecting all
senior executives of the Corporation and all senior executives
of any Person in control of the Corporation), the taking of
any other action by the Corporation which would directly or
indirectly materially reduce any of such benefits or deprive
the Optionee of any material fringe benefit enjoyed by the
Optionee at the time of the Change in Control, or the failure
by the Corporation to provide the Optionee with the number of
paid vacation days to which the Optionee is entitled on the
basis of years of service with the Corporation in accordance
with the Corporation's normal vacation policy in effect at the
time of the Change in Control.
The Optionee's right to terminate the Optionee's employment for Good
Reason shall not be affected by the Optionee's incapacity due to
physical or mental illness. The Optionee's continued employment shall
not constitute consent to, or a waiver of rights with respect to, any
act or failure to act constituting Good Reason hereunder.
For purposes of any determination regarding the existence of Good
Reason, any claim by the Optionee that Good Reason exists shall be
presumed to be correct unless the Corporation establishes to the Board
by clear and convincing evidence that Good Reason does not exist;
(VIII) the term "Governance Agreement" shall have the meaning given in
the Strategic Alliance Agreement (as defined in this Section);
(IX) the term "Person" shall have the meaning given in Section 3(a)(9)
of the Exchange Act, as modified and used in Sections 13(d) and 14(d)
of the Exchange Act, but excluding Ciba for so long as Ciba is subject
to the restrictions imposed by the Governance Agreement;
(X) the term "Retirement" shall mean termination of the Optionee's
employment, other than by reason of death or Cause, either (A) at or
after age 65 or (B) at or after age 55 after five (5) years of
employment by the Corporation (or a Subsidiary thereof); and
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(XI) the term "Strategic Alliance Agreement" shall mean the Strategic
Alliance Agreement among the Corporation, Ciba-Geigy Limited and
Ciba-Geigy Corporation, dated as of September 29, 1995, as amended, and
any of their respective permitted successors or assigns thereunder.
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Annex A
NOTICE OF GRANT
EMPLOYEE STOCK OPTION
HEXCEL CORPORATION INCENTIVE STOCK PLAN
The following employee of Hexcel Corporation, a Delaware corporation
("Hexcel") or a Subsidiary, has been granted an option to purchase shares of the
Common Stock of Hexcel, $.01 par value, in accordance with the terms of this
Notice of Grant and the Employee Option Agreement to which this Notice of Grant
is attached.
The following is a summary of the principal terms of the option which
has been granted. The terms below shall have the meanings ascribed to them below
when used in the Employee Option Agreement.
- - ----------------------------------------------------- --------------------------
Optionee
- - ----------------------------------------------------- --------------------------
- - ----------------------------------------------------- --------------------------
Address of Optionee
- - ----------------------------------------------------- --------------------------
- - ----------------------------------------------------- --------------------------
Employee Number
- - ----------------------------------------------------- --------------------------
- - ----------------------------------------------------- --------------------------
Employee ID Number
- - ----------------------------------------------------- --------------------------
- - ----------------------------------------------------- --------------------------
Foreign Sub Plan, if applicable
- - ----------------------------------------------------- --------------------------
- - ----------------------------------------------------- --------------------------
Grant Date December 2, 1999
- - ----------------------------------------------------- --------------------------
- - ----------------------------------------------------- --------------------------
Purchase Price $5.75
- - ----------------------------------------------------- --------------------------
- - ----------------------------------------------------- --------------------------
Aggregate Number of Shares
Granted (the "Option Shares")
- - ----------------------------------------------------- --------------------------
IN WITNESS WHEREOF, the parties hereby agree to the terms of this
Notice of Grant and the Employee Option Agreement to which this Notice of Grant
is attached and execute this Notice of Grant and Employee Option Agreement as of
the Grant Date.
HEXCEL CORPORATION
Optionee
By:
David M. Wong
Vice President, Corporate
Affairs
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Exhibit 10.8
EMPLOYEE OPTION AGREEMENT
December 2, 1999
EMPLOYEE OPTION AGREEMENT, dated as of the Grant Date, by and between the
Optionee and Hexcel Corporation (the "Corporation").
W I T N E S S E T H:
WHEREAS, the Corporation has adopted the Hexcel Corporation Incentive Stock
Plan (the "Plan"); and
WHEREAS, the Executive Compensation Committee (the "Committee") of the Board of
Directors of the Corporation (the "Board") has determined that it is desirable
and in the best interest of the Corporation to grant to the Optionee a stock
option as an incentive for the Optionee to advance the interests of the
Corporation;
NOW, THEREFORE, the parties agree as follows:
1. Notice of Grant; Incorporation of Plan. A Notice of Grant is attached hereto
as Annex A and incorporated by reference herein. Unless otherwise provided
herein, capitalized terms used herein and set forth in such Notice of Grant
shall have the meanings ascribed to them in the Notice of Grant and capitalized
terms used herein and set forth in the Plan shall have the meanings ascribed to
them in the Plan. The Plan is incorporated by reference and made a part of this
Employee Option Agreement, and this Employee Option Agreement shall be subject
to the terms of the Plan, as the Plan may be amended from time to time, provided
that any such amendment of the Plan must be made in accordance with Section X of
the Plan. The Option granted herein constitutes an Award within the meaning of
the Plan.
2. Grant of Option. Pursuant to the Plan and subject to the terms and conditions
set forth herein and therein, the Corporation hereby grants to the Optionee the
right and option (the "Option") to purchase all or any part of the Option Shares
of the Corporation's common stock, $.01 par value per share (the "Common
Stock"), which Option is not intended to qualify as an incentive stock option,
as defined in Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code").
3. Purchase Price. The purchase price per share of the Option Shares shall be
the Purchase Price.
4. Term of Option.
(a) Expiration Date; Term. Subject to Section 4(c) below, the Option
shall expire on, and shall no longer be exercisable following, the
tenth anniversary of the Grant Date. The ten-year period from the Grant
Date to its tenth anniversary shall constitute the "Term" of the
Option.
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(b) Vesting Period; Exercisability. Subject to Section 4(c) below, the
Option shall vest and become exercisable at the rate of 33-1/3% of the
Option Shares on each of the first three anniversaries of the Grant
Date.
(c) Termination of Employment; Change in Control.
(i) For purposes of the grant hereunder, any transfer of employment by
the Optionee among the Corporation and the Subsidiaries shall not be
considered a termination of employment. If the Optionee's employment
with the Corporation is terminated for Cause (as defined in the last
Section hereof), the Option, whether or not then vested, shall be
automatically terminated as of the date of such termination of
employment. If the Optionee's employment with the Corporation shall
terminate other than by reason of Retirement (as defined in the last
Section hereof), Disability (as defined in the last Section hereof),
death or Cause, the Option (to the extent then vested) may be exercised
at any time within ninety (90) days after such termination (but not
beyond the Term of the Option). The Option, to the extent not then
vested, shall immediately expire upon such termination.
If the Optionee dies or becomes Disabled (A) while employed by the
Corporation or (B) within 90 days after the termination of his or her
employment other than for Cause or Retirement, the Option (to the
extent then vested) may be exercised at any time within one year after
the Optionee's death or Disability (but not beyond the Term of the
Option). The Option, to the extent not then vested, shall immediately
expire upon such death or disability.
If the Optionee's employment terminates by reason of Retirement, the
Option shall (A) become fully and immediately vested and exercisable
and (B) remain exercisable for three years from the date of such
Retirement (but not beyond the Term of the Option).
(ii) In the event of a Change in Control (as defined in the last
Section hereof), the Option shall immediately become fully vested and
exercisable and the post-termination periods of exercisability set
forth in Section 4(c)(i) hereof shall apply, except that the
post-termination period of exercisability shall be extended and the
Option shall remain exercisable for a period of three years from the
date of such termination of employment, if, within two years after a
Change in Control, (A) the Optionee's employment is terminated by the
Company other than by reason of Retirement, Cause, Disability or death
or (B) the Optionee terminates the Optionee's employment for Good
Reason (as defined in the last Section hereof).
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5. Adjustment Upon Changes in Capitalization.
(a) The aggregate number of Option Shares and the Purchase Price shall
be appropriately adjusted by the Committee for any increase or decrease
in the number of issued shares of Common Stock resulting from a
subdivision or consolidation of shares or other capital adjustment, or
the payment of a stock dividend or other increase or decrease in such
shares, effected without receipt of consideration by the Corporation,
or other change in corporate or capital structure. The Committee shall
also make the foregoing changes and any other changes, including
changes in the classes of securities available, to the extent
reasonably necessary or desirable to preserve the intended benefits
under this Employee Option Agreement in the event of any other
reorganization, recapitalization, merger, consolidation, spin-off,
extraordinary dividend or other distribution or similar transaction
involving the Corporation.
(b) Any adjustment under this Section 5 in the number of Option Shares
and the Purchase Price shall apply to only the unexercised portion of
the Option. If fractions of a share would result from any such
adjustment, the adjustment shall be rounded down to the nearest whole
number of shares.
6. Method of Exercising Option and Withholding.
(a) The Option shall be exercised by the delivery by the Optionee to
the Corporation at its principal office (or at such other address as
may be established by the Committee) of written notice of the number of
Option Shares with respect to which the Option is exercised,
accompanied by payment in full of the aggregate Purchase Price for such
Option Shares. Payment for such Option Shares shall be made (i) in U.S.
dollars by personal check, bank draft or money order payable to the
order of the Corporation, or by money transfers or direct account
debits to an account designated by the Corporation; (ii) through the
delivery of shares of Common Stock with a Fair Market Value equal to
the total payment due from the Optionee; (iii) pursuant to a "cashless
exercise" program if such a program is established by the Corporation;
or (iv) by any combination of the methods described in (i) through
(iii) above.
(b) The Corporation's obligation to deliver shares of Common Stock upon
the exercise of the Option shall be subject to the payment by the
Optionee of applicable federal, state and local withholding tax, if
any. The Corporation shall, to the extent permitted by law, have the
right to deduct from any payment of any kind otherwise due to the
Optionee any federal, state or local taxes required to be withheld with
respect to such payment.
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7. Transfer. Except as provided in this Section 7, the Option is not
transferable otherwise than by will or the laws of descent and distribution, and
the Option may be exercised during the Optionee's lifetime only by the Optionee.
Any attempt to transfer the Option in contravention of this Section 7 is void ab
initio. The Option shall not be subject to execution, attachment or other
process. Notwithstanding the foregoing, the Optionee shall be permitted to
transfer the Option to members of his or her immediate family (i.e., children,
grandchildren or spouse), trusts for the benefit of such family members, and
partnerships whose only partners are such family members; provided, however,
that no consideration can be paid for the transfer of the Option and the
transferee of the Option shall be subject to all conditions applicable to the
Option prior to its transfer.
8. No Rights in Option Shares. The Optionee shall have none of the rights of a
stockholder with respect to the Option Shares unless and until shares of Common
Stock are issued upon exercise of the Option.
9. No Right to Employment. Nothing contained herein shall be deemed to confer
upon the Optionee any right to remain as an employee of the Corporation.
10. Governing Law/Jurisdiction. This Employee Option Agreement shall be governed
by and construed in accordance with the laws of the State of Delaware without
reference to principles of conflict of laws.
11. Resolution of Disputes. Any disputes arising under or in connection with
this Employee Option Agreement shall be resolved by binding arbitration before a
single arbitrator, to be held in New York in accordance with the commercial
rules and procedures of the American Arbitration Association. Judgment upon the
award rendered by the arbitrator shall be final and subject to appeal only to
the extent permitted by law. Each party shall bear such party's own expenses
incurred in connection with any arbitration; provided, however, that the cost of
the arbitration, including without limitation, reasonable attorneys' fees of the
Optionee, shall be borne by the Corporation in the event the Optionee is the
prevailing party in the arbitration. Anything to the contrary notwithstanding,
each party hereto has the right to proceed with a court action for injunctive
relief or relief from violations of law not within the jurisdiction of an
arbitrator.
12. Notices. Any notice required or permitted under this Employee Option
Agreement shall be deemed given when delivered personally, or when deposited in
a United States Post Office, postage prepaid, addressed, as appropriate, to the
Optionee at the last address specified in Optionee's employment records, or such
other address as the Optionee may designate in writing to the Corporation, or to
the Corporation, Attention: Corporate Secretary, or such other address as the
Corporation may designate in writing to the Optionee.
13. Failure To Enforce Not a Waiver. The failure of either party hereto to
enforce at any time any provision of this Employee Option Agreement shall in no
way be construed to be a waiver of such provision or of any other provision
hereof.
14. Counterparts. This Employee Option Agreement may be executed in two or more
counterparts, each of which shall be an original but all of which together shall
represent one and the same agreement.
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15. Miscellaneous. This Employee Option Agreement cannot be changed or
terminated orally. This Employee Option Agreement and the Plan contain the
entire agreement between the parties relating to the subject matter hereof. The
section headings herein are intended for reference only and shall not affect the
interpretation hereof.
16. Definitions. For purposes of this Employee Option Agreement:
(I) the term "Beneficial Owner" (and variants thereof) shall have the
meaning given in Rule 13d-3 promulgated under the Exchange Act;
(II) the term "Cause" shall mean (A) the willful and continued failure
by the Optionee to substantially perform the Optionee's duties with the
Corporation (other than any such failure resulting from the Optionee's
incapacity due to physical or mental illness) after a written demand
for substantial performance is delivered to the Optionee by the
Corporation, which demand specifically identifies the manner in which
the Corporation believes that the Optionee has not substantially
performed the Optionee's duties, or (B) the willful engaging by the
Optionee in conduct which is demonstrably and materially injurious to
the Corporation or its subsidiaries, monetarily or otherwise. For
purposes of clauses (A) and (B) of this definition, no act, or failure
to act, on the Optionee's part shall be deemed "willful" unless done,
or omitted to be done, by the Optionee not in good faith and without
the reasonable belief that the Optionee's act, or failure to act, was
in the best interest of the Corporation;
(III) the term "Change in Control" shall mean any of the following
events:
(1)(a) any Person (as defined in this Section) is or
becomes the Beneficial Owner of 20% or more of either (i) the
then outstanding Common Stock of the Corporation (the
"Outstanding Common Stock") or (ii) the combined voting power
of the then outstanding securities entitled to vote generally
in the election of directors of the Corporation (the "Total
Voting Power"); excluding, however, the following: (A) any
acquisition by the Corporation or any of its affiliates or (B)
any acquisition by any employee benefit plan (or related
trust) sponsored or maintained by the Corporation or any of
its affiliates and (b) Ciba (as defined in this Section)
beneficially owns, in the aggregate, a lesser percentage of
the Total Voting Power than such Person beneficially owns; or
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(2) a change in the composition of the Board such
that the individuals who, as of the effective date of this
Employee Option Agreement, constitute the Board (such
individuals shall be hereinafter referred to as the "Incumbent
Directors") cease for any reason to constitute at least a
majority of the Board; provided, however, for purposes of this
definition, that any individual who becomes a director
subsequent to such effective date, whose election, or
nomination for election by the Corporation's stockholders, was
made or approved pursuant to the Governance Agreement (as
defined in this Section) or by a vote of at least a majority
of the Incumbent Directors (or directors whose election or
nomination for election was previously so approved) shall be
considered a member of the Incumbent Board; but, provided,
further, that any such individual whose initial assumption of
office occurs as a result of either an actual or threatened
election contest (as such terms are used in Rule 14a-11 of
Regulation 14A promulgated under the Exchange Act) or other
actual or threatened solicitation of proxies or consents by or
on behalf of a person or legal entity other than the Board
shall not be considered a member of the Incumbent Board; or
(3) the approval by the stockholders of the
Corporation of a reorganization, merger or consolidation or
sale or other disposition of all or substantially all of the
assets of the Corporation ("Corporate Transaction");
excluding, however, such a Corporate Transaction (a) pursuant
to which all or substantially all of the individuals and
entities who are the beneficial owners, respectively, of the
Outstanding Common Stock and Total Voting Power immediately
prior to such Corporate Transaction will beneficially own,
directly or indirectly, more than 50%, respectively, of the
outstanding common stock and the combined voting power of the
then outstanding securities entitled to vote generally in the
election of directors of the company resulting from such
Corporate Transaction (including, without limitation, a
corporation which as a result of such transaction owns the
Corporation or all or substantially all of the Corporation's
assets either directly or through one or more subsidiaries) in
substantially the same proportions as their ownership
immediately prior to such Corporate Transaction of the
Outstanding Common Stock and Total Voting Power, as the case
may be, or (b) after which no Person beneficially owns a
greater percentage of the combined voting power of the then
outstanding securities entitled to vote generally in the
election of directors of such corporation than does Ciba; or
(4) Ciba shall become the Beneficial Owner of more
than 57.5% of the Total Voting Power; or
(5) the approval by the stockholders of the
Corporation of a complete liquidation or dissolution of the
Corporation;
(IV) the term "Ciba" shall mean Ciba Specialty Chemicals Holding Inc.,
a Swiss corporation, together with its affiliates holding Corporation
voting securities pursuant to Section 4.01(b) of the Governance
Agreement;
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(V) the term "Disability (or becoming Disabled)" shall mean that, as a
result of the Optionee's incapacity due to physical or mental illness
or injury, he or she shall not have performed all or substantially all
of his or her usual duties as an employee of the Corporation for a
period of more than one-hundred-fifty (150) days in any period of
one-hundred-eighty (180) consecutive days;
(VI) the term "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended from time to time;
(VII) the term "Good Reason" for termination by the Optionee of the
Optionee's employment shall mean the occurrence (without the Optionee's
express written consent) of any one of the following acts by the
Corporation, or failures by the Corporation to act, unless, in the case
of any act or failure to act described in paragraphs (1), (5) or (6)
below, such act or failure to act is corrected prior to the date of
termination of the Optionee's employment:
(1) a significant adverse alteration in the
nature or status of the Optionee's responsibilities, position
or authority from those in effect immediately prior to the
Change in Control;
(2) a reduction by the Corporation in the
Optionee's annual base salary as in effect on the date hereof
or as the same may be increased from time to time;
(3) the relocation of the Optionee's
principal place of employment to a location more than fifty
(50) miles from the Optionee's principal place of employment
immediately prior to the Change in Control or the
Corporation's requiring the Optionee to work anywhere other
than at such principal place of employment (or permitted
relocation thereof) except for required travel on the
Corporation's business to an extent substantially consistent
with the Optionee's present business travel obligations;
(4) the failure by the Corporation to pay to
the Optionee any portion of the Optionee's current
compensation, or to pay to the Optionee any portion of an
installment of deferred compensation under any deferred
compensation program of the Corporation, within seven (7) days
of the date such compensation is due;
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(5) the failure by the Corporation to
continue in effect any compensation plan in which the Optionee
participates immediately prior to the Change in Control which
is material to the Optionee's total compensation, or any
substitute plans adopted prior to the Change in Control,
unless an equitable arrangement (embodied in an ongoing
substitute or alternative plan) has been made with respect to
such plan, or the failure by the Corporation to continue the
Optionee's participation therein (or in such substitute or
alternative plan) on a basis not materially less favorable,
both in terms of the amount or timing of payment of benefits
provided and the level of the Optionee's participation
relative to other participants, as existed immediately prior
to the Change in Control; or
(6) the failure by the Corporation to
continue to provide the Optionee with benefits substantially
similar to those enjoyed by the Optionee under any of the
Corporation's pension, savings, life insurance, medical,
health and accident, or disability plans in which the Optionee
was participating immediately prior to the Change in Control
(except for across-the-board changes similarly affecting all
senior executives of the Corporation and all senior executives
of any Person in control of the Corporation), the taking of
any other action by the Corporation which would directly or
indirectly materially reduce any of such benefits or deprive
the Optionee of any material fringe benefit enjoyed by the
Optionee at the time of the Change in Control, or the failure
by the Corporation to provide the Optionee with the number of
paid vacation days to which the Optionee is entitled on the
basis of years of service with the Corporation in accordance
with the Corporation's normal vacation policy in effect at the
time of the Change in Control.
The Optionee's right to terminate the Optionee's employment for Good
Reason shall not be affected by the Optionee's incapacity due to
physical or mental illness. The Optionee's continued employment shall
not constitute consent to, or a waiver of rights with respect to, any
act or failure to act constituting Good Reason hereunder.
For purposes of any determination regarding the existence of Good
Reason, any claim by the Optionee that Good Reason exists shall be
presumed to be correct unless the Corporation establishes to the Board
by clear and convincing evidence that Good Reason does not exist;
(VIII) the term "Governance Agreement" shall have the meaning given in
the Strategic Alliance Agreement (as defined in this Section);
(IX) the term "Person" shall have the meaning given in Section 3(a)(9)
of the Exchange Act, as modified and used in Sections 13(d) and 14(d)
of the Exchange Act, but excluding Ciba for so long as Ciba is subject
to the restrictions imposed by the Governance Agreement;
(X) the term "Retirement" shall mean termination of the Optionee's
employment, other than by reason of death or Cause, either (A) at or
after age 65 or (B) at or after age 55 after five (5) years of
employment by the Corporation (or a Subsidiary thereof); and
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(XI) the term "Strategic Alliance Agreement" shall mean the Strategic
Alliance Agreement among the Corporation, Ciba-Geigy Limited and
Ciba-Geigy Corporation, dated as of September 29, 1995, as amended, and
any of their respective permitted successors or assigns thereunder.
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Annex A
NOTICE OF GRANT
EMPLOYEE STOCK OPTION
HEXCEL CORPORATION INCENTIVE STOCK PLAN
The following employee of Hexcel Corporation, a Delaware corporation
("Hexcel") or a Subsidiary, has been granted an option to purchase shares of the
Common Stock of Hexcel, $.01 par value, in accordance with the terms of this
Notice of Grant and the Employee Option Agreement to which this Notice of Grant
is attached.
The following is a summary of the principal terms of the option which
has been granted. The terms below shall have the meanings ascribed to them below
when used in the Employee Option Agreement.
- - ----------------------------------------------------- --------------------------
Optionee
- - ----------------------------------------------------- --------------------------
- - ----------------------------------------------------- --------------------------
Address of Optionee
- - ----------------------------------------------------- --------------------------
- - ----------------------------------------------------- --------------------------
Employee Number
- - ----------------------------------------------------- --------------------------
- - ----------------------------------------------------- --------------------------
Employee ID Number
- - ----------------------------------------------------- --------------------------
- - ----------------------------------------------------- --------------------------
Foreign Sub Plan, if applicable
- - ----------------------------------------------------- --------------------------
- - ----------------------------------------------------- --------------------------
Grant Date December 2, 1999
- - ----------------------------------------------------- --------------------------
- - ----------------------------------------------------- --------------------------
Purchase Price $5.75
- - ----------------------------------------------------- --------------------------
- - ----------------------------------------------------- --------------------------
Aggregate Number of Shares
Granted (the "Option Shares")
- - ----------------------------------------------------- --------------------------
IN WITNESS WHEREOF, the parties hereby agree to the terms of this
Notice of Grant and the Employee Option Agreement to which this Notice of Grant
is attached and execute this Notice of Grant and Employee Option Agreement as of
the Grant Date.
HEXCEL CORPORATION
Optionee
By:
David M. Wong
Vice President, Corporate
Affairs
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Exhibit 10.14
RETAINER FEE OPTION AGREEMENT
For
Non-Employee Directors
OPTION AGREEMENT, dated as of the Grant Date, by and between the Optionee and
Hexcel Corporation (the "Corporation").
W I T N E S S E T H:
WHEREAS, the Corporation has adopted the Hexcel Corporation Incentive Stock Plan
(the "Plan"); and
WHEREAS, the Board of Directors of the Corporation (the "Board") has determined
that it is desirable and in the best interests of the Corporation to grant to
the Optionee a stock option as an incentive for the Optionee to advance the
interests of the Corporation;
NOW, THEREFORE, the parties agree as follows:
1. Notice of Grant; Incorporation of Plan. A Notice of Grant is attached
hereto as Annex A and incorporated by reference herein. Unless otherwise
provided herein, capitalized terms used herein and set forth in such Notice
of Grant shall have the meanings ascribed to them in the Notice of Grant
and capitalized terms used herein and set forth in the Plan shall have the
meanings ascribed to them in the Plan. The Plan is incorporated by
reference and made a part of this Option Agreement, and this Option
Agreement shall be subject to the terms of the Plan, as the Plan may be
amended from time to time, provided that any such amendment of the Plan
must be made in accordance with Section X of the Plan. The Option granted
herein constitutes an Award within the meaning of the Plan.
2. Grant of Option. Pursuant to the Plan and subject to the terms and
conditions set forth herein and therein, the Corporation hereby grants to
the Optionee the right and option (the "Option") to purchase all or any
part of the Option Shares of the Corporation's common stock, $.01 par value
per share (the "Common Stock"), which Option is not intended to qualify as
an incentive stock option, as defined in Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code").
3. Purchase Price. The purchase price per share of the Option Shares shall
be the Purchase Price.
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4. Terms of Option.
(a) Expiration Date; Term. Subject to Section 4(d) below, the Option
shall expire on, and shall no longer be exercisable following, the
tenth anniversary of the Grant Date. The ten-year period from the Grant
Date to its tenth anniversary shall constitute the "Term" of the
Option.
(b) Vesting Period; Exercisability. Subject to Section 4(c) and 4(d)
below, the Option shall vest in proportion to the time elapsed between
the Grant Date and the first anniversary of the Grant Date.
(c) Change of Control. In the event of a Change in Control (as defined
in the last Section hereof), the Option shall immediately become fully
vested and exercisable.
(d) Termination of Service as Director. (i) Except as provided in
Section 4(d)(ii) hereof, if the Optionee's service as a member of the
Board is terminated for any reason (other than death or disability),
the Option (to the extent vested on the date of termination) may be
exercised at any time within one year after such termination (but not
beyond the Term of the Option). The Option, to the extent not then
vested, shall immediately expire upon such termination.
(ii) In the event the Optionee's service as a member of the Board is
terminated because of death or disability, the Option (to the extent
vested on the date of termination) may be exercised at any time within
three years after the Optionee's death or disability (but not beyond
the Term of the Option). The Option, to the extent not vested, shall
immediately expire upon such termination.
5. Adjustment Upon Changes in Capitalization.
(a) The aggregate number of Option Shares and the Purchase Price shall
be appropriately adjusted by the Committee for any increase or decrease
in the number of issued shares of Common Stock resulting from a
subdivision or consolidation of shares or other capital adjustment, or
the payment of a stock dividend or other increase or decrease in such
shares, effected without receipt of consideration by the Corporation,
or other change in corporate or capital structure. The Committee shall
also make the foregoing changes and any other changes, including
changes in the classes of securities available, to the extent
reasonably necessary or desirable to preserve the intended benefits
under this Option Agreement in the event of any other reorganization,
recapitalization, merger, consolidation, spin-off, extraordinary
dividend or other distribution or similar transaction involving the
Corporation.
(b) Any adjustment under this Section 5 in the number of Option Shares
and the Purchase Price shall apply to only the unexercised portion of
the Option. If fractions of a share would result from any such
adjustment, the adjustment shall be rounded down to the nearest whole
number of shares.
6. Method of Exercising Option and Withholding.
(a) The Option shall be exercised by the delivery by the Optionee to
the Corporation at its principal office (or at such other address as
may be established by the Committee) of written notice of the number of
Option Shares with respect to which the Option is exercised,
accompanied by payment in full of the aggregate Purchase Price for such
Option Shares. Payment for such Option Shares shall be made (i) in U.S.
dollars by personal check, bank draft or money order payable to the
order of the Corporation, or by money transfers or direct account
debits to an account designated by the Corporation; (ii) through the
delivery of shares of Common Stock with a Fair Market Value equal to
the total payment due from the Optionee; (iii) pursuant to a "cashless
exercise" program if such a program is established by the Corporation;
or (iv) by any combination of the methods described in (i) through
(iii) above.
(b) The Corporation's obligation to deliver shares of Common Stock upon
the exercise of the Option shall be subject to the payment by the
Optionee of applicable federal, state and local withholding tax, if
any. The Corporation shall, to the extent permitted by law, have the
right to deduct from any payment of any kind otherwise due to the
Optionee any federal, state or local taxes required to be withheld with
respect to such payment.
7. Transfer. Except as provided in this Section 7, the Option is not
transferable otherwise than by will or the laws of descent and
distribution, and the Option may be exercised during the Optionee's
lifetime only by the Optionee. Any attempt to transfer the Option in
contravention of this Section 7 is void ab initio. The Option shall not be
subject to execution, attachment or other process. Notwithstanding the
foregoing, the Optionee shall be permitted to transfer the Option to
members of his or her immediate family (i.e., children, grandchildren or
spouse), trusts for the benefit of such family members, and partnerships
whose only partners are such family members; provided, however, that no
consideration can be paid for the transfer of the Option and the transferee
of the Option shall be subject to all conditions applicable to the Option
prior to its transfer.
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8. No Rights in Option Shares. The Optionee shall have none of the rights of a
stockholder with respect to the Option Shares unless and until shares of
Common Stock are issued upon exercise of the Option.
9. No Right to Continued Service as Director. Nothing contained herein shall
be deemed to confer upon the Optionee any right to continue to serve as a
member of the Board.
10. Governing Law/Jurisdiction. This Option Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware without
reference to principles of conflict of laws.
11. Resolution of Disputes. Any disputes arising under or in connection with
this Option Agreement shall be resolved by binding arbitration before a
single arbitrator, to be held in New York in accordance with the commercial
rules and procedures of the American Arbitration Association. Judgment upon
the award rendered by the arbitrator shall be final and subject to appeal
only to the extent permitted by law. Each party shall bear such party's own
expenses incurred in connection with any arbitration; provided, however,
that the cost of the arbitration, including without limitation, reasonable
attorneys' fees of the Optionee, -------- ------- shall be borne by the
Corporation in the event the Optionee is the prevailing party in the
arbitration. Anything to the contrary notwithstanding, each party hereto
has the right to proceed with a court action for injunctive relief or
relief from violations of law not within the jurisdiction of an arbitrator.
12. Notices. Any notice required or permitted under this Option Agreement shall
be deemed given when delivered personally, or when deposited in a United
States Post Office, postage prepaid, addressed, as appropriate, to the
Optionee at the last address specified in Optionee's records with the
Corporation, or such other address as the Optionee may designate in writing
to the Corporation, or to the Corporation, Attention: Corporate Secretary,
or such other address as the Corporation may designate in writing to the
Optionee.
13. Failure To Enforce Not a Waiver. The failure of either party hereto to
enforce at any time any provision of this Option Agreement shall in no way
be construed to be a waiver of such provision or of any other provision
hereof.
14. Counterparts. This Option Agreement may be executed in two or more
counterparts, each of which shall be an original but all of which together
shall represent one and the same agreement.
15. Miscellaneous. This Option Agreement cannot be changed or terminated
orally. This Option Agreement and the Plan contain the entire agreement
between the parties relating to the subject matter hereof. The section
headings herein are intended for reference only and shall not affect the
interpretation hereof.
16. Definitions. For purposes of this Option Agreement:
(I) the term "Beneficial Owner" (and variants thereof) shall have the
meaning given in Rule 13d-3 promulgated under the Exchange Act;
(II) the term "Change in Control" shall mean any of the following
events:
(1)(a) any Person (as defined in this Section) is or
becomes the Beneficial Owner of 20% or more of either (i) the
then outstanding Common Stock of the Corporation (the
"Outstanding Common Stock") or (ii) the combined voting power
of the then outstanding securities entitled to vote generally
in the election of directors of the Corporation (the "Total
Voting Power"); excluding, however, the following: (A) any
acquisition by the Corporation or any of its affiliates or (B)
any acquisition by any employee benefit plan (or related
trust) sponsored or maintained by the Corporation or any of
its affiliates and (b) Ciba (as defined in this Section)
beneficially owns, in the aggregate, a lesser percentage of
the Total Voting Power than such Person beneficially owns; or
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(2) a change in the composition of the Board such
that the individuals who, as of the effective date of this
Employee Option Agreement, constitute the Board (such
individuals shall be hereinafter referred to as the "Incumbent
Directors") cease for any reason to constitute at least a
majority of the Board; provided, however, for purposes of this
definition, that any individual who becomes a director
subsequent to such effective date, whose election, or
nomination for election by the Corporation's stockholders, was
made or approved pursuant to the Governance Agreement (as
defined in this Section) or by a vote of at least a majority
of the Incumbent Directors (or directors whose election or
nomination for election was previously so approved) shall be
considered a member of the Incumbent Board; but, provided,
further, that any such individual whose initial assumption of
office occurs as a result of either an actual or threatened
election contest (as such terms are used in Rule 14a-11 of
Regulation 14A promulgated under the Exchange Act) or other
actual or threatened solicitation of proxies or consents by or
on behalf of a person or legal entity other than the Board
shall not be considered a member of the Incumbent Board; or
(3) the approval by the stockholders of the
Corporation of a reorganization, merger or consolidation or
sale or other disposition of all or substantially all of the
assets of the Corporation ("Corporate Transaction");
excluding, however, such a Corporate Transaction (a) pursuant
to which all or substantially all of the individuals and
entities who are the beneficial owners, respectively, of the
Outstanding Common Stock and Total Voting Power immediately
prior to such Corporate Transaction will beneficially own,
directly or indirectly, more than 50%, respectively, of the
outstanding common stock and the combined voting power of the
then outstanding securities entitled to vote generally in the
election of directors of the company resulting from such
Corporate Transaction (including, without limitation, a
corporation which as a result of such transaction owns the
Corporation or all or substantially all of the Corporation's
assets either directly or through one or more subsidiaries) in
substantially the same proportions as their ownership
immediately prior to such Corporate Transaction of the
Outstanding Common Stock and Total Voting Power, as the case
may be, or (b) after which no Person beneficially owns a
greater percentage of the combined voting power of the then
outstanding securities entitled to vote generally in the
election of directors of such corporation than does Ciba; or
(4) Ciba shall become the Beneficial Owner of more
than 57.5% of the Total Voting Power; or
(5) the approval by the stockholders of the
Corporation of a complete liquidation or dissolution of the
Corporation;
(III) the term "Ciba" shall mean Ciba Specialty Chemicals Holding Inc.,
a Swiss corporation, together with its affiliates holding Corporation
voting securities pursuant to Section 4.01(b) of the Governance
Agreement;
(IV) the term "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended from time to time;
(V) the term "Governance Agreement" shall have the meaning given in the
Strategic Alliance Agreement (as defined in this Section);
(VI) the term "Person" shall have the meaning given in Section 3(a)(9)
of the Exchange Act, as modified and used in Sections 13(d) and 14(d)
of the Exchange Act, but excluding Ciba for so long as Ciba is subject
to the restrictions imposed by the Governance Agreement; and
(VII) the term "Strategic Alliance Agreement" shall mean the Strategic
Alliance Agreement among the Corporation, Ciba-Geigy Limited and
Ciba-Geigy Corporation, dated as of September 29, 1995, as amended, and
any of their respective permitted successors or assigns thereunder.
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Annex A
NOTICE OF GRANT
STOCK OPTION
HEXCEL CORPORATION INCENTIVE STOCK PLAN
The following member of the Board of Directors of Hexcel Corporation, a
Delaware corporation ("Hexcel"), has been granted an option to purchase shares
of the Common Stock of Hexcel, $.01 par value per share, in accordance with the
terms of this Notice of Grant and the Retainer Fee Option Agreement to which
this Notice of Grant is attached.
The following is a summary of the principal terms of the option which
has been granted. The terms below shall have the meanings ascribed to them below
when used in the Option Agreement.
- - ----------------------------------------------------- --------------------------
Optionee
- - ----------------------------------------------------- --------------------------
- - ----------------------------------------------------- --------------------------
Address of Optionee
- - ----------------------------------------------------- --------------------------
- - ----------------------------------------------------- --------------------------
Grant Date December 2, 1999
- - ----------------------------------------------------- --------------------------
- - ----------------------------------------------------- --------------------------
Purchase Price $2.8750
- - ----------------------------------------------------- --------------------------
- - ----------------------------------------------------- --------------------------
Aggregate Number of Shares
Granted (the "Option Shares")
- - ----------------------------------------------------- --------------------------
IN WITNESS WHEREOF, the parties hereby agree to the terms of this
Notice of Grant and the Retainer Fee Option Agreement to which this Notice of
Grant is attached and execute this Notice of Grant and Option Agreement as of
the Grant Date.
HEXCEL CORPORATION
Optionee
By:
Ira J. Krakower
Senior Vice President,
General Counsel & Secretary
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Exhibit 10.19
PERFORMANCE ACCELERATED
RESTRICTED STOCK UNIT AGREEMENT
(Special Executive Grant)
December 2, 1999
This Performance Accelerated Restricted Stock Unit Agreement (the
"Agreement"), is entered into as of the Grant Date, by and between Hexcel
Corporation, a Delaware corporation (the "Company"), and the Grantee.
Pursuant to the Hexcel Corporation Incentive Stock Plan (the
"Plan"), the Executive Compensation Committee (the "Committee") of the Board of
Directors of the Company (the "Board") has determined that the Grantee shall be
granted Performance Accelerated Restricted Stock Units ("PARS") upon the terms
and subject to the conditions hereinafter contained. Capitalized terms used but
not defined herein shall have the meanings assigned to them in the Plan.
1. Notice of Grant; Incorporation of Plan. A Notice of Grant is
attached hereto as Annex A and incorporated by reference herein. Unless
otherwise provided herein, capitalized terms used in this Agreement and set
forth in the Notice of Grant shall have the meanings ascribed to them in the
Notice of Grant and capitalized terms used in this Agreement and set forth in
the Plan shall have the meanings ascribed to them in the Plan. The Plan is
incorporated by reference and made a part of this Agreement, and this Agreement
shall be subject to the terms of the Plan, as the Plan may be amended from time
to time, provided that any such amendment of the Plan must be made in accordance
with Section X of the Plan. The PARS granted herein constitute an Award within
the meaning of the Plan.
2. Terms of Restricted Stock. The grant of PARS provided in Section 1
hereof shall be subject to the following terms, --------------------------
conditions and restrictions:
(a) The Grantee shall not possess any incidents of ownership (including,
without limitation, dividend and voting rights) in shares of Common
Stock in respect of the PARS until such PARS have vested and been
distributed to the Grantee in the form of shares of Common Stock.
(b) Except as provided in this Section 2 (b), the PARS and any interest
therein may not be sold, assigned, transferred, pledged, hypothecated
or otherwise disposed of, except by will or the laws of descent and
distribution, prior to the distribution of the Common Stock in respect
of such PARS and subject to the condi-tions set forth in the Plan and
this Agreement. Any attempt to transfer PARS in contravention of this
Section is void ab initio. PARS shall not be subject to execution,
attachment or other process. Notwithstanding the foregoing, the
Grantee shall be permitted to transfer PARS to members of this or her
immediate family (i.e., children, grandchildren or spouse), trusts for
the benefit of such family members, and partnerships whose only
partners are such family members; provided, however, that no
consideration can be paid for the transfer of the PARS and the
transferee of the PARS shall be subject to all conditions applicable
to the PARS (including all of the terms and conditions of this
Agreement) prior to transfer.
3. Vesting and Conversion of PARS. The PARS shall vest on (a)
January 1, 2007, or (b) on an earlier date when the Company's Cumulative EBITDA
(as defined hereinafter) equals or exceeds $250 million at any time prior to the
end of fiscal year 2002. The term "Cumulative EBITDA" shall mean the sum of the
Company's earnings before interest (including amortization of discount on debt),
taxes, depreciation and amortization for the fiscal quarters beginning with the
first full fiscal quarter of 2000, but adjusted to exclude business
consolidation and acquisition expenses and gains or losses on divestitures. Upon
the later to occur of (i) January 1, 2003 or (ii) the vesting of the PARS, such
vested PARS shall be converted into an equivalent number of shares of Common
Stock that will be immediately distributed to the Grantee; provided, however,
that, to the extent that (and only to the extent that) the Company would be
precluded from deducting the associated compensation expense because of Section
162(m) of the Internal Revenue Code of 1986, as amended (the "Code"), such PARS
shall be converted and distributed to the Grantee on the first business day of
the first year (or years, if the first deferred distribution shall not include
all of such PARS) in which the Company will not be so precluded; and provided
further, that no PARS shall be converted and distributed to the Grantee unless
the Grantee is an employee of the Company (or a Subsidiary) on December 31,
2002. On each dividend payment date with respect to the Common Stock subsequent
to any PARS becoming fully vested but not yet converted and distributed by
virtue of the immediately preceding proviso, the Company shall credit the
Grantee with an additional number of fully vested whole and partial PARS
(assuming each such PARS unit was a share of Common Stock) equal in value to the
amount of dividends which the Grantee would have received on such dividend
payment date if all such vested PARS (including PARS previously credited to the
Grantee pursuant to this section) which had not yet been converted into shares
had been so converted prior to the record date of such dividend. Such dividends
will be credited as vested PARS as of the payment date of such dividends and
such vested PARS shall thereafter be treated in the same manner as other PARS
under this Agreement (the foregoing method of dividend crediting being referred
to herein as being credited with the "Dividend Equivalent").
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Upon the distribution of the shares of Common Stock in respect of
the PARS, the Company shall issue to the Grantee or the Grantee's personal
representative a stock certificate representing such shares of Common Stock,
free of any restrictions.
4. Termination of Employment; Change of Control.
(a) For purposes of the grant hereunder, any transfer of employment
by the Grantee among the Company and its Subsidiaries shall not
be considered a termi-nation of employment. Notwithstanding any
other provision contained herein or in the Plan, (i) if the
Grantee dies or terminates employment due to Disability (as
defined in the last Section hereof), all PARS shall vest, be
converted into shares of Common Stock and be immediately
distributed to the Grantee, (ii) if the Grantee's employment with
the Company is involuntarily terminated other than for Cause (as
defined in the last Section hereof), all PARS shall vest, be
converted into shares of Common Stock and be immediately
distributed to the Grantee, (iii) if the Grantee voluntarily
terminates employment with the Company, all vested PARS shall be
converted into shares of Common Stock and be immediately
distributed to the Grantee, provided that the Grantee is an
employee of the Company (or a Subsidiary) on December 31, 2002,
and (iv) if the Grantee's employment with the Company terminates
due to the Grantee's Retirement (as defined in the last Section
hereof), all PARS shall vest, be converted in shares of Common
Stock and be immediately distributed to the Grantee; provided,
however, that in each case an appropriate number of such PARS
shall not be converted and distributed to the Grantee until the
first business day of the first year in which the Company is not
precluded from deducting the associated compensation expense
under Section 162(m) of the Code, but only to the extent such
number of PARS would not be deductible until such time; further,
provided, that the Grantee shall, if applicable, be credited with
the Dividend Equivalent with respect to such PARS.
If the Grantee's employment with the Company is involuntarily
terminated for Cause or the Grantee voluntarily terminates his employment with
the Company, the Grantee shall forfeit all PARS which have not yet become vested
as of the date of termination of employment.
(b) In the event of a Change in Control (as defined in the last
Section hereof), all PARS shall vest, be converted into shares of
Common Stock and be immediately distributed to the Grantee.
5. Equitable Adjustment.
The aggregate number of shares of Common Stock subject to the PARS shall be
proportionately adjusted for any increase or decrease in the number of issued
shares of Common Stock resulting from a subdivision or consolidation of shares
or other capital adjustment, or the payment of a stock dividend or other
increase or decrease in such shares, effected without the receipt of
consideration by the Company, or other change in corporate or capital structure.
The Committee shall also make the foregoing changes and any other changes,
including changes in the classes of securities available, to the extent
reasonably necessary or desirable to preserve the intended benefits under this
Agreement in the event of any other reorganization, recapitalization, merger,
consolidation, spin-off, extraordinary dividend or other distribution or similar
transaction involving the Company.
6. Taxes. The Grantee shall pay to the Company promptly upon
request any taxes the Company reasonably determines it is required to withhold
under applicable tax laws with respect to the PARS. Such payment shall be made
as provided in Section IX(f) of the Plan.
7. No Guarantee of Employment. Nothing set forth herein or in the
Plan shall confer upon the Grantee any right of continued employment for any
period by the Company, or shall interfere in any way with the right of the
Company to terminate such employment.
8. Notices. Any notice required or permitted under this Agreement
shall be deemed given when delivered personally, or when deposited in a United
States Post Office, postage prepaid, addressed, as appropriate, to the Grantee
at the last address specified in Grantee's employment records, or such other
address as the Grantee may designate in writing to the Company, or to the
Company, Attention: Corporate Secretary, or such other address as the Company
may designate in writing to the Grantee.
9. Failure To Enforce Not a Waiver. The failure of either party
hereto to enforce at any time any provision of this Agreement shall in no way be
construed to be a waiver of such provision or of any other provision hereof.
10. Governing Law. This Agreement shall be governed by and
construed according to the laws of the State of Delaware, without regard to the
conflicts of laws provisions thereof.
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11. Incorporation of Plan. The Plan is hereby incorporated by
reference and made a part of this Agreement, and this Agreement shall be subject
to the terms of the Plan, as the Plan may be amended from time to time, provided
that any such amendment of the Plan must be made in accordance with Section X of
the Plan. The PARS granted herein constitute Awards within the meaning of the
Plan.
12. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be an original but all of which together shall
represent one and the same agreement.
13. Miscellaneous. This Agreement cannot be changed or terminated
orally. This Agreement and the Plan contain the entire agreement between the
parties relating to the subject matter hereof. The section headings herein are
intended for reference only and shall not affect the interpretation hereof.
14. Definitions. For purposes of this Agreement:
(I) the term "Beneficial Owner" (and variants thereof) shall have the
meaning given in Rule 13d-3 promulgated under the Exchange Act;
(II) the term "Cause" shall mean (A) the willful and continued failure by
the Grantee to substantially perform the Grantee's duties with the Company
(other than any such failure resulting from the Grantee's incapacity due to
physical or mental illness) after a written demand for substantial
performance is delivered to the Grantee by the Company, which demand
specifically identifies the manner in which the Company believes that the
Grantee has not substantially performed the Grantee's duties, or (B) the
willful engaging by the Grantee in conduct which is demonstrably and
materially injurious to the Company or its subsidiaries, monetarily or
otherwise. For purposes of clauses (A) and (B) of this definition, no act,
or failure to act, on the Grantee's part shall be deemed "willful" unless
done, or omitted to be done, by the Grantee not in good faith and without
the reasonable belief that the Grantee's act, or failure to act, was in the
best interest of the Company;
(III) the term "Change in Control" shall mean any of the following events:
(A)(i) any Person (as defined in this Section), is or
becomes the Beneficial Owner of 20% or more of either (x) the then
outstanding Common Stock of the Company (the "Outstanding Common
Stock") or (y) the combined voting power of the then outstanding
securities entitled to vote generally in the election of directors
of the Company (the "Total Voting Power"); excluding, however, the
following: (1) any acquisition by the Company or any of its
affiliates or (2) any acquisition by any employee benefit plan (or
related trust) sponsored or maintained by the Company or any of
its affiliates and (ii) Ciba (as defined in this Section)
beneficially owns, in the aggregate, a lesser percentage of the
Total Voting Power than such Person beneficially owns; or
(B) a change in the composition of the Board such that the
individuals who, as of the effective date of this Agreement,
constitute the Board (such individuals shall be hereinafter
referred to as the "Incumbent Directors") cease for any reason to
constitute at least a majority of the Board; provided, however,
for purposes of this definition, that any individual who becomes a
director subsequent to such effective date, whose election, or
nomination for election by the Company's stockholders, was made or
approved pursuant to the Governance Agreement (as defined in this
Section) or by a vote of at least a majority of the Incumbent
Directors (or directors whose election or nomination for election
was previously so approved) shall be considered a member of the
Incumbent Board; but, provided, further, that any such individual
whose initial assumption of office occurs as a result of either an
actual or threatened election contest (as such terms are used in
Rule 14a-11 of Regulation 14A promulgated under the Exchange Act)
or other actual or threatened solicitation of proxies or consents
by or on behalf of a person or legal entity other than the Board
shall not be considered a member of the Incumbent Board; or
(C) the approval by the stockholders of the Company of a
reorganization, merger or consolidation or sale or other
disposition of all or substantially all of the assets of the
Company ("Corporate Transaction"); excluding, however, such a
Corporate Transaction (i) pursuant to which all or substantially
all of the individuals and entities who are the beneficial owners,
respectively, of the Outstanding Common Stock and Total Voting
Power immediately prior to such Corporate Transaction will
beneficially own, directly or indirectly, more than 50%,
respectively, of the outstanding common stock and the combined
voting power of the then outstanding securities entitled to vote
generally in the election of directors of the company resulting
from such Corporate Transaction (including, without limitation, a
corporation which as a result of such transaction owns the Company
or all or substantially all of the Company's assets either
directly or through one or more subsidiaries) in substantially the
same proportions as their ownership immediately prior to such
Corporate Transaction of the Outstanding Common Stock and Total
Voting Power, as the case may be, or (ii) after which no Person
beneficially owns a greater percentage of the combined voting
power of the then outstanding securities entitled to vote
generally in the election of directors of such corporation than
does Ciba; or
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(D) Ciba shall become the Beneficial Owner of more than
57.5% of the Total Voting Power; or
(E) the approval by the stockholders of the Company of a
complete liquidation or dissolution of the Company.
(IV) the term "Ciba" shall mean Ciba Specialty Chemicals Holding Inc., a
Swiss corporation, together with its affiliates holding Company voting
securities pursuant to Section 4.01(b) of the Governance Agreement;
(V) the term "Disability" shall mean that, as a result of the Grantee's
incapacity due to physical or mental illness or injury, the Grantee shall
not have performed all or substantially all of the Grantee's usual duties
as an employee of the Company for a period of more than one-hundred-fifty
(150) days in any period of one-hundred-eighty (180) consecutive days;
(VI) the term "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended;
(VII) the term "Governance Agreement" shall have the meaning given in the
Strategic Alliance Agreement (as defined in this Section);
(VIII) the term "Person" shall have the meaning given in Section 3(a)(9) of
the Exchange Act, as modified and used in Sections 13(d) and 14(d) of the
Exchange Act, but excluding Ciba for so long as Ciba is subject to the
restrictions imposed by the Governance Agreement;
(IX) the term "Retirement" shall mean termination of the Grantee's
employment, other than by reason of death or Cause, either (A) at or after
age 65 or (B) at or after age 55 after five (5) years of employment by the
Company (or a Subsidiary thereof); and
(X) the term "Strategic Alliance Agreement" shall mean the Strategic
Alliance Agreement among the Company, Ciba-Geigy Limited and Ciba-Geigy
Corporation, dated as of September 29, 1995, as amended, and any of their
respective permitted successors or assigns thereunder.
160
<PAGE>
Annex A
NOTICE OF GRANT
PERFORMANCE ACCELERATED RESTRICTED STOCK UNITS
HEXCEL CORPORATION INCENTIVE STOCK PLAN
The following employee of Hexcel Corporation, a Delaware corporation
(Hexcel) or a Subsidiary, has been granted performance accelerated restricted
stock units in accordance with the terms of this Notice of Grant and the
Agreement to which this Notice of Grant is attached.
The terms below shall have the meanings ascribed to them below when used in
the Agreement.
- - ---------------------------------------------------- --------------------------
Grantee
- - ---------------------------------------------------- --------------------------
- - ---------------------------------------------------- --------------------------
Address of Grantee
- - ---------------------------------------------------- --------------------------
- - ---------------------------------------------------- --------------------------
Employee Number
- - ---------------------------------------------------- --------------------------
- - ---------------------------------------------------- --------------------------
Employee ID Number
- - ---------------------------------------------------- --------------------------
- - ---------------------------------------------------- --------------------------
Foreign Sub Plan, if applicable
- - ---------------------------------------------------- --------------------------
- - ---------------------------------------------------- --------------------------
Grant Date December 2, 1999
- - ---------------------------------------------------- --------------------------
- - ---------------------------------------------------- --------------------------
Aggregate Number of PARS
Granted
- - ---------------------------------------------------- --------------------------
IN WITNESS WHEREOF, the parties hereby agree to the terms of this Notice of
Grant and the Agreement to which this Notice of Grant is attached and execute
this Notice of Grant and the Agreement as of the Grant Date.
__________________________ HEXCEL CORPORATION
Grantee
By:__________________________
Name:________________________
Title:_______________________
161
<PAGE>
Exhibit 10.20
FY 2000
PERFORMANCE ACCELERATED
RESTRICTED STOCK UNIT AGREEMENT
December 2, 1999
This Performance Accelerated Restricted Stock Unit Agreement (the
"Agreement"), is entered into as of the Grant Date, by and between Hexcel
Corporation, a Delaware corporation (the "Company"), and the Grantee.
Pursuant to the Hexcel Corporation Incentive Stock Plan (the
"Plan"), the Executive Compensation Committee (the "Committee") of the Board of
Directors of the Company (the "Board") has determined that the Grantee shall be
granted Performance Accelerated Restricted Stock Units ("PARS") upon the terms
and subject to the conditions hereinafter contained. Capitalized terms used but
not defined herein shall have the meanings assigned to them in the Plan.
1. Notice of Grant; Incorporation of Plan. A Notice of Grant is
attached hereto as Annex A and incorporated by reference herein. Unless
otherwise provided herein, capitalized terms used in this Agreement and set
forth in the Notice of Grant shall have the meanings ascribed to them in the
Notice of Grant and capitalized terms used in this Agreement and set forth in
the Plan shall have the meanings ascribed to them in the Plan. The Plan is
incorporated by reference and made a part of this Agreement, and this Agreement
shall be subject to the terms of the Plan, as the Plan may be amended from time
to time, provided that any such amendment of the Plan must be made in accordance
with Section X of the Plan. The PARS granted herein constitute an Award within
the meaning of the Plan.
2. Terms of Restricted Stock. The grant of PARS provided in Section 1
hereof shall be subject to the following terms, --------------------------
conditions and restrictions:
(a) The Grantee shall not possess any incidents of ownership (including,
without limitation, dividend and voting rights) in shares of Common
Stock in respect of the PARS until such PARS have vested and been
distributed to the Grantee in the form of shares of Common Stock.
(b) Except as provided in this Section 2 (b), the PARS and any interest
therein may not be sold, assigned, transferred, pledged, hypothecated
or otherwise disposed of, except by will or the laws of descent and
distribution, prior to the distribution of the Common Stock in respect
of such PARS and subject to the condi-tions set forth in the Plan and
this Agreement. Any attempt to transfer PARS in contravention of this
Section is void ab initio. PARS shall not be subject to execution,
attachment or other process. Notwithstanding the foregoing, the
Grantee shall be permitted to transfer PARS to members of this or her
immediate family (i.e., children, grandchildren or spouse), trusts for
the benefit of such family members, and partnerships whose only
partners are such family members; provided, however, that no
consideration can be paid for the transfer of the PARS and the
transferee of the PARS shall be subject to all conditions applicable
to the PARS (including all of the terms and conditions of this
Agreement) prior to transfer.
3. Vesting and Conversion of PARS. The PARS shall vest on (a)
January 1, 2007, or (b) on an earlier date when the closing price of a share of
Company Common Stock as reported on the New York Stock Exchange Consolidated
Transactions Tape shall equal or exceed $12 for any ten days out of thirty
consecutive trading days. Upon the later to occur of (i) January 1, 2003 or (ii)
the vesting of the PARS, such vested PARS shall be converted into an equivalent
number of shares of Common Stock that will be immediately distributed to the
Grantee; provided, however, that, to the extent that (and only to the extent
that) the Company would be precluded from deducting the associated compensation
expense because of Section 162(m) of the Internal Revenue Code of 1986, as
amended (the "Code"), such PARS shall be converted and distributed to the
Grantee on the first business day of the first year (or years, if the first
deferred distribution shall not include all of such PARS) in which the Company
will not be so precluded; and provided further, that no PARS shall be converted
and distributed to the Grantee unless the Grantee is an employee of the Company
(or a Subsidiary) on December 31, 2002. On each dividend payment date with
respect to the Common Stock subsequent to any PARS becoming fully vested but not
yet converted and distributed by virtue of the immediately preceding proviso,
the Company shall credit the Grantee with an additional number of fully vested
whole and partial PARS (assuming each such PARS unit was a share of Common
Stock) equal in value to the amount of dividends which the Grantee would have
received on such dividend payment date if all such vested PARS (including PARS
previously credited to the Grantee pursuant to this section) which had not yet
been converted into shares had been so converted prior to the record date of
such dividend. Such dividends will be credited as vested PARS as of the payment
date of such dividends and such vested PARS shall thereafter be treated in the
same manner as other PARS under this Agreement (the foregoing method of dividend
crediting being referred to herein as being credited with the "Dividend
Equivalent").
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<PAGE>
Upon the distribution of the shares of Common Stock in respect of
the PARS, the Company shall issue to the Grantee or the Grantee's personal
representative a stock certificate representing such shares of Common Stock,
free of any restrictions.
4. Termination of Employment; Change of Control.
(a) For purposes of the grant hereunder, any transfer of employment by the
Grantee among the Company and its Subsidiaries shall not be considered
a termi-nation of employment. Notwithstanding any other provision
contained herein or in the Plan, (i) if the Grantee dies or terminates
employment due to Disability (as defined in the last Section hereof),
all PARS shall vest, be converted into shares of Common Stock and be
immediately distributed to the Grantee, (ii) if the Grantee's
employment with the Company is involuntarily terminated other than for
Cause (as defined in the last Section hereof), all PARS shall vest, be
converted into shares of Common Stock and be immediately distributed
to the Grantee, (iii) if the Grantee voluntarily terminates employment
with the Company, all vested PARS shall be converted into shares of
Common Stock and be immediately distributed to the Grantee, provided
that the Grantee is an employee of the Company (or a Subsidiary) on
December 31, 2002, and (iv) if the Grantee's employment with the
Company terminates due to the Grantee's Retirement (as defined in the
last Section hereof), all PARS shall vest, be converted in shares of
Common Stock and be immediately distributed to the Grantee; provided,
however, that in each case an appropriate number of such PARS shall
not be converted and distributed to the Grantee until the first
business day of the first year in which the Company is not precluded
from deducting the associated compensation expense under Section
162(m) of the Code, but only to the extent such number of PARS would
not be deductible until such time; further, provided, that the Grantee
shall, if applicable, be credited with the Dividend Equivalent with
respect to such PARS.
If the Grantee's employment with the Company is involuntarily
terminated for Cause or the Grantee voluntarily terminates his employment with
the Company, the Grantee shall forfeit all PARS which have not yet become vested
as of the date of termination of employment.
(b) In the event of a Change in Control (as defined in the last Section
hereof), all PARS shall vest, be converted into shares of Common Stock
and be immediately distributed to the Grantee.
5. Equitable Adjustment.
The aggregate number of shares of Common Stock subject to the PARS, and the $12
per share price set forth in clause 3(b) hereof, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a subdivision or consolidation of shares or other capital
adjustment, or the payment of a stock dividend or other increase or decrease in
such shares, effected without the receipt of consideration by the Company, or
other change in corporate or capital structure. The Committee shall also make
the foregoing changes and any other changes, including changes in the classes of
securities available, to the extent reasonably necessary or desirable to
preserve the intended benefits under this Agreement in the event of any other
reorganization, recapitalization, merger, consolidation, spin-off, extraordinary
dividend or other distribution or similar transaction involving the Company.
6. Taxes. The Grantee shall pay to the Company promptly upon
request any taxes the Company reasonably determines it is required to withhold
under applicable tax laws with respect to the PARS. Such payment shall be made
as provided in Section IX(f) of the Plan.
7. No Guarantee of Employment. Nothing set forth herein or in the
Plan shall confer upon the Grantee any right of continued employment for any
period by the Company, or shall interfere in any way with the right of the
Company to terminate such employment.
8. Notices. Any notice required or permitted under this Agreement
shall be deemed given when delivered personally, or when deposited in a United
States Post Office, postage prepaid, addressed, as appropriate, to the Grantee
at the last address specified in Grantee's employment records, or such other
address as the Grantee may designate in writing to the Company, or to the
Company, Attention: Corporate Secretary, or such other address as the Company
may designate in writing to the Grantee.
9. Failure To Enforce Not a Waiver. The failure of either party
hereto to enforce at any time any provision of this Agreement shall in no way be
construed to be a waiver of such provision or of any other provision hereof.
10. Governing Law. This Agreement shall be governed by and
construed according to the laws of the State of Delaware, without regard to the
conflicts of laws provisions thereof.
11. Incorporation of Plan. The Plan is hereby incorporated by
reference and made a part of this Agreement, and this Agreement shall be subject
to the terms of the Plan, as the Plan may be amended from time to time, provided
that any such amendment of the Plan must be made in accordance with Section X of
the Plan. The PARS granted herein constitute Awards within the meaning of the
Plan.
163
<PAGE>
12. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be an original but all of which together shall
represent one and the same agreement.
13. Miscellaneous. This Agreement cannot be changed or terminated
orally. This Agreement and the Plan contain the entire agreement between the
parties relating to the subject matter hereof. The section headings herein are
intended for reference only and shall not affect the interpretation hereof.
14. Definitions. For purposes of this Agreement:
(I) the term "Beneficial Owner" (and variants thereof) shall have the
meaning given in Rule 13d-3 promulgated under the Exchange Act;
(II) the term "Cause" shall mean (A) the willful and continued failure by
the Grantee to substantially perform the Grantee's duties with the Company
(other than any such failure resulting from the Grantee's incapacity due to
physical or mental illness) after a written demand for substantial
performance is delivered to the Grantee by the Company, which demand
specifically identifies the manner in which the Company believes that the
Grantee has not substantially performed the Grantee's duties, or (B) the
willful engaging by the Grantee in conduct which is demonstrably and
materially injurious to the Company or its subsidiaries, monetarily or
otherwise. For purposes of clauses (A) and (B) of this definition, no act,
or failure to act, on the Grantee's part shall be deemed "willful" unless
done, or omitted to be done, by the Grantee not in good faith and without
the reasonable belief that the Grantee's act, or failure to act, was in the
best interest of the Company;
(III) the term "Change in Control" shall mean any of the following events:
(A)(i) any Person (as defined in this Section), is or
becomes the Beneficial Owner of 20% or more of either (x) the then
outstanding Common Stock of the Company (the "Outstanding Common
Stock") or (y) the combined voting power of the then outstanding
securities entitled to vote generally in the election of directors
of the Company (the "Total Voting Power"); excluding, however, the
following: (1) any acquisition by the Company or any of its
affiliates or (2) any acquisition by any employee benefit plan (or
related trust) sponsored or maintained by the Company or any of
its affiliates and (ii) Ciba (as defined in this Section)
beneficially owns, in the aggregate, a lesser percentage of the
Total Voting Power than such Person beneficially owns; or
(B) a change in the composition of the Board such that the
individuals who, as of the effective date of this Agreement,
constitute the Board (such individuals shall be hereinafter
referred to as the "Incumbent Directors") cease for any reason to
constitute at least a majority of the Board; provided, however,
for purposes of this definition, that any individual who becomes a
director subsequent to such effective date, whose election, or
nomination for election by the Company's stockholders, was made or
approved pursuant to the Governance Agreement (as defined in this
Section) or by a vote of at least a majority of the Incumbent
Directors (or directors whose election or nomination for election
was previously so approved) shall be considered a member of the
Incumbent Board; but, provided, further, that any such individual
whose initial assumption of office occurs as a result of either an
actual or threatened election contest (as such terms are used in
Rule 14a-11 of Regulation 14A promulgated under the Exchange Act)
or other actual or threatened solicitation of proxies or consents
by or on behalf of a person or legal entity other than the Board
shall not be considered a member of the Incumbent Board; or
(C) the approval by the stockholders of the Company of a
reorganization, merger or consolidation or sale or other
disposition of all or substantially all of the assets of the
Company ("Corporate Transaction"); excluding, however, such a
Corporate Transaction (i) pursuant to which all or substantially
all of the individuals and entities who are the beneficial owners,
respectively, of the Outstanding Common Stock and Total Voting
Power immediately prior to such Corporate Transaction will
beneficially own, directly or indirectly, more than 50%,
respectively, of the outstanding common stock and the combined
voting power of the then outstanding securities entitled to vote
generally in the election of directors of the company resulting
from such Corporate Transaction (including, without limitation, a
corporation which as a result of such transaction owns the Company
or all or substantially all of the Company's assets either
directly or through one or more subsidiaries) in substantially the
same proportions as their ownership immediately prior to such
Corporate Transaction of the Outstanding Common Stock and Total
Voting Power, as the case may be, or (ii) after which no Person
beneficially owns a greater percentage of the combined voting
power of the then outstanding securities entitled to vote
generally in the election of directors of such corporation than
does Ciba; or
164
<PAGE>
(D) Ciba shall become the Beneficial Owner of more than
57.5% of the Total Voting Power; or
(E) the approval by the stockholders of the Company of a
complete liquidation or dissolution of the Company.
(IV) the term "Ciba" shall mean Ciba Specialty Chemicals Holding Inc., a
Swiss corporation, together with its affiliates holding Company voting
securities pursuant to Section 4.01(b) of the Governance Agreement;
(V) the term "Disability" shall mean that, as a result of the Grantee's
incapacity due to physical or mental illness or injury, the Grantee shall
not have performed all or substantially all of the Grantee's usual duties
as an employee of the Company for a period of more than one-hundred-fifty
(150) days in any period of one-hundred-eighty (180) consecutive days;
(VI) the term "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended;
(VII) the term "Governance Agreement" shall have the meaning given in the
Strategic Alliance Agreement (as defined in this Section);
(VIII) the term "Person" shall have the meaning given in Section 3(a)(9) of
the Exchange Act, as modified and used in Sections 13(d) and 14(d) of the
Exchange Act, but excluding Ciba for so long as Ciba is subject to the
restrictions imposed by the Governance Agreement;
(IX) the term "Retirement" shall mean termination of the Grantee's
employment, other than by reason of death or Cause, either (A) at or after
age 65 or (B) at or after age 55 after five (5) years of employment by the
Company (or a Subsidiary thereof); and
(X) the term "Strategic Alliance Agreement" shall mean the Strategic
Alliance Agreement among the Company, Ciba-Geigy Limited and Ciba-Geigy
Corporation, dated as of September 29, 1995, as amended, and any of their
respective permitted successors or assigns thereunder.
165
<PAGE>
Annex A
NOTICE OF GRANT
PERFORMANCE ACCELERATED RESTRICTED STOCK UNITS
HEXCEL CORPORATION INCENTIVE STOCK PLAN
The following employee of Hexcel Corporation, a Delaware corporation
(Hexcel) or a Subsidiary, has been granted performance accelerated restricted
stock units in accordance with the terms of this Notice of Grant and the
Agreement to which this Notice of Grant is attached.
The terms below shall have the meanings ascribed to them below when used in
the Agreement.
- - ---------------------------------------------------- --------------------------
Grantee
- - ---------------------------------------------------- --------------------------
- - ---------------------------------------------------- --------------------------
Address of Grantee
- - ---------------------------------------------------- --------------------------
- - ---------------------------------------------------- --------------------------
Employee Number
- - ---------------------------------------------------- --------------------------
- - ---------------------------------------------------- --------------------------
Employee ID Number
- - ---------------------------------------------------- --------------------------
- - ---------------------------------------------------- --------------------------
Foreign Sub Plan, if applicable
- - ---------------------------------------------------- --------------------------
- - ---------------------------------------------------- --------------------------
Grant Date December 2, 1999
- - ---------------------------------------------------- --------------------------
- - ---------------------------------------------------- --------------------------
Aggregate Number of PARS
Granted
- - ---------------------------------------------------- --------------------------
IN WITNESS WHEREOF, the parties hereby agree to the terms of this Notice of
Grant and the Agreement to which this Notice of Grant is attached and execute
this Notice of Grant and the Agreement as of the Grant Date.
__________________________ HEXCEL CORPORATION
Grantee
By:_________________________
David M. Wong
Vice President, Corporate Affairs
166
<PAGE>
Exhibit 10.33(i)
December 2, 1999
Mr. John J. Lee
18 Walnut Avenue
Larchmont, NY 10538
Re: 1999 MICP Award
Dear Mr. Lee:
As you are aware, the Executive Compensation Committee has awarded you a
special grant of nonqualified stock options in lieu of a cash bonus award under
the Company's Management Incentive Compensation Plan for 1999. The Committee
recognizes that its decision to make your 1999 award in a form other than cash
could have the unintended effect of reducing certain payments or benefits to
which you may be entitled under the Employment Agreement dated February 26, 1996
(as amended), the Executive Severance Agreement dated February 3, 1999 and the
Supplemental Executive Retirement Agreement dated May 20, 1998 (as amended)
between you and the Company (the "Agreements"). As a result, the Committee has
determined that, notwithstanding anything in the Agreements to the contrary, the
calculation of any payments or benefits to you, your beneficiaries or legal
representatives under the Agreements shall be made as though your 1999 bonus
award had been paid to you in cash in the amount of $350,000.
The Company hereby declares this undertaking to be irrevocable and made for
the benefit of you, your beneficiaries and legal representatives.
Hexcel Corporation
By: ________________________________
Acknowledged
- - --------------------------
Executive
167
<PAGE>
Exhibit 10.34(a)
December 2, 1999
Mr. H. E. Tad Kinne
107 Heming Way
Stamford CT 06903
Re: 1999 MICP Award
Dear Mr. Kinne:
As you are aware, the Executive Compensation Committee has awarded you a
special grant of nonqualified stock options in lieu of a cash bonus award under
the Company's Management Incentive Compensation Plan for 1999. The Committee
recognizes that its decision to make your 1999 award in a form other than cash
could have the unintended effect of reducing certain payments or benefits to
which you may be entitled under the Executive Severance Agreement dated February
3, 1999 and the Executive Deferred Compensation and Consulting Agreement dated
July 15, 1998 between you and the Company (the "Agreements"). As a result, the
Committee has determined that, notwithstanding anything in the Agreements to the
contrary, the calculation of any payments or benefits to you, your beneficiaries
or legal representatives under the Agreements shall be made as though your 1999
bonus award had been paid to you in cash in the amount of $159,250.
The Company hereby declares this undertaking to be irrevocable and made for
the benefit of you, your beneficiaries and legal representatives.
Hexcel Corporation
By: ________________________________
Acknowledged
- - --------------------------
Executive
168
<PAGE>
Exhibit 10.35
December 2, 1999
Mr. Stephen C. Forsyth
321 Blackberry Drive
Stamford CT 06903
Re: 1999 MICP Award
Dear Mr. Forsyth:
As you are aware, the Executive Compensation Committee has awarded you a
special grant of nonqualified stock options in lieu of a cash bonus award under
the Company's Management Incentive Compensation Plan for 1999. The Committee
recognizes that its decision to make your 1999 award in a form other than cash
could have the unintended effect of reducing certain payments or benefits to
which you may be entitled under the Executive Severance Agreement dated February
3, 1999 and the Executive Deferred Compensation and Consulting Agreement dated
October 1, 1994 between you and the Company (the "Agreements"). As a result, the
Committee has determined that, notwithstanding anything in the Agreements to the
contrary, the calculation of any payments or benefits to you, your beneficiaries
or legal representatives under the Agreements shall be made as though your 1999
bonus award had been paid to you in cash in the amount of $115,500.
The Company hereby declares this undertaking to be irrevocable and made for
the benefit of you, your beneficiaries and legal representatives.
Hexcel Corporation
By: ________________________________
Acknowledged
- - --------------------------
Executive
169
<PAGE>
Exhibit 12.1
<TABLE>
<CAPTION>
- - ------------------------------------------------------------- -- ------- -- ------- --- ------- -- -------- --- -------
(Dollars in millions) 1999 1998 1997 1996 1995
- - ------------------------------------------------------------- -- ------- -- ------- --- ------- -- -------- --- -------
<S> <C> <C> <C> <C> <C>
Income (loss) from continuing operations before income $ (25.0) $ 78.8 $ 50.7 $ (15.8) $ 6.5
taxes *
Interest expense, including amortization of debt issuance $ 73.9 $ 38.7 $ 25.8 $ 21.6 $ 8.7
costs
Portion of rental expense deemed to represent interest 3.1 2.7 2.5 1.5 1.0
- - ------------------------------------------------------------- -- ------- -- ------- --- ------- -- -------- --- -------
Total fixed charges $ 77.0 $ 41.4 $ 28.3 $ 23.1 $ 9.7
Earnings before fixed charges $ 52.0 $ 120.2 $ 79.0 $ 7.3 $ 16.2
Fixed charges $ 77.0 $ 41.4 $ 28.3 $ 23.1 $ 9.7
Ratio of earnings to fixed charges 0.7x 2.9x 2.8x - 1.7x
Deficiency of earnings to fixed charges - - - $ 15.8 -
- - ------------------------------------------------------------- -- ------- -- ------- --- ------- -- -------- --- -------
<FN>
* Includes equity in income and write-down in investments in affiliated companies.
</FN>
</TABLE>
170
<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 Composites S.r.l. (Italy)
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 Overseas Ltd. (United Kingdom)
Hexcel Pacific Rim Corporation (California)
Hexcel Pacific Rim Corporation (Delaware)
Hexcel Pottsville Corporation (Delaware)
Hexcel S.A. (France)
Hexcel Technologies Inc. (Delaware)
171
<PAGE>
Exhibit 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (Nos. 333-83745, 333-83747, 333-36163, 333-36099,
333-01225, 333-31125 and 333-57223), Form S-3 No. 333-05821 and Form S-4 No.
333-71601 of Hexcel Corporation of our report dated January 18, 2000, except as
to Senior Credit Facility in Note 7 which is as of March 7, 2000, which appears
on page 63 of this Form 10-K.
/s/ PRICEWATERHOUSECOOPERS LLP
PricewaterhouseCoopers LLP
San Jose, California
March 24, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-30-1999
<CASH> 200
<SECURITIES> 0
<RECEIVABLES> 164600
<ALLOWANCES> 6000
<INVENTORY> 153700
<CURRENT-ASSETS> 327800
<PP&E> 614500
<DEPRECIATION> 222400
<TOTAL-ASSETS> 1261900
<CURRENT-LIABILITIES> 210500
<BONDS> 736600
0
0
<COMMON> 400
<OTHER-SE> 269700
<TOTAL-LIABILITY-AND-EQUITY> 1261900
<SALES> 1151500
<TOTAL-REVENUES> 1151500
<CGS> 909000
<TOTAL-COSTS> 173600
<OTHER-EXPENSES> (20000)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 73900
<INCOME-PRETAX> (5000)
<INCOME-TAX> 1700
<INCOME-CONTINUING> (23300)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (23300)
<EPS-BASIC> (0.64)
<EPS-DILUTED> (0.64)
</TABLE>
