-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Vk9szztV7kelZdqsvc7vF3cKnDD9MQf1wfh/kMXZv+71z8QSTLLkjcfkbreExnik e0TXbHiHCS7vdrKGSdgctw== /in/edgar/work/20000814/0000717605-00-000018/0000717605-00-000018.txt : 20000921 0000717605-00-000018.hdr.sgml : 20000921 ACCESSION NUMBER: 0000717605-00-000018 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HEXCEL CORP /DE/ CENTRAL INDEX KEY: 0000717605 STANDARD INDUSTRIAL CLASSIFICATION: [3460 ] IRS NUMBER: 941109521 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-08472 FILM NUMBER: 701066 BUSINESS ADDRESS: STREET 1: 281 TRESSER BOULEVARD STREET 2: TWO STAMFORD PLZ CITY: STAMFORD STATE: CT ZIP: 06901 BUSINESS PHONE: 2039690666 MAIL ADDRESS: STREET 1: 281 TRESSER BLVD. STREET 2: TWO STAMFORD PLAZA, 16TH FLOOR CITY: STAMFORD STATE: CT ZIP: 06901-8781 10-Q 1 0001.txt ================================================================================ SECURITIES AND EXCHANGE COMMISSION ================================================================================ WASHINGTON, D. C. 20549 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- FORM 10-Q - -------------------------------------------------------------------------------- X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarter Ended June 30, 2000 or - -------------------------------------------------------------------------------- Transition Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 For the transition period from to Commission File Number 1-8472 - -------------------------------------------------------------------------------- HEXCEL CORPORATION (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) Delaware 94-1109521 (STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NO.) Two Stamford Plaza 281 Tresser Boulevard Stamford, Connecticut 06901-3238 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES AND ZIP CODE) Registrant's telephone number, including area code: (203) 969-0666 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes X No Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date. CLASS OUTSTANDING AT AUGUST 11, 2000 ----- ------------------------------ COMMON STOCK 36,881,456 ================================================================================ HEXCEL CORPORATION AND SUBSIDIARIES INDEX PAGE PART I. FINANCIAL INFORMATION ITEM 1. Condensed Consolidated Financial Statements o Condensed Consolidated Balance Sheets-- June 30, 2000 and December 31, 1999 2 o Condensed Consolidated Statements of Operations -- The Quarter and Year-to-Date Periods Ended June 30, 2000 and 1999 3 o Condensed Consolidated Statements of Cash Flows -- The Year-to-Date Periods Ended June 30, 2000 and 1999 4 o Notes to Condensed Consolidated Financial Statements 5 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 12 ITEM 3. Quantitative and Qualitative Disclosures About Market Risk 23 PART II. OTHER INFORMATION ITEM 4. Submission of Matters to a Vote of Security Holders 23 ITEM 6. Exhibits and Reports on Form 8-K 24 SIGNATURE 25 1 PART I. FINANCIAL INFORMATION ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
HEXCEL CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS - ----------------------------------------------------------------------------------------------------------------- UNAUDITED ------------------------------------ JUNE 30, DECEMBER 31, (IN MILLIONS, EXCEPT PER SHARE DATA) 2000 1999 - ----------------------------------------------------------------------------------------------------------------- ASSETS Current assets: Cash and cash equivalents $ 7.0 $ 0.2 Accounts receivable 171.4 158.6 Inventories 155.1 153.7 Prepaid expenses and other assets 5.2 5.1 Deferred tax asset 10.1 10.2 - ----------------------------------------------------------------------------------------------------------------- Total current assets 348.8 327.8 Property, plant and equipment 592.5 614.5 Less accumulated depreciation (234.7) (222.4) - ----------------------------------------------------------------------------------------------------------------- Net property, plant and equipment 357.8 392.1 Goodwill and other purchased intangibles, net of accumulated amortization of $30.1 in 2000 and $24.9 in 1999 398.8 411.2 Investments in affiliated companies and other assets 124.9 130.8 - ----------------------------------------------------------------------------------------------------------------- Total assets $ 1,230.3 $ 1,261.9 - ----------------------------------------------------------------------------------------------------------------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Notes payable and current maturities of capital lease obligations $ 29.7 $ 34.3 Accounts payable 82.8 80.3 Accrued liabilities 103.0 95.9 - ----------------------------------------------------------------------------------------------------------------- Total current liabilities 215.5 210.5 Long-term notes payable and capital lease obligations 622.8 712.5 Indebtedness to a related party 24.2 24.1 Other non-current liabilities 46.9 44.7 - ----------------------------------------------------------------------------------------------------------------- Total liabilities 909.4 991.8 Stockholders' equity: Preferred stock, no par value, 20.0 shares authorized, no shares issued or outstanding in 2000 and 1999 - - Common stock, $0.01 par value, 100.0 shares authorized, shares issued and outstanding of 37.6 in 2000 and 37.4 in 1999 0.4 0.4 Additional paid-in capital 276.2 273.6 Retained earnings 64.7 11.6 Accumulated other comprehensive loss (9.6) (4.8) - ---------------------------------------------------------------------------------------------------------------- 331.7 280.8 Less - treasury stock, at cost, 0.9 shares in 2000 and 0.8 in 1999 (10.8) (10.7) - ---------------------------------------------------------------------------------------------------------------- Total stockholders' equity 320.9 270.1 - ---------------------------------------------------------------------------------------------------------------- Total liabilities and stockholders' equity $ 1,230.3 $ 1,261.9 - ----------------------------------------------------------------------------------------------------------------- THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
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HEXCEL CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - -------------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------- UNAUDITED ----------------------------------------------------------------- QUARTER ENDED JUNE 30, YEAR-TO-DATE ENDED JUNE 30, (IN MILLIONS, EXCEPT PER SHARE DATA) 2000 1999 2000 1999 - -------------------------------------------------------------------------------------------------------------------- Net sales $ 271.6 $ 292.7 $ 551.4 $ 608.9 Cost of sales 211.1 226.4 428.7 471.8 - -------------------------------------------------------------------------------------------------------------------- Gross margin 60.5 66.3 122.7 137.1 Selling, general and administrative expenses 31.2 33.7 64.1 68.1 Research and technology expenses 5.2 6.3 11.5 12.8 Business consolidation expenses - 1.4 1.2 4.2 - -------------------------------------------------------------------------------------------------------------------- Operating income 24.1 24.9 45.9 52.0 Gain on sale of Bellingham aircraft interiors business 68.3 - 68.3 - Interest expense 17.2 18.4 35.6 37.5 - -------------------------------------------------------------------------------------------------------------------- Income before income taxes 75.2 6.5 78.6 14.5 Provision for income taxes 26.5 2.3 27.7 5.1 - -------------------------------------------------------------------------------------------------------------------- Income before equity in earnings 48.7 4.2 50.9 9.4 Equity in earnings of affiliated companies 1.7 0.1 2.2 0.1 - -------------------------------------------------------------------------------------------------------------------- Net income $ 50.4 $ 4.3 $ 53.1 $ 9.5 - -------------------------------------------------------------------------------------------------------------------- Net income per share: Basic $ 1.38 $ 0.12 $ 1.45 $ 0.26 Diluted 1.14 0.12 1.24 0.26 Weighted average shares: Basic 36.6 36.5 36.6 36.4 Diluted 45.5 36.6 45.2 36.5 - -------------------------------------------------------------------------------------------------------------------- THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
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HEXCEL CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - ---------------------------------------------------------------------------------------------------------------------- UNAUDITED ------------------------------------- YEAR-TO-DATE ENDED JUNE 30, (IN MILLIONS) 2000 1999 - ---------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 53.1 $ 9.5 Reconciliation to net cash provided by operations: Depreciation and amortization 29.7 31.5 Deferred income taxes 16.5 (1.9) Gain on sale of Bellingham aircraft interiors business (68.3) - Accrued business consolidation expenses 1.2 4.2 Business consolidation payments (4.9) (6.6) Equity in earnings of affiliated companies (2.2) (0.1) Working capital changes and other (20.9) 11.5 - ---------------------------------------------------------------------------------------------------------------------- Net cash provided by operating activities 4.2 48.1 - ---------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures (12.9) (18.0) Proceeds from sale of Bellingham aircraft interiors business 113.3 - Proceeds from sale of other assets 1.1 - Investments in affiliated companies (6.0) - - ---------------------------------------------------------------------------------------------------------------------- Net cash provided by (used for) investing activities 95.5 (18.0) - ---------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES Repayments of credit facilities, net (82.8) (247.3) Proceeds (repayments) of long-term debt and capital lease obligations, net (9.5) 224.8 Debt issuance costs (0.9) (9.5) Activity under stock plans 0.3 0.7 - ---------------------------------------------------------------------------------------------------------------------- Net cash used for financing activities (92.9) (31.3) - ---------------------------------------------------------------------------------------------------------------------- Effect of exchange rate changes on cash and cash equivalents - (0.6) - ---------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in cash and cash equivalents 6.8 (1.8) Cash and cash equivalents at beginning of year 0.2 7.5 - ---------------------------------------------------------------------------------------------------------------------- Cash and cash equivalents at end of period $ 7.0 $ 5.7 - ---------------------------------------------------------------------------------------------------------------------- THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
4 HEXCEL CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (IN MILLIONS, EXCEPT PER SHARE AMOUNTS) NOTE 1 -- BASIS OF ACCOUNTING The accompanying condensed consolidated financial statements have been prepared from the unaudited records of Hexcel Corporation and subsidiaries ("Hexcel" or the "Company") in accordance with generally accepted accounting principles, and, in the opinion of management, include all adjustments necessary to present fairly the balance sheet of the Company as of June 30, 2000, and the results of operations for the quarter and year-to-date periods ended June 30, 2000 and 1999, and the cash flows for the year-to-date periods ended June 30, 2000 and 1999. The condensed consolidated balance sheet of the Company as of December 31, 1999 was derived from the audited 1999 consolidated balance sheet. Certain information and footnote disclosures normally included in financial statements have been omitted pursuant to rules and regulations of the Securities and Exchange Commission. Certain prior period amounts in the condensed consolidated financial statements have been reclassified to conform to the 2000 presentation. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's 1999 Annual Report on Form 10-K. NOTE 2 -- GAIN ON DISPOSITION OF BELLINGHAM AIRCRAFT INTERIORS BUSINESS On April 26, 2000, Hexcel sold its Bellingham aircraft interiors business ("Bellingham") to Britax Cabin Interiors, Inc., a wholly owned subsidiary of Britax International plc, for cash proceeds of $113.3. The sale resulted in an after-tax gain of approximately $44, or $0.97 per diluted share. The Bellingham business had sales and operating profit of approximately $70 and $8, respectively, for 1999. Net proceeds from the sale were used to repay $111.6 of outstanding term debt under the Company's senior credit facility. The condensed consolidated financial statements and accompanying notes reflect Bellingham's operating results as a continuing operation in the Engineered Products business segment up to the date of disposal. Quarter and year-to-date June 30, 2000 and 1999 sales and operating income for the Bellingham business were as follows:
- -------------------------------------------------------------------------------------------------------------------- QUARTER ENDED JUNE 30, YEAR-TO-DATE ENDED JUNE 30, 2000 1999 2000 1999 - -------------------------------------------------------------------------------------------------------------------- Sales $ 2.4 $ 15.3 $ 19.0 $ 26.9 Operating income (loss) $ (0.6) $ 1.5 $ 0.6 $ 2.4 - --------------------------------------------------------------------------------------------------------------------
NOTE 3 -- INVENTORIES - ---------------------------------------------------------------------------------- ---------------- ---------------- 6/30/00 12/31/99 - ---------------------------------------------------------------------------------- ---------------- ---------------- Raw materials $ 74.4 $ 55.5 Work in progress 46.2 47.8 Finished goods 34.5 50.4 - ---------------------------------------------------------------------------------- ----- ---------- ------ --------- Total inventories $ 155.1 $ 153.7 - ---------------------------------------------------------------------------------- ----- ---------- ------ ---------
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NOTE 4 -- NOTES PAYABLE, CAPITAL LEASE OBLIGATIONS AND INDEBTEDNESS TO A RELATED PARTY - --------------------------------------------------------------------------- -------------------- ------------------- 6/30/00 12/31/99 - --------------------------------------------------------------------------- -------------------- ------------------- Senior credit facility $ 211.0 $ 303.0 European credit and overdraft facilities 15.3 14.8 9.75% Senior subordinated notes, due 2009 240.0 240.0 7.0% Convertible subordinated notes, due 2003 114.4 114.4 7.0% Convertible subordinated debentures, due 2011 25.6 25.6 Various notes payable 0.3 0.4 - --------------------------------------------------------------------------- -------- ----------- ----- ------------- Total notes payable 606.6 698.2 Capital lease obligations 45.9 48.6 11.0% Senior subordinated note payable to a related party, increasing at a rate of 0.5% per annum, due 2003 24.2 24.1 - --------------------------------------------------------------------------- -------- ----------- ----- ------------- Total notes payable, capital lease obligations and indebtedness to a related party $ 676.7 $ 770.9 - --------------------------------------------------------------------------- -------- ----------- ----- ------------- Notes payable and current maturities of long-term liabilities $ 29.7 $ 34.3 Long-term notes payable and capital lease obligations, less current maturities 622.8 712.5 Indebtedness to a related party, net of unamortized discount of $0.8 as of June 30, 2000 and $0.9 as of December 31, 1999 24.2 24.1 - --------------------------------------------------------------------------- -------- ----------- ----- ------------- Total notes payable, capital lease obligations and indebtedness to a related party $ 676.7 $ 770.9 - --------------------------------------------------------------------------- -------- ----------- ----- -------------
SENIOR CREDIT FACILITY On March 7, 2000, the Company amended its global credit facility (the "Senior Credit Facility") to accommodate, among other things, its planned sale of assets and the impact of the decline in the Company's operating results in the second half of 1999 on certain financial covenants. Prior to the sale of the Bellingham business, the amended Senior Credit Facility provided Hexcel with approximately $516.5 of borrowing capacity, subject to certain limitations, at interest on outstanding borrowings ranging from 0.75% to 2.75% in excess of the applicable London interbank rate, or at the option of the Company, from 0.0% to 1.75% in excess of the base rate of the administrative agent for the lenders. 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 circumstances defined in the March 7, 2000 amendment, 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 as soon as practicable after 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. As discussed in Note 2, net proceeds from the sale of the Bellingham business were used to repay $111.6 of outstanding term debt under the Senior Credit Facility. As a result of this repayment, the total borrowing capacity available to the Company under the Senior Credit Facility was reduced to approximately $405 and the upper limit of the interest ranges were increased to 3.00% and 2.00%, respectively. Unused borrowing capacity under the Senior Credit Facility was approximately $187 on June 30, 2000. The Senior Credit Facility is scheduled to expire in 2004, except for approximately $58 that is due for repayment in 2005. 6 NOTE 5 -- BUSINESS CONSOLIDATION PROGRAMS Total accrued business consolidation expenses at December 31, 1999 and June 30, 2000, activity during the six months ended June 30, 2000, and a brief description for each of the Company's business consolidation programs, are as follows: - --------------------------------------------------------------- ------------------ ------------------ -------------- SEPTEMBER DECEMBER 1999 1998 PROGRAM PROGRAM TOTAL - --------------------------------------------------------------- ------------------ ------------------ -------------- BALANCE AS OF DECEMBER 31, 1999 $ 3.1 $ 1.0 $ 4.1 Business consolidation expenses: Current period expenses 4.6 - 4.6 Reversal of 1999 expenses (3.4) - (3.4) - --------------------------------------------------------------- ---- ------------ ---- ------------- ---- ---------- Net business consolidation expenses 1.2 - 1.2 Cash expenditures (4.5) (0.4) (4.9) Non-cash items: Reversal of 1999 business consolidation expenses 3.1 - 3.1 Other non-cash usage (0.2) - (0.2) - --------------------------------------------------------------- ---- ------------ ---- ------------- ---- ---------- Total non-cash items 2.9 2.9 Reclassification to accrued liabilities - (0.6) (0.6) - --------------------------------------------------------------- ---- ------------ ---- ------------- ---- ---------- BALANCE AS OF JUNE 30, 2000 $ 2.7 $ - $ 2.7 - --------------------------------------------------------------- ---- ------------ ---- ------------- ---- ----------
SEPTEMBER 1999 PROGRAM On September 27, 1999, Hexcel announced a business consolidation program that entails a 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 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. In the second quarter of 2000, Hexcel amended its September 1999 business consolidation program in response to the manufacturing constraints caused by an increase in sales and production for its electronic woven glass fabrics and its other ballistic products. Due to the stronger than anticipated improvements in market conditions, which are expected to continue beyond the current year, the Company performed a manufacturing capacity review. The review concluded with the decision to expand manufacturing capacity by purchasing additional looms and revising the previous decision to consolidate a number of weaving activities at the Company's Seguin, Texas and Anderson, South Carolina facilities. As a result of the decision to not proceed to consolidate production between these facilities, the Company reversed a total of $3.4 of business consolidation expenses that were previously recognized in 1999, including $3.1 in non-cash write-downs of machinery and equipment that was to have been sold or scrapped as a result of the consolidation. The amended program calls for the elimination of approximately 270 positions (primarily manufacturing). Total expenses and cash expenditures for the amended program (reflecting both the changes to the consolidation of weaving activities and the most current estimates of the cost of the other actions) are expected to approximate $26.0 and $25.0, respectively. Expected cash expenditures include $8.0 of capital expenditures. 7 Accrued business consolidation expenses at December 31, 1999 and June 30, 2000, and related activity for this program for the first half of 2000, were as follows: - --------------------------------------------------------------- ----------------- ---------------- ----------------- EMPLOYEE FACILITY & SEVERANCE & EQUIPMENT SEPTEMBER 1999 PROGRAM RELOCATION RELOCATION TOTAL - --------------------------------------------------------------- ----------------- ---------------- ----------------- BALANCE AS OF DECEMBER 31, 1999 $ 2.5 $ 0.6 $ 3.1 Business consolidation expenses: Current period expenses 1.9 2.7 4.6 Reversal of 1999 expenses (0.3) (3.1) (3.4) - --------------------------------------------------------------- ---- ------------ ---- ----------- ------ ---------- Net business consolidation expenses 1.6 (0.4) 1.2 Cash expenditures (1.6) (2.9) (4.5) Non-cash items: Reversal of 1999 business consolidation expenses - 3.1 3.1 Other non-cash usage - (0.2) (0.2) - --------------------------------------------------------------- ---- ------------ ---- ----------- ------ ---------- Total non-cash items - 2.9 2.9 - --------------------------------------------------------------- ---- ------------ ---- ----------- ------ ---------- BALANCE AS OF JUNE 30, 2000 $ 2.5 $ 0.2 $ 2.7 - --------------------------------------------------------------- ---- ------------ ---- ----------- ------ ----------
For the six months ended June 30, 2000, Hexcel recognized $1.2 of business consolidation expenses for this program, net of the $3.4 reversal as described above. As of December 31, 1999 and June 30, 2000, accrued expenses for this 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 an acquired industrial fabrics 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, the Company expanded its actions relating to the integration of an acquired industrial fabrics business with the announcement of the closure of its Cleveland, Georgia, facility, which at that time employed approximately 100 people in 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 competitive conditions in the global market for electronic fiberglass materials, and was not expected at the time of the acquisition of the industrial fabrics business. The December 1998 business consolidation program was substantially completed by December 31, 1999, except for cash expenditures relating to accrued severance which is expected to be paid over the next two years. Such amount has been reclassified to accrued liabilities. 8
NOTE 6 -- NET INCOME PER SHARE - -------------------------------------------------------------------------------------------------------------------- QUARTER ENDED JUNE 30, YEAR-TO-DATE ENDED JUNE 30, 2000 1999 2000 1999 - -------------------------------------------------------------------------------------------------------------------- Basic net income per share: Net income $ 50.4 $ 4.3 $ 53.1 $ 9.5 Weighted average common shares outstanding 36.6 36.5 36.6 36.4 - -------------------------------------------------------------------------------------------------------------------- Basic net income per share $ 1.38 $ 0.12 $ 1.45 $ 0.26 - -------------------------------------------------------------------------------------------------------------------- Diluted net income per share: Net income $ 50.4 $ 4.3 $ 53.1 $ 9.5 Effect of dilutive securities - Convertible subordinated notes, due 2003 1.3 - 2.5 - Convertible subordinated debentures, due 2011 0.3 - 0.6 - - -------------------------------------------------------------------------------------------------------------------- Adjusted net income $ 52.0 $ 4.3 $ 56.2 $ 9.5 - -------------------------------------------------------------------------------------------------------------------- Weighted average common shares outstanding 36.6 36.5 36.6 36.4 Effect of dilutive securities - Stock options 0.8 0.1 0.5 0.1 Convertible subordinated notes, due 2003 7.2 - 7.2 - Convertible subordinated debentures, due 2011 0.9 - 0.9 - - -------------------------------------------------------------------------------------------------------------------- Diluted weighted average common shares outstanding 45.5 36.6 45.2 36.5 - -------------------------------------------------------------------------------------------------------------------- Diluted net income per share $ 1.14 $ 0.12 $ 1.24 $ 0.26 - --------------------------------------------------------------------------------------------------------------------
The convertible subordinated notes, due 2003, and the convertible subordinated debentures, due 2011, were excluded from the 1999 computations of diluted net income per share, as they were antidilutive. Approximately 4,000 to 4,500 stock options were excluded from the 2000 and 1999 calculations of diluted net income per share. The exercise price for these stock options ranged from approximately $6.51 to $30.38, with the weighted average price being approximately $12.50 in 2000 and $13.26 in 1999.
NOTE 7 -- COMPREHENSIVE INCOME (LOSS) -------------------------------------------------------------------------------------------------------------------- QUARTER ENDED JUNE 30, YEAR-TO-DATE ENDED JUNE 30, 2000 1999 2000 1999 -------------------------------------------------------------------------------------------------------------------- Net income $ 50.4 $ 4.3 $ 53.1 $ 9.5 Currency translation adjustment (1.7) (5.8) (4.8) (12.8) -------------------------------------------------------------------------------------------------------------------- Total comprehensive income (loss) $ 48.7 $ (1.5) $ 48.3 $ (3.3) --------------------------------------------------------------------------------------------------------------------
9 NOTE 8 -- SEGMENT INFORMATION Hexcel evaluates the performance of its operating segments based on adjusted income before business consolidation expenses, interest, taxes, equity in earnings of affiliated companies, and gains on dispositions of businesses ("Adjusted EBIT"), and generally accounts for intersegment sales based on arm's length prices. Corporate and certain other expenses are not allocated to the operating segments, except to the extent that the expense can be directly attributable to the business segment. Financial information for the Company's operating segments for the quarter and year-to-date periods ended June 30, 2000 and 1999, is as follows: - --------------------------------------------- ----------------- ----------------- ----------------- ---------------- REINFORCEMENT COMPOSITE ENGINEERED PRODUCTS MATERIALS PRODUCTS TOTAL - --------------------------------------------- --- ------------- -- -------------- --- ------------- -- ------------- SECOND QUARTER 2000 - --------------------------------------------- --- ------------- -- -------------- --- ------------- -- ------------- Net sales to external customers $ 94.6 $ 147.0 $ 30.0 $ 271.6 Intersegment sales 25.1 1.8 - 26.9 - --------------------------------------------- --- ------------- -- -------------- --- ------------- -- ------------- Total sales 119.7 148.8 30.0 298.5 Adjusted EBIT 12.7 19.0 1.5 33.2 Depreciation and amortization 8.6 4.7 0.8 14.1 Business consolidation expenses (2.9) 2.0 0.9 - Capital expenditures 3.3 4.6 0.1 8.0 - --------------------------------------------- --- ------------- -- -------------- --- ------------- -- ------------- SECOND QUARTER 1999 - --------------------------------------------- --- ------------- -- -------------- --- ------------- -- ------------- Net sales to external customers 83.3 157.3 52.1 292.7 Intersegment sales 27.1 1.8 - 28.9 - --------------------------------------------- --- ------------- -- -------------- --- ------------- -- ------------- Total sales 110.4 159.1 52.1 321.6 Adjusted EBIT 11.1 18.8 5.2 35.1 Depreciation and amortization 8.8 5.2 0.9 14.9 Business consolidation expenses 0.2 - 0.2 0.4 Capital expenditures 3.2 4.0 1.3 8.5 - --------------------------------------------- --- ------------- -- -------------- --- ------------- -- ------------- YEAR-TO-DATE ENDED JUNE 30, 2000 - --------------------------------------------- --- ------------- -- -------------- --- ------------- -- ------------- Net sales to external customers 181.7 293.5 76.2 551.4 Intersegment sales 52.3 4.1 - 56.4 - --------------------------------------------- --- ------------- -- -------------- --- ------------- -- ------------- Total sales 234.0 297.6 76.2 607.8 Adjusted EBIT 23.2 37.5 4.7 65.4 Depreciation and amortization 17.2 9.5 1.8 28.5 Business consolidation expenses (2.2) 2.4 1.0 1.2 Capital expenditures 4.3 7.6 0.5 12.4 - --------------------------------------------- ------------- -- -------------- --- ------------- -- ------------- YEAR-TO-DATE ENDED JUNE 30, 1999 - --------------------------------------------- --- ------------- -- -------------- --- ------------- -- ------------- Net sales to external customers 169.1 335.5 104.3 608.9 Intersegment sales 62.8 4.6 - 67.4 - --------------------------------------------- --- ------------- -- -------------- --- ------------- -- ------------- Total sales 231.9 340.1 104.3 676.3 Adjusted EBIT 21.4 43.9 9.1 74.4 Depreciation and amortization 17.7 10.3 1.8 29.8 Business consolidation expenses 2.8 0.1 0.3 3.2 Capital expenditures $ 7.4 $ 7.6 $ 2.8 $ 17.8 - --------------------------------------------- --- ------------- -- -------------- --- ------------- -- -------------
10 Reconciliations of the totals reported for the operating segments to consolidated income before income taxes, are as follows: - -------------------------------------------------------------------------------------------------------------------- QUARTER ENDED JUNE 30, YEAR-TO-DATE ENDED JUNE 30, 2000 1999 2000 1999 - -------------------------------------------------------------------------------------------------------------------- Total Adjusted EBIT for reportable segments $ 33.2 $ 35.1 $ 65.4 $ 74.4 Business consolidation expenses - (1.4) (1.2) (4.2) Corporate, other expenses and eliminations (9.1) (8.8) (18.3) (18.2) Interest expense (17.2) (18.4) (35.6) (37.5) Gain on sale of Bellingham aircraft interiors business 68.3 - 68.3 - - -------------------------------------------------------------------------------------------------------------------- Consolidated income before income taxes $ 75.2 $ 6.5 $ 78.6 $ 14.5 - --------------------------------------------------------------------------------------------------------------------
NOTE 9 -- SUPPLEMENTAL CASH FLOW INFORMATION - ------------------------------------------------------------------------------------------------------------------- YEAR-TO-DATE ENDED JUNE 30, 2000 1999 - -------------------------------------------------------------------------------------------------------------------- Cash paid for: Interest $ 32.7 $ 20.7 Income taxes $ 2.9 $ 10.1 - --------------------------------------------------------------------------------------------------------------------
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FINANCIAL OVERVIEW - ------------------------------------------------------------------------- ----------------------------------------- QUARTER ENDED JUNE 30, ----------------------------------------- (IN MILLIONS, EXCEPT PER SHARE DATA) 2000 1999 - ------------------------------------------------------------------------- --- ---------------- -------------------- PRO FORMA (a): Sales $ 269.2 $ 277.4 Adjusted EBITDA (b) $ 39.3 $ 40.3 Adjusted net income (c) $ 7.3 $ 5.4 Adjusted diluted net income per share (c) $ 0.19 $ 0.15 - ------------------------------------------------------------------------- --- ---------------- --- ---------------- AS REPORTED: Sales $ 271.6 $ 292.7 Gross margin % 22.3% 22.7% Adjusted operating income % (c) 8.9% 9.0% Adjusted EBITDA (b) $ 38.8 $ 42.0 Net income $ 50.4 $ 4.3 Adjusted net income (c) $ 6.5 $ 5.2 Diluted net income per share $ 1.14 $ 0.12 Adjusted diluted net income per share (c) $ 0.17 $ 0.14 - ------------------------------------------------------------------------- --- ---------------- --- ----------------
(a) Pro forma results give effect to the April 26, 2000 sale of the Bellingham aircraft interiors business as if the transaction had occurred at the beginning of the periods presented. (b) Excludes business consolidation expenses, interest, taxes, depreciation, amortization, equity in earnings of affiliated companies, and the gain from the sale of the Bellingham aircraft interiors business. (c) Excludes business consolidation expenses, the gain from the sale of the Bellingham aircraft interiors business, and related income taxes, as applicable. Financial highlights for Hexcel in the second quarter of 2000 include: - - On April 26, 2000, Hexcel completed the sale of its Bellingham aircraft interiors business ("Bellingham") to Britax Cabin Interiors, Inc., a wholly owned subsidiary of Britax International plc, for cash proceeds of $113.3 million. The sale resulted in an after-tax gain of approximately $44 million, or $0.97 per diluted share. Net proceeds from the sale were used to repay $111.6 million of outstanding term debt under Hexcel's senior credit facility. The Bellingham business had sales and operating income of approximately $70 million and $8 million, respectively, in 1999, all of which were made to the commercial aerospace market. Hexcel continues to evaluate strategic alternatives for its aircraft structures and interiors businesses in Kent, Washington, which is the remaining component of the Company's Engineered Products business segment. - - Hexcel experienced a continuation of the positive trends that began to emerge in the first quarter of 2000. Airbus Industrie ("Airbus") and The Boeing Company ("Boeing") are anticipated to deliver a combined total of more than 800 aircraft in 2000, and there are further expectations that they will exceed this level of deliveries in 2001. The impact upon the Company's performance will depend upon the mix of aircraft produced as well as the net effect of continuing cost pressures throughout the commercial aerospace supply chain. Such supply chain pressures are driven by the competitive pricing of commercial aircraft and the continuing consolidation of the industry. 12 - - The Company is also beginning to reap additional benefits from its emphasis on high-growth market segments. Sales of lightweight glass and aramid fabrics to electronics, architectural and ballistics markets continued to rise, while use of the Company's advanced composites for wind energy, automotive and other industrial applications also continued to increase. Further, the ramp up of full scale production of a number of new military aircraft is anticipated to benefit the Company in 2001 and beyond. - - In response to the increasing demand for lightweight glass and aramid fabrics, Hexcel's manufacturing capacity is constrained and the Company intends to purchase additional looms to help meet the demand for its products. Further, the Company concluded to revise its September 1999 business consolidation program that originally entailed the consolidation of a number of weaving activities between two of Hexcel's facilities. As a result of this amendment, the Company reversed $3.4 million of business consolidation expenses that were previously recorded in 1999. Further discussions are included in "Business Consolidation Programs." - - Looking to the second half of 2000, Hexcel anticipates that after the usual seasonal impact of the European vacation period on its third quarter performance, fourth quarter EBITDA should be comparable to the Company's second quarter 2000 results. As a result, the Company continues to anticipate that pro forma EBITDA for 2000, reflecting the sale of Bellingham, will be comparable to pro forma EBITDA for 1999. - - Hexcel has made significant progress in the last eighteen months to reduce its indebtedness by almost $190 million and improve the structure of its balance sheet. While the Company is benefiting from improving market conditions, it remains focused on continuing to reduce costs, increasing productivity and further reducing its leverage. RESULTS OF OPERATIONS NET SALES: Net sales for the second quarter of 2000 decreased 7% to $271.6 million, compared with $292.7 million for the second quarter of 1999. Results for the second quarter of 2000 include those of the Bellingham business up to the date of sale. After giving effect to the disposition of the Bellingham business as if the transaction had occurred at the beginning of the periods presented, net sales for the second quarter of 2000 were $269.2 million, a 3% decline over the second quarter 1999 net sales of $277.4 million. The decline in sales was primarily a result of lower commercial aerospace sales due to a reduction in Boeing's commercial aircraft build rates and the conclusion of certain space and defense contracts in the second half of 1999. These declines were partially offset by increased sales of glass and aramid fabrics for electronics and industrial applications as well as increased sales of composite materials to wind energy and automotive markets. On a constant currency basis second quarter 2000 net sales would have been approximately $10 million higher than reported. The following table summarizes pro forma net sales to third-party customers by product group and market segment for the quarters ended June 30, 2000 and 1999: 13 - ----------------------------------- --------------------------------------------------------------------------------- UNAUDITED --------------- ---------------- --------------- --------------- ---------------- COMMERCIAL SPACE & (IN MILLIONS) AEROSPACE DEFENSE ELECTRONICS INDUSTRIAL TOTAL - ----------------------------------- --------------- ---------------- --------------- --------------- ---------------- PRO FORMA SECOND QUARTER 2000 Reinforcement products $ 17.1 $ 3.5 $ 46.8 $ 27.2 $ 94.6 Composite materials 87.5 26.0 - 33.5 147.0 Engineered products 25.5 2.1 - - 27.6 - ----------------------------------- ---- ---------- ----- ---------- ---- ---------- ----- --------- ----- ---------- Total $ 130.1 $ 31.6 $ 46.8 $ 60.7 $ 269.2 48% 12% 17% 23% 100% - ----------------------------------- ---- ---------- ----- ---------- ---- ---------- ----- --------- ----- ---------- PRO FORMA SECOND QUARTER 1999 Reinforcement products $ 13.5 $ 5.5 $ 42.2 $ 22.1 $ 83.3 Composite materials 101.4 26.0 - 29.9 157.3 Engineered products 33.4 3.4 - - 36.8 - ----------------------------------- ---- ---------- ----- ---------- ---- ---------- ----- --------- ----- ---------- Total $ 148.3 $ 34.9 $ 42.2 $ 52.0 $ 277.4 53% 13% 15% 19% 100% - ----------------------------------- ---- ---------- ----- ---------- ---- ---------- ----- --------- ----- ----------
Pro forma commercial aerospace net sales decreased 12% to $130.1 million for the second quarter of 2000, from $148.3 million for the second quarter of 1999. The decline in sales primarily reflects the impact of the decrease in aircraft production rates by Boeing that commenced last year, in anticipation of lower aircraft deliveries in 2000. Approximately 38% of Hexcel's 1999 net sales were identifiable as sales to Boeing, Airbus and their related subcontractors. Planned deliveries of commercial aircraft by Boeing declined from 620 aircraft in 1999, to an estimated 490 aircraft in 2000. The Company delivers its products on average six to nine months ahead of the delivery of an aircraft. Boeing has publicly indicated that it may be able to increase aircraft deliveries in 2001 by 10% to 15% above the number of forecasted deliveries of 490 in 2000. This improved outlook is due in part to the continued economic recovery in Asia. Meanwhile, industry analysts are projecting a modest increase in aircraft deliveries by Airbus to about 320 in 2000 and to more than 350 in 2001. At the same time, independent forecasts indicate that continued growth in the production of regional and business aircraft is expected. The benefit that the Company obtains from any increase in build rates in 2001 will depend upon the mix of aircraft that are produced, the continuing impact on the aerospace supply chain of the pressure to reduce the cost of commercial aircraft, and the results of productivity improvement from the Company's Lean Enterprise initiatives. Pro forma space and defense net sales for the second quarter of 2000 decreased 9% to $31.6 million, from $34.9 million in the second quarter of 1999. This decrease primarily reflects the conclusion of certain space and defense contracts in the second half of 1999. However, Hexcel is currently qualified to supply materials to a broad range of military aircraft and helicopters scheduled to enter either full-scale production in the near future or significantly increase existing production rates. These programs include the V-22 (Osprey) tilt-rotor, the F/A-18E/F (Hornet), the F-22 (Raptor), the European Fighter Aircraft (Typhoon), and the RAH-66 (Comanche) and NH90 helicopters. Pro forma electronics net sales increased 11% to $46.8 million for the second quarter of 2000, from $42.2 million for the second quarter of 1999. This increase reflects sales volume growth for Hexcel's lightweight fiberglass fabrics used in electronic applications, partially offset by a decrease in sales of heavyweight electronic fabrics. The increase in sales of lightweight fiberglass fabrics reflects the improved economic conditions in Asia and Europe and the growing use of electronic devices throughout the world. 14 Demand for lightweight fiberglass fabrics is expected to continue to grow and global manufacturing capacity appears to be tightening. During the first quarter of 2000, Hexcel started to switch some of its heavyweight fabric production capacity to meet lightweight fabric demand. In addition, the Company plans to install additional lightweight fabric looms by the end of the year to meet the expected continuing growth in demand, and is taking additional steps to expand its lightweight fabric manufacturing capacity to support market growth. Pro forma industrial net sales increased 17% to $60.7 million for the second quarter of 2000 from $52.0 million for the second quarter of 1999. The increase reflects sales growth for soft body armor, wind energy applications and automotive components. GROSS MARGIN: Gross margin for the second quarter of 2000 was $60.5 million, or 22.3% of net sales, compared with $66.3 million, or 22.7% of net sales, for the second quarter of 1999. The decline in gross margin dollars, relative to the second quarter 1999, reflects the impact of lower sales levels, a change in the mix of products sold as well as the impact of the sale of Bellingham on April 26, 2000. OPERATING INCOME: Operating income was $24.1 million in the second quarter of 2000, or 8.9% of net sales, compared with $24.9 million in the second quarter of 1999, or 8.5% of net sales. Excluding business consolidation expenses, operating income for the second quarter of 1999 was $26.3 million, or 9.0% of net sales. The aggregate decrease in operating income reflects the decrease in net sales, partially offset by a reduction in selling, general and administrative ("SG&A") and research and technology ("R&T") expenses over the second quarter 1999. SG&A expenses were $31.2 million, or 11.5% of net sales for the second quarter of 2000, compared with $33.7 million, or 11.5% of net sales for the second quarter of 1999, reflecting a decrease in spending as well as the disposition of the Bellingham business. R&T expenses for the second quarter of 2000 were $5.2 million, or 1.9% of net sales, compared with $6.3 million, or 2.2% of net sales, for the second quarter 1999. INTEREST EXPENSE: Interest expense was $17.2 million for the second quarter of 2000, compared with $18.4 million for the second quarter of 1999. The decrease in interest expense primarily reflects the reduction in term debt outstanding under the Company's senior credit facility which resulted from the proceeds from the sale of the Bellingham business, partially offset by rising interest rates on variable-rate debt. EQUITY IN EARNINGS OF AFFILIATED COMPANIES: Equity in earnings of affiliated companies for the second quarter of 2000 was $1.7 million compared to $0.1 million for the second quarter of 1999, reflecting improved operating results of the Company's electronic fabrics joint venture in Asia. NET INCOME AND NET INCOME PER SHARE: ------------------------------------------------------------------------------------------------------------------- QUARTER ENDED JUNE 30, (IN MILLIONS, EXCEPT PER SHARE AMOUNTS) 2000 1999 ------------------------------------------------------------------------------------------------------------------- Net income $ 50.4 $ 4.3 Adjusted net income (a) $ 6.5 $ 5.2 Diluted net income per share $ 1.14 $ 0.12 Diluted net income per share excluding goodwill amortization $ 1.19 $ 0.18 Adjusted diluted net income per share (a) $ 0.17 $ 0.14 Diluted weighted average shares outstanding 45.5 36.6 -------------------------------------------------------------------------------------------------------------------
(a) Excludes business consolidation expenses, the gain from the sale of the Bellingham aircraft interiors business, and related income taxes, as applicable. 15 The Company's convertible subordinated notes, due 2003, and its convertible subordinated debentures, due 2011, were excluded from the 1999 computations of net income per diluted share, as they were antidilutive. Refer to Note 6 to the accompanying condensed consolidated financial statements for the calculation of diluted net income per share.
YEAR-TO-DATE RESULTS - ----------------------------------------------------------------------- -------------------------------------------- YEAR-TO-DATE ENDED JUNE 30, (IN MILLIONS, EXCEPT PER SHARE DATA) 2000 1999 - ----------------------------------------------------------------------- ------- --------------- -------------------- PRO FORMA: Sales $ 532.4 $ 582.0 Adjusted EBITDA $ 75.9 $ 84.8 Adjusted net income $ 11.5 $ 13.1 Adjusted diluted net income per share $ 0.31 $ 0.36 - ----------------------------------------------------------------------- ------- --------------- ---- --------------- AS REPORTED: Sales $ 551.4 $ 608.9 Gross margin % 22.2% 22.5% Adjusted operating income % 8.5% 9.2% Adjusted EBITDA $ 76.8 $ 87.6 Net income $ 53.1 $ 9.5 Adjusted net income $ 9.9 $ 12.2 Diluted net income per share $ 1.24 $ 0.26 Adjusted diluted net income per share $ 0.27 $ 0.33 - ----------------------------------------------------------------------- ------- --------------- ---- ---------------
NET SALES AND GROSS MARGIN: Net sales for the first half of 2000 decreased 9% to $551.4 million, compared with $608.9 million for the first half of 1999. Pro forma net sales for the first half of 2000 were $532.4 million, a 9% decline over the first half of 1999 pro forma net sales of $582.0 million. Gross margin for the first half of 2000 was $122.7 million, or 22.2% of net sales, versus gross margin of $137.1 million, or 22.5% of net sales, for the same period in 1999. The strengthening of the U.S. dollar against the Euro in the last twelve months reduced first half revenues by approximately $19 million compared to the first half of 1999. The decrease in net sales and maintenance in gross margin percentage compared to 1999 results primarily reflect the factors previously discussed. The following table summarizes pro forma net sales to third-party customers by product group and market segment for the year-to-date periods ended June 30, 2000 and 1999: --------------------------- ------------------------------------------------------------------------------------- UNAUDITED -------------- ------------------ -------------- -------------- --------------------- COMMERCIAL SPACE & (IN MILLIONS) AEROSPACE DEFENSE ELECTRONICS INDUSTRIAL TOTAL --------------------------- -------------- ------------------ -------------- -------------- --------------------- PRO FORMA FIRST HALF 2000 Reinforcement products $ 32.7 $ 7.6 $ 90.4 $ 51.0 $ 181.7 Composite materials 181.7 45.9 - 65.9 293.5 Engineered products 52.6 4.6 - - 57.2 ---------------------------- ----- ---------- --- ----------- --- ---------- ----- ------------ ----- ----------- Total $ 267.0 $ 58.1 $ 90.4 $ 116.9 $ 532.4 50% 11% 17% 22% 100% ---------------------------- ----- ---------- --- ----------- --- ---------- ----- ------------ ----- ----------- PRO FORMA FIRST HALF 1999 Reinforcement products $ 28.8 $ 11.0 $ 84.4 $ 44.8 $ 169.0 Composite materials 221.1 55.6 - 58.8 335.5 Engineered products 70.8 6.7 - - 77.5 ---------------------------- ----- ---------- --- ----------- --- ---------- ----- ------------ ----- ----------- Total $ 320.7 $ 73.3 $ 84.4 $ 103.6 $ 582.0 55% 13% 14% 18% 100% ---------------------------- ----- ---------- --- ----------- --- ---------- ----- ------------ ----- -----------
16 OPERATING INCOME: Operating income for the first six months of 2000 was $45.9 million, compared with $52.0 million for the same period in 1999. Excluding business consolidation expenses of $1.2 million and $4.2 million incurred in the first half of 2000 and 1999, respectively, operating income was $47.1 million, or 8.5%, of net sales for 2000 compared with $56.2 million, or 9.2% of net sales, for 1999. The aggregate decrease in operating income is the result of lower sales and gross margins, partially offset by a decrease in SG&A and R&T expenses. SG&A expenses were $64.1 million, or 11.6% of net sales, for the first half of 2000, compared to $68.1 million, or 11.2% of net sales, for the same period in 1999, reflecting a decrease in spending as well as the disposition of the Bellingham business. R&T expenses were $11.5 million, or 2.1% of net sales, for the first half of 2000, compared to $12.8 million, or 2.1% of net sales, for the comparable 1999 period. INTEREST EXPENSE: Interest expense for the first half of 2000 was $35.6 million, compared to $37.5 million, for the first half of 1999. The decrease in interest expense primarily reflects the reduction in term debt outstanding under the Company's senior credit facility, partially offset by rising interest rates on variable-rate debt. EQUITY IN EARNINGS OF AFFILIATED COMPANIES: Equity in earnings of affiliated companies for the year-to-date period ended June 30, 2000 was $2.2 million compared to $0.1 million for the same period in 1999, reflecting improved operating results of the Company's electronic fabrics joint venture in Asia.
NET INCOME AND NET INCOME PER SHARE: ------------------------------------------------------------------------------------------------------------------- YEAR-TO-DATE ENDED JUNE 30, (IN MILLIONS, EXCEPT PER SHARE AMOUNTS) 2000 1999 ------------------------------------------------------------------------------------------------------------------- Net income $ 53.1 $ 9.5 Adjusted net income $ 9.9 $ 12.2 Diluted net income per share $ 1.24 $ 0.26 Diluted net income per share excluding goodwill amortization $ 1.34 $ 0.37 Adjusted diluted net income per share $ 0.27 $ 0.33 Diluted weighted average shares outstanding 45.2 36.5 -------------------------------------------------------------------------------------------------------------------
The Company's convertible subordinated notes, due 2003, and its convertible subordinated debentures, due 2011, were excluded from the 1999 computations of net income per diluted share, as they were antidilutive. Refer to Note 6 to the accompanying condensed consolidated financial statements for the calculation of diluted net income per share. FINANCIAL CONDITION AND LIQUIDITY SENIOR CREDIT FACILITY On March 7, 2000, the Company amended its global credit facility (the "Senior Credit Facility") to accommodate, among other things, its planned sale of assets and the impact of the decline in the Company's operating results in the second half of 1999 on certain financial covenants. Prior to the sale of the Bellingham business, the amended Senior Credit Facility provided Hexcel with approximately $516.5 million of borrowing capacity, subject to certain limitations at interest on outstanding borrowings ranging from 0.75% to 2.75% in excess of the applicable London interbank rate, or at the option of the Company, from 0.0% to 1.75% 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 circumstances defined in the March 7, 2000 amendment, 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 as soon as practicable after 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. 17 Hexcel completed the sale of the Bellingham business on April 26, 2000, and used approximately $111.6 million of net proceeds from the sale to repay outstanding term debt under the Senior Credit Facility. As a result of this repayment, the total borrowing capacity available to the Company under the Senior Credit Facility was reduced to approximately $405 million and the upper limit of the interest ranges were increased to 3.00% and 2.00%, respectively. Unused borrowing capacity under the Senior Credit Facility was approximately $187 on June 30, 2000. The Company expects that the Senior Credit Facility will be sufficient to fund its worldwide operations for the foreseeable future. The Senior Credit Facility is scheduled to expire in 2004, except for approximately $58 million that is due for repayment in 2005. Further discussion of the Company's financial resources is contained in Note 4 to the accompanying condensed consolidated financial statements. CAPITAL EXPENDITURES Capital expenditures totaled $12.9 million for the first half of 2000 compared to $18.0 million for the first half of 1999. The Company expects total capital expenditures in 2000 to be approximately $40 to $45 million, as compared to $35.6 million for 1999. The aggregate expected increase in capital expenditures reflects the Company's decision to purchase additional looms to expand its manufacturing capacity for lightweight electronic fabrics and, to a lesser extent, the planned acquisition of additional composites manufacturing equipment in response to specific business opportunities with certain wind energy and automotive customers. ADJUSTED EBITDA, CASH FLOWS AND RATIO OF EARNINGS TO FIXED CHARGES FIRST HALF, 2000: Earnings before business consolidation expenses, other income, interest, taxes, depreciation and amortization, equity in earnings of affiliated companies, and the gain from the sale of the Bellingham aircraft interiors business ("Adjusted EBITDA") was $76.8 million. Net cash provided by operating activities was $4.2 million, as approximately $9 million of net income, excluding a $44 million after-tax gain on the disposition of the Bellingham business, $29.7 million of non-cash depreciation and amortization, and $16.5 million of deferred income taxes, was offset by $20.9 million of cash used for working capital. The increase in working capital primarily reflects increased receivables from customers in markets and regions that have extended payment terms. Net cash provided by investing activities was $95.5 million, primarily reflecting the net cash proceeds received from the sale of the Bellingham business, partially offset by capital expenditures for the first six months of 2000 and $6.0 million of investments made to the Company's joint ventures in China and Malaysia. Net cash used for financing activities was $92.9 million, primarily reflecting the application of net proceeds from the sale of the Bellingham business to the Company's Senior Credit Facility. 18 FIRST HALF, 1999: Adjusted EBITDA was $87.6 million for the first half of 1999. Net cash provided by operating activities was $48.1 million, as $9.5 million of net income, $31.5 million of non-cash depreciation and amortization, and $11.5 million of working capital changes more than offset cash used by all other operating activities. Net cash used for investing activities was $18.0 million reflecting the Company's capital expenditures for the first six months of 1999. Net cash used for financing activities was $31.3 million, primarily reflecting a net debt repayment of $22.5 million and $9.5 million of debt issuance costs. In the first quarter of 1999, Hexcel issued $240.0 million of 9.75% senior subordinated notes, and applied the proceeds, net of $9.5 million of debt issuance costs, to its Senior Credit Facility. Adjusted EBITDA has been presented to provide a measure of Hexcel's operating performance that is commonly used by investors and financial analysts to analyze and compare companies. Adjusted EBITDA may not be comparable to similarly titled financial measures of other companies. Adjusted EBITDA does 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. Reconciliations of net income to EBITDA and Adjusted EBITDA as well as the ratio of earnings to fixed charges, for the applicable periods, are as follows: - --------------------------------------------------------------------------------------------------------------------- QUARTER ENDED JUNE 30, YEAR-TO-DATE ENDED JUNE 30, (IN MILLIONS) 2000 1999 2000 1999 - --------------------------------------------------------------------------------------------------------------------- Net income $ 50.4 $ 4.3 $ 53.1 $ 9.5 Provision for income taxes 26.5 2.3 27.7 5.1 Interest expense 17.2 18.4 35.6 37.5 Depreciation and amortization expense 14.7 15.8 29.7 31.5 Equity in earnings of affiliated companies (1.7) (0.1) (2.2) (0.1) Other - (0.1) - (0.1) - --------------------------------------------------------------------------------------------------------------------- EBITDA 107.1 40.6 143.9 83.4 Business consolidation expenses - 1.4 1.2 4.2 Gain on sale of Bellingham aircraft interiors business (68.3) - (68.3) - - --------------------------------------------------------------------------------------------------------------------- Adjusted EBITDA $ 38.8 $ 42.0 $ 76.8 $ 87.6 - --------------------------------------------------------------------------------------------------------------------- Ratio of earnings to fixed charges 5.5x 1.3x 3.3x 1.4x - ---------------------------------------------------------------------------------------------------------------------
The calculation of earnings to fixed charges assumes that one-third of the Company's rental expense is attributable to interest expense. The increase in earnings to fixed charges from 1999 to 2000, primarily reflects the gain from the sale of the Bellingham business. 19 BUSINESS CONSOLIDATION PROGRAMS Total accrued business consolidation expenses at December 31, 1999 and June 30, 2000, activity during the six months ended June 30, 2000, and a brief description for each of the Company's business consolidation programs is as follows: - --------------------------------------------------------------- ------------------ ------------------ -------------- SEPTEMBER DECEMBER 1999 1998 (IN MILLIONS) PROGRAM PROGRAM TOTAL - --------------------------------------------------------------- ------------------ ------------------ -------------- BALANCE AS OF DECEMBER 31, 1999 $ 3.1 $ 1.0 $ 4.1 Business consolidation expenses: Current period expenses 4.6 - 4.6 Reversal of 1999 expenses (3.4) - (3.4) - --------------------------------------------------------------- ---- ------------ ---- ------------- ---- ---------- Net business consolidation expenses 1.2 - 1.2 Cash expenditures (4.5) (0.4) (4.9) Non-cash items: Reversal of 1999 business consolidation expenses 3.1 - 3.1 Other non-cash usage (0.2) - (0.2) - --------------------------------------------------------------- ---- ------------ ---- ------------- ---- ---------- Total non-cash items 2.9 2.9 Reclassification to accrued liabilities - (0.6) (0.6) - --------------------------------------------------------------- ---- ------------ ---- ------------- ---- ---------- BALANCE AS OF JUNE 30, 2000 $ 2.7 $ - $ 2.7 - --------------------------------------------------------------- ---- ------------ ---- ------------- ---- ----------
SEPTEMBER 1999 PROGRAM On September 27, 1999, Hexcel announced a business consolidation program that entails a 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 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. In response to increasing demand for fiberglass and aramid fabrics used in electronics and other industrial applications, Hexcel amended its September 1999 business consolidation program in the second quarter of 2000. Over the last six months, sales and production of lightweight glass and aramid fabrics showed greater than anticipated growth. This trend is projected to continue into the second half of the year and beyond. The sales growth reflects improved economic conditions in Asia and Europe and the growing use of electronic devices throughout the world. As a result of this increased demand, Hexcel's manufacturing capacity for certain high-performance fabrics has become constrained. Having undertaken a capacity planning review, the Company decided to purchase additional looms, as well as to revise its previous plan to consolidate a number of weaving activities at its Seguin, Texas and Anderson, South Carolina facilities. These actions are expected to enable the Company to increase its weaving capacity, particularly for lightweight electronic fabrics, and meet the expanding needs of its customers. In light of the decision to halt the planned consolidation of fabric production, Hexcel reversed in the second quarter of 2000 a total of $3.4 million in business consolidation expenses that were previously recognized in 1999. The reversal includes $3.1 million in non-cash write-downs of machinery and equipment that was to have been sold or scrapped as a result of the consolidation. The Company also expects to avoid incurring future cash expenditures for business consolidation activities of approximately $4.2 million. All of the other initiatives included in this business consolidation program are continuing approximately as planned. 20 Hexcel originally estimated that the September 1999 business consolidation program would incur $24 million of cash costs, including capital expenditures, and that the program would deliver annual savings of more than $23 million by 2001. Due to the amendment to the program, as well as more current estimates for costs of the other consolidation actions, the Company now anticipates that it will incur a similar level of cash costs, with approximately $16 million of annual savings directly attributable to consolidation activities. These savings are before the additional contribution from increased sales of lightweight fabrics that necessitated the change to the program. Hexcel anticipates that the cost savings to be foregone by revising the 1999 business consolidation program will be more than offset by the benefit of increased revenues from electronics and other industrial markets in the year 2000 and beyond. The following table summarizes the estimated cash costs, business consolidation expenses and cash savings for Hexcel's September 1999 business consolidation program, as amended: - ----------------------------------------------- -------------------------------------------------------------------- UNAUDITED ------------- ------------- -------------- ----------- ------------ ($ IN MILLIONS) 1999 2000 2001 2002 TOTAL - ------------------------------------------------ ------------- ------------- -------------- ----------- ------------ CASH COSTS Cash expenses $ 1 $ 14 $ 2 $ - $ 17 Capital expenditures - 6 2 - 8 - ------------------------------------------------ ---- -------- --- --------- ----- -------- --- ------- ----- ------ Total $ 1 $ 20 $ 4 $ - $ 25 - ------------------------------------------------ ---- -------- --- --------- ----- -------- --- ------- ----- ------ EXPENSES Cash expenses (including accruals) $ 4 $ 11 $ 2 $ - $ 17 Non-cash write-downs 12 (3) - - 9 - ------------------------------------------------ ---- -------- --- --------- ----- -------- --- ------- ----- ------ Total $ 16 $ 8 $ 2 $ - $ 26 - ------------------------------------------------ ---- -------- --- --------- ----- -------- --- ------- ----- ------ CASH SAVINGS $ 1 $ 8 $ 15 $ 16 $ 40 - ------------------------------------------------ ---- -------- --- --------- ----- -------- --- ------- ------ ----- OTHER FACTS - ------------------------------------------------ ---- -------- --- --------- ----- -------- --- --------------------- Reduction in personnel (primarily manufacturing) 270 Reduction in occupied space 210,000 square feet - ------------------------------------------------ ---- -------- --- --------- ----- ----------------------------------
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 industrial fabrics 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, the Company expanded its actions relating to the integration of the acquired industrial fabrics business with the announcement of the closure of its Cleveland, Georgia, facility, which at that time employed approximately 100 people in 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 competitive conditions in the global market for electronic fiberglass materials, and was not expected at the time of the acquisition of the industrial fabrics business. 21 The December 1998 business consolidation program was substantially completed by December 31, 1999, except for cash expenditures relating to accrued severance which is expected to be paid over the next two years. Refer to Note 5 to the accompanying condensed consolidated financial statements for further discussions regarding the Company's business consolidation programs. RECENTLY ISSUED ACCOUNTING STANDARDS In December 1999, the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial Statements." SAB 101 summarizes certain of the SEC's views in applying generally accepted accounting principles to revenue recognition in financial statements. The Company is required to adopt SAB 101 in the fourth quarter of 2000 (retroactive to January 1, 2000) and is awaiting interpretive guidance, not yet issued by the SEC, to complete its assessment of the impact SAB 101 may have on the Company's financial statements. In June 1998, the Financial Accounting Standards Board issued Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"). This Statement requires companies to record derivatives on the balance sheet as assets and liabilities, measured at fair value. Gains or losses resulting from changes in the values of those derivatives would be accounted for depending on the use of the derivative and whether it qualifies for hedge accounting. SFAS 133, which will be adopted on January 1, 2001, is not expected to have a material impact on Hexcel's consolidated financial statements. FORWARD-LOOKING STATEMENTS AND RISK FACTORS Certain statements contained in "Management's Discussion and Analysis of Financial Condition and Results of Operations," that are not of historical fact, constitute "forward-looking statements." Such forward-looking statements include, but are not limited to: (a) estimates of sales and EBITDA; (b) estimates of commercial aerospace production and delivery rates, including those of Boeing and Airbus; (c) expectations regarding the growth in the production of military aircraft and helicopters; (d) expectations regarding the growth in demand for electronic fabrics as well as capacity utilization; (e) expectations regarding sales growth, sales mix, and gross margins; (f) expectations regarding 2000 capital expenditures; (g) expectations regarding Hexcel's financial condition and liquidity; and (h) estimated expenses, cash costs, and savings for business consolidation programs. 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 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. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results to be materially different. Additional information regarding these factors is contained in the Company's Annual Report on Form 10-K for the year ended December 31, 1999. 22 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK On April 26, 2000, Hexcel completed the sale of its Bellingham aircraft interiors business to Britax Cabin Interiors, Inc., a wholly owned subsidiary of Britax International plc, for cash proceeds of $113.3 million. Net proceeds from the sale were used to repay $111.6 million of the Company's term debt outstanding under its variable rate Senior Credit Facility. Assuming a 10% favorable and unfavorable change in the underlying weighted average interest rates of the Company's variable rate debt, the 1999 net loss and pro forma net loss would have been as follows: - --------------------------------------------------------------------------- ---------------------------------------- YEAR ENDED DECEMBER 31, AS REPORTED PRO FORMA 1999 1999 - --------------------------------------------------------------------------- ----------------- ---------------------- Net loss $ 23.3 $ 23.2 10% favorable change 22.0 22.7 10% unfavorable change $ 24.6 $ 23.7 - --------------------------------------------------------------------------- ------- --------- ------- --------------
PART II. OTHER INFORMATION HEXCEL CORPORATION AND SUBSIDIARIES ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Annual Meeting of Stockholders of the Company was held on May 11, 2000 (the "Meeting") in Stamford, Connecticut. Stockholders holding 34,920,780 shares of Hexcel common stock were present at the Meeting, either in person or by proxy, constituting a quorum. The following matters were submitted to the Company's stockholders for a vote at the Meeting, with the results of the vote indicated: (1) Each of the ten nominees to the Board of Directors was elected by the stockholders to serve as directors until the next annual meeting of stockholders and until their successors are duly elected and qualified: DIRECTOR FOR WITHHELD -------- --- -------- Robert S. Evans 32,890,575 2,030,205 Marshall S. Geller 32,889,122 2,031,658 Walter D. Hosp 32,887,887 2,032,893 Harold E. Kinne 32,889,489 2,031,291 John J. Lee 32,868,446 2,052,334 John J. McGraw 32,890,575 2,030,205 Martin Riediker 32,887,887 2,032,893 Lewis Rubin 32,890,575 2,030,205 Stanley Sherman 32,890,575 2,030,205 Martin L. Solomon 32,890,575 2,030,205 23 (2) The proposal to approve and adopt the Company's Incentive Stock Plan as amended and restated as of February 3, 2000 received the following votes: For 30,936,267 Against 3,460,962 Abstained 523,551 (3) The proposal to approve and adopt the Company's Management Stock Purchase Plan as amended and restated as of February 3, 2000 received the following votes: For 33,664,575 Against 733,597 Abstained 522,608 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (A) EXHIBITS: 10.1 Hexcel Corporation 1998 Broad Based Incentive Stock Plan, as amended February 3, 2000. 10.2 Executive Severance Agreement between Hexcel and Robert F. Matthews dated as of July 1, 2000. 10.3 Executive Severance Agreement betwen Hexcel and Steven T. Warshaw dated as of April 17, 2000. 10.4 Supplemental Executive Retirement Agreement dated as of May 10, 2000 between Hexcel and Harold E. Kinne. 10.5 Supplemental Executive Retirement Agreement dated as of May 10, 2000 between Hexcel and Stephen C. Forsyth. 10.6 Supplemental Executive Retirement Agreement dated as of May 10, 2000 between Hexcel and Ira J. Krakower. 27. Financial Data Schedule (electronic filing only). (B) REPORTS ON FORM 8-K: Current Report on Form 8-K dated April 6, 2000 relating to a press release issued by the Company announcing an agreement to sell its Bellingham aircraft interiors business to Britax Cabin Interiors, Inc., a wholly owned subsidiary of Britax International plc. Current Report on Form 8-K dated April 25, 2000, relating to the Company's first quarter 2000 financial results. Current Report on Form 8-K dated May 10, 2000, relating to the sale of the Company's Bellingham aircraft interiors business to Britax Cabin Interiors, Inc. on April 26, 2000, and pro forma financial information reflecting such sale. Current Report on Form 8-K dated July 31, 2000, relating to the Company's second quarter 2000 financial results, and the amendment to the Company's business consolidation program. 24 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized, and in the capacity indicated. HEXCEL CORPORATION (Registrant) August 14, 2000 /s/ Kirk G. Forbeck - ---------------------------- ------------------------------------------- (Date) Kirk G. Forbeck, Chief Accounting Officer 25 EX-10.1 2 0002.txt EXHIBIT 10.1 Exhibit 10.1 HEXCEL CORPORATION 1998 BROAD BASED INCENTIVE STOCK PLAN AS AMENDED FEBRUARY 3, 2000 I. PURPOSE This is the Hexcel Corporation 1998 Broad Based Incentive Stock Plan (the "Plan"). The Plan is intended to attract, retain and provide incentives to a broad base of employees and consultants of the Corporation, and to thereby increase overall stockholders' value. Directors, officers and affiliates of the Corporation are not eligible to participate in the Plan. The Plan generally provides for the granting of stock, stock options, stock appreciation rights, restricted shares, other stock-based awards or any combination of the foregoing to the eligible participants. II. DEFINITIONS (a) "Award" includes, without limitation, stock options with or without stock appreciation rights, dividend equivalent rights, stock awards, restricted share awards, or other awards that are valued in whole or in part by reference to, or are otherwise based on, the Common Stock ("other Common Stock-based Awards"), all on a stand-alone, combination or tandem basis, as described in or granted under this Plan. (b) "Award Agreement" means a written agreement setting forth the terms and conditions of each Award made under this Plan. (c) "Board" means the Board of Directors of the Corporation. (d) "Committee" means the Executive Compensation Committee of the Board or such other committee of the Board as may be designated by the Board from time to time to administer this Plan. (e) "Common Stock" means the $.01 par value common stock of the Corporation. (f) "Corporation" means Hexcel Corporation, a Delaware corporation. (g) "Employee" means an employee of the Corporation or a Subsidiary. (h) "Fair Market Value" means the closing price for the Common Stock as reported in publications of general circulation from the New York Stock Exchange Consolidated Transactions Tape on such date, or, if there were no sales on the valuation date, on the next preceding date on which such closing price was recorded; provided, however, that the Committee may specify some other definition of Fair Market Value in good faith with respect to any particular Award. (i) "Participant" means an Employee or consultant who has been granted an Award under the Plan. (j) "Subsidiary" means any corporation or other entity, whether domestic or foreign, in which the Corporation has or obtains, directly or indirectly, a proprietary interest of more than 50% by reason of stock ownership or otherwise. III. ELIGIBILITY Any Employee or consultant of the Corporation or Subsidiary selected by the Committee is eligible to receive an Award pursuant to the Plan, but Directors, officers or affiliates of the Corporation are not eligible to participate in the Plan. IV. PLAN ADMINISTRATION (a) Except as otherwise determined by the Board, the Plan shall be administered by the Committee. The Board, or the Committee to the extent determined by the Board, shall periodically make determinations with respect to the participation of eligible Employees and consultants in the Plan and, except as otherwise required by law or this Plan, the grant terms of Awards, including vesting schedules, price, restriction or option period, dividend rights, post-retirement and termination rights, payment alternatives such as cash, stock, contingent awards or other means of payment consistent with the purposes of this Plan, and such other terms and conditions as the Board or the Committee deems appropriate which shall be contained in an Award Agreement with respect to a Participant. (b) The Committee shall have authority to interpret and construe the provisions of the Plan and any Award Agreement and make determinations pursuant to any Plan provision or Award Agreement which shall be final and binding on all persons. No member of the Committee shall be liable for any action or determination made in good faith, and the members shall be entitled to indemnification and reimbursement in the manner provided in the Corporation's Certificate of Incorporation, as it may be amended from time to time. The Committee shall have the authority at the time of the grant of any Award to provide for the conditions and circumstances under which such Award shall be forfeited. The Committee shall have the authority to accelerate the vesting of any Award and the time at which any Award becomes exercisable. The Committee shall have the authority to cancel an Award (with the consent of the Participant holding such Award) on such terms and conditions as the Committee shall determine. V. CAPITAL STOCK SUBJECT TO THE PROVISIONS OF THIS PLAN (a) 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 X, 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 775,000. (b) The grant of a restricted share Award shall be deemed to be equal to the maximum number of shares which may be issued under the Award. Awards payable only in cash will not reduce the number of shares available for Awards granted under the Plan. (c) There shall be carried forward and be available for Awards under the Plan, in addition to shares available for grant under paragraph (a) of this Section V, all of the following: (i) shares represented by Awards which are cancelled, forfeited, surrendered, terminated, paid in cash or expire unexercised; and (ii) the excess amount of variable Awards which become fixed at less than their maximum limitations. VI. AWARDS UNDER THIS PLAN As the Board or Committee may determine, the following types of Awards and other Common Stock-based Awards may be granted under this Plan on a stand-alone, combination or tandem basis: (a) STOCK OPTION. A right to buy a specified number of shares of Common Stock at a fixed exercise price during a specified time, all as the Committee may determine. (b) STOCK OPTION IN LIEU OF COMPENSATION ELECTION. A right given with respect to a year to a Participant to elect to exchange compensation or fees for stock options. (c) STOCK APPRECIATION RIGHT. A right which may or may not be contained in the grant of a stock option or incentive stock option to receive the excess of the Fair Market Value of a share of Common Stock on the date the option is surrendered over the option exercise price or other specified amount contained in the Award Agreement. (d) RESTRICTED SHARES. A transfer of Common Stock to a Participant subject to forfeiture until such restrictions, terms and conditions as the Committee may determine are fulfilled. (e) DIVIDEND OR EQUIVALENT. A right to receive dividends or their equivalent in value in Common Stock, cash or in a combination of both with respect to any new or previously existing Award. (f) STOCK AWARD. An unrestricted transfer of ownership of Common Stock. (g) OTHER STOCK-BASED AWARDS. Other Common Stock-based Awards which are related to or serve a similar function to those Awards set forth in this Section VI. VII. AWARD AGREEMENTS Each Award under the Plan shall be evidenced by an Award Agreement setting forth the terms and conditions of the Award and executed by the Corporation and Participant. VIII. OTHER TERMS AND CONDITIONS (a) ASSIGNABILITY. Unless provided to the contrary in any Award, no Award shall be assignable or transferable except by will, by the laws of descent and distribution and during the lifetime of a Participant, the Award shall be exercisable only by such Participant. No Award granted under the Plan shall be subject to execution, attachment or process. (b) TERMINATION OF EMPLOYMENT OR OTHER RELATIONSHIP. The Committee shall determine the disposition of the grant of each Award in the event of the retirement, disability, death or other termination of a Participant's employment or other relationship with the Corporation or a Subsidiary. (c) RIGHTS AS A STOCKHOLDER. A Participant shall have no rights as a stockholder with respect to shares covered by an Award until the date the Participant is the holder of record. No adjustment will be made for dividends or other rights for which the record date is prior to such date. (d) NO OBLIGATION TO EXERCISE. The grant of an Award shall impose no obligation upon the Participant to exercise the Award. (e) PAYMENTS BY PARTICIPANTS. The Committee may determine that Awards for which a payment is due from a Participant may be payable: (i) in U.S. dollars by personal check, bank draft or money order payable to the order of the Corporation, by money transfers or direct account debits; (ii) through the delivery or deemed delivery based on attestation to the ownership of shares of Common Stock with a Fair Market Value equal to the total payment due from the Participant; (iii) pursuant to a "cashless exercise" program if established by the Corporation; (iv) by a combination of the methods described in (i) through (iii) above; or (v) by such other methods as the Committee may deem appropriate. (f) WITHHOLDING. Except as otherwise provided by the Committee, (i) the deduction of withholding and any other taxes required by law will be made from all amounts paid in cash and (ii) in the case of payments of Awards in shares of Common Stock, the Participant shall be required to pay the amount of any taxes required to be withheld prior to receipt of such stock, or alternatively, a number of shares the Fair Market Value of which equals the amount required to be withheld may be deducted from the payment. (g) MAXIMUM AWARDS. The maximum number of shares of Common Stock that may be issued to any single Participant pursuant to options under this Plan is equal to the maximum number of shares provided for in paragraph (a) of Section V. IX. TERMINATION, MODIFICATION AND AMENDMENTS (a) The Committee may at any time terminate the Plan or from time to time make such modifications or amendments of the Plan as it may deem advisable; provided, however, that no amendments to the Plan which require stockholder approval under applicable law, rule or regulation shall become effective unless the same shall be approved by the requisite vote of the Corporation's stockholders. (b) No termination, modification or amendment of the Plan may adversely affect the rights conferred by an Award without the consent of the recipient thereof. X. RECAPITALIZATION The aggregate number of shares of Common Stock as to which Awards may be granted to Participants, the number of shares thereof covered by each outstanding Award, and the per share price thereof set forth in each outstanding Award, shall all 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 receipt of consideration by the Corporation, or other change in corporate or capital structure; provided, however, that any fractional shares resulting from any such adjustment shall be eliminated. The Committee shall also make the foregoing changes and any other changes, including changes in the classes of securities available, to the extent it is deemed necessary or desirable to preserve the intended benefits of the Plan for the Corporation and the Participants in the event of any other reorganization, recapitalization, merger, consolidation, spin-off, extraordinary dividend or other distribution or similar transaction. XI. NO RIGHT TO EMPLOYMENT No person shall have any claim or right to be granted an Award, and the grant of an Award shall not be construed as giving a Participant the right to be retained in the employ of, or in the other relationship with, the Corporation or a Subsidiary. Further, the Corporation and each Subsidiary expressly reserve the right at any time to dismiss a Participant free from any liability, or any claim under the Plan, except as provided herein or in any Award Agreement issued hereunder or in any other agreement applicable between a Participant and the Corporation or a subsidiary. XII. GOVERNING LAW To the extent that federal laws do not otherwise control, the Plan shall be construed in accordance with and governed by the laws of the State of Delaware. XIII. SAVINGS CLAUSE This Plan is intended to comply in all aspects with applicable laws and regulations. In case any one or more of the provisions of this Plan shall be held invalid, illegal or unenforceable in any respect under applicable law and regulation, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby and the invalid, illegal or unenforceable provision shall be deemed null and void; however, to the extent permissible by law, any provision which could be deemed null and void shall first be construed, interpreted or revised retroactively to permit this Plan to be construed in compliance with all applicable laws so as to foster the intent of this Plan. XIV. EFFECTIVE DATE AND TERM This 1998 Hexcel Corporation Broad Based Incentive Stock Plan as adopted on February 5, 1998 is hereby amended as of February 3, 2000. THE PLAN SHALL TERMINATE ON FEBRUARY 4, 2008. NO AWARDS SHALL BE GRANTED AFTER THE TERMINATION OF THE PLAN. EX-10.2 3 0003.txt EXHIBIT 10.2 Exhibit 10.2 EXECUTIVE SEVERANCE AGREEMENT AGREEMENT made as of the 1st day of July, 2000, between HEXCEL CORPORATION, a Delaware corporation with offices at Stamford, Connecticut (the "Company"), and Robert F. Matthews (the "Executive"). WHEREAS, the Company is engaged in the business of developing, manufacturing and marketing carbon fibers, fabrics, high-performance composite materials and parts therefrom for the commercial aerospace, space and defense, recreation and industrial markets throughout the world, and hereafter may engage in other areas of business (collectively, the "Business"); WHEREAS, the Executive will acquire considerable and unique knowledge of substantial value to the Company relating to the conduct, management and operation of the Business; WHEREAS, the Company is willing to provide the Executive with certain benefits in the event of the termination of the Executive's employment with the Company, including in the event of a Change in Control (as hereinafter defined); and WHEREAS, the Executive, in consideration of receiving such benefits from the Company, is willing to afford certain protection to the Company in regard to the confidentiality of its information, ownership of inventions and competitive activities. NOW, THEREFORE, in consideration of the mutual covenants of the Executive and the Company and of the Executive's continued employment with the Company, the parties agree as follows: 1. POSITION AND DUTIES. The Executive shall initially serve as Vice President, Human Resources of the Company and shall have such duties, responsibilities and authority as are assigned to him by the Board of Directors, the Chief Executive Officer or the President of the Company in connection with such position. The Executive shall devote substantially all his working time and efforts to the business and affairs of the Company. 2. PLACE OF PERFORMANCE. In connection with the Executive's employment by the Company, the Executive shall be based at the offices of the Company in Stamford, Connecticut, except for required travel on the Company's business. 3. TERMINATION. The Executive's employment hereunder may be terminated under the following circumstances: (a) DEATH. The Executive's employment hereunder shall automatically terminate upon his death. (b) DISABILITY. The Company may terminate the Executive's employment hereunder due to the Executive's inability to perform the customary duties of his employment by reason of any medical or psychological illness or condition that is expected to be permanent or of indefinite duration, excluding any such illness or condition that results from intentional self-inflicted injury, alcoholism or drug abuse. (c) CAUSE. The Company may terminate the Executive's employment hereunder for Cause. The following shall constitute Cause: (i) the willful and continued failure by the Executive to substantially perform his duties with the Company (other than any such failure resulting from the Executive's incapability due to physical or mental illness or any such actual or anticipated failure after the issuance of a Notice of Termination by the Executive for Good Reason) after demand for substantial performance is delivered by the Company that specifically identifies the manner in which the Company believes the Executive has not substantially performed his duties; or (ii) the willful engaging by the Executive in misconduct that is demonstrably and materially injurious to the Company, monetarily or otherwise including, but not limited to, conduct that violates the covenant not to compete in Section 6 hereof. No act, or failure to act, on the Executive's part shall be considered "willful" unless done, or omitted to be done, by him not in good faith and without reasonable belief that his action or omission was in the best interest of the Company. Notwithstanding the foregoing, the Executive shall not be deemed to have been terminated for Cause without (i) reasonable notice from the Board to the Executive setting forth the reasons for the Company's intention to terminate for Cause, (ii) delivery to the Executive of a resolution duly adopted by the affirmative vote of two-thirds or more of the Board then in office (excluding the Executive if he is then a member of the Board) at a meeting of the Board called and held for such purpose, finding that in the good faith opinion of the Board, the Executive was guilty of the conduct herein set forth and specifying the particulars thereof in detail, (iii) an opportunity for the Executive, together with his counsel, to be heard before the Board, and (iv) delivery to the Executive of a Notice of Termination from the Board specifying the particulars thereof in detail. (d) GOOD REASON. The Executive may terminate his employment hereunder for Good Reason. The following shall constitute Good Reason: (i) A diminution in the Executive's position, duties, responsibilities or authority (except during periods when the Executive is unable to perform all or substantially all of his duties or responsibilities on account of illness (either physical or mental) or other incapacity); (ii) A reduction in the Executive's annual rate of base salary as in effect on the date hereof or as the same may be increased from time to time; (iii) Failure by the Company to continue in effect any compensation plan in which the Executive participates which is material to the Executive's total compensation, unless an equitable arrangement (embodied in an ongoing substitute plan) has been made with respect to such plan, or failure by the Company to continue the Executive's participation therein (or in such substitute plan) on a basis not materially less favorable to the Executive; (iv) Failure by the Company to continue to provide the Executive with benefits substantially similar to those enjoyed by the Executive under any of the Company's pension, savings, life insurance, medical, health and accident, or disability plans in which the Executive was participating (except for across-the-board changes similarly affecting all senior executives of the Company and all senior executives of any Person in control of the Company), or failure by the Company to continue to provide the Executive with the number of paid vacation days per year equal to the greater of (i) 20 and (ii) the number to which the Executive is entitled in accordance with the Company's vacation policy; (v) Failure to provide facilities or services which are suitable to the Executive's position; (vi) Failure of any successor (whether direct or indirect, by purchase of stock or assets, merger, consolidation or otherwise) to the Company to assume the Company's obligations hereunder or failure by the Company to remain liable to the Executive hereunder after such assumption; (vii) Any termination by the Company of the Executive's employment which is not effected pursuant to a Notice of Termination satisfying the requirements of a Notice of Termination contained in this Agreement; (viii) The relocation of the Executive's principal place of employment to a location more than fifty (50) miles from the Executive's principal place of employment as identified in Section 2 hereof; or (ix) Failure to pay the Executive any portion of current or deferred compensation within seven (7) days of the date such compensation is due. The Executive's continued employment shall not constitute consent to, or waiver of rights with respect to, any circumstance constituting Good Reason hereunder; provided, however, that the Executive shall be deemed to have waived his rights pursuant to circumstances constituting Good Reason hereunder if he shall not have provided the Company a Notice of Termination within ninety (90) days following his knowledge of the occurrence of circumstances constituting Good Reason. (e) OTHER THAN DEATH, DISABILITY, CAUSE OR GOOD REASON. (i) The Company may terminate the Executive's employment, other than as provided in Sections (3)(a), (b) or (c) hereof, upon written notice to the Executive and (ii) the Executive may terminate his employment with the Company, other than as provided in Section 3(d) hereof, upon written notice to the Company. (f) NOTICE OF TERMINATION; DATE OF TERMINATION. Any termin-ation of the Executive's employment by the Company or by the Executive (other than a termination pursuant to Section 3(a) hereof) shall be communicated by written Notice of Termination to the other party hereto in accordance with Section 10. For purposes of this Agreement, i) "Notice of Termination" shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated, and (ii) "Date of Termination" shall mean (A) if the Executive's employment is terminated pursuant to Section 3(a), the date of his death, (B) if the Executive's employment is terminated pursuant to Section 3(b), thirty days after Notice of Termination is given (provided that the Executive shall not have returned substantially to full-time performance of the Executive's duties during such thirty day period), (C) if the Executive's employment is terminated pursuant to Sections 3(c), (d) or (e), the date specified in the Notice of Termination (provided that such date shall not be more than thirty days from the date Notice of Termination is given and, in the case of a termination for Cause, shall not be less than fifteen days from the date Notice of Termination is given), or (D) if the Executive terminates his employment and fails to provide written notice to the Company of such termination, the date of such termination. 4. COMPENSATION UPON DEATH, DISABILITY OR TERMINATION. (a) If the Executive's employment is terminated by his death, the Company shall pay the Executive's legal representative (i) at the time such payments are due, the Executive's full base salary through the Date of Termination at the rate in effect at the Date of Termination and all other unpaid amounts, if any, to which the Executive is entitled as of the Date of Termination including any reimbursable business expenses and amounts earned under any compensation plan or program (including the Bonus Plan) and (ii) within ten days following the date of the Executive's death, a lump sum payment in an amount equal to the sum of (A) the Executive's annual base salary in effect as of the Date of Termination and (B) the Executive's Average Annual Bonus (the term "Average Annual Bonus" shall mean the average of the last three annual bonus amounts awarded to the Executive under the Company's Management Incentive Compensation Plan, or any successor, alternate or supplemental plan (the "Bonus Plan") or, if the Executive has not participated in the Bonus Plan for three completed annual award periods, the average of the annual bonus amounts awarded, provided that any award made in respect of an annual award period in which the Executive did not participate for the full period (the "Pro-Rata Award") shall be annualized for purposes of computing the Average Bonus Amount by multiplying the Pro-Rata Award by a fraction, of which the numerator is 365 and the denominator is the number of days during which the Executive participated in such annual award period). (b) During any period that the Executive fails to perform his duties hereunder as a result of incapacity due to physical or mental illness the Executive shall continue to receive his full base salary at the rate then in effect for such period (offset by any payments to the Executive received pursuant to disability benefit plans maintained by the Company) until his employment is terminated pursuant to Section 3(b) hereof; and within ten days following such termination, the Company shall pay the Executive (i) all unpaid amounts, if any, to which the Executive is entitled as of the Date of Termination including any reimbursable business expenses and amounts earned under any compensation plan or program (including the Bonus Plan) and (ii) a lump sum payment in an amount equal to the sum of (A) the Executive's annual base salary in effect as of the Date of Termination and (B) the Executive's Average Annual Bonus. (c) If the Executive's employment is terminated by the Company for Cause or by the Executive for other than Good Reason, the Company shall at the time such payments are due pay the Executive his full base salary through the Date of Termination at the rate in effect at the time Notice of Termination is given and all other unpaid amounts, if any, to which the Executive is entitled as of the Date of Termination including any reimbursable business expenses and amounts earned under any compensation plan or program (including the Bonus Plan), and the Company shall, thereafter, have no further obligations to the Executive under this Agreement. (d) If (1) the Company shall terminate the Executive's employment other than for Disability and other than for Cause or (2) the Executive shall terminate his employment for Good Reason, then (i) the Company shall pay the Executive on the Date of Termination, by wire transfer to the bank account designated by the Executive, the Executive's full base salary through the Date of Termination at the rate in effect at the time Notice of Termination is given (disregarding any reduction in salary rate which would constitute a Good Reason) and all other unpaid amounts, if any, to which the Executive is entitled as of the Date of Termination including any reimbursable business expenses and amounts earned under any compensation plan or program (including the Bonus Plan); (ii) in lieu of any further salary payments to the Executive for periods subsequent to the Date of Termination, the Company shall pay to the Executive on the Date of Termination, by wire transfer to the bank account designated by the Executive, an amount equal to the product of (A) the sum of (1) the Executive's annual base salary in effect at the time the Notice of Termination is given (disregarding any reduction in salary rate which would constitute a Good Reason) and (2) the Executive's Average Annual Bonus, and (B) (x) if the Executive terminates his employment or the Company terminates the Executive's employment, in either case within two years after the occurrence of a Change in Control, the number two or (y) in any other case, the number one; and (iii) the Company shall continue the participation of the Executive for a period of one year (except, if the Executive terminates his employment or the Company terminates the Executive's employment, in either case within two years after the occurrence of a Change in Control, such period shall be two years), in all medical, health, life and other employee "welfare" plans and programs in which the Executive participated immediately prior to the Date of Termination, provided that the Executive's continued participation is possible under the general terms and provisions of such plans and programs. In the event that the Executive's participation in any such plan or program is barred, the Company shall by other means provide the Executive with benefits equivalent to those which the Executive would otherwise have been entitled to receive under such plans and programs from which his continued participation is barred. (e) If the Company shall terminate the Executive's employment other than for Cause, or the Executive shall terminate his employment for Good Reason, during the period of a Potential Change in Control or at the request of a person who, directly or indirectly, takes any action designed to cause a Change in Control, then the Company shall make payments and provide benefits to the Executive under this Agreement as though a Change in Control had occurred immediately prior to such termination. A "Potential Change in Control" shall exist during the period commencing at the time the Company enters into any agreement or arrangement which, if consummated, would result in a Change in Control and ending at the time such agreement or arrangement either (i) results in a Change in Control or (ii) terminates, expires or otherwise becomes of no further force or effect. (f) For purposes of this Agreement, a "Change in Control" shall mean the first to occur of the following events: (1) (i) Any person (as defined in Section 3(a)(9) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as modified and used in Sections 13(d) and 14(d) of the Exchange Act, but excluding Ciba for so long as Ciba is subject to the restrictions imposed by the Governance Agreement) (a "Person") is or becomes the Beneficial Owner (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of either (A) the then outstanding Common Stock of the Company (the "Outstanding Common Stock") or (B) the combined voting power of the then outstanding securities entitled to vote generally in the election of directors of the Company (the "Total Voting Power"); excluding, however, the following: (x) any acquisition by the Company or any of its affiliates or (y) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any of its affiliates and (ii) Ciba Beneficially Owns, in the aggregate, a lesser percentage of the Total Voting Power than such Person Beneficially Owns; (2) A change in the composition of the Board such that the individuals who, as of the effective date of this Agreement, constitute the Board (such individuals shall be hereinafter referred to as the "Incumbent Directors") cease for any reason to constitute at least a majority of the Board; provided, however, for purposes of this definition, that any individual who becomes a director subsequent to such effective date, whose election, or nomination for election by the Company's stockholders, was made or approved pursuant to the Governance Agreement or by a vote of at least a majority of the Incumbent Directors (or directors whose election or nomination for election was previously so approved) shall be considered a member of the Incumbent Board; but, provided, further, that any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest (as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a person or legal entity other than the Board shall not be so considered a member of the Incumbent Board; (3) The effective date of a reorganization, merger or consolidation by the Company, or the approval by the stockholders of the Company of a sale or other disposition of all or substantially all of the assets of the Company ("Corporate Transaction"); excluding, however, such a Corporate Transaction (1) pursuant to which all or substantially all of the individuals and entities who are the beneficial owners, respectively, of the Outstanding Common Stock and Total Voting Power immediately prior to such Corporate Transaction will beneficially own, directly or indirectly, more than 50%, respectively, of the outstanding common stock and the combined voting power of the then outstanding securities entitled to vote generally in the election of directors of the company resulting from such Corporate Transaction (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company's assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Corporate Transaction, of the Outstanding Common Stock and Total Voting Power, as the case may be, or (2) after which no Person beneficially owns a greater percentage of the combined voting power of the then outstanding securities entitled to vote generally in the election of directors of such corporation than does Ciba; (4) Ciba shall become the Beneficial Owner of more than 57.5% of the Total Voting Power; or (5) The approval by the stockholders of the Company of a complete liquidation or dissolution of the Company. For purposes of this Section 4(f), (x) the term "Ciba" shall mean Ciba Specialty Chemicals Holding Inc., a Swiss corporation, together with it affiliates holding Company voting securities pursuant to Section 4.01(b) of the Governance Agreement, (y) the term "Governance Agreement" shall have the meaning given in that certain Strategic Alliance Agreement among the Company, Ciba-Geigy Limited and Ciba Geigy Corporation, dated as of September 29, 1995, as amended, and any of their respective permitted successors or assigns thereunder, and (z) the consolidation between Ciba and Clariant shall be deemed not to be a "Change in Control." (g) Notwithstanding any other provisions of this Agreement, in the event that any payment, benefit, property or right received or to be received by the Executive in connection with a Change in Control or the Executive's termination of employment (whether pursuant to the terms of this Agreement or any other plan, arrangement or agreement with the Company, any Person whose actions result in a Change in Control or any Person affiliated with the Company or such Person) (all such payments, benefits, properties and rights being hereinafter referred to as the "Total Payments") would be subject (in whole or part) to the tax (the "Excise Tax") imposed by Section 4999 of the Internal Revenue Code of 1986, as amended, or any successor provision (the "Code"), then the payments and benefits provided under Section 4(d) or 4(e) hereof ("Severance Payments") which are cash shall first be reduced, and the noncash Severance Payments shall thereafter be reduced, to the extent necessary so that no portion of the Total Payments is subject to the Excise Tax, but only if (A) the net amount of such Total Payments, as so reduced (and after subtracting the net amount of federal, state and local income taxes on such reduced Total Payments) is greater than or equal to (B) the net amount of such Total Payments without such reduction (but after subtracting the net amount of federal, state and local income taxes on such Total Payments and the amount of Excise Tax to which the Executive would be subject in respect of such unreduced Total Payments); provided, however, that the Executive may elect (by waiving the receipt or enjoyment of all or any portion of the noncash Severance Payments at such time and in such manner that the Severance Payments so waived shall not constitute a "payment" within the meaning of section 280G(b) of the Code) to have the noncash Severance Payments reduced (or eliminated) prior to any reduction of the cash Severance Payments. For purposes of determining whether and the extent to which the Total Payments will be subject to the Excise Tax (i) no portion of the Total Payments the receipt or enjoyment of which the Executive shall have waived at such time and in such manner as not to constitute a "payment" within the meaning of section 280G(b) of the Code shall be taken into account, (ii) no portion of the Total Payments shall be taken into account which, in the written opinion of tax counsel ("Tax Counsel") reasonably acceptable to the Executive and selected by the accounting firm (the "Auditor") which was, immediately prior to the Change in Control, the Company's independent auditor, does not constitute a "parachute payment" within the meaning of section 280G(b)(2) of the Code (including by reason of section 280G(b)(4)(A) of the Code) and, in calculating the Excise Tax, no portion of such Total Payments shall be taken into account which, in the written opinion of Tax Counsel, constitutes reasonable compensation for services actually rendered, within the meaning of section 280G(b)(4)(B) of the Code, in excess of the Base Amount allocable to such reasonable compensation, and (iii) the value of any noncash benefit or any deferred payment or benefit included in the Total Payments shall be determined by the Auditor in accordance with the principles of sections 280G(d)(3) and (4) of the Code. At the time that payments are made under this Agreement, the Company shall provide the Executive with a written statement setting forth the manner in which such payments were calculated and the basis for such calculations including, without limitation, any opinions or other advice the Company has received from Tax Counsel, the Auditor or other advisors or consultants (and all such opinions or advice shall be in writing, shall be attached to the statement and shall expressly state that the Executive may rely thereon). If the Executive objects to the Company's calculations, the Company shall pay to the Executive such portion of the Severance Payments (up to 100% thereof) as the Executive determines is necessary to result in the proper application of the first sentence of this Section 4(g). The Executive and the Company shall each reasonably cooperate with the other in connection with any administrative or judicial proceedings concerning the existence or amount of liability for Excise Tax with respect to the Total Payments. 5. NO MITIGATION. The Executive shall not be required to mitigate the amount of any payment provided for in this Agreement by seeking other employment or otherwise, nor shall the amount of any payment or benefit provided for in this Agreement be reduced by any compensation earned by the Executive as the result of employment by another employer, by retirement benefits, by offset against any amount claimed to be owed by the Executive to the Company, or otherwise. 6. COVENANT NOT TO COMPETE. The Executive acknowledges that, as a senior management employee, the Executive will be involved, on a high level, in the development, implementation and management of the Company's global business plans, including those which involve the Company's finances, research, marketing, planning, operations, and acquisition strategies. By virtue of the Executive's position and knowledge of the Company, the Executive acknowledges that his employment by a competitor of the Company represents a serious competitive danger to the Company, and that the use of the Executive's experience and knowledge about the Company's business, strategies and plans by a competitor can and would constitute a valuable competitive advantage over the Company. In view of the foregoing, and in consideration of the payments made to the Executive under this Agreement, the Executive covenants and agrees that, if the Executive's employment is terminated and the Company has fulfilled its obligations under this Agreement, for a period of two years after the Date of Termination the Executive will not engage, in any capacity, directly or indirectly, including but not limited as employee, agent, consultant, manager, executive, owner or stockholder (except as a passive investor holding less than a 5% equity interest in any enterprise) in any business entity engaged in competition with the Business conducted by the Company on the Date of Termination anywhere in the world; provided, that the Executive may be employed by a competitor of the Company so long as the Executive's duties and responsibilities do not relate directly or indirectly to the business segment of the new employer which is actually or potentially competitive with the Business. 7. ASSIGNMENT OF INVENTIONS. The Executive agrees that all processes, technologies, designs and inventions, including new contributions, improvements, ideas and discoveries, whether patentable or not (collectively "Inventions"), conceived, developed, invented or made by the Executive prior to the Date of Termination shall belong to the Company, provided that such Inventions grew out of the Executive's work with the Company or any of its subsidiaries or affiliates, are related in any manner to the business (commercial or experimental) of the Company or any of its subsidiaries or affiliates or are conceived or made on the Company's time or with the use of the Company's facilities or materials. At the request of the Company, the Executive shall (i) promptly disclose such Inventions to the Company, (ii) assign to the Company, without additional compensation, all patent and other rights to such Inventions for the United States and foreign countries, (iii) sign all papers necessary to carry out the foregoing, and (iv) give testimony or otherwise take action in support of the Executive's status as the inventor of such Inventions, in each case at the Company's expense. 8. CONFIDENTIALITY. In addition to any obligation regarding Inventions, the Executive acknowledges that the trade secrets and confidential and proprietary information of the Company, its subsidiaries and affiliates, including without limitation: (a) unpublished information concerning: (i) research activities and plans, (ii) marketing or sales plans, (iii) pricing or pricing strategies, (iv) operational techniques, and (v) strategic plans; (b) unpublished financial information, including information concerning revenues, profits and profit margins; (c) internal confidential manuals; and (d) any "material inside information" as such phrase is used for purposes of the Securities Exchange Act of 1934, as amended; all constitute valuable, special and unique information of the Company, its subsidiaries and affiliates. In recognition of this fact, the Executive agrees that the Executive will not disclose any such trade secrets or confidential or proprietary information (except (i) information which becomes publicly available without violation of this Agreement, (ii) information of which the Executive, prior to disclosure by the Executive, did not know and should not have known was disclosed to the Executive by a third party in violation of any other person's confidentiality or fiduciary obligation, (iii) disclosure required in connection with any legal process (provided the Executive promptly gives the Company written notice of any legal process seeking to compel such disclosure and reasonably cooperates in the Company's attempt to eliminate or limit the scope of such disclosure) and (iv) disclosure while employed by the Company which the Executive reasonably and in good faith believes to be in or not opposed to the interests of the Company) to any person, firm, corporation, association or other entity, for any reason or purpose whatsoever, nor shall the Executive make use of any such information for the benefit of any person, firm, corporation or other entity except on behalf of the Company, its subsidiaries and affiliates. 9. BINDING AGREEMENT. This Agreement and all rights of the Executive hereunder shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Executive should die while any amounts would still be payable to him hereunder if he had continued to live, all such amounts, unless otherwise provided in this Agreement, shall be paid to the Executive's devisee, legatee, or other designee or, if there be no such designee, to the Executive's estate. 10. NOTICE. Notices, demands and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when delivered, if delivered personally, or mailed by United States certified or registered mail, return receipt requested, postage prepaid, and when received if delivered otherwise, addressed as follows: If to the Executive: Robert F. Matthews 14 Scattergood Circle Trumbull, CT 06611 If to the Company: Hexcel Corporation 281 Tresser Blvd. Stamford, CT 06901-3238 Attn: General Counsel or to such other address as any party may have furnished to the other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt. 11. GENERAL PROVISIONS. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing signed by the Executive (or, if applicable, his legal representative) and the Company. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not set forth expressly in this Agreement. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Connecticut without regard to its conflicts of law principles. 12. VALIDITY AND ENFORCEABILITY. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. It is the desire and intent of the parties that the provisions of Sections 6, 7 and 8 hereof shall be enforceable to the fullest extent permitted by applicable law or public policy. If any such provision or the application thereof to any person or circumstance shall, to any extent, be construed to be invalid or unenforceable in whole or in part, then such provision shall be construed in a manner so as to permit its enforceability to the fullest extent permitted by applicable law or public policy. In any case, the remaining provisions or the application thereof to any person or circumstance other than those to which they have been held invalid or unenforceable, shall remain in full force and effect. 13. COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 14. ARBITRATION. Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration, conducted before a panel of three arbitrators in the State of Connecticut, in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator's award in any court having jurisdiction; provided, however, that the Company shall be entitled to seek a restraining order or injunction in any court of competent jurisdiction to prevent any continuation of any violation of the provisions of Sections 6, 7 or 8 hereof. 15. ENTIRE AGREEMENT. This Agreement is the entire agreement or understanding between the Company and the Executive regarding the subject matter hereof. 16. REMEDIES. The Executive agrees that in addition to any other remedy provided at law or in equity or in this Agreement, the Company shall be entitled to a temporary restraining order and both preliminary and permanent injunctions restraining Executive from violating any provision of Sections 6, 7 and 8 hereof. In the event the Company fails to make any payment to the Executive when due, the Executive, in addition to any other remedy available at law or in equity, shall be entitled to interest on such unpaid amounts from the date such payment was due to the date actual payment is received by the Executive, at the legal rate applicable to unpaid judgments. The Company shall pay to the Executive all legal, audit, and actuarial fees and expenses as a result of the termination of employment, including all such fees and expenses incurred in contesting, arbitrating or disputing any action or failure to act by the Company or in seeking to obtain or enforce any right under this Agreement or any other plan, arrangement or agreement with the Company, provided that the Executive has obtained a final determination supporting at least part of his claim and there has been no determination that the balance of his claim was made in bad faith. 17. CONSENT TO JURISDICTION AND FORUM. The Executive hereby expressly and irrevocably agrees that any action, whether at law or in equity, permitted to be brought by the Company under this Agreement may be brought in the State of Connecticut or in any federal court therein. The Executive hereby irrevocably consents to personal jurisdiction in such court and to accept service of process in accordance with the provisions of the laws of the State of Connecticut. In the event the Company commences any such action in the State of Connecticut or in any Federal court therein, the Company shall reimburse the Executive for the reasonable expenses incurred by the Executive in his appearance in such forum which are in addition to the expenses the Executive would have incurred by appearing in the forum of the Executive's residence at that time, including but not limited to additional legal fees. HEXCEL CORPORATION By: ________________________________ Name: Title: EXECUTIVE ------------------------------------ Robert F. Matthews EX-10.3 4 0004.txt EXHIBIT 10.3 Exhibit 10.3 EXECUTIVE SEVERANCE AGREEMENT AGREEMENT made as of the 17th day of April, 2000, between HEXCEL CORPORATION, a Delaware corporation with offices at Stamford, Connecticut (the "Company"), and Steven T. Warshaw (the "Executive"). WHEREAS, the Company is engaged in the business of developing, manufacturing and marketing carbon fibers, fabrics, high-performance composite materials and parts therefrom for the commercial aerospace, space and defense, recreation and industrial markets throughout the world, and hereafter may engage in other areas of business (collectively, the "Business"); WHEREAS, the Executive will acquire considerable and unique knowledge of substantial value to the Company relating to the conduct, management and operation of the Business; WHEREAS, the Company is willing to provide the Executive with certain benefits in the event of the termination of the Executive's employment with the Company, including in the event of a Change in Control (as hereinafter defined); and WHEREAS, the Executive, in consideration of receiving such benefits from the Company, is willing to afford certain protection to the Company in regard to the confidentiality of its information, ownership of inventions and competitive activities. NOW, THEREFORE, in consideration of the mutual covenants of the Executive and the Company and of the Executive's continued employment with the Company, the parties agree as follows: 1. POSITION AND DUTIES. The Executive shall initially serve as President of the Hexcel-Schwebel Global Business Unit of the Company and shall have such duties, responsibilities and authority as are assigned to him by the Board of Directors, the Chief Executive Officer or the President of the Company in connection with such position. The Executive shall devote substantially all his working time and efforts to the business and affairs of the Company. 2. PLACE OF PERFORMANCE. In connection with the Executive's employment by the Company, the Executive shall be based at the offices of the Company in Anderson/Greenville, SC, except for required travel on the Company's business. 3. TERMINATION. The Executive's employment hereunder may be terminated under the following circumstances: (a) DEATH. The Executive's employment hereunder shall automatically terminate upon his death. (b) DISABILITY. The Company may terminate the Executive's employment hereunder due to the Executive's inability to perform the customary duties of his employment by reason of any medical or psychological illness or condition that is expected to be permanent or of indefinite duration, excluding any such illness or condition that results from intentional self-inflicted injury, alcoholism or drug abuse. (c) CAUSE. The Company may terminate the Executive's employment hereunder for Cause. The following shall constitute Cause: (i) the willful and continued failure by the Executive to substantially perform his duties with the Company (other than any such failure resulting from the Executive's incapability due to physical or mental illness or any such actual or anticipated failure after the issuance of a Notice of Termination by the Executive for Good Reason) after demand for substantial performance is delivered by the Company that specifically identifies the manner in which the Company believes the Executive has not substantially performed his duties; or (ii) the willful engaging by the Executive in misconduct that is demonstrably and materially injurious to the Company, monetarily or otherwise including, but not limited to, conduct that violates the covenant not to compete in Section 6 hereof. No act, or failure to act, on the Executive's part shall be considered "willful" unless done, or omitted to be done, by him not in good faith and without reasonable belief that his action or omission was in the best interest of the Company. Notwithstanding the foregoing, the Executive shall not be deemed to have been terminated for Cause without (i) reasonable notice from the Board to the Executive setting forth the reasons for the Company's intention to terminate for Cause, (ii) delivery to the Executive of a resolution duly adopted by the affirmative vote of two-thirds or more of the Board then in office (excluding the Executive if he is then a member of the Board) at a meeting of the Board called and held for such purpose, finding that in the good faith opinion of the Board, the Executive was guilty of the conduct herein set forth and specifying the particulars thereof in detail, (iii) an opportunity for the Executive, together with his counsel, to be heard before the Board, and (iv) delivery to the Executive of a Notice of Termination from the Board specifying the particulars thereof in detail. (d) GOOD REASON. The Executive may terminate his employment hereunder for Good Reason. The following shall constitute Good Reason: (i) A diminution in the Executive's position, duties, responsibilities or authority (except during periods when the Executive is unable to perform all or substantially all of his duties or responsibilities on account of illness (either physical or mental) or other incapacity); (ii) A reduction in the Executive's annual rate of base salary as in effect on the date hereof or as the same may be increased from time to time; (iii) Failure by the Company to continue in effect any compensation plan in which the Executive participates which is material to the Executive's total compensation, unless an equitable arrangement (embodied in an ongoing substitute plan) has been made with respect to such plan, or failure by the Company to continue the Executive's participation therein (or in such substitute plan) on a basis not materially less favorable to the Executive; (iv) Failure by the Company to continue to provide the Executive with benefits substantially similar to those enjoyed by the Executive under any of the Company's pension, savings, life insurance, medical, health and accident, or disability plans in which the Executive was participating (except for across-the-board changes similarly affecting all senior executives of the Company and all senior executives of any Person in control of the Company), or failure by the Company to continue to provide the Executive with the number of paid vacation days per year equal to the greater of (i) 20 and (ii) the number to which the Executive is entitled in accordance with the Company's vacation policy; (v) Failure to provide facilities or services which are suitable to the Executive's position; (vi) Failure of any successor (whether direct or indirect, by purchase of stock or assets, merger, consolidation or otherwise) to the Company to assume the Company's obligations hereunder or failure by the Company to remain liable to the Executive hereunder after such assumption; (vii) Any termination by the Company of the Executive's employment which is not effected pursuant to a Notice of Termination satisfying the requirements of a Notice of Termination contained in this Agreement; (viii) The relocation of the Executive's principal place of employment to a location more than fifty (50) miles from the Executive's principal place of employment as identified in Section 2 hereof; or (ix) Failure to pay the Executive any portion of current or deferred compensation within seven (7) days of the date such compensation is due. The Executive's continued employment shall not constitute consent to, or waiver of rights with respect to, any circumstance constituting Good Reason hereunder; provided, however, that the Executive shall be deemed to have waived his rights pursuant to circumstances constituting Good Reason hereunder if he shall not have provided the Company a Notice of Termination within ninety (90) days following his knowledge of the occurrence of circumstances constituting Good Reason. (e) OTHER THAN DEATH, DISABILITY, CAUSE OR GOOD REASON. (i) The Company may terminate the Executive's employment, other than as provided in Sections (3)(a), (b) or (c) hereof, upon written notice to the Executive and (ii) the Executive may terminate his employment with the Company, other than as provided in Section 3(d) hereof, upon written notice to the Company. (f) NOTICE OF TERMINATION; DATE OF TERMINATION. Any termination of the Executive's employment by the Company or by the Executive (other than a termination pursuant to Section 3(a) hereof) shall be communicated by written Notice of Termination to the other party hereto in accordance with Section 10. For purposes of this Agreement, (i) "Notice of Termination" shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated, and (ii) "Date of Termination" shall mean (A) if the Executive's employment is terminated pursuant to Section 3(a), the date of his death, (B) if the Executive's employment is terminated pursuant to Section 3(b), thirty days after Notice of Termination is given (provided that the Executive shall not have returned substantially to full-time performance of the Executive's duties during such thirty day period), (C) if the Executive's employment is terminated pursuant to Sections 3(c), (d) or (e), the date specified in the Notice of Termination (provided that such date shall not be more than thirty days from the date Notice of Termination is given and, in the case of a termination for Cause, shall not be less than fifteen days from the date Notice of Termination is given), or (D) if the Executive terminates his employment and fails to provide written notice to the Company of such termination, the date of such termination. 4. COMPENSATION UPON DEATH, DISABILITY OR TERMINATION. (a) If the Executive's employment is terminated by his death, the Company shall pay the Executive's legal representative (i) at the time such payments are due, the Executive's full base salary through the Date of Termination at the rate in effect at the Date of Termination and all other unpaid amounts, if any, to which the Executive is entitled as of the Date of Termination including any reimbursable business expenses and amounts earned under any compensation plan or program (including the Bonus Plan) and (ii) within ten days following the date of the Executive's death, a lump sum payment in an amount equal to the sum of (A) the Executive's annual base salary in effect as of the Date of Termination and (B) the Executive's Average Annual Bonus (the term "Average Annual Bonus" shall mean the average of the last three annual bonus amounts awarded to the Executive under the Company's Management Incentive Compensation Plan, or any successor, alternate or supplemental plan (the "Bonus Plan") or, if the Executive has not participated in the Bonus Plan for three completed annual award periods, the average of the annual bonus amounts awarded, provided that any award made in respect of an annual award period in which the Executive did not participate for the full period (the "Pro-Rata Award") shall be annualized for purposes of computing the Average Bonus Amount by multiplying the Pro-Rata Award by a fraction, of which the numerator is 365 and the denominator is the number of days during which the Executive participated in such annual award period). (b) During any period that the Executive fails to perform his duties hereunder as a result of incapacity due to physical or mental illness the Executive shall continue to receive his full base salary at the rate then in effect for such period (offset by any payments to the Executive received pursuant to disability benefit plans maintained by the Company) until his employment is terminated pursuant to Section 3(b) hereof; and within ten days following such termination, the Company shall pay the Executive (i) all unpaid amounts, if any, to which the Executive is entitled as of the Date of Termination including any reimbursable business expenses and amounts earned under any compensation plan or program (including the Bonus Plan) and (ii) a lump sum payment in an amount equal to the sum of (A) the Executive's annual base salary in effect as of the Date of Termination and (B) the Executive's Average Annual Bonus. (c) If the Executive's employment is terminated by the Company for Cause or by the Executive for other than Good Reason, the Company shall at the time such payments are due pay the Executive his full base salary through the Date of Termination at the rate in effect at the time Notice of Termination is given and all other unpaid amounts, if any, to which the Executive is entitled as of the Date of Termination including any reimbursable business expenses and amounts earned under any compensation plan or program (including the Bonus Plan), and the Company shall, thereafter, have no further obligations to the Executive under this Agreement. (d) If (1) the Company shall terminate the Executive's employment other than for Disability and other than for Cause or (2) the Executive shall terminate his employment for Good Reason, then (i) the Company shall pay the Executive on the Date of Termination, by wire transfer to the bank account designated by the Executive, the Executive's full base salary through the Date of Termination at the rate in effect at the time Notice of Termination is given (disregarding any reduction in salary rate which would constitute a Good Reason) and all other unpaid amounts, if any, to which the Executive is entitled as of the Date of Termination including any reimbursable business expenses and amounts earned under any compensation plan or program (including the Bonus Plan); (ii) in lieu of any further salary payments to the Executive for periods subsequent to the Date of Termination, the Company shall pay to the Executive on the Date of Termination, by wire transfer to the bank account designated by the Executive, an amount equal to the product of (A) the sum of (1) the Executive's annual base salary in effect at the time the Notice of Termination is given (disregarding any reduction in salary rate which would constitute a Good Reason) and (2) the Executive's Average Annual Bonus, and (B) (x) if the Executive terminates his employment or the Company terminates the Executive's employment, in either case within two years after the occurrence of a Change in Control, the number two or (y) in any other case, the number one; and (iii) the Company shall continue the participation of the Executive for a period of one year (except, if the Executive terminates his employment or the Company terminates the Executive's employment, in either case within two years after the occurrence of a Change in Control, such period shall be two years), in all medical, health, life and other employee "welfare" plans and programs in which the Executive participated immediately prior to the Date of Termination, provided that the Executive's continued participation is possible under the general terms and provisions of such plans and programs. In the event that the Executive's participation in any such plan or program is barred, the Company shall by other means provide the Executive with benefits equivalent to those which the Executive would otherwise have been entitled to receive under such plans and programs from which his continued participation is barred. (e) If the Company shall terminate the Executive's employment other than for Cause, or the Executive shall terminate his employment for Good Reason, during the period of a Potential Change in Control or at the request of a person who, directly or indirectly, takes any action designed to cause a Change in Control, then the Company shall make payments and provide benefits to the Executive under this Agreement as though a Change in Control had occurred immediately prior to such termination. A "Potential Change in Control" shall exist during the period commencing at the time the Company enters into any agreement or arrangement which, if consummated, would result in a Change in Control and ending at the time such agreement or arrangement either (i) results in a Change in Control or (ii) terminates, expires or otherwise becomes of no further force or effect. (f) For purposes of this Agreement, a "Change in Control" shall mean the first to occur of the following events: (1) (i) Any person (as defined in Section 3(a)(9) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as modified and used in Sections 13(d) and 14(d) of the Exchange Act, but excluding Ciba for so long as Ciba is subject to the restrictions imposed by the Governance Agreement) (a "Person") is or becomes the Beneficial Owner (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of either (A) the then outstanding Common Stock of the Company (the "Outstanding Common Stock") or (B) the combined voting power of the then outstanding securities entitled to vote generally in the election of directors of the Company (the "Total Voting Power"); excluding, however, the following: (x) any acquisition by the Company or any of its affiliates or (y) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any of its affiliates and (ii) Ciba Beneficially Owns, in the aggregate, a lesser percentage of the Total Voting Power than such Person Beneficially Owns; (2) A change in the composition of the Board such that the individuals who, as of the effective date of this Agreement, constitute the Board (such individuals shall be hereinafter referred to as the "Incumbent Directors") cease for any reason to constitute at least a majority of the Board; provided, however, for purposes of this definition, that any individual who becomes a director subsequent to such effective date, whose election, or nomination for election by the Company's stockholders, was made or approved pursuant to the Governance Agreement or by a vote of at least a majority of the Incumbent Directors (or directors whose election or nomination for election was previously so approved) shall be considered a member of the Incumbent Board; but, provided, further, that any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest (as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a person or legal entity other than the Board shall not be so considered a member of the Incumbent Board; (3) The effective date of a reorganization, merger or consolidation by the Company, or the approval by the stockholders of the Company of a sale or other disposition of all or substantially all of the assets of the Company ("Corporate Transaction"); excluding, however, such a Corporate Transaction (1) pursuant to which all or substantially all of the individuals and entities who are the beneficial owners, respectively, of the Outstanding Common Stock and Total Voting Power immediately prior to such Corporate Transaction will beneficially own, directly or indirectly, more than 50%, respectively, of the outstanding common stock and the combined voting power of the then outstanding securities entitled to vote generally in the election of directors of the company resulting from such Corporate Transaction (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company's assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Corporate Transaction, of the Outstanding Common Stock and Total Voting Power, as the case may be, or (2) after which no Person beneficially owns a greater percentage of the combined voting power of the then outstanding securities entitled to vote generally in the election of directors of such corporation than does Ciba; (4) Ciba shall become the Beneficial Owner of more than 57.5% of the Total Voting Power; or (5) The approval by the stockholders of the Company of a complete liquidation or dissolution of the Company. For purposes of this Section 4(f), (x) the term "Ciba" shall mean Ciba Specialty Chemicals Holding Inc., a Swiss corporation, together with it affiliates holding Company voting securities pursuant to Section 4.01(b) of the Governance Agreement, (y) the term "Governance Agreement" shall have the meaning given in that certain Strategic Alliance Agreement among the Company, Ciba-Geigy Limited and Ciba Geigy Corporation, dated as of September 29, 1995, as amended, and any of their respective permitted successors or assigns thereunder, and (z) the consolidation between Ciba and Clariant shall be deemed not to be a "Change in Control." (g) Notwithstanding any other provisions of this Agreement, in the event that any payment, benefit, property or right received or to be received by the Executive in connection with a Change in Control or the Executive's termination of employment (whether pursuant to the terms of this Agreement or any other plan, arrangement or agreement with the Company, any Person whose actions result in a Change in Control or any Person affiliated with the Company or such Person) (all such payments, benefits, properties and rights being hereinafter referred to as the "Total Payments") would be subject (in whole or part) to the tax (the "Excise Tax") imposed by Section 4999 of the Internal Revenue Code of 1986, as amended, or any successor provision (the "Code"), then the payments and benefits provided under Section 4(d) or 4(e) hereof ("Severance Payments") which are cash shall first be reduced, and the noncash Severance Payments shall thereafter be reduced, to the extent necessary so that no portion of the Total Payments is subject to the Excise Tax, but only if (A) the net amount of such Total Payments, as so reduced (and after subtracting the net amount of federal, state and local income taxes on such reduced Total Payments) is greater than or equal to (B) the net amount of such Total Payments without such reduction (but after subtracting the net amount of federal, state and local income taxes on such Total Payments and the amount of Excise Tax to which the Executive would be subject in respect of such unreduced Total Payments); provided, however, that the Executive may elect (by waiving the receipt or enjoyment of all or any portion of the noncash Severance Payments at such time and in such manner that the Severance Payments so waived shall not constitute a "payment" within the meaning of section 280G(b) of the Code) to have the noncash Severance Payments reduced (or eliminated) prior to any reduction of the cash Severance Payments. For purposes of determining whether and the extent to which the Total Payments will be subject to the Excise Tax (i) no portion of the Total Payments the receipt or enjoyment of which the Executive shall have waived at such time and in such manner as not to constitute a "payment" within the meaning of section 280G(b) of the Code shall be taken into account, (ii) no portion of the Total Payments shall be taken into account which, in the written opinion of tax counsel ("Tax Counsel") reasonably acceptable to the Executive and selected by the accounting firm (the "Auditor") which was, immediately prior to the Change in Control, the Company's independent auditor, does not constitute a "parachute payment" within the meaning of section 280G(b)(2) of the Code (including by reason of section 280G(b)(4)(A) of the Code) and, in calculating the Excise Tax, no portion of such Total Payments shall be taken into account which, in the written opinion of Tax Counsel, constitutes reasonable compensation for services actually rendered, within the meaning of section 280G(b)(4)(B) of the Code, in excess of the Base Amount allocable to such reasonable compensation, and (iii) the value of any noncash benefit or any deferred payment or benefit included in the Total Payments shall be determined by the Auditor in accordance with the principles of sections 280G(d)(3) and (4) of the Code. At the time that payments are made under this Agreement, the Company shall provide the Executive with a written statement setting forth the manner in which such payments were calculated and the basis for such calculations including, without limitation, any opinions or other advice the Company has received from Tax Counsel, the Auditor or other advisors or consultants (and all such opinions or advice shall be in writing, shall be attached to the statement and shall expressly state that the Executive may rely thereon). If the Executive objects to the Company's calculations, the Company shall pay to the Executive such portion of the Severance Payments (up to 100% thereof) as the Executive determines is necessary to result in the proper application of the first sentence of this Section 4(g). The Executive and the Company shall each reasonably cooperate with the other in connection with any administrative or judicial proceedings concerning the existence or amount of liability for Excise Tax with respect to the Total Payments. 5. NO MITIGATION. The Executive shall not be required to mitigate the amount of any payment provided for in this Agreement by seeking other employment or otherwise, nor shall the amount of any payment or benefit provided for in this Agreement be reduced by any compensation earned by the Executive as the result of employment by another employer, by retirement benefits, by offset against any amount claimed to be owed by the Executive to the Company, or otherwise. 6. COVENANT NOT TO COMPETE. The Executive acknowledges that, as a senior management employee, the Executive will be involved, on a high level, in the development, implementation and management of the Company's global business plans, including those which involve the Company's finances, research, marketing, planning, operations, and acquisition strategies. By virtue of the Executive's position and knowledge of the Company, the Executive acknowledges that his employment by a competitor of the Company represents a serious competitive danger to the Company, and that the use of the Executive's experience and knowledge about the Company's business, strategies and plans by a competitor can and would constitute a valuable competitive advantage over the Company. In view of the foregoing, and in consideration of the payments made to the Executive under this Agreement, the Executive covenants and agrees that, if the Executive's employment is terminated and the Company has fulfilled its obligations under this Agreement, for a period of two years after the Date of Termination the Executive will not engage, in any capacity, directly or indirectly, including but not limited as employee, agent, consultant, manager, executive, owner or stockholder (except as a passive investor holding less than a 5% equity interest in any enterprise) in any business entity engaged in competition with the Business conducted by the Company on the Date of Termination anywhere in the world; provided, that the Executive may be employed by a competitor of the Company so long as the Executive's duties and responsibilities do not relate directly or indirectly to the business segment of the new employer which is actually or potentially competitive with the Business. 7. ASSIGNMENT OF INVENTIONS. The Executive agrees that all processes, technologies, designs and inventions, including new contributions, improvements, ideas and discoveries, whether patentable or not (collectively "Inventions"), conceived, developed, invented or made by the Executive prior to the Date of Termination shall belong to the Company, provided that such Inventions grew out of the Executive's work with the Company or any of its subsidiaries or affiliates, are related in any manner to the business (commercial or experimental) of the Company or any of its subsidiaries or affiliates or are conceived or made on the Company's time or with the use of the Company's facilities or materials. At the request of the Company, the Executive shall (i) promptly disclose such Inventions to the Company, (ii) assign to the Company, without additional compensation, all patent and other rights to such Inventions for the United States and foreign countries, (iii) sign all papers necessary to carry out the foregoing, and (iv) give testimony or otherwise take action in support of the Executive's status as the inventor of such Inventions, in each case at the Company's expense. 8. CONFIDENTIALITY. In addition to any obligation regarding Inventions, the Executive acknowledges that the trade secrets and confidential and proprietary information of the Company, its subsidiaries and affiliates, including without limitation: (a) unpublished information concerning: (i) research activities and plans, (ii) marketing or sales plans, (iii) pricing or pricing strategies, (iv) operational techniques, and (v) strategic plans; (b) unpublished financial information, including information concerning revenues, profits and profit margins; (c) internal confidential manuals; and (d) any "material inside information" as such phrase is used for purposes of the Securities Exchange Act of 1934, as amended; all constitute valuable, special and unique information of the Company, its subsidiaries and affiliates. In recognition of this fact, the Executive agrees that the Executive will not disclose any such trade secrets or confidential or proprietary information (except (i) information which becomes publicly available without violation of this Agreement, (ii) information of which the Executive, prior to disclosure by the Executive, did not know and should not have known was disclosed to the Executive by a third party in violation of any other person's confidentiality or fiduciary obligation, (iii) disclosure required in connection with any legal process (provided the Executive promptly gives the Company written notice of any legal process seeking to compel such disclosure and reasonably cooperates in the Company's attempt to eliminate or limit the scope of such disclosure) and (iv) disclosure while employed by the Company which the Executive reasonably and in good faith believes to be in or not opposed to the interests of the Company) to any person, firm, corporation, association or other entity, for any reason or purpose whatsoever, nor shall the Executive make use of any such information for the benefit of any person, firm, corporation or other entity except on behalf of the Company, its subsidiaries and affiliates. 9. BINDING AGREEMENT. This Agreement and all rights of the Executive hereunder shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Executive should die while any amounts would still be payable to him hereunder if he had continued to live, all such amounts, unless otherwise provided in this Agreement, shall be paid to the Executive's devisee, legatee, or other designee or, if there be no such designee, to the Executive's estate. 10. NOTICE. Notices, demands and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when delivered, if delivered personally, or mailed by United States certified or registered mail, return receipt requested, postage prepaid, and when received if delivered otherwise, addressed as follows: If to the Executive: Steven T. Warshaw 44 Settlers Trail Stamford, CT 06903 If to the Company: Hexcel Corporation 281 Tresser Blvd. Stamford, CT 06901-3238 Attn: General Counsel or to such other address as any party may have furnished to the other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt. 11. GENERAL PROVISIONS. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing signed by the Executive (or, if applicable, his legal representative) and the Company. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not set forth expressly in this Agreement. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Connecticut without regard to its conflicts of law principles. 12. VALIDITY AND ENFORCEABILITY. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. It is the desire and intent of the parties that the provisions of Sections 6, 7 and 8 hereof shall be enforceable to the fullest extent permitted by applicable law or public policy. If any such provision or the application thereof to any person or circumstance shall, to any extent, be construed to be invalid or unenforceable in whole or in part, then such provision shall be construed in a manner so as to permit its enforceability to the fullest extent permitted by applicable law or public policy. In any case, the remaining provisions or the application thereof to any person or circumstance other than those to which they have been held invalid or unenforceable, shall remain in full force and effect. 13. COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 14. ARBITRATION. Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration, conducted before a panel of three arbitrators in the State of Connecticut, in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator's award in any court having jurisdiction; provided, however, that the Company shall be entitled to seek a restraining order or injunction in any court of competent jurisdiction to prevent any continuation of any violation of the provisions of Sections 6, 7 or 8 hereof. 15. ENTIRE AGREEMENT. This Agreement is the entire agreement or understanding between the Company and the Executive regarding the subject matter hereof. 16. REMEDIES. The Executive agrees that in addition to any other remedy provided at law or in equity or in this Agreement, the Company shall be entitled to a temporary restraining order and both preliminary and permanent injunctions restraining Executive from violating any provision of Sections 6, 7 and 8 hereof. In the event the Company fails to make any payment to the Executive when due, the Executive, in addition to any other remedy available at law or in equity, shall be entitled to interest on such unpaid amounts from the date such payment was due to the date actual payment is received by the Executive, at the legal rate applicable to unpaid judgments. The Company shall pay to the Executive all legal, audit, and actuarial fees and expenses as a result of the termination of employment, including all such fees and expenses incurred in contesting, arbitrating or disputing any action or failure to act by the Company or in seeking to obtain or enforce any right under this Agreement or any other plan, arrangement or agreement with the Company, provided that the Executive has obtained a final determination supporting at least part of his claim and there has been no determination that the balance of his claim was made in bad faith. 17. CONSENT TO JURISDICTION AND FORUM. The Executive hereby expressly and irrevocably agrees that any action, whether at law or in equity, permitted to be brought by the Company under this Agreement may be brought in the State of Connecticut or in any federal court therein. The Executive hereby irrevocably consents to personal jurisdiction in such court and to accept service of process in accordance with the provisions of the laws of the State of Connecticut. In the event the Company commences any such action in the State of Connecticut or in any Federal court therein, the Company shall reimburse the Executive for the reasonable expenses incurred by the Executive in his appearance in such forum which are in addition to the expenses the Executive would have incurred by appearing in the forum of the Executive's residence at that time, including but not limited to additional legal fees. HEXCEL CORPORATION By: ________________________________ Name: Title: EXECUTIVE ------------------------------------ Steven T. Warshaw EX-10.4 5 0005.txt EXHIBIT 10.4 Exhibit 10.4 SUPPLEMENTAL EXECUTIVE RETIREMENT AGREEMENT AGREEMENT made as of the 10th day of May, 2000, between Hexcel Corporation, a Delaware corporation (the "Company"), and Harold E. Kinne (the "Executive"). WHEREAS, the Executive is presently employed by the Company as President and Chief Operating Officer; and WHEREAS, the Company is willing to provide the Executive with certain benefits in the event of the retirement from or termination of the Executive's employment with the Company; NOW, THEREFORE, in consideration of the continued employment of the Executive by the Company and the benefits to be derived by the Executive hereunder, the parties mutually agree as follows: ARTICLE I DEFINITIONS The following terms when used in this Agreement shall have the designated meaning, unless a different meaning is clearly required by the context. 1.1 ACTUARIAL EQUIVALENCE. Determinations hereunder of actuarial value, actuarial equivalence or the like shall be made by the Company's independent actuary, using the mortality and other applicable actuarial assumptions specified, from time to time, in the Hexcel Corporation Pension Plan (the "Pension Plan") or any successor plan thereto; PROVIDED, however, that for the purpose of determining any lump sum amount under this Agreement, or the amount of reduction to reflect the payment of a special benefit under Section 2.3, actuarial equivalence shall be determined using an interest rate equal to 120% of the rate published by the Pension Benefit Guaranty Corporation for purposes of plans terminating in the month in which benefit payments are to commence hereunder. 1.2 AFFILIATE. Any trade or business, whether or not incorporated, which at the time of reference (i) controls, is controlled by or is under common control with the Company within the meaning of section 414(b) or (c) of the Code, or (ii) is, together with the Company, a member of an affiliated service group within the meaning of section 414(m) of the Code. 1.3 BOARD. The Board of Directors of the Company. 1.4 CAUSE. Cause shall mean: I.0.1 The willful and continued failure by the Executive to substantially perform his duties with the Company (other than any such failure resulting from the Executive's incapability due to physical or mental illness or any such actual or anticipated failure after the issuance of a Notice of Termination by the Executive for Good Reason) after demand for substantial performance is delivered by the Company specifically identifies the manner in which the Company believes the Executive has not substantially performed his duties; or I.0.2 The willful engaging by the Executive in misconduct that is demonstrably and materially injurious to the Company, monetarily or otherwise including, but not limited to, conduct that would constitute a violation of Section 6 of the Executive Severance Agreement if engaged in during the time period described therein. No act, or failure to act, on the Executive's part shall be considered "willful" unless done, or omitted to be done, by him not in good faith and without reasonable belief that his action or omission was in the best interest of the Company. Notwithstanding the foregoing, the Executive shall not be deemed to have been terminated for Cause without (i) reasonable notice from the Board to the Executive setting forth the reasons for the Company's intention to terminate for Cause, (ii) delivery to the Executive of a resolution duly adopted by the affirmative vote of two-thirds or more of the Board then in office (excluding the Executive if he is then a member of the Board) at a meeting of the Board called and held for such purpose, finding that in the good faith opinion of the Board, the Executive was guilty of the conduct herein set forth and specifying the particulars thereof in detail, (iii) an opportunity for the Executive, together with his counsel, to be head before the Board, and (iv) delivery to the Executive of a Notice of Termination from the Board specifying the particulars thereof in detail. 1.5 CHANGE IN CONTROL. Change in Control shall mean the first to occur of the following events: I.0.1 (i) Any person (as defined in Section 3(a)(9) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as modified and used in Section 13(d) and 14(d) of the Exchange Act, but excluding Ciba for so long as Ciba is subject to the restrictions imposed by the Governance Agreement) (a "Person") is or becomes the Beneficial Owner (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of either (A) the then outstanding Common Stock of the Company (the "Outstanding Common Stock") or (B) the combined voting power of the then outstanding securities entitled to vote generally in the election of directors of the Company (the "Total Voting Power"); excluding, however, the following: (x) any acquisition by the Company or any of its affiliates or (y) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any of its affiliates and (ii) Ciba Beneficially Owns, in the aggregate, a lesser percentage of the Total Voting Power than such Person Beneficially Owns. I.0.2 A change in the composition of the Board such that the individuals who, as of the effective date of this Agreement, constitute the Board (such individuals shall be hereinafter referred to as the "Incumbent Directors") cease for any reason to constitute at least a majority of the Board; PROVIDED, HOWEVER, for purposes of this definition, that any individual who becomes a director subsequent to such effective date, whose election, or nomination for election by the Company's stockholders, was made or approved pursuant to the Governance Agreement or by a vote of at least a majority of the Incumbent Directors (or directors whose election or nomination for election was previously so approved) shall be considered a member of the Incumbent Board; but, PROVIDED, FURTHER, that any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest (as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a person or legal entity other than the Board shall not be so considered a member of the Incumbent Board. I.0.3 The effective date of a reorganization, merger or consolidation or the approval by the stockholders of the Company of a sale or other disposition of all or substantially all of the assets of the Company ("Corporate Transaction"); excluding, however, such a Corporate Transaction (1) pursuant to which all or substantially all of the individuals and entities who are the beneficial owners, respectively, of the Outstanding Common Stock and Total Voting Power immediately prior to such Corporate Transaction will beneficially own, directly or indirectly, more than 50%, respectively, of the outstanding common stock and the combined voting power of the then outstanding securities entitled to vote generally in the election of directors of the company resulting from such Corporate Transaction (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company's assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Corporate Transaction of the Outstanding Common Stock and Total Voting Power, as the case may be, or (2) after which no Person beneficially owns a greater percentage of the combined voting power of the then outstanding securities entitled to vote generally in the election of directors of such corporation than does Ciba. I.0.4 Ciba shall become the Beneficial Owner of more than 57.5% of the Total Voting Power. I.0.5 The approval by the stockholders of the Company of a complete liquidation or dissolution of the Company. 1.6 CIBA. 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. 1.7 CODE. The Internal Revenue Code of 1986, as amended. 1.8 COMPANY. Hexcel Corporation, a Delaware corporation, and its successors. 1.9 CONTINUOUS SERVICE. The number of full and partial calendar months of the Executive's period of continuous employment with the Company and its Affiliates. A transfer between employment with the Company and an Affiliate or between Affiliates shall not be deemed a termination of employment or otherwise interrupt the Executive's Continuous Service. Leaves of absence of not more than one year and any period during which the Executive is entitled to receive disability benefits from the Company (including medical and short-term disability benefits preceding the commencement of long-term disability benefits under the Company's long-term disability plan) shall be taken into account as Continuous Service. 1.10 DISABILITY. The Executive's inability to perform the customary duties of his employment by reason of any medical or psychological illness or condition that is expected to be permanent or of indefinite duration, excluding any such illness or condition that results from intentional self-inflicted injury, alcoholism or drug abuse. 1.11 EXECUTIVE DEFERRED COMPENSATION AGREEMENT. The Executive Deferred Compensation Agreement between the Executive and the Company entered into as of July 15, 1998. 1.12 EXECUTIVE SEVERANCE AGREEMENT. The Executive Severance Agreement entered into between the Company and the Executive as of February 3, 1999. 1.13 GOOD REASON. Good Reason shall have the meaning set forth in the Executive Severance Agreement. 1.14 GOVERNANCE AGREEMENT. The agreement defined as such in the Strategic Alliance Agreement among the Company, Ciba Geigy Limited and Ciba Geigy Corporation, dated as of September 29, 1995, as amended. 1.15 NORMAL RETIREMENT BENEFIT. The benefit defined in Section 2.2.1 hereof. 1.16 NORMAL RETIREMENT DATE. The date on which the Executive attains age sixty-five (65). 1.17 NOTICE OF TERMINATION. Any termination of the Executive's employment by the Company or by the Executive other than by death shall be communicated by written Notice of Termination to the other party hereto. For purposes of this Agreement, a "Notice of Termination" shall mean a notice which shall indicate whether termination was for Good Reason, Cause, Disability or otherwise and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated. 1.18 TERMINATION OF EMPLOYMENT. References hereunder to the Executive's termination of employment, the date the Executive's employment terminates and the like, shall, except as specifically provided herein, refer to the ceasing of the Executive's employment with the Company and all Affiliates for any reason. ARTICLE II RETIREMENT BENEFITS 1.19 IN GENERAL. The amount of the Executive's benefit shall be based on his Final Average Pay, Benefit Percentage and Vesting Percentage; the benefit otherwise payable under this Agreement's basic benefit formula shall be reduced by the amount of the Executive's Qualified Pension Benefits. The following definitions shall apply in making benefit calculations under this Agreement: II.0.1 FINAL AVERAGE PAY. The average monthly compensation of the Executive for the highest-paid 36 months of the Executive's final 60 months of Continuous Service. For this purpose (i) the Executive's "compensation" shall mean his base salary (without regard to any salary deferral pursuant to sections 125 or 401(k) of the Code or any successor provision) and all amounts earned (whether paid or payable) under all management incentive or other bonus plans in which he participates and (ii) any incentive pay or other bonus shall be deemed to have been earned ratably over the period with respect to which it is earned. II.0.2 BENEFIT PERCENTAGE. With respect to each of the first 60 months of Continuous Service, five twelfths of one percent (5/12%); with respect to each of the next 60 months of Continuous Service, one quarter of one percent (1/4%), and with respect to each month of Continuous Service after the first 120 months of Continuous Service, one sixth of one percent (1/6%) . II.0.3 VESTING PERCENTAGE. 100% if the Executive has completed at least 60 months of Continuous Service; otherwise, 0%. II.0.4 QUALIFIED PENSION BENEFITS. (i) the vested benefits paid in respect of the Executive from the Hexcel Corporation Pension Plan or any successor plan thereto, (ii) the vested contributions made by the Company to the Hexcel Corporation 401(k) Plan or any successor plan thereto (to the extent paid), (iii) the vested contributions made by the Company to the Hexcel Corporation 401(k) Restoration Plan or any successor plan thereto (to the extent paid), and (iv) the Executive's Social Security payments, in each case, whether as a periodic payment, as a lump sum, or otherwise. The aggregate of the Executive's Qualified Pension Benefits shall be expressed as a monthly amount in the form of an actuarially equivalent 50% joint and survivor annuity with 120 months of guaranteed payments starting at the date the Executive attains age 65; PROVIDED, HOWEVER, that notwithstanding anything in Section 1.1 to the contrary, for purposes of determining the amount of offset attributable to clauses (ii) and (iii) above, Company contributions (or allocations, in the case of clause (iii) above) shall be deemed to earn interest at an annual rate of 6%, compounded annually, from the date of such contribution (or allocation) until the date it is actually paid to or in respect of the Executive. 1.20 PAYMENT OF BENEFITS. Benefits shall be paid as follows: II.0.1 NORMAL RETIREMENT. Subject to Section 2.2.7, and except as otherwise set forth in Section 2.2.2 or 2.2.3, if the Executive's employment terminates on or after his Normal Retirement Date, the Company will pay the Executive a monthly benefit starting on the first of the month after his employment terminates and ending with the payment for the month in which his death occurs or, if later, after the payment of 120 such payments. Any such payments made after the death of the Executive shall be made (i) to the Executive's designated beneficiary, if any or (ii) if there is no designated beneficiary or the designated beneficiary dies before a total of 120 payments have been made to the Executive and the designated beneficiary, to the Executive's estate. Such monthly benefit (the "Normal Retirement Benefit") shall be an amount equal to (A) the product of his Final Average Pay, Benefit Percentage, and his Vesting Percentage, less (B) his Qualified Pension Benefits. II.0.2 TERMINATION FOLLOWING CHANGE IN CONTROL. Subject to Section 2.2.7, upon (i) termination by the Executive of his employment for Good Reason within two years following a Change in Control, (ii) termination of the Executive's employment by the Company other than for Cause within two years following a Change in Control or (iii) a termination of the Executive's employment described in Section 4(e) of the Executive Severance Agreement (whether by the Company or the Executive), the Company will pay the Executive, no later than the next business day following the date of such termination, by wire transfer to the Executive's bank account, as designated by the Executive, an amount equal to the actuarial present value of the Normal Retirement Benefit (computed using a Vesting Percentage of 100% and Continuous Service equal to the Executive's actual Continuous Service at the time his employment terminates plus 36 months) he would have received had he retired on his Normal Retirement Date (but based upon his Final Average Pay at the time his employment terminates). II.0.3 TERMINATION WITHOUT CAUSE OR FOR GOOD REASON. Subject to Section 2.2.7, and except as otherwise provided in Section 2.2.2, upon termination of the Executive's employment at any time by the Company other than for Cause or by the Executive for Good Reason, the Company will pay the Executive, as soon as practicable following such date of termination, an amount equal to the actuarial present value of the Normal Retirement Benefit (computed using a Vesting Percentage of 100% and Continuous Service equal to the Executive's actual Continuous Service at the time his employment terminates plus 12 months) he would have received had he retired on his Normal Retirement Date (but based upon his Final Average Pay at the time his employment terminates). II.0.4 TERMINATION FOR CAUSE. No benefits shall be payable hereunder with respect to the Executive if his employment is terminated by the Company for Cause. II.0.5 DISABILITY. If the Executive's employment with the Company or any Affiliate terminates on account of Disability, the Company shall pay the Executive a monthly benefit in an amount (computed using a Vesting Percentage of 100%) equal to (i) the product of his Final Average Pay and Benefit Percentage less (ii) his Qualified Pension Benefits. The benefit so determined shall be payable, without actuarial or other reduction to reflect commencement of payment before his Normal Retirement Date, beginning on the first date of the month next following the last month with respect to which the Executive is entitled to payments under the Company's long term disability plan (or, if earlier, such time as the Executive shall elect not to receive such payments) and ending with the payment for the month in which his death occurs or, if later, after the payment of 120 such payments. Any such payments made after the death of the Executive shall be made (i) to the Executive's designated beneficiary, if any or (ii) if there is no designated beneficiary or the designated beneficiary dies before a total of 120 payments have been made to the Executive and the designated beneficiary, to the Executive's estate. II.0.6 OTHER TERMINATION. Subject to Section 2.2.7, and except as otherwise set forth in Sections 2.2.2, 2.2.3 or 2.2.5, if the Executive terminates his employment prior to his attainment of age 65, the Company will pay the Executive a monthly benefit starting on the date elected by the Executive, but no earlier than the first of the month after his attainment of age 55, and ending with the payment for the month in which his death occurs or, if later, after the payment of 120 such payments. Any such payments made after the death of the Executive shall be made (i) to the Executive's designated beneficiary, if any or (ii) if there is no designated beneficiary or the designated beneficiary dies before a total of 120 payments have been made to the Executive and the designated beneficiary, to the Executive's estate. Such monthly benefit shall be calculated and paid in accordance with Section 2.2.1 hereof, reduced by one quarter of one percent (1/4%) per payment for each full calendar month by which the benefit commencement date precedes the Executive's attainment of age 65. II.0.7 OPTIONAL FORMS OF BENEFIT. In lieu of the form of benefit prescribed in Section 2.2.1 and Section 2.2.6, the Executive may elect to receive his benefit hereunder, as soon as practicable following the date of his termination of employment, in a cash lump sum, the amount of which shall equal the actuarial present value of, in the case of Section 2.2.1, his Normal Retirement Benefit and, in the case of Section 2.2.6, the reduced monthly benefit he would have received thereunder. In lieu of the lump sum form of benefit prescribed in Sections 2.2.2. and 2.2.3, the Executive may elect to receive his benefit hereunder as a monthly benefit starting on the first of the month after his employment terminates and ending with the payment for the month in which his death occurs or, if later, after the payment of 120 such payments. Any such payments made after the death of the Executive shall be made (i) to the Executive's designated beneficiary, if any or (ii) of there is no designated beneficiary or the designated beneficiary dies before a total of 120 payments have been made to the Executive and the designated beneficiary, to the Executive's estate. Any election to change to or from the lump sum form of benefit that is made by the Executive less than one year preceding the Executive's date of termination shall not be given effect; PROVIDED, HOWEVER, that the foregoing shall be inapplicable with respect to (i) any election made by the Executive within 30 days of the date of this Agreement and (ii) any election with respect to the Executive's benefit under Section 2.2.2 to the extent such election is made at least 90 days prior to a Change in Control or at any time prior to the Company entering into an agreement the consummation or shareholder approval of which would constitute a Change in Control. 1.21 SPECIAL BENEFIT. If it shall be determined by a final administrative decision of the Internal Revenue (which is not appealed by the Executive) or by a final decision of a court of competent jurisdiction (which is not appealed by the Executive) that the value of all or any part of any benefit contemplated by this Agreement is includable in the income of the Executive prior to the actual receipt of such benefit, the Company shall make a special payment to the Executive, in discharge of the actuarially equivalent value (based upon the actuarial factors in effect when benefits other than the benefit described in this Section 2.3 commence to be paid to the Executive hereunder) of any benefits otherwise due hereunder (and such other benefit shall be reduced to reflect the actuarial value of any such special payment made pursuant to this Section 2.3), in an amount equal to the Executive's estimated federal, state and local income tax liabilities related to such inclusion and to the inclusion in income of such special payment. The Executive shall have no obligation to appeal any determination made by the Internal Revenue Service or the decision of any such court. 1.22 NO DUPLICATION. Except as provided in Section 2.3 hereof, in no event shall benefits become payable to the Executive under more than one Section of this Article II. ARTICLE III SURVIVOR BENEFITS 1.23 POST-RETIREMENT SURVIVOR BENEFIT. Notwithstanding any provision hereof to the contrary, the Executive may elect, at any time prior to commencement of his benefits under Article II (and may revoke or modify any such election and/or make a new election, in each case at any time and from time to time prior to commencement of his benefits under Article II), to have his benefit paid in the from of a joint and survivor annuity pursuant to which (i) payment of the Executive's benefit will be made in accordance with Article II and (ii) if the Executive dies after payment of his benefits under Article II has started, the Company shall pay a monthly benefit to the Executive's designated beneficiary, starting on the first of the month immediately following the month in which the Executive dies or, if later, with the month immediately following the last month for which a payment is made to such beneficiary under Article II, and ending with the payment for the month in which the death of such designated beneficiary occurs. Such monthly benefit shall be an amount equal to 50% or 100%, as elected by the Executive, of the monthly benefit the Executive was receiving under the Agreement prior to his death. If the Executive makes such election, the benefit payable to the Executive under Article II hereof shall be reduced to reflect the actuarial equivalence of the additional Post-Retirement Survivor Benefit so elected by the Executive. 1.24 PRE-RETIREMENT SURVIVOR BENEFIT. Notwithstanding any provision hereof to the contrary, the Executive may elect at any time (and may revoke or modify any such election and/or make a new election, in each case at any time and from time to time prior to commencement of his benefits under Article II) that, in the event the Executive dies before distribution of his benefits under Article II has started, the Company shall pay a monthly benefit to the Executive's designated beneficiary, starting on the first of the month immediately following the month in which the Executive dies, but in no event earlier than the date on which the Executive would have been eligible to commence receipt of his benefits under Article II had he terminated employment on the day immediately preceding his death, and ending with the payment for the month in which the death of such designated beneficiary occurs. Such monthly benefit shall be an amount equal to 50% or 100%, as elected by the Executive, of the monthly benefit the Executive would have received had he terminated employment on the day immediately preceding his death and commenced benefits on the date on which the benefit under this Section 3.2 commences. If the Executive makes such election, the benefit payable to the Executive under Article II hereof shall be reduced to reflect the actuarial equivalence of the additional Pre-Retirement Survivor Benefit so elected by the Executive. ARTICLE IV MISCELLANEOUS 1.25 BINDING AGREEMENT. This Agreement and all rights of the Executive hereunder shall inure to the benefit of and be enforceable by the Executive's person or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. 1.26 NOTICE. Notices, elections, demands and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when delivered by hand (or received by telecopy, telex or similar device) or mailed by United States certified or registered mail, return receipt requested, postage prepaid, addressed as follows: If to the Executive: Mr. Harold E. Kinne 107 Heming Way Stamford, CT 06903 If to the Company: Hexcel Corporation Two Stamford Plaza 281 Tresser Boulevard Stamford, Connecticut 06901-3238 Attn: General Counsel or to such other address as any party may have furnished to the other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt. 1.27 GENERAL PROVISIONS. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing signed by the Executive and such officer of the Company as may be specifically designated by the Board. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not set forth expressly in this Agreement. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of New York without regard to its conflicts of law principles. 1.28 VALIDITY. The invalidity or unenforceability of any provision or provisions of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 1.29 COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 1.30 ARBITRATION. Except as set forth in Section 4.9, any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration, conducted before a panel of three arbitrators in the State of New York, in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator's award in any court having jurisdiction. 1.31 ENTIRE AGREEMENT. This Agreement sets forth the entire agreement of the parties hereto in respect of the subject matter contained herein and supersedes all prior agreements, promises, covenants, arrangements, communications, representations or warranties, whether oral or written, by any officer, employee or representative of any party hereto; and any prior agreement of the parties hereto in respect of the subject matter contained herein is hereby terminated and cancelled; PROVIDED, however, that this Agreement shall supersede the Executive Deferred Compensation Agreement only after the Executive's Vesting Percentage hereunder is, or is deemed to be, 100%, after which time the Executive Deferred Compensation Agreement shall be of no further force and effect. 1.32 NO RIGHT OF OFFSET. The amount of any payment or benefit provided for in this Agreement shall not be reduced by any compensation earned by the Executive as a result of employment by another employer, by retirement benefits (except as otherwise set forth in this Agreement), by offset against any amount owed or claimed to be owed by the Executive to the Company, or otherwise. 1.33 PROTECTIVE PROVISIONS. The Executive and the Company shall cooperate with each other by furnishing any and all information and computations reasonably requested by the other in order to determine the amounts payable hereunder or to facilitate the payment of benefits hereunder. If upon written request of the Company, the Executive shall, within ninety days thereof (180 days if the Executive is Disabled), if such information is reasonably available to the Executive, fail to comply with such a request for information, the Company may terminate any benefits otherwise payable under this Agreement. 1.34 ASSIGNMENT. The voluntary or involuntary assignment, encumbrance or alienation of any benefit hereunder or any interest therein, whether or not payable to the Executive, is not permitted and will not be recognized. Any such purported assignment, encumbrance or alienation, by operation of law or otherwise, shall be void. Subject to the provisions of applicable law, no payment of any benefit shall, prior to actual receipt thereof by the Executive or his designated beneficiary, be subject to garnishment, attachment, execution, levy or other legal process for debts or for alimony or support of any spouse, former spouse or other relative. HEXCEL CORPORATION By:____________________ Name: Title: -------------------- Harold E. Kinne TABLE OF CONTENTS ARTICLE I DEFINITIONS....................................................................1 1.1 Actuarial Equivalence........................................1 1.2 Affiliate....................................................2 1.3 Board........................................................2 1.4 Cause........................................................2 1.5 Change in Control............................................2 1.6 Ciba.........................................................4 1.7 Code.........................................................4 1.8 Company......................................................4 1.9 Continuous Service...........................................4 1.10 Disability...................................................4 1.11 Executive Deferred Compensation Agreement....................5 1.12 Executive Severance Agreement................................5 1.13 Good Reason..................................................5 1.14 Governance Agreement. ......................................5 1.15 Normal Retirement Benefit....................................5 1.16 Normal Retirement Date.......................................5 1.17 Notice of Termination........................................5 1.18 Termination of Employment....................................5 ARTICLE II RETIREMENT BENEFITS............................................................6 2.1 In General. ................................................6 2.2 Payment of Benefits..........................................7 2.3 Special Benefit..............................................9 2.4 No Duplication..............................................10 ARTICLE III SURVIVOR BENEFITS.............................................................10 3.1 Post-Retirement Survivor Benefit............................10 3.2 Pre-Retirement Survivor Benefit.............................10 ARTICLE IV MISCELLANEOUS.................................................................11 4.1 Binding Agreement...........................................11 4.2 Notice......................................................11 4.3 General Provisions..........................................12 4.4 Validity....................................................12 4.5 Counterparts................................................12 4.6 Arbitration.................................................12 4.7 Entire Agreement............................................12 4.8 No Right of Offset..........................................13 4.9 Protective Provisions.......................................13 4.10 Assignment..................................................13 EX-10.5 6 0006.txt EXHIBIT 10.5 Exhibit 10.5 SUPPLEMENTAL EXECUTIVE RETIREMENT AGREEMENT AGREEMENT made as of the 10th day of May, 2000, between Hexcel Corporation, a Delaware corporation (the "Company"), and Stephen C. Forsyth (the "Executive"). WHEREAS, the Executive is presently employed by the Company as Executive Vice President and Chief Financial Officer; and WHEREAS, the Company is willing to provide the Executive with certain benefits in the event of the retirement from or termination of the Executive's employment with the Company; NOW, THEREFORE, in consideration of the continued employment of the Executive by the Company and the benefits to be derived by the Executive hereunder, the parties mutually agree as follows: ARTICLE I DEFINITIONS The following terms when used in this Agreement shall have the designated meaning, unless a different meaning is clearly required by the context. 1.1 ACTUARIAL EQUIVALENCE. Determinations hereunder of actuarial value, actuarial equivalence or the like shall be made by the Company's independent actuary, using the mortality and other applicable actuarial assumptions specified, from time to time, in the Hexcel Corporation Pension Plan (the "Pension Plan") or any successor plan thereto; PROVIDED, however, that for the purpose of determining any lump sum amount under this Agreement, or the amount of reduction to reflect the payment of a special benefit under Section 2.3, actuarial equivalence shall be determined using an interest rate equal to 120% of the rate published by the Pension Benefit Guaranty Corporation for purposes of plans terminating in the month in which benefit payments are to commence hereunder. 1.2 AFFILIATE. Any trade or business, whether or not incorporated, which at the time of reference (i) controls, is controlled by or is under common control with the Company within the meaning of section 414(b) or (c) of the Code, or (ii) is, together with the Company, a member of an affiliated service group within the meaning of section 414(m) of the Code. 1.3 BOARD. The Board of Directors of the Company. 1.4 CAUSE. Cause shall mean: I.0.1 The willful and continued failure by the Executive to substantially perform his duties with the Company (other than any such failure resulting from the Executive's incapability due to physical or mental illness or any such actual or anticipated failure after the issuance of a Notice of Termination by the Executive for Good Reason) after demand for substantial performance is delivered by the Company specifically identifies the manner in which the Company believes the Executive has not substantially performed his duties; or I.0.2 The willful engaging by the Executive in misconduct that is demonstrably and materially injurious to the Company, monetarily or otherwise including, but not limited to, conduct that would constitute a violation of Section 6 of the Executive Severance Agreement if engaged in during the time period described therein. No act, or failure to act, on the Executive's part shall be considered "willful" unless done, or omitted to be done, by him not in good faith and without reasonable belief that his action or omission was in the best interest of the Company. Notwithstanding the foregoing, the Executive shall not be deemed to have been terminated for Cause without (i) reasonable notice from the Board to the Executive setting forth the reasons for the Company's intention to terminate for Cause, (ii) delivery to the Executive of a resolution duly adopted by the affirmative vote of two-thirds or more of the Board then in office (excluding the Executive if he is then a member of the Board) at a meeting of the Board called and held for such purpose, finding that in the good faith opinion of the Board, the Executive was guilty of the conduct herein set forth and specifying the particulars thereof in detail, (iii) an opportunity for the Executive, together with his counsel, to be head before the Board, and (iv) delivery to the Executive of a Notice of Termination from the Board specifying the particulars thereof in detail. 1.5 CHANGE IN CONTROL. Change in Control shall mean the first to occur of the following events: I.0.1 (i) Any person (as defined in Section 3(a)(9) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as modified and used in Section 13(d) and 14(d) of the Exchange Act, but excluding Ciba for so long as Ciba is subject to the restrictions imposed by the Governance Agreement) (a "Person") is or becomes the Beneficial Owner (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of either (A) the then outstanding Common Stock of the Company (the "Outstanding Common Stock") or (B) the combined voting power of the then outstanding securities entitled to vote generally in the election of directors of the Company (the "Total Voting Power"); excluding, however, the following: (x) any acquisition by the Company or any of its affiliates or (y) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any of its affiliates and (ii) Ciba Beneficially Owns, in the aggregate, a lesser percentage of the Total Voting Power than such Person Beneficially Owns. I.0.2 A change in the composition of the Board such that the individuals who, as of the effective date of this Agreement, constitute the Board (such individuals shall be hereinafter referred to as the "Incumbent Directors") cease for any reason to constitute at least a majority of the Board; PROVIDED, HOWEVER, for purposes of this definition, that any individual who becomes a director subsequent to such effective date, whose election, or nomination for election by the Company's stockholders, was made or approved pursuant to the Governance Agreement or by a vote of at least a majority of the Incumbent Directors (or directors whose election or nomination for election was previously so approved) shall be considered a member of the Incumbent Board; but, PROVIDED, FURTHER, that any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest (as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a person or legal entity other than the Board shall not be so considered a member of the Incumbent Board. I.0.3 The effective date of a reorganization, merger or consolidation or the approval by the stockholders of the Company of a sale or other disposition of all or substantially all of the assets of the Company ("Corporate Transaction"); excluding, however, such a Corporate Transaction (1) pursuant to which all or substantially all of the individuals and entities who are the beneficial owners, respectively, of the Outstanding Common Stock and Total Voting Power immediately prior to such Corporate Transaction will beneficially own, directly or indirectly, more than 50%, respectively, of the outstanding common stock and the combined voting power of the then outstanding securities entitled to vote generally in the election of directors of the company resulting from such Corporate Transaction (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company's assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Corporate Transaction of the Outstanding Common Stock and Total Voting Power, as the case may be, or (2) after which no Person beneficially owns a greater percentage of the combined voting power of the then outstanding securities entitled to vote generally in the election of directors of such corporation than does Ciba. I.0.4 Ciba shall become the Beneficial Owner of more than 57.5% of the Total Voting Power. I.0.5 The approval by the stockholders of the Company of a complete liquidation or dissolution of the Company. 1.6 CIBA. 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. 1.7 CODE. The Internal Revenue Code of 1986, as amended. 1.8 COMPANY. Hexcel Corporation, a Delaware corporation, and its successors. 1.9 CONTINUOUS SERVICE. The number of full and partial calendar months of the Executive's period of continuous employment with the Company and its Affiliates. A transfer between employment with the Company and an Affiliate or between Affiliates shall not be deemed a termination of employment or otherwise interrupt the Executive's Continuous Service. Leaves of absence of not more than one year and any period during which the Executive is entitled to receive disability benefits from the Company (including medical and short-term disability benefits preceding the commencement of long-term disability benefits under the Company's long-term disability plan) shall be taken into account as Continuous Service. 1.10 DISABILITY. The Executive's inability to perform the customary duties of his employment by reason of any medical or psychological illness or condition that is expected to be permanent or of indefinite duration, excluding any such illness or condition that results from intentional self-inflicted injury, alcoholism or drug abuse. 1.11 EXECUTIVE DEFERRED COMPENSATION AGREEMENT. The Executive Deferred Compensation Agreement between the Executive and the Company entered into as of October 1, 1994. 1.12 EXECUTIVE SEVERANCE AGREEMENT. The Executive Severance Agreement entered into between the Company and the Executive as of February 3, 1999. 1.13 GOOD REASON. Good Reason shall have the meaning set forth in the Executive Severance Agreement. 1.14 GOVERNANCE AGREEMENT. The agreement defined as such in the Strategic Alliance Agreement among the Company, Ciba Geigy Limited and Ciba Geigy Corporation, dated as of September 29, 1995, as amended. 1.15 NORMAL RETIREMENT BENEFIT. The benefit defined in Section 2.2.1 hereof. 1.16 NORMAL RETIREMENT DATE. The date on which the Executive attains age sixty-five (65). 1.17 NOTICE OF TERMINATION. Any termination of the Executive's employment by the Company or by the Executive other than by death shall be communicated by written Notice of Termination to the other party hereto. For purposes of this Agreement, a "Notice of Termination" shall mean a notice which shall indicate whether termination was for Good Reason, Cause, Disability or otherwise and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated. 1.18 TERMINATION OF EMPLOYMENT. References hereunder to the Executive's termination of employment, the date the Executive's employment terminates and the like, shall, except as specifically provided herein, refer to the ceasing of the Executive's employment with the Company and all Affiliates for any reason. ARTICLE II RETIREMENT BENEFITS 1.19 IN GENERAL. The amount of the Executive's benefit shall be based on his Final Average Pay, Benefit Percentage and Vesting Percentage; the benefit otherwise payable under this Agreement's basic benefit formula shall be reduced by the amount of the Executive's Qualified Pension Benefits. The following definitions shall apply in making benefit calculations under this Agreement: II.0.1 FINAL AVERAGE PAY. The average monthly compensation of the Executive for the highest-paid 36 months of the Executive's final 60 months of Continuous Service. For this purpose (i) the Executive's "compensation" shall mean his base salary (without regard to any salary deferral pursuant to sections 125 or 401(k) of the Code or any successor provision) and all amounts earned (whether paid or payable) under all management incentive or other bonus plans in which he participates and (ii) any incentive pay or other bonus shall be deemed to have been earned ratably over the period with respect to which it is earned. II.0.2 BENEFIT PERCENTAGE. With respect to each of the first 180 months of Continuous Service, a percentage determined by dividing 2.5 by 12 (2.5/12%); and with respect to each of the next 180 months of Continuous Service, one-eighth of one percent (1/8%). II.0.3 VESTING PERCENTAGE. 100% if the Executive has completed at least 24 months of Continuous Service after the date hereof; otherwise, 0%. II.0.4 QUALIFIED PENSION BENEFITS. (i) the vested benefits paid in respect of the Executive from the Hexcel Corporation Pension Plan or any successor plan thereto, (ii) the vested contributions made by the Company to the Hexcel Corporation 401(k) Plan or any successor plan thereto (to the extent paid), (iii) the vested contributions made by the Company to the Hexcel Corporation 401(k) Restoration Plan or any successor plan thereto (to the extent paid), (iv) the Executive's Social Security payments, and (v) any similar or analogous benefits arising by virtue of Executive's employment with any Affiliate or former Affiliate, in each case, whether as a periodic payment, as a lump sum, or otherwise. The aggregate of the Executive's Qualified Pension Benefits shall be expressed as a monthly amount in the form of an actuarially equivalent 50% joint and survivor annuity with 120 months of guaranteed payments starting at the date the Executive attains age 65; PROVIDED, HOWEVER, that notwithstanding anything in Section 1.1 to the contrary, for purposes of determining the amount of offset attributable to clauses (ii) and (iii) above, Company contributions (or allocations, in the case of clause (iii) above) shall be deemed to earn interest at an annual rate of 6%, compounded annually, from the date of such contribution (or allocation) until the date it is actually paid to or in respect of the Executive. 1.20 PAYMENT OF BENEFITS. Benefits shall be paid as follows: II.0.1 NORMAL RETIREMENT. Subject to Section 2.2.7, and except as otherwise set forth in Section 2.2.2 or 2.2.3, if the Executive's employment terminates on or after his Normal Retirement Date, the Company will pay the Executive a monthly benefit starting on the first of the month after his employment terminates and ending with the payment for the month in which his death occurs or, if later, after the payment of 120 such payments. Any such payments made after the death of the Executive shall be made (i) to the Executive's designated beneficiary, if any or (ii) if there is no designated beneficiary or the designated beneficiary dies before a total of 120 payments have been made to the Executive and the designated beneficiary, to the Executive's estate. Such monthly benefit (the "Normal Retirement Benefit") shall be an amount equal to (A) the product of his Final Average Pay, Benefit Percentage, and his Vesting Percentage, less (B) his Qualified Pension Benefits. II.0.2 TERMINATION FOLLOWING CHANGE IN CONTROL. Subject to Section 2.2.7, upon (i) termination by the Executive of his employment for Good Reason within two years following a Change in Control, (ii) termination of the Executive's employment by the Company other than for Cause within two years following a Change in Control or (iii) a termination of the Executive's employment described in Section 4(e) of the Executive Severance Agreement (whether by the Company or the Executive), the Company will pay the Executive, no later than the next business day following the date of such termination, by wire transfer to the Executive's bank account, as designated by the Executive, an amount equal to the actuarial present value of the Normal Retirement Benefit (computed using a Vesting Percentage of 100% and Continuous Service equal to the Executive's actual Continuous Service at the time his employment terminates plus 36 months) he would have received had he retired on his Normal Retirement Date (but based upon his Final Average Pay at the time his employment terminates). II.0.3 TERMINATION WITHOUT CAUSE OR FOR GOOD REASON. Subject to Section 2.2.7, and except as otherwise provided in Section 2.2.2, upon termination of the Executive's employment at any time by the Company other than for Cause or by the Executive for Good Reason, the Company will pay the Executive, as soon as practicable following such date of termination, an amount equal to the actuarial present value of the Normal Retirement Benefit (computed using a Vesting Percentage of 100% and Continuous Service equal to the Executive's actual Continuous Service at the time his employment terminates plus 12 months) he would have received had he retired on his Normal Retirement Date (but based upon his Final Average Pay at the time his employment terminates). II.0.4 TERMINATION FOR CAUSE. No benefits shall be payable hereunder with respect to the Executive if his employment is terminated by the Company for Cause. II.0.5 DISABILITY. If the Executive's employment with the Company or any Affiliate terminates on account of Disability, the Company shall pay the Executive a monthly benefit in an amount (computed using a Vesting Percentage of 100%) equal to (i) the product of his Final Average Pay and Benefit Percentage less (ii) his Qualified Pension Benefits. The benefit so determined shall be payable, without actuarial or other reduction to reflect commencement of payment before his Normal Retirement Date, beginning on the first date of the month next following the last month with respect to which the Executive is entitled to payments under the Company's long term disability plan (or, if earlier, such time as the Executive shall elect not to receive such payments) and ending with the payment for the month in which his death occurs or, if later, after the payment of 120 such payments. Any such payments made after the death of the Executive shall be made (i) to the Executive's designated beneficiary, if any or (ii) if there is no designated beneficiary or the designated beneficiary dies before a total of 120 payments have been made to the Executive and the designated beneficiary, to the Executive's estate. II.0.6 OTHER TERMINATION. Subject to Section 2.2.7, and except as otherwise set forth in Sections 2.2.2, 2.2.3 or 2.2.5, if the Executive terminates his employment after his attainment of age 55 but prior to his attainment of age 65, the Company will pay the Executive a monthly benefit starting on the date elected by the Executive and ending with the payment for the month in which his death occurs or, if later, after the payment of 120 such payments. Such monthly benefit shall be calculated and paid in accordance with Section 2.2.1 hereof, reduced by one quarter of one percent (1/4%) per payment for each full calendar month by which the benefit commencement date precedes the Executive's attainment of age 65. Subject to Section 2.2.7, and except as otherwise set forth in Sections 2.2.2, 2.2.3 or 2.2.5, if the Executive terminates his employment prior to his attainment of age 55, the Company will pay the Executive a monthly benefit starting on the date elected by the Executive, but no earlier than the first of the month after his attainment of age 55, and ending with the payment for the month in which his death occurs or, if later, after the payment of 120 such payments. Such monthly benefit shall be the Actuarial Equivalent of the benefit calculated in accordance with Section 2.2.1 hereof and shall be paid in accordance with Section 2.2.1. Any payments made under this Section 2.2.6 after the death of the Executive shall be made (i) to the Executive's designated beneficiary, if any or (ii) if there is no designated beneficiary or the designated beneficiary dies before a total of 120 payments have been made to the Executive and the designated beneficiary, to the Executive's estate. II.0.7 OPTIONAL FORMS OF BENEFIT. In lieu of the form of benefit prescribed in Section 2.2.1 and Section 2.2.6, the Executive may elect to receive his benefit hereunder, as soon as practicable following the date of his termination of employment, in a cash lump sum, the amount of which shall equal the actuarial present value of, in the case of Section 2.2.1, his Normal Retirement Benefit and, in the case of Section 2.2.6, the reduced monthly benefit he would have received thereunder. In lieu of the lump sum form of benefit prescribed in Sections 2.2.2. and 2.2.3, the Executive may elect to receive his benefit hereunder as a monthly benefit starting on the first of the month after his employment terminates and ending with the payment for the month in which his death occurs or, if later, after the payment of 120 such payments. Any such payments made after the death of the Executive shall be made (i) to the Executive's designated beneficiary, if any or (ii) of there is no designated beneficiary or the designated beneficiary dies before a total of 120 payments have been made to the Executive and the designated beneficiary, to the Executive's estate. Any election to change to or from the lump sum form of benefit that is made by the Executive less than one year preceding the Executive's date of termination shall not be given effect; PROVIDED, HOWEVER, that the foregoing shall be inapplicable with respect to (i) any election made by the Executive within 30 days of the date of this Agreement and (ii) any election with respect to the Executive's benefit under Section 2.2.2 to the extent such election is made at least 90 days prior to a Change in Control or at any time prior to the Company entering into an agreement the consummation or shareholder approval of which would constitute a Change in Control. 1.21 SPECIAL BENEFIT. If it shall be determined by a final administrative decision of the Internal Revenue (which is not appealed by the Executive) or by a final decision of a court of competent jurisdiction (which is not appealed by the Executive) that the value of all or any part of any benefit contemplated by this Agreement is includable in the income of the Executive prior to the actual receipt of such benefit, the Company shall make a special payment to the Executive, in discharge of the actuarially equivalent value (based upon the actuarial factors in effect when benefits other than the benefit described in this Section 2.3 commence to be paid to the Executive hereunder) of any benefits otherwise due hereunder (and such other benefit shall be reduced to reflect the actuarial value of any such special payment made pursuant to this Section 2.3), in an amount equal to the Executive's estimated federal, state and local income tax liabilities related to such inclusion and to the inclusion in income of such special payment. The Executive shall have no obligation to appeal any determination made by the Internal Revenue Service or the decision of any such court. 1.22 NO DUPLICATION. Except as provided in Section 2.3 hereof, in no event shall benefits become payable to the Executive under more than one Section of this Article II. ARTICLE III SURVIVOR BENEFITS 1.23 POST-RETIREMENT SURVIVOR BENEFIT. Notwithstanding any provision hereof to the contrary, the Executive may elect, at any time prior to commencement of his benefits under Article II (and may revoke or modify any such election and/or make a new election, in each case at any time and from time to time prior to commencement of his benefits under Article II), to have his benefit paid in the from of a joint and survivor annuity pursuant to which (i) payment of the Executive's benefit will be made in accordance with Article II and (ii) if the Executive dies after payment of his benefits under Article II has started, the Company shall pay a monthly benefit to the Executive's designated beneficiary, starting on the first of the month immediately following the month in which the Executive dies or, if later, with the month immediately following the last month for which a payment is made to such beneficiary under Article II, and ending with the payment for the month in which the death of such designated beneficiary occurs. Such monthly benefit shall be an amount equal to 50% or 100%, as elected by the Executive, of the monthly benefit the Executive was receiving under the Agreement prior to his death. If the Executive makes such election, the benefit payable to the Executive under Article II hereof shall be reduced to reflect the actuarial equivalence of the additional Post-Retirement Survivor Benefit so elected by the Executive. 1.24 PRE-RETIREMENT SURVIVOR BENEFIT. Notwithstanding any provision hereof to the contrary, the Executive may elect at any time (and may revoke or modify any such election and/or make a new election, in each case at any time and from time to time prior to commencement of his benefits under Article II) that, in the event the Executive dies before distribution of his benefits under Article II has started, the Company shall pay a monthly benefit to the Executive's designated beneficiary, starting on the first of the month immediately following the month in which the Executive dies, but in no event earlier than the date on which the Executive would have been eligible to commence receipt of his benefits under Article II had he terminated employment on the day immediately preceding his death, and ending with the payment for the month in which the death of such designated beneficiary occurs. Such monthly benefit shall be an amount equal to 50% or 100%, as elected by the Executive, of the monthly benefit the Executive would have received had he terminated employment on the day immediately preceding his death and commenced benefits on the date on which the benefit under this Section 3.2 commences. If the Executive makes such election, the benefit payable to the Executive under Article II hereof shall be reduced to reflect the actuarial equivalence of the additional Pre-Retirement Survivor Benefit so elected by the Executive. ARTICLE IV MISCELLANEOUS 1.25 BINDING AGREEMENT. This Agreement and all rights of the Executive hereunder shall inure to the benefit of and be enforceable by the Executive's person or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. 1.26 NOTICE. Notices, elections, demands and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when delivered by hand (or received by telecopy, telex or similar device) or mailed by United States certified or registered mail, return receipt requested, postage prepaid, addressed as follows: If to the Executive: Mr. Stephen C. Forsyth 321 Blackberry Stamford, CT 06903 If to the Company: Hexcel Corporation Two Stamford Plaza 281 Tresser Boulevard Stamford, Connecticut 06901-3238 Attn: General Counsel or to such other address as any party may have furnished to the other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt. 1.27 GENERAL PROVISIONS. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing signed by the Executive and such officer of the Company as may be specifically designated by the Board. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not set forth expressly in this Agreement. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of New York without regard to its conflicts of law principles. 1.28 VALIDITY. The invalidity or unenforceability of any provision or provisions of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 1.29 COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 1.30 ARBITRATION. Except as set forth in Section 4.9, any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration, conducted before a panel of three arbitrators in the State of New York, in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator's award in any court having jurisdiction. 1.31 ENTIRE AGREEMENT. This Agreement sets forth the entire agreement of the parties hereto in respect of the subject matter contained herein and supersedes all prior agreements, promises, covenants, arrangements, communications, representations or warranties, whether oral or written, by any officer, employee or representative of any party hereto; and any prior agreement of the parties hereto in respect of the subject matter contained herein is hereby terminated and cancelled; PROVIDED, however, that this Agreement shall supersede the Executive Deferred Compensation Agreement only after the Executive's Vesting Percentage hereunder is, or is deemed to be, 100%, after which time the Executive Deferred Compensation Agreement shall be of no further force and effect. 1.32 NO RIGHT OF OFFSET. The amount of any payment or benefit provided for in this Agreement shall not be reduced by any compensation earned by the Executive as a result of employment by another employer, by retirement benefits (except as otherwise set forth in this Agreement), by offset against any amount owed or claimed to be owed by the Executive to the Company, or otherwise. 1.33 PROTECTIVE PROVISIONS. The Executive and the Company shall cooperate with each other by furnishing any and all information and computations reasonably requested by the other in order to determine the amounts payable hereunder or to facilitate the payment of benefits hereunder. If upon written request of the Company, the Executive shall, within ninety days thereof (180 days if the Executive is Disabled), if such information is reasonably available to the Executive, fail to comply with such a request for information, the Company may terminate any benefits otherwise payable under this Agreement. 1.34 ASSIGNMENT. The voluntary or involuntary assignment, encumbrance or alienation of any benefit hereunder or any interest therein, whether or not payable to the Executive, is not permitted and will not be recognized. Any such purported assignment, encumbrance or alienation, by operation of law or otherwise, shall be void. Subject to the provisions of applicable law, no payment of any benefit shall, prior to actual receipt thereof by the Executive or his designated beneficiary, be subject to garnishment, attachment, execution, levy or other legal process for debts or for alimony or support of any spouse, former spouse or other relative. HEXCEL CORPORATION By:____________________ Name: Title: -------------------- Stephen C. Forsyth TABLE OF CONTENTS ARTICLE I DEFINITIONS....................................................................1 1.1 Actuarial Equivalence........................................1 1.2 Affiliate....................................................2 1.3 Board........................................................2 1.4 Cause........................................................2 1.5 Change in Control............................................2 1.6 Ciba.........................................................4 1.7 Code.........................................................4 1.8 Company......................................................4 1.9 Continuous Service...........................................4 1.10 Disability...................................................4 1.11 Executive Deferred Compensation Agreement....................5 1.12 Executive Severance Agreement................................5 1.13 Good Reason..................................................5 1.14 Governance Agreement. ......................................5 1.15 Normal Retirement Benefit....................................5 1.16 Normal Retirement Date.......................................5 1.17 Notice of Termination........................................5 1.18 Termination of Employment....................................5 ARTICLE II RETIREMENT BENEFITS............................................................6 2.1 In General. ................................................6 2.2 Payment of Benefits..........................................7 2.3 Special Benefit..............................................9 2.4 No Duplication..............................................10 ARTICLE III SURVIVOR BENEFITS.............................................................10 3.1 Post-Retirement Survivor Benefit............................10 3.2 Pre-Retirement Survivor Benefit.............................11 ARTICLE IV MISCELLANEOUS.................................................................11 4.1 Binding Agreement...........................................11 4.2 Notice......................................................11 4.3 General Provisions..........................................12 4.4 Validity....................................................12 4.5 Counterparts................................................12 4.6 Arbitration.................................................13 4.7 Entire Agreement............................................13 4.8 No Right of Offset..........................................13 4.9 Protective Provisions.......................................13 4.10 Assignment..................................................13 EX-10.6 7 0007.txt EXHIBIT 10.6 Exhibit 10.6 SUPPLEMENTAL EXECUTIVE RETIREMENT AGREEMENT AGREEMENT made as of the 10th day of May, 2000, between Hexcel Corporation, a Delaware corporation (the "Company"), and Ira J. Krakower (the "Executive"). WHEREAS, the Executive is presently employed by the Company as Senior Vice President, General Counsel & Secretary; and WHEREAS, the Company is willing to provide the Executive with certain benefits in the event of the retirement from or termination of the Executive's employment with the Company; NOW, THEREFORE, in consideration of the continued employment of the Executive by the Company and the benefits to be derived by the Executive hereunder, the parties mutually agree as follows: ARTICLE I DEFINITIONS The following terms when used in this Agreement shall have the designated meaning, unless a different meaning is clearly required by the context. 1.1 ACTUARIAL EQUIVALENCE. Determinations hereunder of actuarial value, actuarial equivalence or the like shall be made by the Company's independent actuary, using the mortality and other applicable actuarial assumptions specified, from time to time, in the Hexcel Corporation Pension Plan (the "Pension Plan") or any successor plan thereto; PROVIDED, however, that for the purpose of determining any lump sum amount under this Agreement, or the amount of reduction to reflect the payment of a special benefit under Section 2.3, actuarial equivalence shall be determined using an interest rate equal to 120% of the rate published by the Pension Benefit Guaranty Corporation for purposes of plans terminating in the month in which benefit payments are to commence hereunder. 1.2 AFFILIATE. Any trade or business, whether or not incorporated, which at the time of reference (i) controls, is controlled by or is under common control with the Company within the meaning of section 414(b) or (c) of the Code, or (ii) is, together with the Company, a member of an affiliated service group within the meaning of section 414(m) of the Code. 1.3 BOARD. The Board of Directors of the Company. 1.4 CAUSE. Cause shall mean: I.0.1 The willful and continued failure by the Executive to substantially perform his duties with the Company (other than any such failure resulting from the Executive's incapability due to physical or mental illness or any such actual or anticipated failure after the issuance of a Notice of Termination by the Executive for Good Reason) after demand for substantial performance is delivered by the Company specifically identifies the manner in which the Company believes the Executive has not substantially performed his duties; or I.0.2 The willful engaging by the Executive in misconduct that is demonstrably and materially injurious to the Company, monetarily or otherwise including, but not limited to, conduct that would constitute a violation of Section 6 of the Executive Severance Agreement if engaged in during the time period described therein. No act, or failure to act, on the Executive's part shall be considered "willful" unless done, or omitted to be done, by him not in good faith and without reasonable belief that his action or omission was in the best interest of the Company. Notwithstanding the foregoing, the Executive shall not be deemed to have been terminated for Cause without (i) reasonable notice from the Board to the Executive setting forth the reasons for the Company's intention to terminate for Cause, (ii) delivery to the Executive of a resolution duly adopted by the affirmative vote of two-thirds or more of the Board then in office (excluding the Executive if he is then a member of the Board) at a meeting of the Board called and held for such purpose, finding that in the good faith opinion of the Board, the Executive was guilty of the conduct herein set forth and specifying the particulars thereof in detail, (iii) an opportunity for the Executive, together with his counsel, to be head before the Board, and (iv) delivery to the Executive of a Notice of Termination from the Board specifying the particulars thereof in detail. 1.5 CHANGE IN CONTROL. Change in Control shall mean the first to occur of the following events: I.0.1 (i) Any person (as defined in Section 3(a)(9) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as modified and used in Section 13(d) and 14(d) of the Exchange Act, but excluding Ciba for so long as Ciba is subject to the restrictions imposed by the Governance Agreement) (a "Person") is or becomes the Beneficial Owner (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of either (A) the then outstanding Common Stock of the Company (the "Outstanding Common Stock") or (B) the combined voting power of the then outstanding securities entitled to vote generally in the election of directors of the Company (the "Total Voting Power"); excluding, however, the following: (x) any acquisition by the Company or any of its affiliates or (y) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any of its affiliates and (ii) Ciba Beneficially Owns, in the aggregate, a lesser percentage of the Total Voting Power than such Person Beneficially Owns. I.0.2 A change in the composition of the Board such that the individuals who, as of the effective date of this Agreement, constitute the Board (such individuals shall be hereinafter referred to as the "Incumbent Directors") cease for any reason to constitute at least a majority of the Board; PROVIDED, HOWEVER, for purposes of this definition, that any individual who becomes a director subsequent to such effective date, whose election, or nomination for election by the Company's stockholders, was made or approved pursuant to the Governance Agreement or by a vote of at least a majority of the Incumbent Directors (or directors whose election or nomination for election was previously so approved) shall be considered a member of the Incumbent Board; but, PROVIDED, FURTHER, that any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest (as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a person or legal entity other than the Board shall not be so considered a member of the Incumbent Board. I.0.3 The effective date of a reorganization, merger or consolidation or the approval by the stockholders of the Company of a sale or other disposition of all or substantially all of the assets of the Company ("Corporate Transaction"); excluding, however, such a Corporate Transaction (1) pursuant to which all or substantially all of the individuals and entities who are the beneficial owners, respectively, of the Outstanding Common Stock and Total Voting Power immediately prior to such Corporate Transaction will beneficially own, directly or indirectly, more than 50%, respectively, of the outstanding common stock and the combined voting power of the then outstanding securities entitled to vote generally in the election of directors of the company resulting from such Corporate Transaction (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company's assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Corporate Transaction of the Outstanding Common Stock and Total Voting Power, as the case may be, or (2) after which no Person beneficially owns a greater percentage of the combined voting power of the then outstanding securities entitled to vote generally in the election of directors of such corporation than does Ciba. I.0.4 Ciba shall become the Beneficial Owner of more than 57.5% of the Total Voting Power. I.0.5 The approval by the stockholders of the Company of a complete liquidation or dissolution of the Company. 1.6 CIBA. 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. 1.7 CODE. The Internal Revenue Code of 1986, as amended. 1.8 COMPANY. Hexcel Corporation, a Delaware corporation, and its successors. 1.9 CONTINUOUS SERVICE. The number of full and partial calendar months of the Executive's period of continuous employment with the Company and its Affiliates. A transfer between employment with the Company and an Affiliate or between Affiliates shall not be deemed a termination of employment or otherwise interrupt the Executive's Continuous Service. Leaves of absence of not more than one year and any period during which the Executive is entitled to receive disability benefits from the Company (including medical and short-term disability benefits preceding the commencement of long-term disability benefits under the Company's long-term disability plan) shall be taken into account as Continuous Service. 1.10 DISABILITY. The Executive's inability to perform the customary duties of his employment by reason of any medical or psychological illness or condition that is expected to be permanent or of indefinite duration, excluding any such illness or condition that results from intentional self-inflicted injury, alcoholism or drug abuse. 1.11 EXECUTIVE DEFERRED COMPENSATION AGREEMENT. The Executive Deferred Compensation Agreement between the Executive and the Company entered into as of September 3, 1996. 1.12 EXECUTIVE SEVERANCE AGREEMENT. The Executive Severance Agreement entered into between the Company and the Executive as of February 3, 1999. 1.13 GOOD REASON. Good Reason shall have the meaning set forth in the Executive Severance Agreement. 1.14 GOVERNANCE AGREEMENT. The agreement defined as such in the Strategic Alliance Agreement among the Company, Ciba Geigy Limited and Ciba Geigy Corporation, dated as of September 29, 1995, as amended. 1.15 NORMAL RETIREMENT BENEFIT. The benefit defined in Section 2.2.1 hereof. 1.16 NORMAL RETIREMENT DATE. The date on which the Executive attains age sixty-five (65). 1.17 NOTICE OF TERMINATION. Any termination of the Executive's employment by the Company or by the Executive other than by death shall be communicated by written Notice of Termination to the other party hereto. For purposes of this Agreement, a "Notice of Termination" shall mean a notice which shall indicate whether termination was for Good Reason, Cause, Disability or otherwise and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated. 1.18 TERMINATION OF EMPLOYMENT. References hereunder to the Executive's termination of employment, the date the Executive's employment terminates and the like, shall, except as specifically provided herein, refer to the ceasing of the Executive's employment with the Company and all Affiliates for any reason. ARTICLE II RETIREMENT BENEFITS 1.19 IN GENERAL. The amount of the Executive's benefit shall be based on his Final Average Pay, Benefit Percentage and Vesting Percentage; the benefit otherwise payable under this Agreement's basic benefit formula shall be reduced by the amount of the Executive's Qualified Pension Benefits. The following definitions shall apply in making benefit calculations under this Agreement: II.0.1 FINAL AVERAGE PAY. The average monthly compensation of the Executive for the highest-paid 36 months of the Executive's final 60 months of Continuous Service. For this purpose (i) the Executive's "compensation" shall mean his base salary (without regard to any salary deferral pursuant to sections 125 or 401(k) of the Code or any successor provision) and all amounts earned (whether paid or payable) under all management incentive or other bonus plans in which he participates and (ii) any incentive pay or other bonus shall be deemed to have been earned ratably over the period with respect to which it is earned. II.0.2 BENEFIT PERCENTAGE. With respect to each of the first 60 months of Continuous Service, five twelfths of one percent (5/12%); with respect to each of the next 60 months of Continuous Service, one quarter of one percent (1/4%), and with respect to each month of Continuous Service after the first 120 months of Continuous Service, one sixth of one percent (1/6%). II.0.3 VESTING PERCENTAGE. 100% if the Executive has completed at least 60 months of Continuous Service; otherwise, 0%. II.0.4 QUALIFIED PENSION BENEFITS. (i) the vested benefits paid in respect of the Executive from the Hexcel Corporation Pension Plan or any successor plan thereto, (ii) the vested contributions made by the Company to the Hexcel Corporation 401(k) Plan or any successor plan thereto (to the extent paid), (iii) the vested contributions made by the Company to the Hexcel Corporation 401(k) Restoration Plan or any successor plan thereto (to the extent paid), and (iv) the Executive's Social Security payments, in each case, whether as a periodic payment, as a lump sum, or otherwise. The aggregate of the Executive's Qualified Pension Benefits shall be expressed as a monthly amount in the form of an actuarially equivalent 50% joint and survivor annuity with 120 months of guaranteed payments starting at the date the Executive attains age 65; PROVIDED, HOWEVER, that notwithstanding anything in Section 1.1 to the contrary, for purposes of determining the amount of offset attributable to clauses (ii) and (iii) above, Company contributions (or allocations, in the case of clause (iii) above) shall be deemed to earn interest at an annual rate of 6%, compounded annually, from the date of such contribution (or allocation) until the date it is actually paid to or in respect of the Executive. 1.20 PAYMENT OF BENEFITS. Benefits shall be paid as follows: II.0.1 NORMAL RETIREMENT. Subject to Section 2.2.7, and except as otherwise set forth in Section 2.2.2 or 2.2.3, if the Executive's employment terminates on or after his Normal Retirement Date, the Company will pay the Executive a monthly benefit starting on the first of the month after his employment terminates and ending with the payment for the month in which his death occurs or, if later, after the payment of 120 such payments. Any such payments made after the death of the Executive shall be made (i) to the Executive's designated beneficiary, if any or (ii) if there is no designated beneficiary or the designated beneficiary dies before a total of 120 payments have been made to the Executive and the designated beneficiary, to the Executive's estate. Such monthly benefit (the "Normal Retirement Benefit") shall be an amount equal to (A) the product of his Final Average Pay, Benefit Percentage, and his Vesting Percentage, less (B) his Qualified Pension Benefits. II.0.2 TERMINATION FOLLOWING CHANGE IN CONTROL. Subject to Section 2.2.7, upon (i) termination by the Executive of his employment for Good Reason within two years following a Change in Control, (ii) termination of the Executive's employment by the Company other than for Cause within two years following a Change in Control or (iii) a termination of the Executive's employment described in Section 4(e) of the Executive Severance Agreement (whether by the Company or the Executive), the Company will pay the Executive, no later than the next business day following the date of such termination, by wire transfer to the Executive's bank account, as designated by the Executive, an amount equal to the actuarial present value of the Normal Retirement Benefit (computed using a Vesting Percentage of 100% and Continuous Service equal to the Executive's actual Continuous Service at the time his employment terminates plus 36 months) he would have received had he retired on his Normal Retirement Date (but based upon his Final Average Pay at the time his employment terminates). II.0.3 TERMINATION WITHOUT CAUSE OR FOR GOOD REASON. Subject to Section 2.2.7, and except as otherwise provided in Section 2.2.2, upon termination of the Executive's employment at any time by the Company other than for Cause or by the Executive for Good Reason, the Company will pay the Executive, as soon as practicable following such date of termination, an amount equal to the actuarial present value of the Normal Retirement Benefit (computed using a Vesting Percentage of 100% and Continuous Service equal to the Executive's actual Continuous Service at the time his employment terminates plus 12 months) he would have received had he retired on his Normal Retirement Date (but based upon his Final Average Pay at the time his employment terminates). II.0.4 TERMINATION FOR CAUSE. No benefits shall be payable hereunder with respect to the Executive if his employment is terminated by the Company for Cause. II.0.5 DISABILITY. If the Executive's employment with the Company or any Affiliate terminates on account of Disability, the Company shall pay the Executive a monthly benefit in an amount (computed using a Vesting Percentage of 100%) equal to (i) the product of his Final Average Pay and Benefit Percentage less (ii) his Qualified Pension Benefits. The benefit so determined shall be payable, without actuarial or other reduction to reflect commencement of payment before his Normal Retirement Date, beginning on the first date of the month next following the last month with respect to which the Executive is entitled to payments under the Company's long term disability plan (or, if earlier, such time as the Executive shall elect not to receive such payments) and ending with the payment for the month in which his death occurs or, if later, after the payment of 120 such payments. Any such payments made after the death of the Executive shall be made (i) to the Executive's designated beneficiary, if any or (ii) if there is no designated beneficiary or the designated beneficiary dies before a total of 120 payments have been made to the Executive and the designated beneficiary, to the Executive's estate. II.0.6 OTHER TERMINATION. Subject to Section 2.2.7, and except as otherwise set forth in Sections 2.2.2, 2.2.3 or 2.2.5, if the Executive terminates his employment prior to his attainment of age 65, the Company will pay the Executive a monthly benefit starting on the date elected by the Executive, but no earlier than the first of the month after his attainment of age 55, and ending with the payment for the month in which his death occurs or, if later, after the payment of 120 such payments. Any such payments made after the death of the Executive shall be made (i) to the Executive's designated beneficiary, if any or (ii) if there is no designated beneficiary or the designated beneficiary dies before a total of 120 payments have been made to the Executive and the designated beneficiary, to the Executive's estate. Such monthly benefit shall be calculated and paid in accordance with Section 2.2.1 hereof, reduced by one quarter of one percent (1/4%) per payment for each full calendar month by which the benefit commencement date precedes the Executive's attainment of age 65. II.0.7 OPTIONAL FORMS OF BENEFIT. In lieu of the form of benefit prescribed in Section 2.2.1 and Section 2.2.6, the Executive may elect to receive his benefit hereunder, as soon as practicable following the date of his termination of employment, in a cash lump sum, the amount of which shall equal the actuarial present value of, in the case of Section 2.2.1, his Normal Retirement Benefit and, in the case of Section 2.2.6, the reduced monthly benefit he would have received thereunder. In lieu of the lump sum form of benefit prescribed in Sections 2.2.2. and 2.2.3, the Executive may elect to receive his benefit hereunder as a monthly benefit starting on the first of the month after his employment terminates and ending with the payment for the month in which his death occurs or, if later, after the payment of 120 such payments. Any such payments made after the death of the Executive shall be made (i) to the Executive's designated beneficiary, if any or (ii) of there is no designated beneficiary or the designated beneficiary dies before a total of 120 payments have been made to the Executive and the designated beneficiary, to the Executive's estate. Any election to change to or from the lump sum form of benefit that is made by the Executive less than one year preceding the Executive's date of termination shall not be given effect; PROVIDED, HOWEVER, that the foregoing shall be inapplicable with respect to (i) any election made by the Executive within 30 days of the date of this Agreement and (ii) any election with respect to the Executive's benefit under Section 2.2.2 to the extent such election is made at least 90 days prior to a Change in Control or at any time prior to the Company entering into an agreement the consummation or shareholder approval of which would constitute a Change in Control. 1.21 SPECIAL BENEFIT. If it shall be determined by a final administrative decision of the Internal Revenue (which is not appealed by the Executive) or by a final decision of a court of competent jurisdiction (which is not appealed by the Executive) that the value of all or any part of any benefit contemplated by this Agreement is includable in the income of the Executive prior to the actual receipt of such benefit, the Company shall make a special payment to the Executive, in discharge of the actuarially equivalent value (based upon the actuarial factors in effect when benefits other than the benefit described in this Section 2.3 commence to be paid to the Executive hereunder) of any benefits otherwise due hereunder (and such other benefit shall be reduced to reflect the actuarial value of any such special payment made pursuant to this Section 2.3), in an amount equal to the Executive's estimated federal, state and local income tax liabilities related to such inclusion and to the inclusion in income of such special payment. The Executive shall have no obligation to appeal any determination made by the Internal Revenue Service or the decision of any such court. 1.22 NO DUPLICATION. Except as provided in Section 2.3 hereof, in no event shall benefits become payable to the Executive under more than one Section of this Article II. ARTICLE III SURVIVOR BENEFITS 1.23 POST-RETIREMENT SURVIVOR BENEFIT. Notwithstanding any provision hereof to the contrary, the Executive may elect, at any time prior to commencement of his benefits under Article II (and may revoke or modify any such election and/or make a new election, in each case at any time and from time to time prior to commencement of his benefits under Article II), to have his benefit paid in the from of a joint and survivor annuity pursuant to which (i) payment of the Executive's benefit will be made in accordance with Article II and (ii) if the Executive dies after payment of his benefits under Article II has started, the Company shall pay a monthly benefit to the Executive's designated beneficiary, starting on the first of the month immediately following the month in which the Executive dies or, if later, with the month immediately following the last month for which a payment is made to such beneficiary under Article II, and ending with the payment for the month in which the death of such designated beneficiary occurs. Such monthly benefit shall be an amount equal to 50% or 100%, as elected by the Executive, of the monthly benefit the Executive was receiving under the Agreement prior to his death. If the Executive makes such election, the benefit payable to the Executive under Article II hereof shall be reduced to reflect the actuarial equivalence of the additional Post-Retirement Survivor Benefit so elected by the Executive. 1.24 PRE-RETIREMENT SURVIVOR BENEFIT. Notwithstanding any provision hereof to the contrary, the Executive may elect at any time (and may revoke or modify any such election and/or make a new election, in each case at any time and from time to time prior to commencement of his benefits under Article II) that, in the event the Executive dies before distribution of his benefits under Article II has started, the Company shall pay a monthly benefit to the Executive's designated beneficiary, starting on the first of the month immediately following the month in which the Executive dies, but in no event earlier than the date on which the Executive would have been eligible to commence receipt of his benefits under Article II had he terminated employment on the day immediately preceding his death, and ending with the payment for the month in which the death of such designated beneficiary occurs. Such monthly benefit shall be an amount equal to 50% or 100%, as elected by the Executive, of the monthly benefit the Executive would have received had he terminated employment on the day immediately preceding his death and commenced benefits on the date on which the benefit under this Section 3.2 commences. If the Executive makes such election, the benefit payable to the Executive under Article II hereof shall be reduced to reflect the actuarial equivalence of the additional Pre-Retirement Survivor Benefit so elected by the Executive. ARTICLE IV MISCELLANEOUS 1.25 BINDING AGREEMENT. This Agreement and all rights of the Executive hereunder shall inure to the benefit of and be enforceable by the Executive's person or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. 1.26 NOTICE. Notices, elections, demands and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when delivered by hand (or received by telecopy, telex or similar device) or mailed by United States certified or registered mail, return receipt requested, postage prepaid, addressed as follows: If to the Executive: Mr. Ira J. Krakower 21 Walworth Avenue Scarsdale, New York 10583 If to the Company: Hexcel Corporation Two Stamford Plaza 281 Tresser Boulevard Stamford, Connecticut 06901-3238 Attn: Vice President - Human Resources or to such other address as any party may have furnished to the other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt. 1.27 GENERAL PROVISIONS. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing signed by the Executive and such officer of the Company as may be specifically designated by the Board. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not set forth expressly in this Agreement. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of New York without regard to its conflicts of law principles. 1.28 VALIDITY. The invalidity or unenforceability of any provision or provisions of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 1.29 COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 1.30 ARBITRATION. Except as set forth in Section 4.9, any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration, conducted before a panel of three arbitrators in the State of New York, in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator's award in any court having jurisdiction. 1.31 ENTIRE AGREEMENT. This Agreement sets forth the entire agreement of the parties hereto in respect of the subject matter contained herein and supersedes all prior agreements, promises, covenants, arrangements, communications, representations or warranties, whether oral or written, by any officer, employee or representative of any party hereto; and any prior agreement of the parties hereto in respect of the subject matter contained herein is hereby terminated and cancelled; PROVIDED, however, that this Agreement shall supersede the Executive Deferred Compensation Agreement only after the Executive's Vesting Percentage hereunder is, or is deemed to be, 100%, after which time the Executive Deferred Compensation Agreement shall be of no further force and effect. 1.32 NO RIGHT OF OFFSET. The amount of any payment or benefit provided for in this Agreement shall not be reduced by any compensation earned by the Executive as a result of employment by another employer, by retirement benefits (except as otherwise set forth in this Agreement), by offset against any amount owed or claimed to be owed by the Executive to the Company, or otherwise. 1.33 PROTECTIVE PROVISIONS. The Executive and the Company shall cooperate with each other by furnishing any and all information and computations reasonably requested by the other in order to determine the amounts payable hereunder or to facilitate the payment of benefits hereunder. If upon written request of the Company, the Executive shall, within ninety days thereof (180 days if the Executive is Disabled), if such information is reasonably available to the Executive, fail to comply with such a request for information, the Company may terminate any benefits otherwise payable under this Agreement. 1.34 ASSIGNMENT. The voluntary or involuntary assignment, encumbrance or alienation of any benefit hereunder or any interest therein, whether or not payable to the Executive, is not permitted and will not be recognized. Any such purported assignment, encumbrance or alienation, by operation of law or otherwise, shall be void. Subject to the provisions of applicable law, no payment of 1.1 any benefit shall, prior to actual receipt thereof by the Executive or his designated beneficiary, be subject to garnishment, attachment, execution, levy or other legal process for debts or for alimony or support of any spouse, former spouse or other relative. HEXCEL CORPORATION By:____________________ Name: Title: -------------------- Ira J. Krakower TABLE OF CONTENTS ARTICLE I DEFINITIONS....................................................................1 1.1 Actuarial Equivalence........................................1 1.2 Affiliate....................................................2 1.3 Board........................................................2 1.4 Cause........................................................2 1.5 Change in Control............................................2 1.6 Ciba.........................................................4 1.7 Code.........................................................4 1.8 Company......................................................4 1.9 Continuous Service...........................................4 1.10 Disability...................................................4 1.11 Executive Deferred Compensation Agreement....................5 1.12 Executive Severance Agreement................................5 1.13 Good Reason..................................................5 1.14 Governance Agreement. ......................................5 1.15 Normal Retirement Benefit....................................5 1.16 Normal Retirement Date.......................................5 1.17 Notice of Termination........................................5 1.18 Termination of Employment....................................5 ARTICLE II RETIREMENT BENEFITS............................................................6 2.1 In General. ................................................6 2.2 Payment of Benefits..........................................7 2.3 Special Benefit..............................................9 2.4 No Duplication..............................................10 ARTICLE III SURVIVOR BENEFITS.............................................................10 3.1 Post-Retirement Survivor Benefit............................10 3.2 Pre-Retirement Survivor Benefit.............................10 ARTICLE IV MISCELLANEOUS.................................................................11 4.1 Binding Agreement...........................................11 4.2 Notice......................................................11 4.3 General Provisions..........................................12 4.4 Validity....................................................12 4.5 Counterparts................................................12 4.6 Arbitration.................................................12 4.7 Entire Agreement............................................12 4.8 No Right of Offset..........................................13 4.9 Protective Provisions.......................................13 4.10 Assignment..................................................13 EX-27 8 0008.txt FDS --
5 EXHIBIT 27 FINANCIAL DATA SCHEDULE Q2 - 2000 0000717605 Hexcel Corp. 1,000 6-MOS DEC-31-2000 JAN-01-2000 JUN-30-2000 7,000 0 180,300 8,900 155,100 348,800 592,500 234,700 1,230,300 215,500 647,000 0 0 400 320,500 1,230,300 551,400 551,400 428,700 428,700 76,800 0 35,600 78,600 27,700 53,100 0 0 0 53,100 1.45 1.24
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