-----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, Fx5abej34GiGsgABqww3Z/5u8u1pMnIGLwVID/jjge2IvjxDaK8g7Dp0Rvo3ATWf IOQ5MMzUkInQ5oBJV/ZTeg== /in/edgar/work/0000717605-00-000035/0000717605-00-000035.txt : 20001115 0000717605-00-000035.hdr.sgml : 20001115 ACCESSION NUMBER: 0000717605-00-000035 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 14 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001114 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: 767916 BUSINESS ADDRESS: STREET 1: 281 TRESSER BLVD 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 September 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 November 9, 2000 ----- -------------------------------- COMMON STOCK 36,957,362 ================================================================================ HEXCEL CORPORATION AND SUBSIDIARIES INDEX PAGE PART I. FINANCIAL INFORMATION ITEM 1. Condensed Consolidated Financial Statements o Condensed Consolidated Balance Sheets-- September 30, 2000 and December 31, 1999 2 o Condensed Consolidated Statements of Operations -- The Quarter and Year-to-Date Periods Ended September 30, 2000 and 1999 3 o Condensed Consolidated Statements of Cash Flows -- The Year-to-Date Periods Ended September 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 13 ITEM 3. Quantitative and Qualitative Disclosures About Market Risk 26 PART II. OTHER INFORMATION ITEM 6. Exhibits and Reports on Form 8-K 27 SIGNATURE 29 1 PART I. FINANCIAL INFORMATION ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
HEXCEL CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS - ----------------------------------------------------------------------------------------------------------------- Unaudited ------------------------------------ SEPTEMBER 30, December 31, (In millions, except per share data) 2000 1999 - ----------------------------------------------------------------------------------------------------------------- ASSETS Current assets: Cash and cash equivalents $ 13.8 $ 0.2 Accounts receivable 160.6 158.6 Inventories 152.4 153.7 Prepaid expenses and other assets 5.4 5.1 Deferred tax asset 9.9 10.2 - ----------------------------------------------------------------------------------------------------------------- Total current assets 342.1 327.8 Property, plant and equipment 591.1 614.5 Less accumulated depreciation (239.6) (222.4) - ----------------------------------------------------------------------------------------------------------------- Net property, plant and equipment 351.5 392.1 Goodwill and other purchased intangibles, net of accumulated amortization of $32.8 in 2000 and $24.9 in 1999 394.5 411.2 Investments in affiliated companies and other assets 128.3 130.8 - ----------------------------------------------------------------------------------------------------------------- Total assets $ 1,216.4 $ 1,261.9 - ----------------------------------------------------------------------------------------------------------------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Notes payable and current maturities of capital lease obligations $ 26.6 $ 34.3 Accounts payable 77.0 80.3 Accrued liabilities 97.5 95.9 - ----------------------------------------------------------------------------------------------------------------- Total current liabilities 201.1 210.5 Long-term notes payable and capital lease obligations 628.9 712.5 Indebtedness to a related party 24.3 24.1 Other non-current liabilities 46.4 44.7 - ----------------------------------------------------------------------------------------------------------------- Total liabilities 900.7 991.8 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 37.8 in 2000 and 37.4 in 1999 0.4 0.4 Additional paid-in capital 279.5 273.6 Retained earnings 64.8 11.6 Accumulated other comprehensive loss (18.2) (4.8) - ----------------------------------------------------------------------------------------------------------------- 326.5 280.8 Less - Treasury stock, at cost, 0.9 shares in 2000 and 0.8 in 1999 (10.8) (10.7) - ----------------------------------------------------------------------------------------------------------------- Total stockholders' equity 315.7 270.1 - ----------------------------------------------------------------------------------------------------------------- Total liabilities and stockholders' equity $ 1,216.4 $ 1,261.9 - -----------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these condensed consolidated financial statements. 2
HEXCEL CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - -------------------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------- Unaudited ----------------------------------------------------------------------- Quarter Ended September 30, Year-to-Date Ended September 30, (In millions, except per share data) 2000 1999 2000 1999 - -------------------------------------------------------------------------------------------------------------------------- Net sales $ 247.5 $ 274.1 $ 798.8 $ 882.9 Cost of sales 195.8 222.6 624.4 694.4 - -------------------------------------------------------------------------------------------------------------------------- Gross margin 51.7 51.5 174.4 188.5 Selling, general and administrative expenses 29.8 29.4 93.9 97.4 Research and technology expenses 5.0 5.8 16.6 18.6 Business consolidation expenses 3.3 13.6 4.5 17.8 - -------------------------------------------------------------------------------------------------------------------------- Operating income 13.6 2.7 59.4 54.7 Gain on sale of Bellingham aircraft interiors business - - - 68.3 Interest expense 16.0 18.4 51.6 55.9 - -------------------------------------------------------------------------------------------------------------------------- Income (loss) before income taxes (2.4) (15.7) 76.1 (1.2) Provision for (benefit from) income taxes (0.8) (5.5) 26.8 (0.4) - -------------------------------------------------------------------------------------------------------------------------- Income (loss) before equity in earnings (1.6) (10.2) 49.3 (0.8) Equity in earnings and write-down of an investment in affiliated companies 1.7 (19.9) 3.9 (19.8) - -------------------------------------------------------------------------------------------------------------------------- Net income (loss) $ 0.1 $ (30.1) $ 53.2 $ (20.6) - -------------------------------------------------------------------------------------------------------------------------- Net income (loss) per share: Basic $ 0.00 $ (0.82) $ 1.45 $ (0.56) Diluted 0.00 (0.82) 1.28 (0.56) Weighted average shares: Basic 36.9 36.5 36.7 36.4 Diluted 38.0 36.5 45.3 36.4 - --------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these condensed consolidated financial statements. 3
HEXCEL CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - ----------------------------------------------------------------------------------------------------------------------- Unaudited -------------------------------------- Year-to-Date Ended September 30, (In millions) 2000 1999 - ----------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) $ 53.2 $ (20.6) Reconciliation to net cash provided by operations: Depreciation and amortization 43.9 47.1 Deferred income taxes 11.8 (10.8) Gain on sale of Bellingham aircraft interiors business (68.3) - Business consolidation expenses 4.5 17.8 Business consolidation payments (8.3) (7.8) Equity in earnings and write-down of an investment in affiliated companies (3.9) 19.8 Working capital changes and other (20.1) 43.6 - ----------------------------------------------------------------------------------------------------------------------- Net cash provided by operating activities 12.8 89.1 - ----------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures (22.2) (26.7) Proceeds from sale of Bellingham aircraft interiors business 113.3 - Proceeds from sale of other assets 3.4 - Investments in affiliated companies (6.0) (2.0) ----------------------------------------------------------------------------------------------------------------------- Net cash provided by (used for) investing activities 88.5 (28.7) - ----------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds (repayments) of credit facilities, net 30.6 (273.4) Proceeds (repayments) of long-term debt and capital lease obligations, net (118.7) 223.6 Debt issuance costs (0.9) (10.8) Activity under stock plans 2.2 1.3 - ----------------------------------------------------------------------------------------------------------------------- Net cash used for financing activities (86.8) (59.3) - ----------------------------------------------------------------------------------------------------------------------- Effect of exchange rate changes on cash and cash equivalents (0.9) (0.8) - ----------------------------------------------------------------------------------------------------------------------- Net increase in cash and cash equivalents 13.6 0.3 Cash and cash equivalents at beginning of year 0.2 7.5 - ----------------------------------------------------------------------------------------------------------------------- Cash and cash equivalents at end of period $ 13.8 $ 7.8 - -----------------------------------------------------------------------------------------------------------------------
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 September 30, 2000, and the results of operations for the quarter and year-to-date periods ended September 30, 2000 and 1999, and the cash flows for the year-to-date periods ended September 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. Sales and operating income for the Bellingham business were as follows:
- -------------------------------------------------------------------------------------------------------------------- Quarter Ended Year-to-Date Ended September September 30, 30, 2000 1999 2000 1999 - -------------------------------------------------------------------------------------------------------------------- Sales $ -- $ 22.0 $ 19.0 $ 48.8 Operating income $ -- $ 1.6 $ 0.6 $ 4.0 - -------------------------------------------------------------------------------------------------------------------- NOTE 3 -- INVENTORIES - ----------------------------------------------------------------------------------- --------------- ---------------- 9/30/00 12/31/99 - ----------------------------------------------------------------------------------- --------------- ---------------- Raw materials $ 73.7 $ 55.5 Work in progress 45.3 47.8 Finished goods 33.4 50.4 - ----------------------------------------------------------------------------------- ---- ---------- ------ --------- Total inventories $ 152.4 $ 153.7 - ----------------------------------------------------------------------------------- ---- ---------- ------ ---------
5
NOTE 4 -- NOTES PAYABLE, CAPITAL LEASE OBLIGATIONS AND INDEBTEDNESS TO A RELATED PARTY - ----------------------------------------------------------------------------- ------------------ ------------------- 9/30/00 12/31/99 - ----------------------------------------------------------------------------- ------------------ ------------------- Senior credit facility $ 218.7 $ 303.0 European credit and overdraft facilities 12.0 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 611.0 698.2 Capital lease obligations 44.5 48.6 11.0% Senior subordinated note payable to a related party, increasing at a rate of 0.5% per annum, due 2003 24.3 24.1 - ----------------------------------------------------------------------------- ------ ----------- ----- ------------- Total notes payable, capital lease obligations and indebtedness to a related party $ 679.8 $ 770.9 - ----------------------------------------------------------------------------- ------ ----------- ----- ------------- Notes payable and current maturities of long-term liabilities $ 26.6 $ 34.3 Long-term notes payable and capital lease obligations, less current maturities 628.9 712.5 Indebtedness to a related party, net of unamortized discount of $0.7 as of September 30, 2000 and $0.9 as of December 31, 1999 24.3 24.1 - ----------------------------------------------------------------------------- ------ ----------- ----- ------------- Total notes payable, capital lease obligations and indebtedness to a related party $ 679.8 $ 770.9 - ----------------------------------------------------------------------------- ------ ----------- ----- -------------
Senior Credit Facility Hexcel's global credit facility (the "Senior Credit Facility") was amended on March 7, 2000 and October 26, 2000, to accommodate, among other things, the planned sale of assets, planned investment in additional manufacturing capacity for selected products, the impact of the decline in the Company's operating results in the second half of 1999 on certain financial covenants, the sale by certain subsidiaries of Ciba Specialty Chemicals Holding Inc. of approximately 14.5 of the approximately 18 shares of Hexcel common stock held by them to an investor group led by Goldman Sachs, a restructuring of the ownership of certain of the Company's European subsidiaries, and a reallocation of $40 of revolving loans from the U.S. to Europe. The Senior Credit Facility, as amended, provides Hexcel with approximately $393 of borrowing capacity, subject to certain limitations, at interest on outstanding borrowings ranging from 0.75% to 3.00% in excess of the applicable London interbank rate, or at the option of the Company, from 0.0% to 2.00% in excess of the base rate of the administrative agent for the lenders. Prior to March 7, 2000, the upper limits of these interest ranges were 2.75% and 1.75%, respectively. The Senior Credit Facility is secured by a pledge of shares of certain of the Company's subsidiaries, as well as security interests in certain U.S. accounts receivable, inventories, and real property, plant and equipment. The Company is subject to various financial covenants and restrictions under the Senior Credit Facility, including limitations on incurring debt, granting liens, selling assets, redeeming capital stock and paying dividends. Unused borrowing capacity under the Senior Credit Facility was approximately $167 on September 30, 2000. The Senior Credit Facility is scheduled to expire in 2004, except for approximately $58 of term loans that are due for repayment in 2005. 6 NOTE 5 -- BUSINESS CONSOLIDATION PROGRAMS Total accrued business consolidation expenses at December 31, 1999 and September 30, 2000, activity during the nine months ended September 30, 2000, and a brief description for each of the Company's business consolidation programs, are as follows: - ----------------------------------------- -- ------------ --- --------------- ----------- --------------- ---------- EMPLOYEE FACILITY & DECEMBER SEVERANCE & EQUIPMENT 1998 RELOCATION RELOCATION TOTAL PROGRAM TOTAL - ----------------------------------------- -- ------------ --- --------------- ----------- --------------- ---------- Total September 1999 Program BALANCE AS OF DECEMBER 31, 1999 $ 2.5 $ 0.6 $ 3.1 $ 1.0 $ 4.1 Business consolidation expenses: Current period expenses 2.3 5.6 7.9 - 7.9 Reversal of 1999 expenses (0.3) (3.1) (3.4) - (3.4) - ----------------------------------------- -- ------------ --- --------------- --- ------- --- -------- --- --------- Net business consolidation expenses 2.0 2.5 4.5 - 4.5 Cash expenditures (2.1) (5.8) (7.9) (0.4) (8.3) Non-cash items: Reversal of 1999 business consolidation expenses - 3.1 3.1 - 3.1 Other non-cash usage - (0.2) (0.2) - (0.2) - ----------------------------------------- -- ------------ --- --------------- --- ------- --- -------- --- --------- Total non-cash items - 2.9 2.9 2.9 Reclassification to accrued liabilities - - - (0.6) (0.6) - ----------------------------------------- -- ------------ --- --------------- --- ------- --- -------- --- --------- BALANCE AS OF SEPTEMBER 30, 2000 $ 2.4 $ 0.2 $ 2.6 $ - $ 2.6 - ----------------------------------------- -- ------------ --- --------------- --- ------- --- -------- --- ---------
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 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. 7 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. For the nine months ended September 30, 2000, Hexcel recognized $4.5 of business consolidation expenses for this program, net of the $3.4 reversal described above. As of December 31, 1999 and September 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 (LOSS) PER SHARE - -------------------------------------------------------------------------------------------------------------------- Quarter Ended Year-to-Date Ended September 30, September 30, 2000 1999 2000 1999 - -------------------------------------------------------------------------------------------------------------------- Basic net income (loss) per share: Net income (loss) $ 0.1 $ (30.1) $ 53.2 $ (20.6) Weighted average common shares outstanding 36.9 36.5 36.7 36.4 - -------------------------------------------------------------------------------------------------------------------- Basic net income (loss) per share $ 0.00 $ (0.82) $ 1.45 $ (0.56) - -------------------------------------------------------------------------------------------------------------------- Diluted net income per share: Net income (loss) $ 0.1 $ (30.1) $ 53.2 $ (20.6) Effect of dilutive securities - Convertible subordinated notes, due 2003 - - 3.8 - Convertible subordinated debentures, due 2011 - - 0.9 - - -------------------------------------------------------------------------------------------------------------------- Adjusted net income (loss) $ 0.1 $ (30.1) $ 57.9 $ (20.6) - -------------------------------------------------------------------------------------------------------------------- Weighted average common shares outstanding 36.9 36.5 36.7 36.4 Effect of dilutive securities - Stock options 1.1 - 0.5 - Convertible subordinated notes, due 2003 - - 7.2 - Convertible subordinated debentures, due 2011 - - 0.9 - - -------------------------------------------------------------------------------------------------------------------- Diluted weighted average common shares outstanding 38.0 36.5 45.3 36.4 - -------------------------------------------------------------------------------------------------------------------- Diluted net income (loss) per share $ 0.00 $ (0.82) $ 1.28 $ (0.56) - --------------------------------------------------------------------------------------------------------------------
The convertible subordinated notes, due 2003, and the convertible subordinated debentures, due 2011, were excluded from the 1999 and third quarter 2000 computations of diluted net income (loss) per share, as they were antidilutive. Approximately 4 to 4.8 stock options were excluded from the 2000 and 1999 calculations of diluted net income (loss) per share. The exercise price for these stock options ranged from approximately $8.19 to $30.38 per share, with the weighted average price being approximately $15.50 per share in 2000 and $12.52 per share in 1999.
NOTE 7 -- COMPREHENSIVE INCOME (LOSS) -------------------------------------------------------------------------------------------------------------------- Quarter Ended September 30, Year-to-Date Ended September 30, 2000 1999 2000 1999 -------------------------------------------------------------------------------------------------------------------- Net income (loss) $ 0.1 $ (30.1) $ 53.2 $ (20.6) Currency translation adjustment (8.6) 3.5 (13.4) (9.3) -------------------------------------------------------------------------------------------------------------------- Total comprehensive income (loss) $ (8.5) $ (26.6) $ 39.8 $ (29.9) --------------------------------------------------------------------------------------------------------------------
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 September 30, 2000 and 1999, is as follows:
- --------------------------------------------- ----------------- ----------------- ----------------- ---------------- REINFORCEMENT COMPOSITE ENGINEERED PRODUCTS MATERIALS PRODUCTS TOTAL - --------------------------------------------- --- ------------- -- -------------- --- ------------- -- ------------- THIRD QUARTER 2000 - --------------------------------------------- --- ------------- -- -------------- --- ------------- -- ------------- Net sales to external customers $ 88.4 $ 133.1 $ 26.0 $ 247.5 Intersegment sales 20.9 1.8 - 22.7 - --------------------------------------------- --- ------------- -- -------------- --- ------------- -- ------------- Total sales 109.3 134.9 26.0 270.2 Adjusted EBIT 11.4 14.7 0.2 26.3 Depreciation and amortization 8.3 4.5 0.7 13.5 Business consolidation expenses 0.2 2.7 0.4 3.3 Capital expenditures 4.2 4.1 0.4 8.7 - --------------------------------------------- --- ------------- -- -------------- --- ------------- -- ------------- THIRD QUARTER 1999 - --------------------------------------------- --- ------------- -- -------------- --- ------------- -- ------------- Net sales to external customers 81.3 134.6 58.2 274.1 Intersegment sales 24.9 2.1 - 27.0 - --------------------------------------------- --- ------------- -- -------------- --- ------------- -- ------------- Total sales 106.2 136.7 58.2 301.1 Adjusted EBIT 6.3 12.0 6.4 24.7 Depreciation and amortization 8.9 5.1 0.9 14.9 Business consolidation expenses 3.5 8.1 1.3 12.9 Write-down of an investment in an affiliated company 20.0 - - 20.0 Capital expenditures 3.0 4.2 1.5 8.7 - --------------------------------------------- --- ------------- -- -------------- --- ------------- -- ------------- YEAR-TO-DATE ENDED SEPTEMBER 30, 2000 - --------------------------------------------- --- ------------- -- -------------- --- ------------- -- ------------- Net sales to external customers 270.1 426.6 102.1 798.8 Intersegment sales 73.2 5.9 - 79.1 - --------------------------------------------- --- ------------- -- -------------- --- ------------- -- ------------- Total sales 343.3 432.5 102.1 877.9 Adjusted EBIT 34.6 52.2 4.9 91.7 Depreciation and amortization 25.5 14.0 2.5 42.0 Business consolidation expenses (2.0) 5.1 1.4 4.5 Capital expenditures 8.5 11.7 0.9 21.1 - --------------------------------------------- ------------- -- -------------- --- ------------- -- ------------- YEAR-TO-DATE ENDED SEPTEMBER 30, 1999 - --------------------------------------------- --- ------------- -- -------------- --- ------------- -- ------------- Net sales to external customers 250.4 470.1 162.4 882.9 Intersegment sales 87.7 6.7 - 94.4 - --------------------------------------------- --- ------------- -- -------------- --- ------------- -- ------------- Total sales 338.1 476.8 162.4 977.3 Adjusted EBIT 27.7 55.9 15.5 99.1 Depreciation and amortization 26.6 15.4 2.7 44.7 Business consolidation expenses 6.3 8.2 1.6 16.1 Write-down of an investment in an affiliated company 20.0 - - 20.0 Capital expenditures $ 10.4 $ 11.8 $ 4.3 $ 26.5 - --------------------------------------------- --- ------------- -- -------------- --- ------------- -- -------------
10 Reconciliations of the totals reported for the operating segments to consolidated income (loss) before income taxes, are as follows:
----------------------------------------------------------------------------------------------------------------------- Quarter Ended September 30, Year-to-Date Ended September 30, 2000 1999 2000 1999 - ----------------------------------------------------------------------------------------------------------------------- Total Adjusted EBIT for reportable segments $ 26.3 $ 24.7 $ 91.7 $ 99.1 Business consolidation expenses (3.3) (13.6) (4.5) (17.8) Corporate, other expenses and eliminations (9.4) (8.4) (27.8) (26.6) Interest expense (16.0) (18.4) (51.6) (55.9) Gain on sale of Bellingham aircraft interiors business - - 68.3 - - ----------------------------------------------------------------------------------------------------------------------- Consolidated income (loss) before income taxes $ (2.4) $ (15.7) $ 76.1 $ (1.2) - -----------------------------------------------------------------------------------------------------------------------
NOTE 9 -- SUPPLEMENTAL CASH FLOW INFORMATION ---------------------------------------------------------------------------------------------------------------------- Year-to-Date Ended September 30, 2000 1999 ---------------------------------------------------------------------------------------------------------------------- Cash paid for: Interest $ 56.3 $ 51.5 Income taxes $ 6.2 $ 7.7 ----------------------------------------------------------------------------------------------------------------------
NOTE 10 -- COMMITMENTS AND CONTINGENCIES On October 11, 2000, the Company announced that certain subsidiaries of Ciba Specialty Chemicals Holding Inc. (collectively, "Ciba") entered into an agreement to sell approximately 14.5 of the approximately 18 shares of Hexcel common stock it owns to an investor group affiliated with Goldman Sachs (the "Investor Group"). The shares to be acquired by the Investor Group represent approximately 39% of the Company's outstanding common stock. In addition, the Company and the Investor Group have agreed to a governance agreement that will become effective on the closing of this transaction. Under the governance agreement, the Investor Group will have the right to, among other things, designate three directors to sit on the Company's ten member board of directors. It is anticipated that this transaction will be completed during the fourth quarter of 2000. The transaction was consented to by Hexcel's senior credit facility banks on October 26, 2000, and has received early termination under the provisions of the Hart-Scott-Rodino Act. However, the closing of the trans- action remains subject to European regulatory approvals. Hexcel expects to incur approximately $3 in costs in connection with this transaction, including various legal, consulting, and regulatory compliance expenses, as well as a non-cash charge attributable to the accelerated vesting of certain stock-based compensation. Under the terms of the Company's various stock option and management incentive plans, this transaction constitutes a "change in control" event, resulting in all outstanding stock options becoming vested and exercisable. The Chief Executive Officer has waived the vesting of his stock options by such event. In addition, nine of the most senior executive officers other than the Chief Executive Officer have agreed to defer the vesting of their stock options such that any of their stock options that would have otherwise vested immediately (or would have otherwise vested by their terms) will vest one year after the closing with respect to half of such options, and two years after the closing with respect to the remaining half of such options, subject to earlier vesting in certain circumstances. As a result, approximately 1.3 stock options, with exercise prices ranging from $2.41 to $29.63 per share, and a weighted average exercise price of $8.99 per share, will vest and become exercisable on the closing of the transaction. In addition, at closing the shares of the Company's common stock underlying a total of approximately 0.8 restricted stock units and performance accelerated restricted stock units (collectively, "stock units") will be distributed. However, the Chief Executive Officer has waived the vesting of his stock units, and nine of the most senior executive officers other than the Chief Executive Officer have agreed to defer the distribution of shares underlying their stock units (although not the vesting of such stock units) such that any shares of common stock that would have otherwise been distributed immediately will be distributed one year after the closing with respect to half of such stock units, and two years after the closing with respect to the remaining half of such stock units, subject to earlier distribution under certain circumstances. As a result approximately 0.1 shares of the Company's common stock underlying approximately 0.1 of these stock units will be distributed upon the closing of the transaction. 11 In July 2000, Hexcel's board of directors authorized certain changes to the Company's U.S. retirement benefit plans that are intended to improve the flexibility and visibility of future retirement benefits. The significant changes authorized were an increase in the amount that the Company will contribute to individual 401(k) retirement savings accounts, beginning January 1, 2001, and an offsetting curtailment of the Company's U.S. defined benefit retirement plan, effective December 31, 2000. Participants in the defined benefit retirement plan will no longer accrue benefits under this plan after December 31, 2000, although they will retain all benefits earned under this plan as of that date. The Company estimates that the curtailment of the defined benefit retirement plan will result in a non-recurring, non-cash credit of approximately $4 to $5 that will be recognized in the fourth quarter of 2000. 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FINANCIAL OVERVIEW - ------------------------------------------------------------------------- ----------------------------------------- Quarter Ended September 30, ----------------------------------------- (In millions, except per share data) 2000 1999 - ------------------------------------------------------------------------- --- ---------------- -------------------- PRO FORMA (a): Sales $ 247.5 $ 252.1 Adjusted EBITDA (b) $ 31.0 $ 30.1 Adjusted net income (loss) (c) $ 2.2 $ (1.1) Adjusted diluted earnings (loss) per share (c) $ 0.06 $ (0.03) - ------------------------------------------------------------------------- --- ---------------- --- ---------------- AS REPORTED: Sales $ 247.5 $ 274.1 Gross margin % $ 20.9% $ 18.8% Adjusted operating income % (c) $ 6.8% $ 6.0% Adjusted EBITDA (b) $ 31.0 $ 32.0 Net income (loss) $ 0.1 $ (30.1) Adjusted net income (loss) (c) $ 2.2 $ (1.3) Diluted earnings (loss) per share $ 0.00 $ (0.82) Adjusted diluted earnings (loss) per share (c) $ 0.06 $ (0.04) - ------------------------------------------------------------------------- --- ---------------- --- ----------------
(a) Pro forma results give effect to the April 26, 2000 sale of the Bellingham aircraft interiors business as if it had occurred at the beginning of 1999. (b) Excludes business consolidation expenses, interest, taxes, depreciation, amortization, and equity in income and a write-down of an investment in affiliated companies. (c) Excludes business consolidation expenses and a write-down of an investment in an affiliated company. Financial highlights for the third quarter of 2000: - - Due to the fact that over 40% of Hexcel's revenues are derived in Europe, the third quarter is always the Company's seasonally weakest quarter of the year, reflecting the impact of the European summer vacation schedule. After giving allowance for these seasonal factors, the Company evidenced in the third quarter a continuation of the positive revenue trends that began to emerge in the first and second quarters of 2000. Sales to electronics and industrial markets continued to grow, despite a further weakening of the European currencies, reflecting improved economic conditions in Asia and Europe, the growing use of electronic devices throughout the world, and the Company's success in developing new product applications for wind energy and automotive customers. In addition, commercial aerospace revenues, excluding the Company's Engineered Products segment, equaled or exceeded the levels of the prior year, reflecting the fact that this market has stabilized. The Boeing Company ("Boeing") has publicly indicated that it expects to sustain aircraft production at or slightly above the current rate of about 490 per year, while Airbus Industrie ("Airbus") is reportedly planning to increase aircraft deliveries from about 320 to more than 350 in 2001. - - Commercial aerospace sales by the Engineered Products segment were $8.8 million or 27% lower than the third quarter of 1999, reflecting the timing of customer programs and the impact of Boeing's 1999 aircraft build rate reductions. This business segment delivers its product to customers shortly before aircraft completion and delivery. As a result, unlike Hexcel's other segments, this business did not experience the impact of 1999 build rate reductions until late in the fourth quarter of that year. - - Benefits from cost reduction actions and a return to revenue growth were reflected in Hexcel's operating profitability. The Reinforcement Products 13 segment increased its operating income by 80% compared to the third quarter of 1999, benefiting from reduced costs, improved product mix and growth in sales of both electronics and ballistics fabrics. The Composite Materials segment improved its profitability by 23% on comparable revenues to the third quarter of 1999, driven by cost reductions and improved productivity. - - In contrast, the Engineered Products segment generated operating income significantly lower than the third quarter of 1999, after adjusting for the pro forma impact of the sale of the Bellingham aircraft interiors business on this segment's results. The Bellingham business was sold on April 26, 2000, for cash proceeds of $113.3 million. Hexcel continues to evaluate strategic alternatives for the remaining aircraft structures and interiors component of the Engineered Products segment. - - Equity in earnings of $1.7 million contributed strongly to third quarter net income in 2000. The primary source of these earnings was Hexcel's electronics fabrics joint venture in Asia, which is benefiting from the increase in worldwide demand for electronics devices. Looking to the fourth quarter of 2000, Hexcel expects that net sales will be a little weaker than previously indicated in the Company's second quarter Report on Form 10-Q, due to the timing of customer demand. This should result in EBITDA for the quarter of between $33 and $35 million, before accounting for business consolidation expenses and for the items described in Note 10 to accompanying consolidated financial statements. As a result, the Company anticipates that pro forma EBITDA for 2000, reflecting the sale of the Bellingham aircraft interiors business, will be comparable to pro forma EBITDA for 1999. The Company continues to anticipate that EBITDA will increase as revenues grow in 2001. RESULTS OF OPERATIONS Net Sales: Net sales of $247.5 million for the third quarter of 2000 were $26.6 million or 10% lower than net sales for the third quarter of 1999 of $274.1 million. Of this revenue decline, $22.0 million or 8% is attributable to the fact that 1999 third quarter results include the Bellingham aircraft interiors business that was sold on April 26, 2000. On a comparable pro forma basis, giving effect to the sale of the Bellingham business as if it had occurred at the beginning of 1999, net sales of $247.5 million for the 2000 third quarter were $4.6 million or 2% lower than pro forma net sales for the 1999 third quarter of $252.1 million. The 2% decline in comparable pro forma net sales is primarily attributable to the impact of changes in currency exchange rates and to lower sales of engineered products to commercial aerospace customers, partially offset by the growth in sales to electronics and industrial markets. Had the same U.S. Dollar, British Pound and Euro exchange rates applied in the third quarter 2000 as in the third quarter 1999, net sales for the 2000 quarter would have been $11.5 million higher than reported, or $259 million. 14 The following table summarizes actual and pro forma net sales to third-party customers by product group and market segment for the quarters ended September 30, 2000 and 1999:
- ----------------------------------- --------------------------------------------------------------------------------- Unaudited --------------- ---------------- --------------- --------------- ---------------- COMMERCIAL SPACE & (In millions) AEROSPACE DEFENSE ELECTRONICS INDUSTRIAL TOTAL - ----------------------------------- --------------- ---------------- --------------- --------------- ---------------- THIRD QUARTER 2000 Reinforcement products $ 14.3 $ 2.6 $ 44.7 $ 26.8 $ 88.4 Composite materials 80.0 24.3 - 28.8 133.1 Engineered products 23.9 2.1 - - 26.0 - ----------------------------------- ---- ---------- ----- ---------- ---- ---------- ----- --------- ----- ---------- Total $ 118.2 $ 29.0 $ 44.7 $ 55.6 $ 247.5 48% 12% 18% 22% 100% - ----------------------------------- ---- ---------- ----- ---------- ---- ---------- ----- --------- ----- ---------- THIRD QUARTER 1999 Reinforcement products $ 12.3 $ 4.2 $ 40.6 $ 24.2 $ 81.3 Composite materials 81.2 25.7 - 27.7 134.6 Engineered products (a) 54.7 3.5 - - 58.2 - ----------------------------------- ---- ---------- ----- ---------- ---- ---------- ----- --------- ----- ---------- Total (a) $ 148.2 $ 33.4 $ 40.6 $ 51.9 $ 274.1 54% 12% 15% 19% 100% - ----------------------------------- ---- ---------- ----- ---------- ---- ---------- ----- --------- ----- ---------- PRO FORMA THIRD QUARTER 1999 Total (b) $ 126.2 $ 33.4 $ 40.6 $ 51.9 252.1 50% 13% 16% 21% 100% - ----------------------------------- ---- ---------- ----- ---------- ---- ---------- ----- --------- ----- ----------
(a) Net sales for the 1999 third quarter include $22.0 million of commercial aerospace net sales by the Bellingham aircraft interiors business, which was a component of the Company's Engineered Produces segment until this business was sold on April 26, 2000. (b) Pro forma net sales for the 1999 third quarter give effect to the sale of the Bellingham business that occurred on April 26, 2000, as if it had occurred at the beginning of 1999. Commercial aerospace net sales decreased 20% to $118.2 million for the third quarter of 2000, from $148.2 million for the third quarter of 1999. Of this decrease, $22.0 million or 15% is attributable to the fact that 1999 third quarter results include the Bellingham aircraft interiors business that was sold on April 26, 2000. On a comparable pro forma basis, giving effect to the sale of the Bellingham business as if it had occurred at the beginning of 1999, commercial aerospace net sales of $118.2 million for the 2000 third quarter were $8 million or 6% lower than pro forma commercial aerospace net sales for the 1999 third quarter of $126.2 million. The 6% decline in comparable pro forma sales primarily reflects the impact of the weaker Euro exchange rate and the impact of Boeing's 1999 build rate reductions on the Company's Engineered Products business. This business segment delivers its product to customers shortly before aircraft completion and delivery. As a result, this business did not experience the impact of the 1999 build rate reductions until late in the fourth quarter of 1999 and, thus, it will take longer to reflect any improvement in commercial aerospace demand. 15 Commercial aerospace net sales for the Company's Reinforcement Products and Composite Materials businesses were slightly greater than the 1999 pro forma third quarter, reflecting the stabilization of Boeing build rates and the steadily improving performance of Airbus. Boeing has publicly indicated that it expects to sustain aircraft production at or slightly above the current rate of about 490 per year, while Airbus is reportedly planning to increase aircraft deliveries from about 320 in 2000 to more than 350 in 2001. In addition, 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, the continuing consolidation of the industry, and the results of productivity improvement from the Company's Lean Enterprise initiatives. Space and defense net sales for the third quarter of 2000 decreased 13% to $29.0 million, from third quarter 1999 net sales of $33.4 million. This decrease primarily reflects the timing of certain space and defense contracts. Looking forward, 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. Electronics net sales increased 10% to $44.7 million for the third quarter of 2000, from $40.6 million for the third quarter of 1999. The growth in sales reflects a sustained increase in demand for lightweight fiberglass fabrics used in electronic applications, driven by improved economic conditions in Asia and Europe and the growing use of electronic devices throughout the world. Sales growth for lightweight fiberglass fabrics is expected to continue to grow through 2001 and beyond, and global manufacturing capacity appears to be tightening. During 2000, Hexcel has been switching some of its heavyweight fabric production capacity to meet lightweight fabric demand. In addition, the Company has made commitments to install additional lightweight fabric looms to meet the expected continuing growth in demand in this market. Industrial net sales increased 7% to $55.6 million for the third quarter of 2000 from $51.9 million for the third quarter of 1999. The increase reflects sales growth for soft body armor, wind energy applications and automotive components. Sales of advanced structural materials to the wind energy and automotive segments are currently growing at annualized rates in excess of 30%, reflecting growing demand for low-cost, renewable energy supplies and improved automobile safety, as well as Hexcel's success in developing products that satisfy these customer applications. Gross Margin: Gross margin for the third quarter of 2000 was $51.7 million or 20.9% of net sales, compared with $51.5 million or 18.8% of net sales for the third quarter of 1999. On a pro forma basis, giving effect to the sale of the Bellingham business on April 26, 2000, as if it had occurred at the beginning of 1999, gross margin was $48.1 million or 19.1% of pro forma net sales for the third quarter of 1999. The improvement in gross margin, relative to the pro forma 1999 third quarter, reflects the benefits from the Company's cost reduction and productivity improvement actions, as well as the impact of an improved sales mix and higher sales to electronics and industrial markets. Partially offsetting these gains were a reduction in the gross margins of the Engineered Products business, which has not yet succeeded in aligning its costs and productivity to lower Boeing build rates. 16 Operating Income: Operating income was $13.6 million in the third quarter of 2000, compared with $2.7 million in the third quarter of 1999. Excluding business consolidation expenses, operating income for the third quarter of 2000 was $16.9 million or 6.8% of net sales, versus $16.3 million or 6.0% of net sales for the third quarter of 1999. On a pro forma basis, giving effect to the sale of the Bellingham business on April 26, 2000, as if it had occurred at the beginning of 1999, operating income excluding business consolidation expenses was $14.7 million or 5.8% of pro forma net sales for the 1999 third quarter. Business consolidation expenses, which totaled $3.3 million in the third quarter of 2000 and $13.6 million in the third quarter of 1999, are discussed further under "Business Consolidation Programs" below. The aggregate increase in operating income, excluding business consolidation expenses, reflects the increase in gross margin over the pro forma total for the third quarter of 1999 and a reduction in research and technology expenses, partially offset by higher selling, general and administrative ("SG&A") expenses. Compared to the third quarter of 1999, the Reinforcement Products segment increased its operating income by 80%, while the Composite Materials segment increased its operating income by 23%. In contrast, the Engineered Products segment experienced a 96% decline in operating income, after adjusting for the sale of the Bellingham business on a pro forma basis. SG&A expenses were $29.8 million or 12.0% of net sales for the third quarter of 2000, compared with $29.4 million or 10.7% of net sales for the third quarter of 1999. Adjusted to reflect the sale of the Bellingham business on a pro forma basis, 1999 third quarter SG&A expenses were $27.5 million or 10.9% of pro forma net sales . Third quarter 2000 SG&A expenses include a non-cash charge of approximately $1 million relating to the accelerated vesting of certain stock-based compensation that resulted from an increase in the quoted market price of Hexcel's common stock. Research and technology expenses for the third quarter of 2000 were $5.0 million or 2.0% of net sales, compared with $5.8 million or 2.1% of net sales for the third quarter of 1999. Interest Expense: Interest expense was $16.0 million for the third quarter of 2000, compared with $18.4 million for the third quarter of 1999. The decrease in interest expense primarily reflects the reduction in term debt outstanding under the Company's senior credit facility that resulted from the proceeds from the sale of the Bellingham business, partially offset by higher interest rates on variable-rate debt. Equity in Earnings and Write-down of an Investment in Affiliated Companies: Equity in earnings of affiliated companies for the third quarter of 2000 was $1.7 million. The primary source of these earnings is the continued strong performance of an electronics fabrics joint venture in Asia, which is benefiting from the increase in worldwide demand for electronic devices. While it is anticipated that market conditions for our Asian electronic fabrics joint venture will remain favorable, Hexcel's reported share of equity in earnings may fluctuate from quarter to quarter due to local seasonal trends. In the third quarter of 1999, the Company wrote-down one of its investments in a joint venture by $20.0 million to its estimated fair market value. The write-down was the result of management's decision to allow its fixed-price options to increase this equity investment to expire unexercised and an assessment that an other-than-temporary decline in the investment occurred. The Company did not record a deferred tax benefit on the write-down because of limitations imposed by foreign tax laws on the Company's ability to realize a tax benefit. 17 Net Income (Loss) and Net Income (Loss) Per Share:
------------------------------------------------------------------------------------------------------------------- Quarter Ended September 30, (In millions, except per share amounts) 2000 1999 ------------------------------------------------------------------------------------------------------------------- Net income (loss) $ 0.1 $ (30.1) Adjusted net income (loss) (a) $ 2.2 $ (1.3) Diluted net income (loss) per share $ 0.00 $ (0.82) Diluted net income (loss) per share excluding goodwill amortization $ 0.06 $ (0.77) Adjusted diluted net income (loss) per share (a) $ 0.06 $ (0.04) Diluted weighted average shares outstanding 38.0 36.5 -------------------------------------------------------------------------------------------------------------------
(a) Excludes business consolidation expenses and a write-down of an investment in an affiliated company. The Company's convertible subordinated notes, due 2003, and its convertible subordinated debentures, due 2011, were excluded from the 1999 and third quarter 2000 computations of net income (loss) 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 (loss) per share. Year-to-Date Results
- ----------------------------------------------------------------------- -------------------------------------------- Year-to-Date Ended September 30, (In millions, except per share data) 2000 1999 - ----------------------------------------------------------------------- ------- --------------- -------------------- PRO FORMA: Sales $ 779.9 $ 834.1 Adjusted EBITDA $ 106.9 $ 114.9 Adjusted net income $ 13.8 $ 12.1 Adjusted diluted earnings per share $ 0.37 $ 0.33 - ----------------------------------------------------------------------- ------- --------------- ---- --------------- AS REPORTED: Sales $ 798.8 $ 882.9 Gross margin % 21.8% 21.4% Adjusted operating income % 8.0% 8.2% Adjusted EBITDA $ 107.8 $ 119.6 Net income (loss) $ 53.2 $ (20.6) Adjusted net income $ 12.2 $ 11.0 Diluted earnings (loss) per share $ 1.28 $ (0.56) Adjusted diluted earnings per share $ 0.33 $ 0.30 - ----------------------------------------------------------------------- ------- --------------- ---- ---------------
Net Sales and Gross Margin: Net sales for the first nine months of 2000 of $798.8 million were $84.1 million or 10% lower than net sales for the first nine months of 1999 of $882.9 million. On a comparable pro forma basis, giving effect to the sale of the Bellingham aircraft interiors business on April 26, 2000, as if it had occurred at the beginning of 1999, net sales for the first nine months of 2000 of $779.9 million were $54.2 million or 6% lower than net sales for the first nine months of 1999 of $834.1 million. In addition to the net revenue decline of $29.9 million attributable to the fact that the Bellingham business was sold in April, net sales for the first nine months of 2000 were reduced by the impact of Boeing's aircraft build rate reductions in the second half of 1999, as well as the conclusion of specific space and defense contracts and changes in currency exchange rates. Had the same U.S. Dollar, British Pound and Euro exchange rates applied in the first nine months of 2000 as in the first nine months of 1999, revenues for the 2000 period would have been approximately $26 million higher than reported. Partially offsetting these factors was continued growth in sales of fiberglass and aramid reinforcement fabrics to electronics and industrial markets, as well as increased sales of composite materials to wind energy, automotive and other industrial customers. Gross margin for the first nine months of 2000 was $174.4 million or 21.8% of net sales, compared with gross margin of $188.5 million or 21.4% of net sales for the same period of 1999. On a comparable pro forma basis, giving effect to the sale of the Bellingham business as if it had occurred at the beginning of 1999, gross margin for the first nine months of 2000 was $169.8 million or 21.8% of net sales, compared with gross margin for the first nine months of 1999 of $179.3 million or 21.5% of net sales. Changes in gross margin reflect the impact of the changes in net sales noted above, offset to some degree by cost reductions and productivity improvements. 18 The following table summarizes net sales to third-party customers by product group and market segment for the year-to-date periods ended September 30, 2000 and 1999:
--------------------------- ------------------------------------------------------------------------------------- Unaudited -------------- ------------------ -------------- ------------------ ----------------- COMMERCIAL SPACE & (In millions) AEROSPACE DEFENSE ELECTRONICS INDUSTRIAL TOTAL --------------------------- -------------- ------------------ -------------- ------------------ ----------------- FIRST NINE MONTHS OF 2000 Reinforcement products $ 47.0 $ 10.2 $ 135.1 $ 77.8 $ 270.1 Composite materials 261.7 70.2 - 94.7 426.6 Engineered products (a) 95.5 6.6 - - 102.1 ---------------------------- ----- ---------- --- ----------- --- ---------- ----- ------------ ----- ----------- Total (a) $ 404.2 $ 87.0 $ 135.1 $ 172.5 $ 798.8 51% 11% 17% 21% 100% ---------------------------- ----- ---------- --- ----------- --- ---------- ----- ------------ ----- ----------- PRO FORMA FIRST NINE MONTHS OF 2000 Total (b) $ 385.3 $ 87.0 $ 135.1 $ 172.5 $ 779.9 50% 11% 17% 22% 100% ---------------------------- ----- ---------- --- ----------- --- ---------- ----- ------------ ----- ----------- FIRST NINE MONTHS OF 1999 Reinforcement products $ 41.1 $ 15.2 $ 125.0 $ 69.0 $ 250.3 Composite materials 302.3 81.3 - 86.5 470.1 Engineered products (a) 152.3 10.2 - - 162.5 ---------------------------- ----- ---------- --- ----------- --- ---------- ----- ------------ ----- ----------- Total (a) $ 495.7 $ 106.7 $ 125.0 $ 155.5 $ 882.9 56% 12% 14% 18% 100% ---------------------------- ----- ---------- --- ----------- --- ---------- ----- ------------ ----- ----------- PRO FORMA FIRST NINE MONTHS OF 1999 Total (b) $ 446.9 $ 106.7 $ 125.0 $ 155.5 $ 834.1 54% 13% 15% 18% 100% ---------------------------- ----- ---------- --- ----------- --- ---------- ----- ------------ ----- -----------
(a) Net sales for the first nine months of 2000 include $18.9 million of commercial aerospace net sales by the Bellingham aircraft interiors business, which was a component of the Company's Engineered Products segment until this business was sold on April 26, 2000. Net sales for the first nine months of 1999 include $48.8 million of commercial aerospace net sales by the Bellingham business. (b) Pro forma net sales for the first nine months of 2000 and 1999 give effect to the sale of the Bellingham business that occurred on April 26, 2000, as if it had occurred at the beginning of 1999. Operating Income: Operating income was $59.4 million or 7.4% of net sales for the first nine months of 2000, of which $0.4 million was contributed by the Bellingham business. This compares with operating income of $54.7 million or 6.2% of net sales for the first nine months of 1999, of which $4.0 million was contributed by the Bellingham business. Excluding business consolidation expenses, operating income was $63.9 million or 8.0% of net sales for the 2000 period, and $72.5 million or 8.2% of net sales for the 1999 period. Business consolidation expenses, which totaled $4.5 million and $17.8 million for the first nine months of 2000 and 1999, respectively, are discussed further under "Business Consolidation Programs" below. The sale of the Bellingham business in April reduced operating income before business consolidation expenses for the first nine months of 2000 by $3.6 million, compared with the same period of 1999. Results for the first nine months of 2000 were also impacted by lower sales from the Company's Composite Materials and Engineered Products segments, which was offset by decreases in SG&A and research and technology expenses. SG&A expenses were $93.9 million or 11.8% of net sales for the first nine months of 2000, versus $97.4 million or 11.0% of net sales for the first nine months of 1999. Approximately $1.5 million of the net decline in SG&A expenses is attributable to the sale of the Bellingham business on April 26, 2000, with the remaining decrease primarily reflecting the impact of cost reduction efforts and changes in currency exchange rates. Research and technology expenses were $16.6 million or 2.1% of net sales for the first nine months of 2000, compared with $18.6 million or 2.1% of net sales for the same year-to-date period in 1999. Interest Expense: Interest expense for the first nine months of 2000 was $51.6 million, compared to $55.9 million for the same period of 1999. The decrease in interest expense primarily reflects the reduction in outstanding term debt under Hexcel's senior credit facility which resulted from the sale of the Bellingham business, partially offset by higher interest rates on variable-rate debt. 19 Equity in Earnings and Write-down of an Investment in Affiliated Companies: Equity in earnings of affiliated companies for the year-to-date period ended September 30, 2000 was $3.9 million, reflecting improved operating results for Hexcel's electronic fabrics joint venture in Asia. The improved operating performance results from the increased demand for electronics fabrics in Asia. This compares to a $19.8 million loss for equity in earnings and a write-down of an investment in affiliated companies for the comparable period of 1999. Net Income (Loss) and Net Income (Loss) Per Share:
------------------------------------------------------------------------------------------------------------------- Year-to-Date Ended September 30, (In millions, except per share amounts) 2000 1999 ------------------------------------------------------------------------------------------------------------------- Net income (loss) $ 53.2 $ (20.6) Adjusted net income $ 12.2 $ 11.0 Diluted net income (loss) per share $ 1.28 $ (0.56) Diluted net income (loss) per share excluding goodwill amortization $ 1.42 $ (0.42) Adjusted diluted net income per share $ 0.33 $ 0.30 Diluted weighted average shares outstanding 45.3 36.4 -------------------------------------------------------------------------------------------------------------------
The Company's convertible subordinated notes, due 2003, and its convertible subordinated debentures, due 2011, were excluded from the 1999 computation of net loss 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 (loss) per share. FINANCIAL CONDITION AND LIQUIDITY Senior Credit Facility Hexcel's global credit facility (the "Senior Credit Facility") was amended on March 7, 2000 and October 26, 2000, to accommodate, among other things, the planned sale of assets, planned investment in additional manufacturing capacity for selected products, the impact of the decline in the Company's operating results in the second half of 1999 on certain financial covenants, the sale by certain subsidiaries of Ciba Specialty Chemicals Holding Inc. of approximately 14.5 million of the approximately 18 million shares of Hexcel common stock held by them to an investor group led by Goldman Sachs, a restructuring of the ownership of certain of the Company's European subsidiaries, and a reallocation of $40 million of revolving loans from the U.S. to Europe. The Senior Credit Facility, as amended, provides Hexcel with approximately $393 million of borrowing capacity. The Senior Credit Facility is secured by a pledge of shares of certain of the Company's subsidiaries, as well as security interests in certain U.S. accounts receivable, inventories, and real property, plant and equipment. The Company is subject to various financial covenants and restrictions under the Senior Credit Facility, including limitations on incurring debt, granting liens, selling assets, redeeming capital stock and paying dividends. 20 Hexcel completed the sale of its Bellingham aircraft interiors 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 of September 30, 2000, unused borrowing capacity under the Senior Credit Facility was approximately $167 million. Hexcel 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 of term debt 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 $22.2 million for the first nine months of 2000 compared to $26.7 million for the first nine months of 1999. Hexcel expects total capital expenditures in 2000 to approximate $40 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. Pro Forma Adjusted EBITDA, Adjusted EBITDA, Cash Flows and Ratio of Earnings to Fixed Charges Pro Forma Adjusted EBITDA: Pro forma earnings before business consolidation expenses, other income, interest, taxes, depreciation and amortization, equity in earnings and a write-down in an investment in an affiliated company, and the gain from the sale of the Bellingham aircraft interiors business ("Adjusted EBITDA"), was $106.9 million for the first nine months of 2000, compared with $114.9 million for the first nine months of 1999. First Nine Months, 2000: Adjusted EBITDA was $107.8 million. Net cash provided by operating activities was $12.8 million, as approximately $9 million of net income, excluding a $44 million after-tax gain on the disposition of the Bellingham business, $43.9 million of non-cash depreciation and amortization, and $11.8 million of deferred income taxes, were offset by $20.1 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 as well as an increase in inventory. Net cash provided by investing activities was $88.5 million, primarily reflecting the net cash proceeds received from the sale of the Bellingham business, partially offset by $22.2 million of capital expenditures and $6.0 million of investments made to the Company's joint ventures in China and Malaysia. Net cash used for financing activities was $86.8 million, primarily reflecting the application of net proceeds from the sale of the Bellingham business to the Company's Senior Credit Facility. First Nine Months, 1999: Adjusted EBITDA was $119.6 million for the first nine months of 1999. Net cash provided by operating activities was $89.1 million, as $47.1 million of non-cash depreciation and amortization, $19.8 million of a write-down of an investment in an affiliated company, $17.8 million of business consolidation expenses and $43.6 million of working capital changes more than offset a net loss of $20.6 million and cash used by all other operating activities. Net cash used for investing activities was $28.7 million reflecting the Company's capital expenditures for the first nine months of 1999. Net cash used for financing activities was $59.3 million, primarily reflecting a net debt repayment of $49.8 million and $10.8 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 and pro forma Adjusted EBITDA have been presented to provide a measure of Hexcel's operating performance that is commonly used by investors and financial analysts to analyze and compare companies. Adjusted EBITDA and pro forma Adjusted EBITDA may not be comparable to similarly titled financial measures of other companies. Adjusted EBITDA and pro forma Adjusted EBITDA do not represent alternative measures of the Company's cash flows or operating income, and should not be considered in isolation or as substitutes for measures of performance presented in accordance with generally accepted accounting principles. 21 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 September 30, Year-to-Date Ended September 30, (In millions) 2000 1999 2000 1999 - --------------------------------------------------------------------------------------------------------------------- Net income (loss) $ 0.1 $ (30.1) $ 53.2 $ (20.6) Provision for (benefit from) income taxes (0.8) (5.5) 26.8 (0.4) Interest expense 16.0 18.4 51.6 55.9 Depreciation and amortization expense 14.1 15.6 43.9 47.1 Equity in earnings and write-down of an investment in affiliated companies (1.7) 19.9 (3.9) 19.8 Other - 0.1 - - - --------------------------------------------------------------------------------------------------------------------- EBITDA 27.7 18.4 171.6 101.8 Business consolidation expenses 3.3 13.6 4.5 17.8 Gain on sale of Bellingham aircraft interiors business - - (68.3) - - --------------------------------------------------------------------------------------------------------------------- Adjusted EBITDA $ 31.0 $ 32.0 $ 107.8 $ 119.6 - --------------------------------------------------------------------------------------------------------------------- Ratio of earnings to fixed charges 1.0x N/A 2.5x 0.6x - ---------------------------------------------------------------------------------------------------------------------
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. For the quarter ended September 30, 1999, the deficiency of earnings to fixed charges was $16.8 million. BUSINESS CONSOLIDATION PROGRAMS Total accrued business consolidation expenses at December 31, 1999 and September 30, 2000, activity during the nine months ended September 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 7.9 - 7.9 Reversal of 1999 expenses (3.4) - (3.4) - --------------------------------------------------------------- ---- ------------ ---- ------------- ---- ---------- Net business consolidation expenses 4.5 - 4.5 Cash expenditures (7.9) (0.4) (8.3) 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 SEPTEMBER 30, 2000 $ 2.6 $ - $ 2.6 - --------------------------------------------------------------- ---- ------------ ---- ------------- ---- ----------
22 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 nine months, sales and production of lightweight glass and aramid fabrics showed greater than anticipated growth. This trend is projected to continue into the fourth quarter 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 in the second quarter of 2000, 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 included $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 23 million. All of the other initiatives included in this business consolidation program are continuing approximately as planned. 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. 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 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. 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. Refer to Note 5 to the accompanying condensed consolidated financial statements for further discussions regarding the Company's business consolidation programs. FOURTH QUARTER TRANSACTIONS Purchase of Approximately 14.5 Million Shares of Hexcel Common Stock by an Investor Group Led by Goldman Sachs On October 11, 2000, the Company announced that certain subsidiaries of Ciba Specialty Chemicals Holding Inc. (collectively, "Ciba") entered into an agreement to sell approximately 14.5 million of the approximately 18 million shares of Hexcel common stock it owns to an investor group affiliated with Goldman Sachs (the "Investor Group"). The shares to be acquired by the Investor Group represent approximately 39% of the Company's outstanding common stock. In addition, the Company and the Investor Group have agreed to a governance agreement that will become effective on the closing of this transaction. Under the governance agreement, the Investor Group will have the right to, among other 24 things, designate three directors to sit on the Company's ten member board of directors. It is anticipated that this transaction will be completed during the fourth quarter of 2000. The transaction was consented to by Hexcel's senior credit facility banks on October 26, 2000, and has received early termination under the provisions of the Hart-Scott Rodino Act. However, the closing of the transaction remains subject to European regulatory approvals. Once this transaction closes, Ciba will own approximately 3.5 million shares of the Company's common stock and its existing governance agreement with the Company, including its right to designate directors, will terminate. Ciba has stated that its investment in Hexcel is non-strategic and it is anticipated that Ciba will explore options for the future disposition of its remaining interest in the Company. Hexcel expects to incur approximately $3 million in costs in connection with this transaction, including various legal, consulting, and regulatory compliance expenses, as well as a non-cash charge attributable to the accelerated vesting of certain stock-based compensation. Under the terms of the Company's various stock option and management incentive plans, this transaction constitutes a "change in control" event, resulting in all outstanding stock options becoming vested and exercisable. The Chief Executive Officer has waived the vesting of his stock options by such event. In addition, nine of the most senior executive officers other than the Chief Executive Officer have agreed to defer the vesting of their stock options such that any of their stock options that would have otherwise vested immediately (or would have otherwise vested by their terms) will vest one year after the closing with respect to half of such options, and two years after the closing with respect to the remaining half of such options, subject to earlier vesting in certain circumstances. As a result, approximately 1.3 million stock options, with exercise prices ranging from $2.41 to $29.63 per share, and a weighted average exercise price of $8.99 per share, will vest and become exercisable on the closing of the transaction. In addition, at closing the shares of the Company's common stock underlying a total of approximately 0.8 million restricted stock units and performance accelerated restricted stock units (collectively, "stock units") will be distributed. However, the Chief Executive Officer has waived the vesting of his stock units, and nine of the most senior executive officers other than the Chief Executive Officer have agreed to defer the distribution of shares underlying their stock units (although not the vesting of such stock units) such that any shares of common stock that would have otherwise been distributed immediately will be distributed one year after the closing with respect to half of such stock units, and two years after the closing with respect to the remaining half of such stock units, subject to earlier distribution under certain circumstances. As a result approximately 0.1 million shares of the Company's common stock underlying approximately 0.1 million of these stock units will be distributed upon the closing of the transaction. U.S. Retirement Benefit Plan Changes In July 2000, Hexcel's board of directors authorized certain changes to the Company's U.S. retirement benefit plans that are intended to improve the flexibility and visibility of future retirement benefits. The significant changes authorized were an increase in the amount that the Company will contribute to individual 401(k) retirement savings accounts, beginning January 1, 2001, and an offsetting curtailment of the Company's U.S. defined benefit retirement plan, effective December 31, 2000. Participants in the defined benefit retirement plan will no longer accrue benefits under this plan after December 31, 2000, although they will retain all benefits earned under this plan as of that date. The Company estimates that the curtailment of the defined benefit retirement plan will result in a non-recurring, non-cash credit of approximately $4 to $5 million that will be recognized in the fourth quarter of 2000. 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. Hexcel is required to adopt SAB 101 in the fourth quarter of 2000 (retroactive to January 1, 2000). Management is still evaluating the provisions of SAB 101, and has not yet determined the impact of this pronouncement, if any, on the Company's revenue recognition policies. 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. Management is still evaluating the provisions of SFAS 133, and has not yet determined the impact of this pronouncement on the Company's policies for identifying and measuring derivatives. 25 In March 2000, the Financial Accounting Standards Board issued Interpretation No. 44, "Accounting for Certain Transactions Involving Stock Compensation - an interpretation of APB Opinion No. 25" ("FIN 44"). This Interpretation clarifies the definition of employee for the purposes of applying Accounting Practice Board Opinion No. 25, Accounting for Stock Issued to Employees ("APB 25"), the criteria for determining whether a plan qualifies as a noncompensatory plan, the accounting consequences of various modifications to the terms of a previously fixed stock option or award, and the accounting for an exchange of stock compensation awards in a business combination. This Interpretation is effective July 1, 2000, but certain conclusions in this Interpretation cover specific events that occur after either December 15, 1998, or January 12, 2000. Management believes that FIN 44 will not have a material effect on the financial position or results of operations of the Company. Due to the fact that management is still evaluating the provisions of SAB 101 and SFAS 133, Hexcel has not yet determined if these pronouncements will have an impact on the Company's financial position and results of operations. 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 electronics fabrics, and related manufacturing capacity utilization; (e) expectations regarding sales growth, sales mix, and gross margins; (f) expectations regarding 2000 capital expenditures; (g) expectations regarding the performance of the Company's joint venture interests; (h) expectations regarding the Company's financial condition and liquidity; (i) estimated expenses, cash costs, and savings for business consolidation programs; (j) estimated transaction costs and related expenses for the change in ownership transaction; and (k) estimates of a non-recurring, non-cash credit related to the curtailment of a U.S. benefit retirement plan. 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 production or 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 or technology; industry capacity; competition; disruptions of established supply channels; manufacturing capacity constraints; and the availability, terms and deployment of capital. Additional information regarding these factors is contained in the Company's Annual Report on Form 10-K for the year ended December 31, 1999. 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 - --------------------------------------------------------------------------- ------- --------- ------- --------------
26 PART II. OTHER INFORMATION HEXCEL CORPORATION AND SUBSIDIARIES ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (A) EXHIBITS: 10.1 Agreement, dated as of October 11, 2000, by and among Hexcel Corporation, LXH, L.L.C. and LXH II, L.L.C. (incorporated herein by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K dated October 13, 2000). 10.2 Consent and Termination Agreement, dated as of October 11, 2000, by and between Hexcel Corporation and Ciba Specialty Chemicals Holding Inc. (incorporated herein by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K dated October 13, 2000). 10.3 Fourth Amendment and Consent dated October 6, 2000 to the Second Amended and Restated Credit Agreement by and among Hexcel Corporation and the Foreign Borrowers from time to time parties thereto, the banks and other financial institutions from time to time parties thereto, Citibank, N.A., as Documentation Agent, and Credit Suisse First Boston, as Administrative Agent 10.4 Amended and Restated Employment Agreement dated October 11, 2000 between Hexcel and John J. Lee. 10.5 Second Amendment to Supplemental Executive Retirement Agreement dated October 1, 2000 between Hexcel and John J. Lee. 10.6 Amendment to Agreements dated October 11, 2000 between Hexcel and Harold E. Kinne. 10.7 Amendment to Agreements dated October 11, 2000 between Hexcel and Ira Krakower. 10.8 Amendment to Agreements dated October 11, 2000 between Hexcel and Stephen Forsyth. 10.9 Amendment to Agreements dated October 11, 2000 between Hexcel and Joseph Shaulson. 10.10 Amendment to Agreements dated October 11, 2000 between Hexcel and Steven Warshaw. 10.11 Amendment to Agreements dated October 11, 2000 between Hexcel and Robert Mathews. 10.12 Amendment to Agreements dated October 11, 2000 between Hexcel and David Tanonis. 10.13 Amendment to Agreements dated October 11, 2000 between Hexcel and Justin Taylor. 10.14 Amendment to Agreements dated October 11, 2000 between Hexcel and William Hunt. 10.15 Executive Severance Agreement between Hexcel and Robert F. Matthews dated as of July 1, 2000 (incorporated herein by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the Quarter ended June 30, 2000). 27 Financial Data Schedule (electronic filing only). 27 (B) REPORTS ON FORM 8-K: Current Report on Form 8-K dated November 3, 2000, relating to the Company's third quarter 2000 financial results. Current Report on Form 8-K dated October 13, 2000, relating to a press release issued by the Company announcing that an investor group led by Goldman Sachs agreed to purchase approximately 14.5 million shares of Hexcel common stock owned by Ciba Specialty Chemicals. Current Report on Form 8-K dated July 31, 2000, relating to the Company's second quarter 2000 financial results. 28 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) November 14, 2000 /s/ Kirk G. Forbeck - -------------------------------- ------------------------------ (Date) Kirk G. Forbeck, Chief Accounting Officer 29 EX-10 2 0002.txt EXHIBIT 10.3 EXHIBIT 10.3 FOURTH AMENDMENT AND CONSENT FOURTH AMENDMENT AND CONSENT, dated as of October 26, 2000 (this "Amendment and Consent"), to the Second Amended and Restated Credit Agreement, dated as of September 15, 1998 (as amended, supplemented or otherwise modified from time to time, the "Credit Agreement"), among Hexcel Corporation (the "Company") and the Foreign Borrowers from time to time party thereto (together with the Company, the "Borrowers"), the banks and other financial institutions from time to time parties thereto (the "Lenders"), Citibank, N.A., as Documentation Agent, and Credit Suisse First Boston, as Administrative Agent (the "Administrative Agent"). W I T N E S S E T H: - - - - - - - - - - WHEREAS, pursuant to the Credit Agreement, the Lenders have agreed to make, and have made, certain loans and other extensions of credit to the Borrowers; WHEREAS, the Borrowers have requested, and, upon this Amendment becoming effective, the Lenders shall have agreed, that certain provisions of the Credit Agreement be amended in the manner provided for in this Amendment; WHEREAS, the Company desires to make certain changes to its ownership structure ("Restructuring") pursuant to which the Company will, among other things, (i) designate a wholly owned subsidiary of the Company to be organized under the laws of the United Kingdom ("Newco") after the date hereof, as an Additional Borrower, (ii) transfer ownership of Hexcel Composites GmbH, a wholly owned subsidiary of the Company organized and existing under the laws of Austria ("Composites-Austria"), and Hexcel Composites S.A., a wholly owned subsidiary of the Company organized and existing under the laws of Belgium ("Hexcel-Belgium"), to Newco for minimum cash proceeds of $75,000,000 and other consideration, if any (the "Sale"), and (iii) transfer ownership of Hexcel (U.K.) Limited ("Hexcel-U.K."), a wholly owned subsidiary of the Company organized and existing under the laws of England and Wales to Newco (such transfer, together with the Sale, the "Intercompany Transfers"); WHEREAS, the Administrative Agent has consented, and by its signature below hereby acknowledges such consent, to increasing the Aggregate European Loan Commitment by $40,000,000 and simultaneously decreasing the Aggregate Revolving Credit Commitment by $40,000,000 in accordance with subsection 7.11 of the Credit Agreement (the "Reallocation"); WHEREAS, the Administrative Agent has consented, and by its signature below hereby acknowledges such consent, to increasing the Foreign Borrower Sublimit with respect to Newco from $35 million to $90 million; and WHEREAS, the Company has requested that the Lenders consent to the matters related to the Restructuring that are described below, and, upon this Amendment and Consent becoming effective, the Lenders shall have so consented. NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and in consideration of the premises and mutual agreements contained herein, the parties hereto hereby agree as follows: SECTION 1. DEFINED TERMS 1.1. Defined Terms. Unless otherwise defined herein, capitalized terms which are defined in the Credit Agreement are used herein as defined therein. SECTION 2. CONSENTS 2.1. Designation of Additional Borrower. The European Lenders hereby consent to the designation of Newco as an Additional Borrower pursuant to subsection 7.9 of the Credit Agreement; provided that, prior to such designation becoming effective, (i) Newco shall have executed and delivered an Additional Borrower Joinder Agreement, (ii) Newco shall have delivered to the Administrative Agent a legal opinion of local foreign counsel as to the applicable matters covered by the opinions delivered on the Closing Date with respect to the Foreign Borrowers and reasonably satisfactory to the Administrative Agent with respect thereto and Newco shall have otherwise complied with the requirements of subsection 7.9(b) of the Credit Agreement, (iii) the Company shall have executed a Foreign Pledge Agreement pledging 65% of the Capital Stock of Newco (the "Newco Pledge Agreement") pursuant to subsection 13.9 of the Credit Agreement and (iv) the Company shall have delivered to the Administrative Agent a legal opinion reasonably satisfactory to the Administrative Agent with respect to the Newco Pledge Agreement, and otherwise shall have complied with the requirements of subsection 13.9 of the Credit Agreement. 2.2. Consent to Intercompany Transfers and Release. The Lenders and the Borrowers hereby consent to the Intercompany Transfers and to the termination and release, effective at the same time the Newco Pledge Agreement becomes effective, of the Company's pledges of the Capital Stock of Hexcel-U.K., Composites-Austria and Hexcel- Belgium pursuant to the Credit Documents; provided that, upon the completion of the Sale the first $20,000,000 of cash proceeds received from the Sale shall have been applied to prepay the Tranche A Loans in accordance with subsection 10.3 of the Credit Agreement and the balance of any cash proceeds received from the Sale shall have been applied to prepay the Revolving Credit Loans. Each Lender authorizes and instructs each of the Administrative Agent and the Documentation Agent to take, and the Administrative Agent and Documentation Agent shall take, such actions as the Company may reasonably request to evidence and effect such releases. 2.3. Effective Date of Reallocation. The Lenders and the Borrowers hereby agree that the effective date of the Reallocation shall be a date designated by the Company and the Administrative Agent at any time following the receipt by the Administrative Agent of the written consent (the "Letter of Confirmation") of each Revolving Credit Lender that has agreed to convert its Revolving Credit Commitment into a European Loan Commitment in the amount set forth opposite such Revolving Credit Lender's name in the Letter of Confirmation. 2.4. Sale of Kent Division. Anything in subsection 14.6 of the Credit Agreement to the contrary notwithstanding, the Lenders hereby consent that the Company may sell its Engineered Products Division ("Kent"); provided that such sale is effected (a) on or before June 30, 2001 and (b) for consideration which shall include a cash portion in an amount not less than $40 million of Net Proceeds. The first $40,000,000 of such Net Proceeds shall be applied, notwithstanding anything in subsection 10.5(g) of the Credit Agreement to the contrary, to prepay Tranche A Loans and Tranche B Loans ratably according to the respective aggregate then outstanding principal amounts thereof. With respect to any amount of such Net Proceeds that is in excess of $40,000,000 (the "Excess Net Proceeds"), (x) such Excess Net Proceeds shall be available to the Company for general corporate purposes, including Capital Expenditures and, notwithstanding the provisions of subsection 14.14 of the Credit Agreement, the prepayment, repurchase or retirement of Permitted Subordinated Indebtedness, (y) notwithstanding anything in subsection 10.5(g) of the Credit Agreement to the contrary, no other prepayment or Commitment reduction under the Credit Agreement shall be required as a result of the receipt of the Excess Net Proceeds and (z) with respect to subsection 10.5(g)(x), such Excess Net Proceeds shall not be considered as part of the first $25,000,000 of Net Proceeds derived from any Net Proceeds Event, and for purposes of calculating compliance with the financial covenants contained in subsection 14.1, for any period in which the Sale is or was completed, the Sale and the repayment of any Indebtedness in connection therewith shall be deemed to have been completed on the first day of such period. The Lenders and the Borrowers hereby acknowledge and agree that, notwithstanding anything to the contrary contained in the Credit Documents, all of the assets of Kent sold in connection with any sale or sales permitted by the foregoing shall, effective simultaneously with the closing thereof in accordance thereof, be released from the Liens granted pursuant to the Credit Documents. Each Lender hereby authorizes and instructs each of the Administrative Agent and the Documentation Agent to take, and the Administrative Agent and the Documentation Agent shall take, such actions as the Company may reasonable request to evidence and effect the release of any liens on assets that are sold as part of such sale. 2.5. Consent to Amendment. Each Lender hereby consents to (i) the Specialty Chemicals Sale, (ii) the termination of the Governance Agreement and the amendment of the Subordinated Ciba Notes Indenture and the Subordinated Ciba Notes, each as contemplated by the terms of the Consent and Termination Agreement dated as of October 11, 2000 by and between the Company and Chemical Holdings, and (iii) the terms of the Buyer Governance Agreement (in the form delivered to the Lenders in connection herewith, with such changes, if any, as are not materially adverse to the Lenders). SECTION 3. AMENDMENTS 3.1. Amendment to Subsection 1.1. Subsection 1.1 of the Credit Agreement is hereby amended: (a) by adding thereto, immediately after the definition of "Business Day," the following: "Buyer": collectively, LXH, L.L.C. and LXH II, L.L.C., each a Delaware limited liability company and a Subsidiary of The Goldman Sachs Group, Inc. "Buyer Governance Agreement": the governance agreement to be executed by and among the Buyer, the Company and the other parties listed on the signature pages thereto." (b) by deleting clause (i) of the existing definition of "Change of Control" and by substituting therefor the following: "(i) (A) prior to the Specialty Chemicals Sale, (I) any "person" (as such term is used in Section 13(d) and 14(d) of the Exchange Act, but other than Specialty Chemicals and its Affiliates) beneficially owns, directly or indirectly, more than 25% of the total voting power of the voting stock of the Company and (II) the total voting power of the voting stock of the Company beneficially owned by such "person" exceeds that which is beneficially owned by Specialty Chemicals and its Affiliates; and (B) after the Specialty Chemicals Sale (provided that such sale is consummated on or before December 31, 2000), (I)(1) any "person" (as such term is used in Section 13(d) and 14(d) of the Exchange Act, but other than the Investors and their Affiliates) beneficially owns, directly or indirectly, more than 25% of the total voting power of the voting stock of the Company and (2) the total voting power of the voting stock of the Company beneficially owned by such "person" exceeds that which is beneficially owned by the Investors and their Affiliates, or (II) the Investors and their Affiliates beneficially own, directly or indirectly, more than 40% of the total voting power of the voting stock of the Company; or" (c) by renumbering clause (ii) of the definition of "Change of Control" as clause (iii) and adding to such definition the following clause (ii): "(ii) a Specified Change of Control; or" (d) by adding after the reference to "Governance Agreement" in clause (ii) of the existing definition of "Change of Control" the following: "or Buyer Governance Agreement, as applicable". (e) by deleting from the definition of "Existing Transaction Documents" clauses (b) and (c) therein, relettering clause (d) as clause (c) and substituting for clause (b) the following: "(b) the Buyer Governance Agreement, the agreement dated as of October 11, 2000, by and among the Company and the Buyer (which agreement is filed as Exhibit 10.1 to the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on October 13, 2000), and the Registration Rights Agreement to be entered into between the Company and the Buyer." (f) by deleting therefrom the existing definition of "Fixed Charge Coverage Ratio" and by substituting therefor the following: "Fixed Charge Coverage Ratio" means the ratio of (i) EBITDA of the Company and its Subsidiaries for the most recently completed period of four consecutive fiscal quarters, minus Capital Expenditures paid by the Company and its Subsidiaries during such period, plus Net Proceeds of asset sales received during such period to the extent not included in the calculation of EBITDA for such period to (ii) Fixed Charges of the Company and its Subsidiaries for such period; provided, however, that the calculation of the Fixed Charge Coverage Ratio for any quarter included within the period between January 1, 2001 and December 31, 2002 shall exclude up to $30,000,000 of Capital Expenditures incurred during calendar year 2001 in connection with expenditures to fund expansion of the Company's electronics and wind energy manufacturing capacity." (g) by adding thereto, immediately after the definition of "Foreign Subsidiary," the following: "Fourth Amendment" means the Fourth Amendment and Consent dated as of October 26, 2000 among the Borrowers, the banks and the Lenders, Citibank, N.A., as Documentation Agent, and Credit Suisse First Boston, as Administrative Agent." (h) by adding thereto, immediately after the definition of "Investment," the following: "Investors": The Goldman Sachs Group, Inc. (the "GS Group") and any direct or indirect Subsidiaries of the GS Group. (i) by adding thereto, immediately after the definition of "Specialty Chemicals," the following: "Specialty Chemicals Sale": the sale by Specialty Chemicals to the Buyer of any or all of the shares of the Capital Stock of the Company owned by Specialty Chemicals pursuant to the Stock Purchase Agreement. "Specified Change of Control": a "Change of Control" as defined in the Indenture, dated as of January 21, 1999, between the Company and the Bank of New York, as Trustee (as such may be amended, supplemented or otherwise modified from time to time)." (j) by adding thereto, immediately after the definition of "Standby Letter of Credit," the following: "Stock Purchase Agreement" means the Stock Purchase Agreement among LXH, L.L.C., LXH II, L.L.C., Ciba Specialty Chemicals Holding Inc., Ciba Specialty Chemicals Inc. and Ciba Specialty Chemicals Corporation dated as of October 11, 2000. 3.2. Amendment to Subsection 10.5(g): Subsection 10.5(g) is hereby amended: (a) by deleting clause (x) thereto, and by substituting therefor the following: "(x) no such reduction shall be required with respect to the first $25,000,000 of Net Proceeds derived from any Net Proceeds Event received by the Company and its Subsidiaries during any period of 365 consecutive days (other than any Net Proceeds Event on account of the sale, transfer or other disposition of assets described in clause (y) below); provided, further, that no such reduction shall be required with respect to any Net Proceeds received from the issuance by the Company of its common stock during the period between September 15, 2000 and June 30, 2001 (the "Equity Sale") which are applied as follows: the first $25,000,000 of such Net Proceeds may be retained by the Borrower for general corporate purposes, including Capital Expenditures and, notwithstanding the provisions of subsection 14.14 herein, the prepayment, repurchase or retirement of Permitted Subordinated Indebtedness; the next $40,000,000 of such Net Proceeds shall be used, at the Borrower's election, to either (A)(1) prepay the Subordinated Ciba Notes with a principal amount outstanding of $25,000,000 and (2) to prepay the Tranche A Term Loans and the Tranche B Term Loans ratably according to the respective aggregate then outstanding principal amounts thereof with $15,000,000 of such Net Proceeds or (B) to prepay the Tranche A Term Loans and the Tranche B Term Loans ratably according to the respective aggregate then outstanding principal amounts thereof; and any such Net Proceeds in excess of $65,000,000 may be retained by the Borrower for general corporate purposes, including Capital Expenditures and, notwithstanding the provisions of subsection 14.14 herein, the prepayment, repurchase or retirement of Permitted Subordinated Indebtedness." (b) by deleting the clause "second" thereof in its entirety and substituting therefor the following: "to the Aggregate Revolving Credit Commitment and the Aggregate European Loan Commitment, with such application to be ratably between such Commitments;" 3.3. Amendments to Subsection 14.1(a). Subsection 14.1(a) is hereby amended by deleting such section in its entirety and substituting therefor the following: "(a) Minimum Interest Coverage Ratio. Permit the Interest Coverage Ratio of the Company and its Subsidiaries on the last day of any fiscal quarter of the Company occurring during a period set forth below to be less than the ratio set forth opposite such period:" - ---------------------------------------------------------------------------- Period Ratio - ---------------------------------------------------------------------------- - ---------------------------------------------------------------------------- January 1, 2000 - March 31, 2000 1.80 to 1.0 April 1, 2000 - June 30, 2000 1.80 to 1.0 July 1, 2000 - September 30, 2000 1.80 to 1.0 October 1, 2000 - December 31, 2000 1.85 to 1.0 January 1, 2001 - December 31, 2001 2.25 to 1.0 January 1, 2002 - thereafter 2.50 to 1.0 - ---------------------------------------------------------------------------- 3.4. Amendments to Subsection 14.2(g). Subsection 14.2(g) is hereby amended by deleting the reference to "$125,000,000" therein and substituting therefore a reference to "$50,000,000." 3.5. Amendments to Subsection 14.5(b). Subsection 14.5(b) is hereby amended by deleting such subsection in its entirety and substituting therefor the following: "(b) any Wholly-owned Subsidiary of the Company (other than, prior to the Term Loan Repayment Date, AcquisitionCo or any of its Subsidiaries) may sell, lease, transfer or otherwise dispose of any or all of its assets (upon voluntary liquidation or otherwise) to the Company or any other Wholly-owned Subsidiary of the Company; and" 3.6. Amendments to Subsection 14.6. Subsection 14.6 is hereby amended: (a) by deleting paragraph (g) in its entirety and substituting therefor the following: "(g) sales, leases, transfers or other dispositions permitted by subsection 14.5, 14.8 or 14.9; and "(b) by deleting the last paragraph thereof and substituting therefor the following: "Any Collateral which is sold, transferred or otherwise conveyed pursuant to this subsection 14.6 to a Person (other than the Company and its Subsidiaries, unless the Company or such Subsidiary sells, transfers or conveys the Capital Stock of a Foreign Subsidiary (1) to another Foreign Subsidiary or (2) to a Domestic Subsidiary, provided such Domestic Subsidiary complies with clauses (i) through (iii) of subsection 13.9(b) of the Agreement) shall, upon the consummation of such sale in accordance with the terms of this Agreement and the other Credit Documents, be released from the Liens granted pursuant to the Security Documents and each Lender hereby authorizes and instructs each of the Administrative Agent and the Documentation Agent to take such action as the Company reasonably may request to evidence such release." 3.7. Amendments to Subsection 14.7. Subsection 14.7 is hereby amended by adding to paragraph (a) thereof immediately after the reference to subsection 14.14 the following: "; provided, that no Restricted Payments otherwise permitted by clause (iii) of this paragraph (a) shall be made to the Investors or their Affiliates; provided, further, that the immediately preceding limitation shall not apply in the case of an open-market non-discriminatory stock repurchase program conducted by the Company in respect of the Capital Stock of the Company in compliance with the Exchange Act and not otherwise prohibited by this Agreement." 3.8. Amendments to Subsection 14.8(c). Subsection 14.8(c) is hereby amended by adding thereto after the reference to "Wholly-owned Subsidiaries" therein the following: "of the Company". SECTION 4. MISCELLANEOUS 4.1. Conditions to Effectiveness of Amendment. This Fourth Amendment and Consent shall become effective (as of the date first set forth above) on the date (the "Effective Date") upon which (a) the Administrative Agent shall have received counterparts hereof, duly executed and delivered by each Borrower, the Documentation Agent, the Administrative Agent, each Subsidiary Guarantor, the Majority Lenders, and the European Lenders holding the majority of the Aggregate European Loan Commitment and (b) the Administrative Agent shall have received a duly executed copy of the Stock Purchase Agreement (including the form of the Buyer Governance Agreement attached as an exhibit thereto) and the Consent and Termination Agreement dated as of October 11, 2000 by and between the Company and Chemical Holdings. 4.2. Representations and Warranties. The Company, as of the date hereof after giving effect to the amendments and consent contained herein, hereby confirms, reaffirms and restates the representations and warranties made by it and each Foreign Borrower in Subsection 11 of the Credit Agreement and otherwise in the Credit Documents to which it is a party; provided that each reference to the Credit Agreement therein shall be deemed to be a reference to the Credit Agreement after giving effect to this Amendment. 4.3. Limited Effect. The execution, delivery and effectiveness of this Amendment shall not, except as expressly provided herein, operate as a waiver of any right, power or remedy of any Lender or the Administrative Agent under any of the Credit Documents, nor constitute a waiver or amendment of any provisions of any of the Credit Documents. Except as expressly modified herein, all of the provisions and covenants of the Credit Agreement and the other Credit Documents are and shall continue to remain in full force and effect in accordance with the terms thereof and are hereby in all respects ratified and confirmed. 4.4. Amendment Fee. The Company shall pay to the Administrative Agent, for the account of each Lender executing this Amendment on or before October 26, 2000, an amendment fee (the "Amendment Fee") equal to 10 b.p. of each such Lender's applicable (i) Commitment, in the case of Revolving Credit Commitment, European Loan Commitment or European Overdraft Commitment and (ii) outstanding Loans, in the case of Tranche A Loans and Tranche B Loans. Such Amendment Fee shall be calculated immediately prior to the effectiveness of this Amendment and shall be payable on the Effective Date. 4.5. Counterparts. This Fourth Amendment and Consent may be executed by one or more of the parties hereto in any number of separate counterparts (which may include counterparts delivered by facsimile transmission), and all of said counterparts taken together shall be deemed to constitute one and the same instrument. Any executed counterpart delivered by facsimile transmission shall be effective as for all purposes hereof. 4.6. GOVERNING LAW. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK. IN WITNESS WHEREOF, the parties hereto have caused this Fourth Amendment to be duly executed and delivered by their respective proper and duly authorized officers as of the day and year first above written. HEXCEL CORPORATION HEXCEL COMPOSITES S.A. (Belgium) HEXCEL (U.K.) LIMITED HEXCEL COMPOSITES S.A. (France) HEXCEL COMPOSITES LIMITED HEXCEL COMPOSITES GMBH (Austria) HEXCEL S.A. (France) HEXCEL COMPOSITES, S.A. (Spain) HEXCEL FABRICS S.A. HEXCEL COMPOSITES GMBH (Germany) By: /s/ Stephen C. Forsyth Title: Attorney-in-Fact CREDIT SUISSE FIRST BOSTON, as Administrative Agent and Lead Arranger By: /s/ Julia P. Kingsbury Title: Vice President CITIBANK, N.A., as Documentation Agent and as a Lender By: /s/ William Clark Title: Managing Director ARCHIMEDES FUNDING II, Ltd. By: ING CAPITAL ADVISORS LLC, as Collateral Manager By: /s/ Greg Masuda Title: CFA, Vice President CREDIT SUISSE FIRST BOSTON, as a Lender By: /s/ Karl Studer Title: Director By: /s/ Roland Isler Title: Associate AERIES FINANCE II LTD. By: INVESCO SENIOR SECURED MANAGEMENT, INC., as Sub-Managing Agent By: /s/ Anthony R. Clemente Title: Authorized Signatory AMARA 2 FINANCE, LTD. By: INVESCO SENIOR SECURED MANAGEMENT, INC., as Sub-Adviser By: /s/ Anthony R. Clemente Title: Authorized Signatory BANK ONE, NA By: /s/ Paul Karlen Title: First Vice President BANQUE NATIONALE DE PARIS By: /s/ Debra Wright Title: Vice President By: /s/ Sandra F. Bertram Title: Assistant Vice President BANQUE WORMS CAPITAL CORPORATION By: /s/ Michel Fleming Title: VP & General Counsel BATTERSON PARK CBO 1 By: GENERAL RE - NEW ENGLAND ASSET MANAGEMENT, INC., as Collateral Manager By: /s/ Kevin Burke Title: Assistant Vice President THE CHASE MANHATTAN BANK By: /s/ Lawrence Palumbo, Jr. Title: Vice President CREDIT AGRICOLE INDOSUEZ By: /s/ Rene Leblanc Title:Vice President By: /s/ Michael Fought Title:Vice President CAPTIVA II FINANCE LTD. By: /s/ Mark Gold Title:Director CERES FINANCE LTD. By: INVESCO SENIOR SECURED MANAGEMENT INC., as Sub-Managing Agent By: /s/ Anthony R.Clemente Title: Authorized Signatory CYPRESSTREE SENIOR FLOATING RATE FUND By: CYPRESSTREE INVESTMENT MANAGEMENT COMPANY, INC., as Portfolio Manager By: /s/ Jonathan D. Sharkey Title: Principal CYPRESSTREE INVESTMENT FUND, LLC By: CYPRESSTREE INVESTMENT MANAGEMENT COMPANY, INC., its Managing Member By: /s/ Jonathan D. Sharkey Title: Principal CYPRESSTREE INVESTMENT PARTNERS I, LTD. BY: CYPRESSTREE INVESTMENT MANAGEMENT COMPANY, INC., as Portfolio Manager By: /s/ Jonathan D. Sharkey Title: Principal CYPRESSTREE INSTITUTIONAL FUND, LLC By: CYPRESSTREE INVESTMENT MANAGEMENT COMPANY, INC., its Managing Member By: /s/ Jonathan D. Sharkey Title: Principal DEUTSCHE BANK AG NEW YORK BRANCH AND/OR CAYMAN ISLANDS BRANCH By: /s/ Virginia Malher-Cosenza Title: Vice President By: /s/ Andreas Neureuler Title: Vice President EATON VANCE CDO III LTD. By: EATON VANCE MANAGEMENT, as Investment Advisor By: /s/ Payson F. Swaffield Title: Vice President EATON VANCE INST. SENIOR LOAN FUND By: EATON VANCE MANAGEMENT, as Investment Advisor By: /s/ Payson F. Swaffield Title: Vice President EATON VANCE SENIOR INCOME TRUST By: EATON VANCE MANAGEMENT, as Investment Advisor By: /s/ Payson F. Swaffield Title: Vice President ERSTE BANK By: /s/ Robert J. Wagman Title: Assistant Vice President By: /s/ John S. Runnion Title: First Vice President FIRST UNION NATIONAL BANK By: /s/ David J.C. Silander Title: Vice President GALAXY CLO 1999-1, LTD. By: /s/ J. Bothamley Title: Authorized Agent GENERAL ELECTRIC CAPITAL CORPORATION By: /s/ Janet K. Williams Title: Duly Authorized Signatory THE INDUSTRIAL BANK OF JAPAN, LIMITED, NEW YORK BRANCH By: /s/ J. Kenneth Biegen Title: Senior Vice President KATONAH I LTD. By: /s/ Marc S. Diagonale Title: Treasurer KEYBANK NATIONAL ASSOCIATION By: /s/ Daniel Lally Title: Assistant Vice President KZH CYPRESSTREE-1 LLC By: /s/ Susan Lee Title: Authorized Agent KZH ING-2 LLC By: /s/ Susan Lee Title: Authorized Agent KZH ING-3 LLC By: /s/ Susan Lee Title: Authorized Agent KZH SHOSHONE LLC By: /s/ Susan Lee Title: Authorized Agent KZH SOLEIL 2 LLC By: /s/ Susan Lee Title: Authorized Agent KZH WATERSIDE LLC By: /s/ Susan Lee Title: Authorized Agent MERITA BANK Plc By: /s/ Michael J. Maher Title: Senior Vice President By: /s/ Garry Weiss Title: Vice President METROPOLITAN LIFE INSURANCE COMPANY By: /s/ Jennifer Pariente - Title: Director MORGAN GUARANTY TRUST COMPANY OF NEW YORK By: /s/ Robert Bottamedi Title: Vice President NORTH AMERICAN SENIOR FLOATING RATE FUND BY: CYPRESSTREE INVESTMENT MANAGEMENT COMPANY, INC., as Portfolio Manager By: /s/ Jonathan D. Sharkey Title: Principal OXFORD STRATEGIC INCOME FUND By: EATON VANCE MANAGEMENT, as Investment Advisor By: /s/ Scott H.Page Title: Vice President SENIOR DEBT PORTFOLIO By: BOSTON MANAGEMENT AND RESEARCH, as Investment Advisor By: /s/ Scott H. Page Title: Vice President STRATA FUNDING, LTD. By: INVESCO SENIOR SECURED MANAGEMENT, INC., as Sub-Managing Agent By: /s/ Anthony R. Clemente Title: Authorized Signatory UNION BANK OF CALIFORNIA, N.A. By: /s/ David W. Kinkela Title: Vice President VAN KAMPEN SENIOR FLOATING RATE FUND BY: VAN KAMPAN INVESTMENT ADVISORY CORP. By: /s/ Darvin D. Pierce Title: Vice President WACHOVIA BANK, N.A. By: /s/ Jim Barwis Title: Vice President The undersigned Subsidiary Guarantors do hereby consent and agree to the execution and delivery of this Amendment: HEXCEL INTERNATIONAL HEXCEL OMEGA CORPORATION HEXCEL BETA CORP. CLARK-SCHWEBEL HOLDING CORP. CLARK-SCHWEBEL CORPORATION CS TECH-FAB HOLDING, INC. By: /s/ Stephen C. Forsyth Title: Attorney-in-Fact EX-10 3 0003.txt EXHIBIT 10.4 EXHIBIT 10.4 AMENDED AND RESTATED EMPLOYMENT AGREEMENT AGREEMENT made this 11day of October, 2000, between Hexcel Corporation, a Delaware corporation (the "Company"), and John J. Lee (the "Executive"). The Executive is presently employed by the Company as its Chairman and Chief Executive Officer pursuant to an Employment Agreement entered into as of February 29, 1996, as amended (the "Prior Agreement"). The Board of Directors of the Company (the "Board") recognizes that the Executive's contribution to the growth and success of the Company has been substantial. In connection with the transactions (the "Transactions") contemplated by the Stock Purchase Agreement (the "Stock Purchase Agreement") dated as of October 11, 2000 by and among Ciba Specialty Chemicals Holding, Inc. ("Ciba SCH"), Ciba Specialty Chemicals Inc. ("Ciba SCI"), Ciba Specialty Chemicals Corporation ("Ciba SCC" and together with Ciba SCH and Ciba SCI, "Ciba"), LXH, L.L.C. ("LXH") and LXH II, L.L.C. ("LXH II" and together with LXH, "the Purchasers"), pursuant to which, among other things, the Purchasers will purchase from Ciba shares of common stock of the Company, the Board desires to provide for the continued employment of the Executive and to make certain changes in the Executive's employment arrangements with the Company which the Board has determined will reinforce and encourage the continued attention and dedication to the Company of the Executive as a member of the Company's management, in the best interest of the Company and its stockholders. The Executive is willing to commit himself to continue to serve the Company, on the terms and conditions herein provided. In order to effect the foregoing, the Company and the Executive wish to enter into this Amended and Restated Employment Agreement on the terms and conditions set forth below. Accordingly, in consideration of the premises and the respective covenants and agreements of the parties herein contained, and intending to be legally bound hereby, the parties hereto agree as follows: 1. Employment. The Company hereby agrees to continue to employ the Executive, and the Executive hereby agrees to continue to serve the Company, on the terms and conditions set forth herein. 2. Term. The employment of the Executive by the Company as provided in Section 1 shall commence on the Closing Date (as such term is defined in the Stock Purchase Agreement) (the "Commencement Date") and end on the third anniversary of the Commencement Date, unless further extended or sooner terminated as hereinafter provided; provided, however, that on such third anniversary the term of this Agreement shall be automatically extended for one additional year unless either the Company or the Executive shall have given notice to the other at least 90 days prior to such third anniversary that this Agreement shall not be so renewed. 3. Position and Duties. The Executive shall serve as Chairman of the Board and Chief Executive Officer of the Company and shall have such responsibilities, duties and authority consistent with such position and as may from time to time be assigned to the Executive by the Board. The Executive shall devote substantially all of his working time and efforts to the business and affairs of the Company; provided, however, that the Executive will be permitted (i) to serve as a director or advisor to other for-profit and not-for-profit organizations and corporations and (ii) to serve as an active partner of investment partnerships, in each case so long as (x) such service does not materially interfere with the performance of his obligations hereunder and (y) such organizations, corporations and partnerships are not competitive in any business area in which the Company is engaged during the term of this Agreement. The Executive shall furnish to the Company a list of each such entity on the Commencement Date and shall update such list as appropriate. 4. Place of Performance. In connection with the Executive's employment by the Company, the Executive shall perform his duties and conduct his business at the principal executive offices of the Company, which shall at all times be located in the New York City/Connecticut metropolitan area, except for required travel on the Company's business to an extent substantially consistent with present business travel obligations. 5. Compensation and Related Matters. (a) Salary. During the period of the Executive's employment hereunder, the Company shall pay to the Executive an annual base salary at a rate no less than the rate of base salary in effect on the date hereof or at such in creased rate as may from time to time be determined by the Board, provided, however, that once the Executive's annual base salary is increased, it may not thereafter be decreased during the term of this Agreement. The Executive's annual base salary shall be paid in substantially equal installments, no less frequently than monthly, in accordance with the Company's standard payroll practices. Compensation of the Executive by salary payments shall not be deemed exclusive and shall not prevent the Executive from participating in any other compensation or benefit plan of the Company. The salary payments (including any increased salary payments) hereunder shall not in any way limit or reduce any other obligation of the Company hereunder, and no other compensation, benefit or payment hereunder shall in any way limit or reduce the obligation of the Company to pay the Executive's salary hereunder. (b) Annual Bonuses. During the term of the Executive's employment hereunder, the Executive shall participate in the Company's Management Incentive Compensation Plan (or in such alternative annual incentive compensation plans as the Company shall make available to its other officers) (the "MICP") on terms no less favorable than those applicable to other senior officers of the Company and shall have a target bonus thereunder of not less than 80% of his rate of base salary. (c) Equity Compensation. (i) Incentive Stock Plan. (A) Effective as of the Commencement Date, the Executive shall be granted non-qualified options (the "Option") to purchase 400,000 shares of common stock of the Company, par value $.01 per share ("Common Stock"), under the Company's Incentive Stock Plan (the "Incentive Stock Plan"), at a per share exercise price equal to the greater of (1) the closing price per share (the "Price Per Share") of Common Stock on the New York Stock Exchange (or if not then listed on such ex change, such other national securities exchange or quotation system as then listed upon) on the Commencement Date or (2) $11. Such options will become vested and exercisable at the rate of (x) 33-1/3% of such options on each of the first three anniversaries of the Commencement Date and shall expire on the earlier of the third anniversary of the termination of the Executive's employment (90 days following termination of employment if his employment is terminated for Cause (as defined below)) or the tenth anniversary of the Commencement Date. The Company agrees that such grant shall not be in lieu of, or otherwise be taken into account in determining the size or terms of, the annual long term incentive grant to the Executive for the 2001 or other fiscal year. (ii) Forfeiture. If the Executive's employment with the Company is involuntarily terminated for Cause or the Executive voluntarily terminates his employment with the Company other than for Good Reason (as defined below), the Executive shall forfeit the portion of the Option which has not yet become vested and/or exercisable as of the Date of Termination (as defined below). Notwithstanding any other provision contained herein, if the Executive's employment with the Company is involuntarily terminated other than for Cause, the Executive terminates employment for Good Reason, or the Executive dies or terminates employment due to disability, the Option shall become immediately vested and exercisable. (iii) Plan Terms Govern. Subject to the foregoing, the Option shall contain such terms and conditions as shall be set forth in the Incentive Stock Plan. (iv) Annual Grants. During the term of the Executive's employment hereunder, the Executive shall participate in such long-term incentive and equity compensation plans as the Company shall make available to its other officers on terms no less favor able than those applicable to such other officers. (d) Deferred Compensation Account. (i) Following the Commencement Date, the Company shall continue to maintain the nonqualified deferred compensation arrangement and the related Account established for the benefit of the Executive pursuant to the Section 5(d) of the Prior Agreement. The Company shall credit to the Account an amount equal to $489,987 on December 31, 2000, an additional $519,387 on December 31, 2001, an additional $550,550 on December 31, 2002 and an additional $583,583 on December 31, 2003. The Account shall continue to be credited with interest at the end of each fiscal year at a rate of 9%. No later than January 31 of each year during the term of this Agreement beginning with January 31, 2001, the Company shall deliver to the Executive a statement showing the balance of the Account as of December 31 of the prior year and all amounts credited to the Account during such year. (ii) At any time following the later of (x) the Executive's attainment of age 65 or (y) the last required crediting to the Account pursuant to the second sentence of Section 5(d)(i) above (including any early crediting as described in (iv) below) (but in no event earlier than the Executive's termination of employment with the Company), the Executive shall receive, or commence to receive, the amount credited to the Account. The Executive may elect to receive the value of the Account (l) in a lump sum, (2) in the form of a single life annuity with a ten-year certain payment, or (3) by causing the Company to purchase a single premium annuity contract from an insurance company of the Executive's choice, provided that any such election is made no later than the time determined by the Company's counsel to avoid the application of the doctrine of constructive receipt. If the Executive fails to make a timely election, payment will be in the form of a lump sum. Annuity payments (if applicable) shall be the actuarial equivalent of the lump sum amount, using the mortality table for males provided in Revenue Ruling 95-28 and assuming an interest rate equal to the product of (x) the prime rate in effect at Credit Suisse as of the first day of the month immediately preceding the first month for which an annuity payment is to be made to the Executive hereunder and (y) 1 minus the highest rate of individual federal, state and local income tax in effect for the year in which the annuity payments commence and in the jurisdiction of the Executive's residence for such year (giving effect to any available deduction for state and local income taxes in calculating federal income tax). (iii) If the Executive's employment with the Company is involuntarily terminated other than for Cause or he terminates employment for Good Reason, (A) all remaining contribution installments referred to in clause (i) above that have not been made to the Account will be credited to the Account as of the Date of Termination, and (B) the Company shall commence distribution of the Account as soon as practicable following the Date of Termination in accordance with the election made by the Executive under clause (ii) above. If the Executive's employment with the Company is involuntarily terminated for Cause or if he terminates employment voluntarily other than for Good Reason, in either case during the term of this Agreement, no further contributions shall be made to the Account and the Company shall commence distribution of the Account as soon as practicable following the Date of Termination in accordance with the election made by the Executive under clause (ii) above. If the Executive's employment with the Company is involuntarily terminated for Cause, or if the Executive terminates employment with the Company voluntarily other than for Good Reason, in either case following the expiration of the term of this Agreement, the Company shall continue to credit to the Account all amounts as they become due in accordance with clause (i) above and the Company shall commence distribution of the Account as soon as practicable following the last date on which amounts are so credited in accordance with the election made by the Executive under clause (ii) above. If the Executive dies or terminates employment due to disability, all remaining contribution installments referred to in clause (i) above that have not been made to the Account will be credited to the Account as of the Date of Termination and the Company shall commence distribution of the Account as soon as practicable following the Date of Termination as a lump-sum distribution. (iv) In no event shall payment of the Account be paid, or commence to be paid, until the first business day following the Executive's termination of employment. (e) Other Benefits. The Company shall maintain in full force and effect, and the Executive shall be entitled to continue to participate in with a level of benefits no less favorable than any other senior executive officer of the Company, all of the employee benefit plans and arrangements in effect on the date hereof in which the Executive participates or plans or arrangements providing the Executive with at least equivalent benefits thereunder (including, without limitation, each retirement plan, supplemental and excess retirement plans, annual and long- term incentive compensation plans, stock option and purchase plans, group life insurance and accident plan, medical and dental insurance plans, and disability plan). The Executive shall be entitled to participate in or receive benefits under any employee benefit plan or arrangement made available by the Company in the future to its executives and key management employees, subject to and on a basis consistent with the terms, conditions and overall administration of such plans and arrangements. (f) Vacations. The Executive shall be entitled to a number of vacation days in each calendar year, and to compensation in respect of earned but unused vacation days, equal to the maximum number of vacation days for which any executive officer of the Company may become eligible determined under the Company's vacation policy as in effect from time to time, but in no event less than six (6) weeks per year. The Executive shall also be entitled to all paid holidays and personal days given by the Company to its senior executive officers. (g) Services Furnished. The Company shall furnish the Executive with office space, stenographic assistance and such other facilities and services as shall be suitable to the Executive's position and adequate for the performance of his duties as set forth in Section 3 hereof and no less favorable to the Executive than those provided to the Executive immediately prior to the Commencement Date. (h) Expenses. During the term of the Executive's employment hereunder, the Executive shall be entitled to receive prompt reimbursement for all reasonable and customary expenses incurred by the Executive in performing services hereunder, including all reasonable and customary expenses of travel and living expenses while away from home on business or at the request of and in the service of the Company, provided that such expenses are incurred and accounted for in accordance with the policies and procedures established by the Company. 6. Directorships/Other Offices. Subject to Sections 3 and 4, the Executive agrees to serve without additional compensation, if elected or appointed thereto, as a director of any of the Company's subsidiaries and in one or more executive offices of any of the Company's subsidiaries, provided that the Executive is indemnified for serving in any and all such capacities on a basis no less favorable than is from time to time provided by the Company or any of its subsidiaries to its other directors and senior executive officers. 7. Termination. The Executive's employment hereunder may be terminated without any breach of this Agreement only under the following circumstances: (a) Death. The Executive's employment hereunder shall terminate upon his death. (b) Disability. If, as a result of the Executive's incapacity due to physical or mental illness, the Executive shall have been absent from his duties hereunder on a full-time basis for the entire period of six consecutive months, and within thirty (30) days after written notice of termination is given (which may occur before or after the end of such six month period) shall not have returned to the performance of his duties hereunder on a full-time basis, the Company may terminate the Executive's employment hereunder. (c) Cause. The Company may terminate the Executive's employment hereunder for Cause. For purposes of this Agreement, the Company shall have "Cause" to terminate the Executive's employment hereunder upon (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, as defined in Section 7(e), by the Executive for Good Reason, as defined in Section 7 (d) (ii)), 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 per formed his duties, or (ii) the willful engaging by the Executive in misconduct which is demonstrably and materially injurious to the Company, monetarily or otherwise including, but not limited to, conduct that constitutes Competitive Activity, as defined in Section 11). For purposes of this Section 7(c), 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 (1) reasonable notice from the Board to the Executive setting forth the reasons for the Company's intention to terminate for Cause, (2) 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) 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 set forth in this Section 7(c) and specifying the particulars thereof in detail, (3) an opportunity for the Executive, together with his counsel, to be heard before the Board, and (4) delivery to the Executive of a Notice of Termination, as defined in subsection (e) hereof, from the Board specifying the particulars thereof in detail. (d) Termination by the Executive. (i) The Executive may terminate his employment hereunder (A) for Good Reason or (B) upon 60 days written notice to the Company. (ii) For purposes of this Agreement, "Good Reason" shall mean (A) a failure by the Company to comply with any material provision of this Agreement which failure has not been cured within thirty (30) days after written notice of such noncompliance has been given by the Executive to the Company, (B) any purported termination of the Executive's employment which is not effected pursuant to a Notice of Termination satisfying the requirements of paragraph (e) hereof (and for purposes of this Agreement no such purported termination shall be effective) or (C) a "Change in Control" shall have occurred. For purposes of this Agreement, Change in Control means: (A) (i) any Person is or becomes the Beneficial Owner, directly or indirectly, of 40% or more of either (x) the then outstanding common stock of the Company (the "Outstanding Common Stock") or (y) the combined voting power of the then outstanding securities entitled to vote generally in the election of directors of the Company (the "Total Voting Power"), excluding, however, the following (1) any acquisition by the Company or any of its Controlled Affiliates, (2) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any of its Controlled Affiliates and (3) any Person who becomes such a Beneficial Owner in connection with a transaction described in the exception within paragraph (C) below; or (B) a change in the composition of the Board such that the individuals who, on the date hereof, 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 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 considered a member of the Incumbent Board; or (C) there is consummated a merger or consolidation of the Company or any direct or indirect subsidiary of the Company or a sale or other disposition of all or substantially all of the assets of the Company ("Corporate Transaction"); excluding, however, such a Corporate Transaction pursuant to which (x) all or substantially all of the individuals and entities who are the Beneficial Owners, respectively, of the Outstanding Common Stock and the 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 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, and (y) immediately following which the individuals who comprise the Board immediately prior thereto constitute at least a majority of the board 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); or (D) the approval by the stockholders of the Company of a complete liquidation or dissolution of the Company. (e) Notice of Termination. Any termination of the Executive's employment by the Company or by the Executive (other than termination pursuant to subsection (a) hereof) shall be communicated by written Notice of Termination to the other party hereto in accordance with Section 13. For purposes of this Agreement, a "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. (f) Date of Termination. "Date of Termination" shall mean (i) if the Executive's employment is terminated by his death, the date of his death, (ii) if the Executive's employment is terminated pursuant to subsection (b) above, thirty (30) days after Notice of Termination is given (provided that the Executive shall not have returned to the performance of his duties on a full-time basis during such thirty (30)-day period), (iii) if the Executive's employment is terminated pursuant to subsection (c) above, the date specified in the Notice of Termination, (iv) if the Executive's employment is terminated pursuant to clause (B) of subsection (d)(i) above, the date specified in the Notice of Termination, but in no event earlier than 60 days following the date the Notice of Termination is delivered and (v) if the Executive's employment is terminated for any other reason, the date on which a Notice of Termination is given; provided, however, that, if within thirty (30) days after any Notice of Termination is given the party receiving such Notice of Termination notifies the other party that a dispute exists concerning the termination, the Date of Termination shall be the date on which the dispute is finally determined, either by mutual written agreement of the parties, by a binding and final arbitration award or by a final judgment, order or decree of a court of competent jurisdiction (the time for appeal therefrom having expired and no appeal having been perfected). (g) Indemnification After Termination. Notwithstanding any other provision of this Agreement to the contrary, upon the Executive's termination of employment hereunder for any reason, the Company shall take such action necessary and appropriate to provide that the Executive's rights to indemnification from the Company as provided by applicable law, by the Company's charter and by- laws and by any agreement between the Company and the Executive shall not be affected in any manner adverse to the Executive and shall be continued in full force and effect for a period of at least six years following such termination of employment. (h) Definitions. For purposes of Section 7(d) hereof, the following terms shall have the following meanings: (i) Affiliate of any Person shall mean any other Person that directly or indirectly, through one or more intermediaries, Controls, is Controlled by, or is under common Control with, such first Person. (ii) Beneficial Owner shall have the meaning used in Rule 13d-3 promulgated under the Exchange Act. (iii) Control shall have the meaning specified in Rule 12b-2 under the Securities Exchange Act of 1934 as in effect on the date of this Agreement. (iv) Exchange Act shall mean the Securities Exchange Act of 1934, as amended. (v) Governance Agreement shall mean the Governance Agreement, dated [ ], 2000, among LXH, L.L.C., LXH II, L.L.C., Hexcel Corporation and the other parties listed on the signature pages thereto. (vi) Person shall have the meaning set forth in Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d) of the Exchange Act. 8. Compensation Upon Termination or During Disability. (a) During any period that the Executive fails to perform his duties hereunder as a result of incapacity due to physical or mental illness ("disability period"), the Executive shall continue to receive his full salary at the rate then in effect for such period until his employment is terminated for disability pursuant to Section 7(b) hereof, provided that payments so made to the Executive shall be reduced by the sum of the amounts, if any, payable to the Executive at or prior to the time of any such payment under disability benefit plans of the Company or under the Social Security disability insurance program, and which amounts were not previously applied to reduce any such payment. (b) If the Executive's employment is terminated by his death, the Company shall pay any amounts due to the Executive under Section 5 through the date of his death in accordance with Section 12(b). (c) If the Executive's employment shall be terminated by the Company for Cause or voluntarily by the Executive other than for Good Reason, the Company shall pay the Executive his full salary through the Date of Termination at the rate in effect at the time Notice of Termination is given and the Company shall have no further obligations to the Executive relating to the provision of salary under this Agreement. (d) If (A) in breach of this Agreement, the Company shall terminate the Executive's employment other than for disability pursuant to Section 7(b) or other than for Cause or (B) the Executive shall terminate his employment for Good Reason (but for the purpose of this Section 8(d), the term Good Reason shall not include any reference to change in control as set forth in Section 7(d)(ii)(C) hereof), then (i) the Company shall pay the Executive (A) his full salary through the Date of Termination at the rate in effect at the time Notice of Termination is given, (B) a pro rata portion of any incentive bonus for the year in which the Date of Termination occurs, such amount determined based on the target bonus amount that the Executive would have received if all performance goals (if any) had been attained in full and had his employment continued until the end of such year, and on the number of full and partial months worked during such year, and (C) all other unpaid amounts, if any, with respect to which the Executive has a vested interest as of the Date of Termination under any compensation plan or program of the Company, at the time such payments are due; (ii) in lieu of any further salary payments to the Executive for periods subsequent to the Date of Termination, the Company shall pay as liquidated damages, in full settlement of the Company's obligations to the Executive relating to the provision of salary and bonus under this Agreement, to the Executive an amount equal to the product of (A) the sum of (1) the highest annual salary rate in effect for the Executive in the 90 days immediately preceding the Date of Termination and (2) the highest annual amount payable to the Executive under the Company's annual bonus plans in respect of the three calendar years preceding the calendar year in which such Date of Termination occurs, and (B) the greater of the number of years (including partial years) remaining in the term of employment hereunder or the number two (2); such payment to be made in substantially equal monthly installments. (e) If the Executive shall terminate his employment under clause (B) of subsection 7(d) (i) hereof, the Company shall pay the Executive his full salary through the Date of Termination at the rate in effect at the time Notice of Termination is given. 9. Additional Payments. (a) In the event that the Executive becomes entitled to the payments under Section 8 hereof or Section 4 of the Executive Severance Agreement entered into between the Company and the Executive as of February 3, 1999 (the "Executive Severance Agreement"), if any of the payments or benefits received or to be received by the Executive in connection with the transactions contemplated by the Stock Purchase Agreement (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 and benefits, excluding the Gross-Up Payment, being hereinafter referred to as the "Total Payments") will be subject to the excise tax (the "Excise Tax") imposed under section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), the Company shall pay to the Executive an additional amount (the "Gross-Up Payment") such that the net amount retained by the Executive, after deduction of any Excise Tax on the Total Payments and any federal, state and local income and employment taxes and Excise Tax upon the Gross-Up Payment, shall be equal to the Total Payments. (b) For purposes of determining whether any of the Total Payments will be subject to the Excise Tax and the amount of such Excise Tax, (i) all of the Total Payments shall be treated as "parachute payments" (within the meaning of section 280G(b)(2) of the Code) unless, in the opinion of tax counsel ("Tax Counsel") reasonably acceptable to the Executive and selected by the accounting firm which was, immediately prior to the Change in Control, the Company's independent auditor (the "Auditor"), such payments or benefits (in whole or in part) do not constitute parachute payments, including by reason of section 280G(b)(4)(A) of the Code, (ii) all "excess parachute payments" within the meaning of section 280G(b)(l) of the Code shall be treated as subject to the Excise Tax unless, in the opinion of Tax Counsel, such excess parachute payments (in whole or in part) represent reasonable compensation for services actually rendered (within the meaning of section 280G(b)(4)(B) of the Code) in excess of the base amount (within the meaning of section 280G(b)(3) of the Code) allocable to such reasonable compensation, or are otherwise not subject to the Excise Tax, and (iii) the value of any noncash benefits or any deferred payment or benefit shall be determined by the Auditor in accordance with the principles of sections 280G(d)(3) and (4) of the Code. For purposes of determining the amount of the Gross-Up Payment, the Executive shall be deemed to pay federal income tax at the highest marginal rate of federal income taxation in the calendar year in which the Gross-Up Payment is to be made and state and local income taxes at the highest marginal rate of taxation in the state and locality of the Executive's residence on the Date of Termination (or if there is no Date of Termination, then the date on which the Gross-Up Payment is calculated for purposes of this Section), net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes. (c) In the event that the Excise Tax is finally determined to be less than the amount taken into account hereunder in calculating the Gross-Up Payment, the Executive shall repay to the Company, within five (5) business days following the time that the amount of such reduction in the Excise Tax is finally determined, the portion of the Gross - -Up Payment attributable to such reduction (plus that portion of the Gross-Up Payment attributable to the Excise Tax and federal, state and local income and employment taxes imposed on the Gross-Up Payment being repaid by the Executive, to the extent that such repayment results in a reduction in the Excise Tax and a dollar-for-dollar reduction in the Executive's taxable income and wages for purposes of federal, state and local income and employment taxes, plus interest on the amount of such repayment at 120% of the rate provided in section 1274(b)(2)(B) of the Code. In the event that the Excise Tax is determined to exceed the amount taken into account hereunder in calculating the Gross-Up Payment (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross-Up Payment), the Company shall make an additional Gross-Up Payment in respect of such excess (plus any interest, penalties or additions payable by the Executive with respect to such excess) within five (5) business days following the time that the amount of such excess is finally determined. 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. 10. No Mitigation. The Company agrees that, if the Executive's employment with the Company terminates during the term of this Agreement, the Executive is not required to seek other employment or to attempt in any way to reduce any amounts payable to the Executive by the Company hereunder. Further, the amount of any payment or benefit provided for in this Agreement shall not 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. 11. Noncompetition/Confidential Information. The Executive agrees that, in order to protect the Company's trade secrets in the field of engineered materials (e.g., high technology, lightweight structural materials and specialty chemicals and resins) and other products being manufactured or marketed by the Company or developed for manufacture or marketing at the time of the Executive's retirement or termination of employment, or the trade secrets of any business acquired by the Company within six months after retirement or termination of such employment if said acquisition was in the process of negotiation at the time of such retirement or termination (hereinafter collectively designated the "Company's Business"), at all times prior to his retirement or termination of employment and during so much of the two-year period following such retirement or termination that the Company, or any of its successors, assigns or affiliated companies carries on any portion of the Company's Business, the Executive shall not directly or indirectly, as a partner, substantial owner, employee, associate, consultant, agent or otherwise, engage in any activity related to or competitive with the Company's Business in any county in the State of California, or in any other state, territory or foreign country within which the Company carries on the Company's Business or in which any of its products are sold either prior or subsequent to the date hereof. The invalidity or unenforceability of any provision of this Section 11 shall not affect the validity or enforceability of any other provision of this Section 11, which shall remain in full force and effect. 12. Successors; Binding Agreement. (a) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company, by agreement in form and substance satisfactory to the Executive, to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain such assumption and agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle the Executive to compensation from the Company in the same amount and on the same terms as he would be entitled to hereunder if he terminated his employment for Good Reason, except that for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which executes and delivers the agreement provided for in this Section 12 or which otherwise becomes bound by all the terms and provisions of this Agreement by operation of law. (b) 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 herein, shall be paid in accordance with the terms of this Agreement to the Executive's devisee, legatee, or other designee or, if there be no such designee, to the Executive's estate. 13. Notice. For the purposes of this Agreement, 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 or (unless otherwise specified) mailed by United States certified or registered mail, return receipt requested, postage prepaid, addressed as follows: If to the Executive: John J. Lee 18 Walnut Avenue Larchmont, NY 10538 If to the Company: Hexcel Corporation Two Stamford Plaza 281 Tresser Blvd. Stamford, CT 06902 Attn: Board of Directors 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. 14. Miscellaneous. No provisions 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. 15. 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. 16. 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. 17. Survivorship. Any rights and obligations of the parties set forth in Sections 5, 8 and 11 of this Agreement shall survive any termination of this Agreement. 18. 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, at a location mutually agreed upon by the Company and the Executive which is situated within 50 miles of the Company's headquarters, 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 Section 11 of the Employment Agreement and the Executive hereby consents that such restraining order or injunction may be granted without the necessity of the Company's posting any bond, and provided further that the Executive shall be entitled to seek specific performance of his right to be paid until the Date of Termination during the pendency of any dispute or controversy arising under or in connection with this Agreement. The Company shall pay to the Executive all legal fees and expenses incurred by the Executive in disputing in good faith any issue relating to the termination of the Executive's employment or in seeking in good faith to obtain or enforce any benefit or right provided by this Agreement, provided, that either (i) the Executive eventually prevails on at least one material issue which is a subject of such arbitration or (ii) the Executive and the Company enter into a written settlement agreement relating to one or more of such material issues prior to the conclusion of any such arbitration. Such payments shall be made within five (5) business days after delivery of the Executive's written requests for payment accompanied with such evidence of fees and expenses incurred as the Company reasonably may require. 19. Entire Agreement; Other Agreements. (a) 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 (including the Prior Agreement and the employment agreement dated as of September 1, 1994 between the Executive and the Company) in respect of the subject matter contained herein is hereby terminated and cancelled). (b) The Executive and the Company hereby agree that the consummation of the transactions contemplated by the Stock Purchase Agreement shall not be deemed to constitute a Change in Control for purposes of any plan, award or agreement between the Company and the Executive, including without limitation, the Incentive Stock Plan, the MICP, any agreements entered into thereunder between the Executive and the Company and the Executive Severance Agreement. Commencing on January 2, 2001, the Company shall deliver to the Executive as soon as practicable following the election by the Executive therefor, the number of shares of Common Stock allocable to vested restricted stock units credited to the Executive under the Incentive Stock Plan and the Company's Management Stock Purchase Plan (the Plans"); provided, however, that the number of shares of Common Stock the Executive may elect to receive from the Plans by reason of such election in any calendar year may not exceed the lesser of (1) 100,000 shares or (2) the number of shares allocable to vested restricted stock units credited to the Executive under the Plans. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date and year first above written. HEXCEL CORPORATION Attest: By: /s/ Rodney P. Jenks, Jr. By:/s/ Ira J. Krakower Name: Ira J. Krakower Title: Senior Vice President WITNESS EXECUTIVE /s/ Ira J. Krakower /s/ John J. Lee John J. Lee John J. Lee: Interests in Other Corporations, Organizations and Partnerships. 1. Chairman, President & CEO of Lee Development Corporation. 2. Advisor to The Clipper Group. 3. Director of the Crane Company. EX-10 4 0004.txt EXHIBIT 10.5 EXHIBIT 10.5 SECOND AMENDMENT TO SUPPLEMENTAL EXECUTIVE RETIREMENT AGREEMENT AMENDMENT made this 11 day of October 2000, between Hexcel Corporation, a Delaware corporation (the "Company"), and John J. Lee (the "Executive"). WHEREAS, the Company and the Executive have entered into that certain Supplemental Executive Retirement Agreement dated May 20, 1998 and an Amendment thereto dated January 21, 1999 (the "Agreement"), and WHEREAS, the Company and the Executive desire to further amend the Agreement. NOW, THEREFORE, the parties mutually agree as follows: 1. Section 1.11 of the Agreement shall be amended to read in its entirety as follows: "The Amended and Restated Agreement entered into between the Company and the Executive on October 11, 2000. 2. Section 2.2.1 of the Agreement shall be amended by adding the following before the period at the end of the third sentence thereof: "provided, however, that (i) if the Executive is an employee of the Company on December 31, 2001 or (ii) the Executive's employment with the Company terminates prior to such date either by the Company without Cause or by the Executive for Good Reason, then such monthly benefit shall be in an amount equal to $20,849.42." 3. Section 2.2.2 of the Agreement shall be amended by deleting so much of such section as follows the phrase "an amount equal to" and inserting, in lieu thereof, the phrase "the Normal Retirement Benefit." 4. Section 2.2.3 of the Agreement shall be amended by deleting so much of such section as follows the phrase "an amount equal to" and inserting, in lieu thereof, the phrase "the Normal Retirement Benefit." 5. Section 2.2.5 of the Agreement shall be amended by adding the following before the period at the end of the last sentence thereof: "provided, however, that (i) if the Executive is an employee of the Company on December 31, 2001 or (ii) the Executive's employment with the Company terminates prior to such date either by the Company without Cause or by the Executive for Good Reason, then such monthly benefit shall be in an amount equal to the Normal Retirement Benefit." 6. Section 2.2.6 of the Agreement shall be amended by deleting the first sentence thereof and inserting, in lieu thereof, the following: "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 equal to the Normal Retirement Benefit. 7. Section 2.2.7 of the Agreement shall be amended by adding the following before the period at the end of the first sentence thereof: "provided, however, that (i) if the Executive is an employee of the Company on December 31, 2001 or (ii) the Executive's employment with the Company terminates prior to such date either by the Company without Cause or by the Executive for Good Reason, then the amount of lump sum payment shall be $2,908,854." 8. Section 3.2 of the Agreement shall be amended by deleting the phrase "and less (iii) $5,000" in the second sentence thereof. 9. This Second Amendment shall be effective as of the closing of the transactions contemplated by the Stock Purchase Agreement (the "Stock Purchase Agreement") dated as of October 11, 2000 by and among Ciba Specialty Chemicals Holding, Inc. ("Ciba SCH"), Ciba Specialty Chemicals Inc. "Ciba SCI"), Ciba Specialty Chemicals Corporation ("Ciba SCC" and together with Ciba SCH and Ciba SCI, "Ciba"), LXH, L.L.C. ("LXH") and LXH II, L.L.C. ("LXH II" and together with LXH, "the Purchasers"), pursuant to which, among other things, the Purchasers will purchase from Ciba shares of common stock of the Company. Except as otherwise expressly amended by this Second Amendment, the Agreement shall remain in full force and effect. HEXCEL CORPORATION By: /s/ Ira J. Krakower Name: Ira J. Krakower Title: Sr. Vice President /s/ John J. Lee John J. Lee EX-10 5 0005.txt EXHIBIT 10.6 EXHIBIT 10.6 AMENDMENT TO AGREEMENTS AGREEMENT, dated as of October 11, 2000 by and between Hexcel Corporation, a Delaware corporation (the "Company") and Harold E. Kinne (the "Executive"). WHEREAS, the Company maintains the Hexcel Corporation Incentive Stock Plan (the "Plan") and the Hexcel Corporation Management Stock Purchase Plan (the "MSPP"); and WHEREAS, the Company has granted to the Executive (1) under the Plan, nonqualified options ("NQOs") to acquire shares of the common stock of the Company (the "Common Stock"), performance accelerated stock options ("PASOs" and, together with the NQOs, the "Options") to acquire shares of Common Stock and contractual rights representing the right to earn shares of Common Stock under specified circumstances ("PARs") and (2) contractual rights under the MSPP representing the right to earn shares of Common Stock under specified circumstances ("RSUs"), in each case evidenced by written award agreements entered into between the Company and the Executive (the "Award Agreements"); and WHEREAS, under the Award Agreements the Executive has certain rights upon the occurrence of a Change in Control (as defined thereby); and WHEREAS, the Company and the Executive have entered into an Executive Severance Agreement dated as of February 3, 1999 (the "Severance Agreement"); and WHEREAS, under the Severance Agreement the Executive has certain rights upon the occurrence of a Change in Control (as defined therein); and WHEREAS, the Company and the Executive have entered into a Supplemental Executive Retirement Agreement dated as of May 10, 2000 (the "SERP Agreement"); and WHEREAS, under the SERP Agreement the Executive has certain rights upon the occurrence of a Change in Control (as defined therein); and WHEREAS, Ciba Specialty Chemicals Holding, Inc. ("Ciba SCH"), Ciba Specialty Chemicals Inc. ("Ciba SCI"), Ciba Specialty Chemicals Corporation ("Ciba SCC" and together with Ciba SCH and Ciba SCI, "Ciba"), LXH, L.L.C. ("LXH") and LXH II, L.L.C. ("LXH II" and together with LXH, "the Purchasers") have entered into a Stock Purchase Agreement dated as of October 11, 2000 (the "Stock Purchase Agreement") pursuant to which, among other things, the Purchasers will purchase from Ciba shares of Common Stock; and WHEREAS, the consummation (the "Closing") of the transactions contemplated by the Stock Purchase Agreement (the "Transactions") will constitute a Change in Control under the Plan, the MSPP, the Award Agreements, the Severance Agreement and the SERP Agreement; and WHEREAS, the Company desires the Executive to waive certain rights under the Plan, the MSPP and the Award Agreements and desires to provide additional incentives to the Executive to remain employed by the Company following the Closing. NOW, THEREFORE, the Company and the Executive hereby agree as follows. 1. The consummation of the Transactions shall not constitute a Change in Control for purposes of the Plan, the MSPP or the Award Agreements, notwithstanding anything therein to the contrary. 2. Each Award Agreement, the Severance Agreement and the SERP Agreement is hereby amended to incorporate a new definition of the term Change in Control (and related definitions), in the form annexed hereto as Exhibit A. 3. Each Award Agreement pursuant to which Options have been granted is hereby amended to provide that each Option that is unvested at the Closing will vest and become exercisable on the earliest to occur of (i) as to 50% of the shares subject thereto, on the 1st anniversary of the Closing and as to the remaining 50% of the shares subject thereto, on the 2nd anniversary of the Closing, (ii) the Executive's termination of employment due to death, Disability (as defined in the Severance Agreement), termination by the Company without Cause (as defined in the Severance Agreement) or by the Executive for Good Reason (as defined in the Severance Agreement) or (iii) the occurrence of a Change in Control (as defined in Exhibit A hereto). 4. Each Award Agreement pursuant to which PARs have been granted is hereby amended to provide that each PAR subject thereto will vest and, without being subject to the existing limitations relating to Section 162(m) of the Internal Revenue Code of 1986, as amended, the underlying shares will be distributed on the earliest to occur of (i) as to 50% of the shares subject thereto, on the 1st anniversary of the Closing and as to the remaining 50% of the shares subject thereto, on the 2nd anniversary of the Closing, (ii) the Executive's termination of employment due to death, Disability, termination by the Company without Cause or by the Executive for Good Reason or (iii) the occurrence of a Change in Control (as defined in Exhibit A hereto). 5. Each Award Agreement pursuant to which RSUs have been granted is hereby amended to provide that each RSU subject thereto will vest and the underlying shares will be distributed on the earliest to occur of (i) as to 50% of the shares subject thereto, on the 1st anniversary of the Closing and as to the remaining 50% of the shares subject thereto, on the 2nd anniversary of the Closing, (ii) the Executive's termination of employment due to death, Disability, termination by the Company without Cause or by the Executive for Good Reason or (iii) the occurrence of a Change in Control (as defined in Exhibit A hereto). 6. The Severance Agreement is hereby amended to include a provision, in the form annexed hereto as Exhibit B, pursuant to which, under the circumstances described therein, the Company will hold the Executive harmless from any excise tax that may be imposed on the Executive under section 280G of the Internal Revenue Code of 1986, as amended. 7. Except as otherwise expressly provided herein, the Award Agreements, the Severance Agreement and the SERP shall remain in effect in accordance with their respective terms. 8. Effective as of the date on which the Closing occurs (the "Closing Date"), the Company shall grant to the Executive options to acquire 76,935 shares of Common Stock. Such options shall be at an exercise price per share equal to the greater of (a) the fair market value (as defined in the Plan) of a share of Common Stock on the Closing Date or (b) $11, and shall otherwise be made pursuant to the form of Stock Option Agreement annexed hereto as Exhibit C. The Company agrees that such grant shall not be in lieu of, or otherwise be taken into account in determining the size or terms of, the annual long term incentive grant to the Executive for the 2001 or other fiscal year. 9. For purposes of this Agreement, notices, demands, and all other communications provided for hereunder shall be in writing and shall be deemed to have been duly given when hand delivered or (unless otherwise specified) when mailed by United States certified mail, return receipt requested, postage prepaid, addressed as follows: To the Executive at the address shown in the personnel records of the Company To the Company at: Hexcel Corporation Two Stamford Plaza 281 Tresser Boulevard Stamford Connecticut 06901-3238 Att'n: or to such other address as either 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. 10. The invalidity or unenforceability of any provision hereof shall not affect the other provisions hereof, and this Agreement shall be construed in all respects as if such invalid or unenforceable provision had been omitted. 11. No change, modification or waiver of any provision of this Agreement shall be valid unless the same be in writing and signed by the parties hereto. 12. This Agreement contains the entire understanding of the parties hereto with respect to the subject matter hereof and supersedes all prior communications, representations and negotiations in respect thereto. 13. This Agreement shall be governed by, and construed and enforced in accordance with, the laws of the State of Delaware, without regard to its conflicts of law rules. 14. This Agreement may be executed in counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same instrument. 15. This agreement shall become effective upon the Closing, and shall be null and void and of no effect if the Closing does not occur. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date and year first written above. HEXCEL CORPORATION By: /s/ Ira J. Krakower Name: Ira J. Krakower Title: Senior Vice President /s/ H. E. Kinne Harold E. Kinne EXHIBIT A Affiliate of any Person shall mean any other Person that directly or indirectly, through one or more intermediaries, Controls, is Controlled by, or is under common Control with, such first Person. Control shall have the meaning specified in Rule 12b-2 under the Securities Exchange Act of 1934 as in effect on the date of this Agreement. Beneficial Owner shall have the meaning used in Rule 13d-3 promulgated under the Exchange Act. Change in Control means: (i) any Person is or becomes the Beneficial Owner, directly or indirectly, of 40% or more of either (x) the then outstanding common stock of the Company (the "Out standing Common Stock") or (y) the combined voting power of the then outstanding securities entitled to vote generally in the election of directors of the Company (the "Total Voting Power"), excluding, however, the following (1) any acquisition by the Company or any of its Controlled Affiliates, (2) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any of its Controlled Affiliates and (3) any Person who becomes such a Beneficial Owner in connection with a transaction described in the exception within clause (iii); or (ii) a change in the composition of the Board such that the individuals who, on the date hereof, 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 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 considered a member of the Incumbent Board; or there is consummated a merger or consolidation of the Company or any direct or indirect subsidiary of the Company or a sale or other disposition of all or substan- tially all of the assets of the Company ("Corporate Transaction"); excluding, how ever, such a Corporate Transaction pursuant to which (x) all or substantially all of the individuals and entities who are the Beneficial Owners, respectively, of the Outstanding Common Stock and the 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 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, and (y) immediately following which the individuals who comprise the Board immediately prior thereto constitute at least a majority of the board 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); or (iv) the approval by the stockholders of the Company of a complete liquidation or dissolution of the Company; or (v) the consummation of the transactions contemplated by the Stock Purchase Agreement.1 Exchange Act shall mean the Securities Exchange Act of 1934, as amended. Governance Agreement shall mean the Governance Agreement, dated [ ], 2000, among LXH, L.L.C., LXH II, L.L.C., Hexcel Corporation and the other parties listed on the signature pages thereto. - -------- 1Clause (v) to be included only in the Severance Agreement and the SERP Agreement. Person shall have the meaning set forth in Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d) of the Exchange Act. Stock Purchase Agreement shall mean the Stock Purchase Agreement dated as of October 11, 2000 by and among Ciba Specialty Chemicals Holding, Inc., Ciba Specialty Chemicals Inc., Ciba Specialty Chemicals Corporation, LXH, L.L.C. ("LXH") and LXH II, L.L.C..2 - -------- 2This definition to be included only in the Severance Agreement and the SERP Agreement. EXHIBIT B Additional Payments. (a) In the event that the Executive becomes entitled to the payments under Section 4 hereof, if any of the payments or benefits received or to be received by the Executive in connection with the transactions contemplated by the Stock Purchase Agreement or the Executive's termination of employment within 2 years thereof (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 and benefits, excluding the Gross-Up Payment, being hereinafter referred to as the "Total Payments") will be subject to the excise tax (the "Excise Tax") imposed under section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), the Company shall pay to the Executive an additional amount (the "Gross-Up Payment") such that the net amount retained by the Executive, after deduction of any Excise Tax on the Total Payments and any federal, state and local income and employment taxes and Excise Tax upon the Gross-Up Payment, shall be equal to the Total Payments. (b) For purposes of determining whether any of the Total Payments will be subject to the Excise Tax and the amount of such Excise Tax, (i) all of the Total Payments shall be treated as "parachute payments" (within the meaning of section 280G(b)(2) of the Code) unless, in the opinion of tax counsel ("Tax Counsel") reasonably acceptable to the Executive and selected by the accounting firm which was, immediately prior to the Change in Control, the Company's independent auditor (the "Auditor"), such payments or benefits (in whole or in part) do not constitute parachute payments, including by reason of section 280G(b)(4)(A) of the Code, (ii) all "excess parachute payments" within the meaning of section 280G(b)(l) of the Code shall be treated as subject to the Excise Tax unless, in the opinion of Tax Counsel, such excess parachute payments (in whole or in part) represent reasonable compensation for services actually rendered (within the meaning of section 280G(b)(4)(B) of the Code) in excess of the base amount (within the meaning of section 280G(b)(3) of the Code) allocable to such reasonable compensation, or are otherwise not subject to the Excise Tax, and (iii) the value of any noncash benefits or any deferred payment or benefit shall be determined by the Auditor in accordance with the principles of sections 280G(d)(3) and (4) of the Code. For purposes of determining the amount of the Gross-Up Payment, the Executive shall be deemed to pay federal income tax at the highest marginal rate of federal income taxation in the calendar year in which the Gross-Up Payment is to be made and state and local income taxes at the highest marginal rate of taxation in the state and locality of the Executive's residence on the Date of Termination (or if there is no Date of Termination, then the date on which the Gross-Up Payment is calculated for purposes of this Section), net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes. (c) In the event that the Excise Tax is finally determined to be less than the amount taken into account hereunder in calculating the Gross-Up Payment, the Executive shall repay to the Company, within five (5) business days following the time that the amount of such reduction in the Excise Tax is finally determined, the portion of the Gross-Up Payment attributable to such reduction (plus that portion of the Gross-Up Payment attributable to the Excise Tax and federal, state and local income and employment taxes imposed on the Gross-Up Payment being repaid by the Executive, to the extent that such repayment results in a reduction in the Excise Tax and a dollar-for-dollar reduction in the Executive's taxable income and wages for purposes of federal, state and local income and employment taxes, plus interest on the amount of such repayment at 120% of the rate provided in section 1274(b)(2)(B) of the Code. In the event that the Excise Tax is determined to exceed the amount taken into account hereunder in calculating the Gross-Up Payment (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross-Up Payment), the Company shall make an additional Gross-Up Payment in respect of such excess (plus any interest, penalties or additions payable by the Executive with respect to such excess) within five (5) business days following the time that the amount of such excess is finally determined. 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. EXHIBIT C EMPLOYEE OPTION AGREEMENT EMPLOYEE OPTION AGREEMENT, dated as of the Grant Date, by and between the Optionee and Hexcel Corporation (the "Corporation"). W I T N E S S E T H: WHEREAS, the Corporation has adopted the Hexcel Corporation Incentive Stock Plan (the "Plan"); and WHEREAS, the Executive Compensation Committee (the "Committee") of the Board of Directors of the Corporation (the "Board") has determined that it is desirable and in the best interest of the Corporation to grant to the Optionee a stock option as an incentive for the Optionee to advance the interests of the Corporation; NOW, THEREFORE, the parties agree as follows: 1. Notice of Grant; Incorporation of Plan. A Notice of Grant is attached hereto as Annex A and incorporated by reference herein. Unless otherwise provided herein, capitalized terms used herein and set forth in such Notice of Grant shall have the meanings ascribed to them in the Notice of Grant and capitalized terms used herein and set forth in the Plan shall have the meanings ascribed to them in the Plan. The Plan is incorporated by reference and made a part of this Employee Option Agreement, and this Employee Option Agreement shall be subject to the terms of the Plan, as the Plan may be amended from time to time, provided that any such amendment of the Plan must be made in accordance with Section X of the Plan. The Option granted herein constitutes an Award within the meaning of the Plan. 2. Grant of Option. Pursuant to the Plan and subject to the terms and conditions set forth herein and therein, the Corporation hereby grants to the Optionee the right and option (the "Option") to purchase all or any part of the Option Shares of the Corporation's common stock, $.01 par value per share (the "Common Stock"), which Option is not intended to qualify as an incentive stock option, as defined in Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"). 3. Purchase Price. The purchase price per share of the Option Shares shall be the Purchase Price. 4. Term of Option. (a) Expiration Date; Term. Subject to Section 4(c) below, the Option shall expire on, and shall no longer be exercisable following, the tenth anniversary of the Grant Date. The ten-year period from the Grant Date to its tenth anniversary shall constitute the "Term" of the Option. (b) Vesting Period; Exercisability. Subject to Section 4(c) below, the Option shall vest and become exercisable at the rate of 33-1/3% of the Option Shares on each of the first three anniversaries of the Grant Date. (c) Termination of Employment; Change in Control. (i) For purposes of the grant hereunder, any transfer of employment by the Optionee among the Corporation and the Subsidiaries shall not be considered a termination of employment. Except as set forth below in this Section 4(c)(i), if the Optionee's employment with the Corporation shall terminate for any reason, (a) the Option (to the extent then vested) may be exercised at any time within ninety (90) days after such termination (but not beyond the Term of the Option) and (b) the Option, to the extent not then vested, shall immediately expire upon such termination. Notwithstanding the foregoing, (a) if the Optionee's employment with the Corporation is terminated for Cause (as defined in the last Section hereof), the Option, whether or not then vested, shall be automatically terminated as of the date of such termination of employment, (b) if the Optionee's employment terminates by reason of Retirement, the termination of the Optionee's employment by the Company other than for Cause, or the termination of the Optionee's employment by the Optionee for Good Reason (as defined in the last Section hereof), the Option shall remain exercisable for three years from the date of such termination of employment (but not beyond the Term of the Option) and (c) if the Optionee dies or becomes Disabled (A) while employed by the Corporation or (B) within 90 days after the termination of his or her employment (other than a termination described in clause (a) or (b) of this sentence), the Option may be exercised at any time within one year after the Optionee's death or Disability (but not beyond the Term of the Option). (ii) If the Optionee's employment terminates by reason of death, Disability, Retirement, the termination of the Optionee's employment by the Company other than for Cause, or the termination of the Optionee's employment by the Optionee for Good Reason, the Option shall become fully and immediately vested and exercisable. In the event of a Change in Control (as defined in the last Section hereof), the Option shall immediately become fully vested and exercisable. 5. Adjustment Upon Changes in Capitalization. (a) The aggregate number of Option Shares and the Purchase Price shall be appropriately adjusted by the Committee for any increase or decrease in the number of issued shares of Common Stock resulting from a subdivision or consolidation of shares or other capital adjustment, or the payment of a stock dividend or other increase or decrease in such shares, effected without receipt of consideration by the Corporation, or other change in corporate or capital structure. The Committee shall also make the foregoing changes and any other changes, including changes in the classes of securities available, to the extent reasonably necessary or desirable to preserve the intended benefits under this Employee Option Agreement in the event of any other reorganization, recapitalization, merger, consolidation, spin-off, extraordinary dividend or other distribution or similar transaction involving the Corporation. (b) Any adjustment under this Section 5 in the number of Option Shares and the Purchase Price shall apply to only the unexercised portion of the Option. If fractions of a share would result from any such adjustment, the adjustment shall be rounded down to the nearest whole number of shares. 6. Method of Exercising Option and Withholding. (a) The Option shall be exercised by the delivery by the Optionee to the Corporation at its principal office (or at such other address as may be established by the Committee) of written notice of the number of Option Shares with respect to which the Option is exercised, accompanied by payment in full of the aggregate Purchase Price for such Option Shares. Payment for such Option Shares shall be made (i) in U.S. dollars by personal check, bank draft or money order payable to the order of the Corporation, or by money transfers or direct account debits to an account designated by the Corporation; (ii) through the delivery of shares of Common Stock with a Fair Market Value equal to the total payment due from the Optionee; (iii) pursuant to a "cashless exercise" program if such a program is established by the Corporation; or (iv) by any combination of the methods described in (i) through (iii) above. (b) The Corporation's obligation to deliver shares of Common Stock upon the exercise of the Option shall be subject to the payment by the Optionee of applicable federal, state and local withholding tax, if any. The Corporation shall, to the extent permitted by law, have the right to deduct from any payment of any kind otherwise due to the Optionee any federal, state or local taxes required to be withheld with respect to such payment. 7. Transfer. Except as provided in this Section 7, the Option is not transferable otherwise than by will or the laws of descent and distribution, and the Option may be exercised during the Optionee's lifetime only by the Optionee. Any attempt to transfer the Option in contravention of this Section 7 is void ab initio. The Option shall not be subject to execution, attachment or other process. Notwithstanding the foregoing, the Optionee shall be permitted to transfer the Option to members of his or her immediate family (i.e., children, grandchildren or spouse), trusts for the benefit of such family members, and partnerships whose only partners are such family members; provided, however, that no consideration can be paid for the transfer of the Option and the transferee of the Option shall be subject to all conditions applicable to the Option prior to its transfer. 8. No Rights in Option Shares. The Optionee shall have none of the rights of a stockholder with respect to the Option Shares unless and until shares of Common Stock are issued upon exercise of the Option. 9. No Right to Employment. Nothing contained herein shall be deemed to confer upon the Optionee any right to remain as an employee of the Corporation. 10. Governing Law/Jurisdiction. This Employee Option Agreement shall be governed by and construed in accordance with the laws of the State of Delaware without reference to principles of conflict of laws. 11. Resolution of Disputes. Any disputes arising under or in connection with this Employee Option Agreement shall be resolved by binding arbitration before a single arbitrator, to be held in New York in accordance with the commercial rules and procedures of the American Arbitration Association. Judgment upon the award rendered by the arbitrator shall be final and subject to appeal only to the extent permitted by law. Each party shall bear such party's own expenses incurred in connection with any arbitration; provided, however, that the cost of the arbitration, including without limitation, reasonable attorneys' fees of the Optionee, shall be borne by the Corporation in the event the Optionee is the prevailing party in the arbitration. Anything to the contrary notwithstanding, each party hereto has the right to proceed with a court action for injunctive relief or relief from violations of law not within the jurisdiction of an arbitrator. 12. Notices. Any notice required or permitted under this Employee Option Agreement shall be deemed given when delivered personally, or when deposited in a United States Post Office, postage prepaid, addressed, as appropriate, to the Optionee at the last address specified in Optionee's employment records, or such other address as the Optionee may designate in writing to the Corporation, or to the Corporation, Attention: Corporate Secretary, or such other address as the Corporation may designate in writing to the Optionee. 13. Failure To Enforce Not a Waiver. The failure of either party hereto to enforce at any time any provision of this Employee Option Agreement shall in no way be construed to be a waiver of such provision or of any other provision hereof. 14. Counterparts. This Employee Option Agreement may be executed in two or more counterparts, each of which shall be an original but all of which together shall represent one and the same agreement. 15. Miscellaneous. This Employee Option Agreement cannot be changed or terminated orally. This Employee Option Agreement and the Plan contain the entire agreement between the parties relating to the subject matter hereof. The section headings herein are intended for reference only and shall not affect the interpretation hereof. 16. Definitions. For purposes of this Employee Option Agreement: (I) the term "Affiliate" of any Person shall mean any other Person that directly or indirectly, through one or more intermediaries, Controls, is Controlled by, or is under common Control with, such first Person. The term "Control" shall have the meaning specified in Rule 12b-2 under the Securities Exchange Act of 1934 as in effect on the date of this Agreement; (II) the term "Beneficial Owner" shall have the meaning used in Rule 13d- 3 promulgated under the Exchange Act; (III) the term "Cause" shall mean (A) the willful and continued failure by the Optionee to substantially perform the Optionee's duties with the Corporation (other than any such failure resulting from the Optionee's incapacity due to physical or mental illness 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 to the Optionee by the Corporation, that specifically identifies the manner in which the Corporation believes that the Optionee has not substantially performed the Optionee's duties, or (B) the willful engaging by the Optionee in misconduct that is demonstrably and materially injurious to the Corporation, monetarily or otherwise including, but not limited to conduct that violates any written noncompetition covenant between the Optionee and the Corporation. No act, or failure to act, on the Optionee's part shall be deemed "willful" unless done, or omitted to be done, by the Optionee not in good faith and without reasonable belief that the Optionee's action or omission was in the best interest of the Corporation. Notwithstanding the foregoing, the Optionee shall not be deemed to have been terminated for Cause without (i) reasonable notice from the Board to the Optionee setting forth the reasons for the Corporation's intention to terminate for Cause, (ii) delivery to the Optionee of a resolution duly adopted by the affirmative vote two-thirds or more of the Board then in office (excluding the Optionee 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 Optionee was guilty of conduct herein set forth and specifying the particulars thereof in detail, (iii) an opportunity for the Optionee, together with his counsel, to be heard before the Board, and (iv) delivery to the Optionee of a Notice of Termination from the Board specifying the particulars in detail. (IV) the term "Change in Control" shall mean any of the following events: (1) any Person is or becomes the Beneficial Owner, directly or indirectly, of 40% or more of either (x) the then outstanding common stock of the Company (the "Outstanding Common Stock") or (y) the combined voting power of the then outstanding securities entitled to vote generally in the election of directors of the Company (the "Total Voting Power"), excluding, however, the following (1) any acquisition by the Company or any of its Controlled Affiliates, (2) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any of its Controlled Affiliates and (3) any Person who becomes such a Beneficial Owner in connection with a transaction described in the exclusion within paragraph (3) below; or (2) a change in the composition of the Board such that the individuals who, on the date hereof, 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 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 considered a member of the Incumbent Board; or (3) there is consummated a merger or consolidation of the Company or any direct or indirect subsidiary of the Company or a sale or other disposition of all or substantially all of the assets of the Company ("Corporate Transaction"); excluding, however, such a Corporate Transaction pursuant to which (x) all or substantially all of the individuals and entities who are the Beneficial Owners, respectively, of the Outstanding Common Stock and the 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 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, and (y) immediately following which the individuals who comprise the Board immediately prior thereto constitute at least a majority of the board 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); or (4) the approval by the stockholders of the Company of a complete liquidation or dissolution of the Company; (V) the term "Disability (or becoming Disabled)" shall mean that, as a result of the Optionee's incapacity due to physical or mental illness or injury, he or she shall not have performed all or substantially all of his or her usual duties as an employee of the Corporation for a period of more than one- hundred-fifty (150) days in any period of one-hundred-eighty (180) consecutive days; (VI) the term "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended; (VII) the term "Good Reason" for termination by the Optionee of the Optionee's employment shall mean: (1) A diminution in the Optionee's position, duties, responsibilities or authority (except during periods when the Executive is unable to perform all or substantially all of his duties on account of illness (either physical or mental) or other incapacity; (2) A reduction in the Optionee's annual rate of base salary as in effect on the date hereof or as the same may be increased from time to time; (3) Failure by the Corporation to continue in effect any compensation plan in which the Optionee participates which is material to the Optionee'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 Corporation to continue the Optionee's participation therein (or in such substitute plan) on a basis not materially less favorable to the Optionee; (4) Failure by the Corporation to continue to provide the Optionee with benefits substantially similar to those enjoyed by the Optionee under any of the Corporation's pension, savings, life insurance, medical, health and accident, or disability plans in which the Optionee was participating (except for across-the-board changes similarly affecting all senior executives of the Corporation and all senior executives of any Person in control of the Corporation), or failure by the Corporation to continue to provide the Optionee with the number of paid vacation days per year equal to the greater 6 weeks and (b) the number to which the Optionee is entitled in accordance with the Corporation's vacation policy; (5) Failure to provide facilities or services which are suitable to the Optionee's position; (6) Failure of any successor (whether direct or indirect, by purchase of stock or assets, merger, consolidation or otherwise) to the Corporation to assume the Corporation's obligations hereunder or failure by the Corporation to remain liable to the Optionee hereunder after such assumption; (7) Any termination by the Corporation of the Optionee's employment which is not effected pursuant to a Notice of Termination satisfying the requirements of a Notice of Termination contained in this Agreement; (8) the relocation of the Optionee's principal place of employment to a location more than fifty (50) miles from the Optionee's principal place of employment as of the date hereof; or (9) Failure to pay the Optionee any portion of current or deferred compensation within seven (7) days of the date such compensation is due. The Optionee'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 Optionee shall be deemed to have waived his rights pursuant to circumstances constituting Good Reason hereunder if he shall not have provided the Corporation a Notice of Termination within ninety (90) days following his knowledge of the occurrence of circumstances constituting Good Reason; (VIII) the term "Governance Agreement shall mean the Governance Agreement, dated [ ], 2000, among LXH, L.L.C., LXH II, L.L.C., Hexcel Corporation and the other parties listed on the signature pages thereto; (IX) the term "Person" shall have the meaning given in Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d) of the Exchange Act; and (X) the term "Retirement" shall mean termination of the Optionee's employment, other than by reason of death or Cause, either (A) at or after age 65 or (B) at or after age 55 after five (5) years of employment by the Corporation (or a Subsidiary thereof). (XI) the term "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 Optionee's employment under the provision so indicated. Annex A NOTICE OF GRANT EMPLOYEE STOCK OPTION HEXCEL CORPORATION INCENTIVE STOCK PLAN The following employee of Hexcel Corporation, a Delaware corporation ("Hexcel") or a Subsidiary, has been granted an option to purchase shares of the Common Stock of Hexcel, $.01 par value, in accordance with the terms of this Notice of Grant and the Employee Option Agreement to which this Notice of Grant is attached. The following is a summary of the principal terms of the option which has been granted. The terms below shall have the meanings ascribed to them below when used in the Employee Option Agreement. Optionee Address of Optionee Employee Number Employee ID Number Foreign Sub Plan, if applicable Grant Date Purchase Price Aggregate Number of Shares Granted (the "Option Shares") - ---------------------------------- -------------------------------------------- IN WITNESS WHEREOF, the parties hereby agree to the terms of this Notice of Grant and the Employee Option Agreement to which this Notice of Grant is attached and execute this Notice of Grant and Employee Option Agreement as of the Grant Date. ______________________ HEXCEL CORPORATION Optionee By: _____________________________ Ira J. Krakower Senior Vice President Annex A-1 EX-10 6 0006.txt EXHIBIT 10.7 EXHIBIT 10.7 AMENDMENT TO AGREEMENTS AGREEMENT, dated as of October 11, 2000 by and between Hexcel Corporation, a Delaware corporation (the "Company") and Ira J. Krakower (the "Executive"). WHEREAS, the Company maintains the Hexcel Corporation Incentive Stock Plan (the "Plan") and the Hexcel Corporation Management Stock Purchase Plan (the "MSPP"); and WHEREAS, the Company has granted to the Executive (1) under the Plan, nonqualified options ("NQOs") to acquire shares of the common stock of the Company (the "Common Stock"), performance accelerated stock options ("PASOs" and, together with the NQOs, the "Options") to acquire shares of Common Stock and contractual rights representing the right to earn shares of Common Stock under specified circumstances ("PARs") and (2) contractual rights under the MSPP representing the right to earn shares of Common Stock under specified circumstances ("RSUs"), in each case evidenced by written award agreements entered into between the Company and the Executive (the "Award Agreements"); and WHEREAS, under the Award Agreements the Executive has certain rights upon the occurrence of a Change in Control (as defined thereby); and WHEREAS, the Company and the Executive have entered into an Executive Severance Agreement dated as of February 3, 1999 (the "Severance Agreement"); and WHEREAS, under the Severance Agreement the Executive has certain rights upon the occurrence of a Change in Control (as defined therein); and WHEREAS, the Company and the Executive have entered into a Supplemental Executive Retirement Agreement dated as of May 10, 2000 (the "SERP Agreement"); and WHEREAS, under the SERP Agreement the Executive has certain rights upon the occurrence of a Change in Control (as defined therein); and WHEREAS, Ciba Specialty Chemicals Holding, Inc. ("Ciba SCH"), Ciba Specialty Chemicals Inc. ("Ciba SCI"), Ciba Specialty Chemicals Corporation ("Ciba SCC" and together with Ciba SCH and Ciba SCI, "Ciba"), LXH, L.L.C. ("LXH") and LXH II, L.L.C. ("LXH II" and together with LXH, "the Purchasers") have entered into a Stock Purchase Agreement dated as of October 11, 2000 (the "Stock Purchase Agreement") pursuant to which, among other things, the Purchasers will purchase from Ciba shares of Common Stock; and WHEREAS, the consummation (the "Closing") of the transactions contemplated by the Stock Purchase Agreement (the "Transactions") will constitute a Change in Control under the Plan, the MSPP, the Award Agreements, the Severance Agreement and the SERP Agreement; and WHEREAS, the Company desires the Executive to waive certain rights under the Plan, the MSPP and the Award Agreements and desires to provide additional incentives to the Executive to remain employed by the Company follow ing the Closing. NOW, THEREFORE, the Company and the Executive hereby agree as follows. 1. The consummation of the Transactions shall not constitute a Change in Control for purposes of the Plan, the MSPP or the Award Agreements, notwithstanding anything therein to the contrary. 2. Each Award Agreement, the Severance Agreement and the SERP Agreement is hereby amended to incorporate a new definition of the term Change in Control (and related definitions), in the form annexed hereto as Exhibit A. 3. Each Award Agreement pursuant to which Options have been granted is hereby amended to provide that each Option that is unvested at the Closing will vest and become exercisable on the earliest to occur of (i) as to 50% of the shares subject thereto, on the 1st anniversary of the Closing and as to the remaining 50% of the shares subject thereto, on the 2nd anniversary of the Closing, (ii) the Executive's termination of employment due to death, Disability (as defined in the Severance Agreement), termination by the Company without Cause (as defined in the Severance Agreement) or by the Executive for Good Reason (as defined in the Severance Agreement) or (iii) the occurrence of a Change in Control (as defined in Exhibit A hereto). 4. Each Award Agreement pursuant to which PARs have been granted is hereby amended to provide that each PAR subject thereto will vest and, without being subject to the existing limitations relating to Section 162(m) of the Internal Revenue Code of 1986, as amended, the underlying shares will be distributed on the earliest to occur of (i) as to 50% of the shares subject thereto, on the 1st anniversary of the Closing and as to the remaining 50% of the shares subject thereto, on the 2nd anniversary of the Closing, (ii) the Executive's termination of employment due to death, Disability, termination by the Company without Cause or by the Executive for Good Reason or (iii) the occurrence of a Change in Control (as defined in Exhibit A hereto). 5. Each Award Agreement pursuant to which RSUs have been granted is hereby amended to provide that each RSU subject thereto will vest and the underlying shares will be distributed on the earliest to occur of (i) as to 50% of the shares subject thereto, on the 1st anniversary of the Closing and as to the remaining 50% of the shares subject thereto, on the 2nd anniversary of the Closing, (ii) the Executive's termination of employment due to death, Disability, termination by the Company without Cause or by the Executive for Good Reason or (iii) the occurrence of a Change in Control (as defined in Exhibit A hereto). 6. The Severance Agreement is hereby amended to include a provision, in the form annexed hereto as Exhibit B, pursuant to which, under the circumstances described therein, the Company will hold the Executive harmless from any excise tax that may be imposed on the Executive under section 280G of the Internal Revenue Code of 1986, as amended. 7. Except as otherwise expressly provided herein, the Award Agreements, the Severance Agreement and the SERP shall remain in effect in accordance with their respective terms. 8. Effective as of the date on which the Closing occurs (the "Closing Date"), the Company shall grant to the Executive options to acquire 50,613 shares of Common Stock. Such options shall be at an exercise price per share equal to the greater of (a) the fair market value (as defined in the Plan) of a share of Common Stock on the Closing Date or (b) $11, and shall otherwise be made pursuant to the form of Stock Option Agreement annexed hereto as Exhibit C. The Company agrees that such grant shall not be in lieu of, or otherwise be taken into account in determining the size or terms of, the annual long term incentive grant to the Executive for the 2001 or other fiscal year. 9. For purposes of this Agreement, notices, demands, and all other communications provided for hereunder shall be in writing and shall be deemed to have been duly given when hand delivered or (unless otherwise specified) when mailed by United States certified mail, return receipt requested, postage prepaid, addressed as follows: To the Executive at the address shown in the personnel records of the Company To the Company at: Hexcel Corporation Two Stamford Plaza 281 Tresser Boulevard Stamford Connecticut 06901-3238 Att'n: or to such other address as either 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. 10. The invalidity or unenforceability of any provision hereof shall not affect the other provisions hereof, and this Agreement shall be construed in all respects as if such invalid or unenforceable provision had been omitted. 11. No change, modification or waiver of any provision of this Agreement shall be valid unless the same be in writing and signed by the parties hereto. 12. This Agreement contains the entire understanding of the parties hereto with respect to the subject matter hereof and supersedes all prior communications, representations and negotiations in respect thereto. 13. This Agreement shall be governed by, and construed and enforced in accordance with, the laws of the State of Delaware, without regard to its conflicts of law rules. 14. This Agreement may be executed in counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same instrument. 15. This agreement shall become effective upon the Closing, and shall be null and void and of no effect if the Closing does not occur. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date and year first written above. HEXCEL CORPORATION By: /s/ John J. Lee Name: John J. Lee Title:Chief Executive Officer /s/ Ira J. Krakower Ira J. Krakower EXHIBIT A Affiliate of any Person shall mean any other Person that directly or indirectly, through one or more intermediaries, Controls, is Controlled by, or is under common Control with, such first Person. Control shall have the meaning specified in Rule 12b-2 under the Securities Exchange Act of 1934 as in effect on the date of this Agreement. Beneficial Owner shall have the meaning used in Rule 13d-3 promulgated under the Exchange Act. Change in Control means: (i) any Person is or becomes the Beneficial Owner, directly or indirectly, of 40% or more of either (x) the then outstanding common stock of the Company (the "Out standing Common Stock") or (y) the combined voting power of the then outstanding securities entitled to vote generally in the election of directors of the Company (the "Total Voting Power"), excluding, however, the following (1) any acquisition by the Company or any of its Controlled Affiliates, (2) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any of its Controlled Affiliates and (3) any Person who becomes such a Beneficial Owner in connection with a transaction described in the exclusion within clause (iii); or (ii) a change in the composition of the Board such that the individuals who, on the date hereof, 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 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 considered a member of the Incumbent Board; or (iii) there is consummated a merger or consolidation of the Company or any direct or indirect subsidiary of the Company or a sale or other disposition of all or substantially all of the assets of the Company ("Corporate Transaction"); excluding, how ever, such a Corporate Transaction pursuant to which (x) all or substantially all of the individuals and entities who are the Beneficial Owners, respectively, of the Outstanding Common Stock and the 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 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, and (y) immediately following which the individuals who comprise the Board immediately prior thereto constitute at least a majority of the board 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); or (iv) the approval by the stockholders of the Company of a complete liquidation or dissolution of the Company; or (v) the consummation of the transactions contemplated by the Stock Purchase Agreement.1 Exchange Act shall mean the Securities Exchange Act of 1934, as amended. Governance Agreement shall mean the Governance Agreement, dated [ ], 2000, among LXH, L.L.C., LXH II, L.L.C., Hexcel Corporation and the other parties listed on the signature pages thereto. - -------- 1Clause (v) to be included only in the Severance Agreement and the SERP Agreement. Person shall have the meaning set forth in Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d) of the Exchange Act. Stock Purchase Agreement shall mean the Stock Purchase Agreement dated as of October 11, 2000 by and among Ciba Specialty Chemicals Holding, Inc., Ciba Specialty Chemicals Inc., Ciba Specialty Chemicals Corporation, LXH, L.L.C. ("LXH") and LXH II, L.L.C..2 - -------- 2This definition to be included only in the Severance Agreement and the SERP Agreement. EXHIBIT B Additional Payments. (a) In the event that the Executive becomes entitled to the payments under Section 4 hereof, if any of the payments or benefits received or to be received by the Executive in connection with the transactions contemplated by the Stock Purchase Agreement or the Executive's termination of employment within 2 years thereof (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 and benefits, excluding the Gross-Up Payment, being hereinafter referred to as the "Total Payments") will be subject to the excise tax (the "Excise Tax") imposed under section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), the Company shall pay to the Executive an additional amount (the "Gross-Up Payment") such that the net amount retained by the Executive, after deduction of any Excise Tax on the Total Payments and any federal, state and local income and employment taxes and Excise Tax upon the Gross-Up Payment, shall be equal to the Total Payments. (b) For purposes of determining whether any of the Total Payments will be subject to the Excise Tax and the amount of such Excise Tax, (i) all of the Total Payments shall be treated as "parachute payments" (within the meaning of section 280G(b)(2) of the Code) unless, in the opinion of tax counsel ("Tax Counsel") reasonably acceptable to the Executive and selected by the accounting firm which was, immediately prior to the Change in Control, the Company's independent auditor (the "Auditor"), such payments or benefits (in whole or in part) do not constitute parachute payments, including by reason of section 280G(b)(4)(A) of the Code, (ii) all "excess parachute payments" within the meaning of section 280G(b)(l) of the Code shall be treated as subject to the Excise Tax unless, in the opinion of Tax Counsel, such excess parachute payments (in whole or in part) represent reasonable compensation for services actually rendered (within the meaning of section 280G(b)(4)(B) of the Code) in excess of the base amount (within the meaning of section 280G(b)(3) of the Code) allocable to such reasonable compensation, or are otherwise not subject to the Excise Tax, and (iii) the value of any noncash benefits or any deferred payment or benefit shall be determined by the Auditor in accordance with the principles of sections 280G(d)(3) and (4) of the Code. For purposes of determining the amount of the Gross-Up Payment, the Executive shall be deemed to pay federal income tax at the highest marginal rate of federal income taxation in the calendar year in which the Gross-Up Payment is to be made and state and local income taxes at the highest marginal rate of taxation in the state and locality of the Executive's residence on the Date of Termination (or if there is no Date of Termination, then the date on which the Gross-Up Payment is calculated for purposes of this Section), net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes. (c) In the event that the Excise Tax is finally determined to be less than the amount taken into account hereunder in calculating the Gross-Up Payment, the Executive shall repay to the Company, within five (5) business days following the time that the amount of such reduction in the Excise Tax is finally determined, the portion of the Gross-Up Payment attributable to such reduction (plus that portion of the Gross-Up Payment attributable to the Excise Tax and federal, state and local income and employment taxes imposed on the Gross-Up Payment being repaid by the Executive, to the extent that such repayment results in a reduction in the Excise Tax and a dollar-for-dollar reduction in the Executive's taxable income and wages for purposes of federal, state and local income and employment taxes, plus interest on the amount of such repayment at 120% of the rate provided in section 1274(b)(2)(B) of the Code. In the event that the Excise Tax is determined to exceed the amount taken into account hereunder in calculating the Gross-Up Payment (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross-Up Payment), the Company shall make an additional Gross-Up Payment in respect of such excess (plus any interest, penalties or additions payable by the Executive with respect to such excess) within five (5) business days following the time that the amount of such excess is finally determined. 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. EXHIBIT C EMPLOYEE OPTION AGREEMENT EMPLOYEE OPTION AGREEMENT, dated as of the Grant Date, by and between the Optionee and Hexcel Corporation (the "Corporation"). W I T N E S S E T H: WHEREAS, the Corporation has adopted the Hexcel Corporation Incentive Stock Plan (the "Plan"); and WHEREAS, the Executive Compensation Committee (the "Committee") of the Board of Directors of the Corporation (the "Board") has determined that it is desirable and in the best interest of the Corporation to grant to the Optionee a stock option as an incentive for the Optionee to advance the interests of the Corporation; NOW, THEREFORE, the parties agree as follows: 1. Notice of Grant; Incorporation of Plan. A Notice of Grant is attached hereto as Annex A and incorporated by reference herein. Unless otherwise provided herein, capitalized terms used herein and set forth in such Notice of Grant shall have the meanings ascribed to them in the Notice of Grant and capitalized terms used herein and set forth in the Plan shall have the meanings ascribed to them in the Plan. The Plan is incorporated by reference and made a part of this Employee Option Agreement, and this Employee Option Agreement shall be subject to the terms of the Plan, as the Plan may be amended from time to time, provided that any such amendment of the Plan must be made in accordance with Section X of the Plan. The Option granted herein constitutes an Award within the meaning of the Plan. 2. Grant of Option. Pursuant to the Plan and subject to the terms and conditions set forth herein and therein, the Corporation hereby grants to the Optionee the right and option (the "Option") to purchase all or any part of the Option Shares of the Corporation's common stock, $.01 par value per share (the "Common Stock"), which Option is not intended to qualify as an incentive stock option, as defined in Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"). 3. Purchase Price. The purchase price per share of the Option Shares shall be the Purchase Price. 4. Term of Option. (a) Expiration Date; Term. Subject to Section 4(c) below, the Option shall expire on, and shall no longer be exercisable following, the tenth anniversary of the Grant Date. The ten-year period from the Grant Date to its tenth anniversary shall constitute the "Term" of the Option. (b) Vesting Period; Exercisability. Subject to Section 4(c) below, the Option shall vest and become exercisable at the rate of 33-1/3% of the Option Shares on each of the first three anniversaries of the Grant Date. (c) Termination of Employment; Change in Control. (i) For purposes of the grant hereunder, any transfer of employment by the Optionee among the Corporation and the Subsidiaries shall not be considered a termination of employment. Except as set forth below in this Section 4(c)(i), if the Optionee's employment with the Corporation shall terminate for any reason, (a) the Option (to the extent then vested) may be exercised at any time within ninety (90) days after such termination (but not beyond the Term of the Option) and (b) the Option, to the extent not then vested, shall immediately expire upon such termination. Notwithstanding the foregoing, (a) if the Optionee's employment with the Corporation is terminated for Cause (as defined in the last Section hereof), the Option, whether or not then vested, shall be automatically terminated as of the date of such termination of employment, (b) if the Optionee's employment terminates by reason of Retirement, the termination of the Optionee's employment by the Company other than for Cause, or the termination of the Optionee's employment by the Optionee for Good Reason (as defined in the last Section hereof), the Option shall remain exercisable for three years from the date of such termination of employment (but not beyond the Term of the Option) and (c) if the Optionee dies or becomes Disabled (A) while employed by the Corporation or (B) within 90 days after the termination of his or her employment (other than a termination described in clause (a) or (b) of this sentence), the Option may be exercised at any time within one year after the Optionee's death or Disability (but not beyond the Term of the Option). (ii) If the Optionee's employment terminates by reason of death, Disability, Retirement, the termination of the Optionee's employment by the Company other than for Cause, or the termination of the Optionee's employment by the Optionee for Good Reason, the Option shall become fully and immediately vested and exercisable. In the event of a Change in Control (as defined in the last Section hereof), the Option shall immediately become fully vested and exercisable. 5. Adjustment Upon Changes in Capitalization. (a) The aggregate number of Option Shares and the Purchase Price shall be appropriately adjusted by the Committee for any increase or decrease in the number of issued shares of Common Stock resulting from a subdivision or consolidation of shares or other capital adjustment, or the payment of a stock dividend or other increase or decrease in such shares, effected without receipt of consideration by the Corporation, or other change in corporate or capital structure. The Committee shall also make the foregoing changes and any other changes, including changes in the classes of securities available, to the extent reasonably necessary or desirable to preserve the intended benefits under this Employee Option Agreement in the event of any other reorganization, recapitalization, merger, consolidation, spin-off, extraordinary dividend or other distribution or similar transaction involving the Corporation. (b) Any adjustment under this Section 5 in the number of Option Shares and the Purchase Price shall apply to only the unexercised portion of the Option. If fractions of a share would result from any such adjustment, the adjustment shall be rounded down to the nearest whole number of shares. 6. Method of Exercising Option and Withholding. (a) The Option shall be exercised by the delivery by the Optionee to the Corporation at its principal office (or at such other address as may be established by the Committee) of written notice of the number of Option Shares with respect to which the Option is exercised, accompanied by payment in full of the aggregate Purchase Price for such Option Shares. Payment for such Option Shares shall be made (i) in U.S. dollars by personal check, bank draft or money order payable to the order of the Corporation, or by money transfers or direct account debits to an account designated by the Corporation; (ii) through the delivery of shares of Common Stock with a Fair Market Value equal to the total payment due from the Optionee; (iii) pursuant to a "cashless exercise" program if such a program is established by the Corporation; or (iv) by any combination of the methods described in (i) through (iii) above. (b) The Corporation's obligation to deliver shares of Common Stock upon the exercise of the Option shall be subject to the payment by the Optionee of applicable federal, state and local withholding tax, if any. The Corporation shall, to the extent permitted by law, have the right to deduct from any payment of any kind otherwise due to the Optionee any federal, state or local taxes required to be withheld with respect to such payment. 7. Transfer. Except as provided in this Section 7, the Option is not transferable otherwise than by will or the laws of descent and distribution, and the Option may be exercised during the Optionee's lifetime only by the Optionee. Any attempt to transfer the Option in contravention of this Section 7 is void ab initio. The Option shall not be subject to execution, attachment or other process. Notwithstanding the foregoing, the Optionee shall be permitted to transfer the Option to members of his or her immediate family (i.e., children, grandchildren or spouse), trusts for the benefit of such family members, and partnerships whose only partners are such family members; provided, however, that no consideration can be paid for the transfer of the Option and the transferee of the Option shall be subject to all conditions applicable to the Option prior to its transfer. 8. No Rights in Option Shares. The Optionee shall have none of the rights of a stockholder with respect to the Option Shares unless and until shares of Common Stock are issued upon exercise of the Option. 9. No Right to Employment. Nothing contained herein shall be deemed to confer upon the Optionee any right to remain as an employee of the Corporation. 10. Governing Law/Jurisdiction. This Employee Option Agreement shall be governed by and construed in accordance with the laws of the State of Delaware without reference to principles of conflict of laws. 11. Resolution of Disputes. Any disputes arising under or in connection with this Employee Option Agreement shall be resolved by binding arbitration before a single arbitrator, to be held in New York in accordance with the commercial rules and procedures of the American Arbitration Association. Judgment upon the award rendered by the arbitrator shall be final and subject to appeal only to the extent permitted by law. Each party shall bear such party's own expenses incurred in connection with any arbitration; provided, however, that the cost of the arbitration, including without limitation, reasonable attorneys' fees of the Optionee, shall be borne by the Corporation in the event the Optionee is the prevailing party in the arbitration. Anything to the contrary notwithstanding, each party hereto has the right to proceed with a court action for injunctive relief or relief from violations of law not within the jurisdiction of an arbitrator. 12. Notices. Any notice required or permitted under this Employee Option Agreement shall be deemed given when delivered personally, or when deposited in a United States Post Office, postage prepaid, addressed, as appropriate, to the Optionee at the last address specified in Optionee's employment records, or such other address as the Optionee may designate in writing to the Corporation, or to the Corporation, Attention: Corporate Secretary, or such other address as the Corporation may designate in writing to the Optionee. 13. Failure To Enforce Not a Waiver. The failure of either party hereto to enforce at any time any provision of this Employee Option Agreement shall in no way be construed to be a waiver of such provision or of any other provision hereof. 14. Counterparts. This Employee Option Agreement may be executed in two or more counterparts, each of which shall be an original but all of which together shall represent one and the same agreement. 15. Miscellaneous. This Employee Option Agreement cannot be changed or terminated orally. This Employee Option Agreement and the Plan contain the entire agreement between the parties relating to the subject matter hereof. The section headings herein are intended for reference only and shall not affect the interpretation hereof. 16. Definitions. For purposes of this Employee Option Agreement: (I) the term "Affiliate" of any Person shall mean any other Person that directly or indirectly, through one or more intermediaries, Controls, is Controlled by, or is under common Control with, such first Person. The term "Control" shall have the meaning specified in Rule 12b-2 under the Securities Exchange Act of 1934 as in effect on the date of this Agreement; (II) the term "Beneficial Owner" shall have the meaning used in Rule 13d- 3 promulgated under the Exchange Act; (III) the term "Cause" shall mean (A) the willful and continued failure by the Optionee to substantially perform the Optionee's duties with the Corporation (other than any such failure resulting from the Optionee's incapacity due to physical or mental illness 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 to the Optionee by the Corporation, that specifically identifies the manner in which the Corporation believes that the Optionee has not substantially performed the Optionee's duties, or (B) the willful engaging by the Optionee in misconduct that is demonstrably and materially injurious to the Corporation, monetarily or otherwise including, but not limited to conduct that violates any written noncompetition covenant between the Optionee and the Corporation. No act, or failure to act, on the Optionee's part shall be deemed "willful" unless done, or omitted to be done, by the Optionee not in good faith and without reasonable belief that the Optionee's action or omission was in the best interest of the Corporation. Notwithstanding the foregoing, the Optionee shall not be deemed to have been terminated for Cause without (i) reasonable notice from the Board to the Optionee setting forth the reasons for the Corporation's intention to terminate for Cause, (ii) delivery to the Optionee of a resolution duly adopted by the affirmative vote two-thirds or more of the Board then in office (excluding the Optionee 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 Optionee was guilty of conduct herein set forth and specifying the particulars thereof in detail, (iii) an opportunity for the Optionee, together with his counsel, to be heard before the Board, and (iv) delivery to the Optionee of a Notice of Termination from the Board specifying the particulars in detail. (IV) the term "Change in Control" shall mean any of the following events: (1) any Person is or becomes the Beneficial Owner, directly or indirectly, of 40% or more of either (x) the then outstanding common stock of the Company (the "Outstanding Common Stock") or (y) the combined voting power of the then outstanding securities entitled to vote generally in the election of directors of the Company (the "Total Voting Power"), excluding, however, the following (1) any acquisition by the Company or any of its Controlled Affiliates, (2) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any of its Controlled Affiliates and (3) any Person who becomes such a Beneficial Owner in connection with a transaction described in the exclusion within paragraph (3) below; or (2) a change in the composition of the Board such that the individuals who, on the date hereof, 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 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 considered a member of the Incumbent Board; or (3) there is consummated a merger or consolidation of the Company or any direct or indirect subsidiary of the Company or a sale or other disposition of all or substantially all of the assets of the Company ("Corporate Transaction"); excluding, however, such a Corporate Transaction pursuant to which (x) all or substantially all of the individuals and entities who are the Beneficial Owners, respectively, of the Outstanding Common Stock and the 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 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, and (y) immediately following which the individuals who comprise the Board immediately prior thereto constitute at least a majority of the board 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); or (4) the approval by the stockholders of the Company of a complete liquidation or dissolution of the Company; (V) the term "Disability (or becoming Disabled)" shall mean that, as a result of the Optionee's incapacity due to physical or mental illness or injury, he or she shall not have performed all or substantially all of his or her usual duties as an employee of the Corporation for a period of more than one- hundred-fifty (150) days in any period of one-hundred-eighty (180) consecutive days; (VI) the term "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended; (VII) the term "Good Reason" for termination by the Optionee of the Optionee's employment shall mean: (1) A diminution in the Optionee's position, duties, responsibilities or authority (except during periods when the Executive is unable to perform all or substantially all of his duties on account of illness (either physical or mental) or other incapacity; (2) A reduction in the Optionee's annual rate of base salary as in effect on the date hereof or as the same may be increased from time to time; (3) Failure by the Corporation to continue in effect any compensation plan in which the Optionee participates which is material to the Optionee'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 Corporation to continue the Optionee's participation therein (or in such substitute plan) on a basis not materially less favorable to the Optionee; (4) Failure by the Corporation to continue to provide the Optionee with benefits substantially similar to those enjoyed by the Optionee under any of the Corporation's pension, savings, life insurance, medical, health and accident, or disability plans in which the Optionee was participating (except for across-the-board changes similarly affecting all senior executives of the Corporation and all senior executives of any Person in control of the Corporation), or failure by the Corporation to continue to provide the Optionee with the number of paid vacation days per year equal to the greater 4 weeks and (b) the number to which the Optionee is entitled in accordance with the Corporation's vacation policy; (5) Failure to provide facilities or services which are suitable to the Optionee's position; (6) Failure of any successor (whether direct or indirect, by purchase of stock or assets, merger, consolidation or otherwise) to the Corporation to assume the Corporation's obligations hereunder or failure by the Corporation to remain liable to the Optionee hereunder after such assumption; (7) Any termination by the Corporation of the Optionee's employment which is not effected pursuant to a Notice of Termination satisfying the requirements of a Notice of Termination contained in this Agreement; (8) the relocation of the Optionee's principal place of employment to a location more than fifty (50) miles from the Optionee's principal place of employment as of the date hereof; or (9) Failure to pay the Optionee any portion of current or deferred compensation within seven (7) days of the date such compensation is due. The Optionee'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 Optionee shall be deemed to have waived his rights pursuant to circumstances constituting Good Reason hereunder if he shall not have provided the Corporation a Notice of Termination within ninety (90) days following his knowledge of the occurrence of circumstances constituting Good Reason; (VIII) the term "Governance Agreement shall mean the Governance Agreement, dated [ ], 2000, among LXH, L.L.C., LXH II, L.L.C., Hexcel Corporation and the other parties listed on the signature pages thereto; (IX) the term "Person" shall have the meaning given in Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d) of the Exchange Act; and (X) the term "Retirement" shall mean termination of the Optionee's employment, other than by reason of death or Cause, either (A) at or after age 65 or (B) at or after age 55 after five (5) years of employment by the Corporation (or a Subsidiary thereof). (XI) the term "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 Optionee's employment under the provision so indicated. Annex A NOTICE OF GRANT EMPLOYEE STOCK OPTION HEXCEL CORPORATION INCENTIVE STOCK PLAN The following employee of Hexcel Corporation, a Delaware corporation ("Hexcel") or a Subsidiary, has been granted an option to purchase shares of the Common Stock of Hexcel, $.01 par value, in accordance with the terms of this Notice of Grant and the Employee Option Agreement to which this Notice of Grant is attached. The following is a summary of the principal terms of the option which has been granted. The terms below shall have the meanings ascribed to them below when used in the Employee Option Agreement. Optionee Address of Optionee Employee Number Employee ID Number Foreign Sub Plan, if applicable Grant Date Purchase Price Aggregate Number of Shares Granted (the "Option Shares") - ---------------------------------------------------- -------------------------- IN WITNESS WHEREOF, the parties hereby agree to the terms of this Notice of Grant and the Employee Option Agreement to which this Notice of Grant is attached and execute this Notice of Grant and Employee Option Agreement as of the Grant Date. _______________________ HEXCEL CORPORATION Optionee By: __________________________ Name: __________________________ Title: __________________________ Annex A-1 EX-10 7 0007.txt EXHIBIT 10.8 EXHIBIT 10.8 AMENDMENT TO AGREEMENTS AGREEMENT, dated as of October 11, 2000 by and between Hexcel Corporation, a Delaware corporation (the "Company") and Stephen C. Forsyth (the "Executive"). WHEREAS, the Company maintains the Hexcel Corporation Incentive Stock Plan (the "Plan") and the Hexcel Corporation Management Stock Purchase Plan (the "MSPP"); and WHEREAS, the Company has granted to the Executive (1) under the Plan, nonqualified options ("NQOs") to acquire shares of the common stock of the Company (the "Common Stock"), performance accelerated stock options ("PASOs" and, together with the NQOs, the "Options") to acquire shares of Common Stock and contractual rights representing the right to earn shares of Common Stock under specified circumstances ("PARs") and (2) contractual rights under the MSPP representing the right to earn shares of Common Stock under specified circumstances ("RSUs"), in each case evidenced by written award agreements entered into between the Company and the Executive (the "Award Agreements"); and WHEREAS, under the Award Agreements the Executive has certain rights upon the occurrence of a Change in Control (as defined thereby); and WHEREAS, the Company and the Executive have entered into an Executive Severance Agreement dated as of February 3, 1999 (the "Severance Agreement"); and WHEREAS, under the Severance Agreement the Executive has certain rights upon the occurrence of a Change in Control (as defined therein); and WHEREAS, the Company and the Executive have entered into a Supplemental Executive Retirement Agreement dated as of May 10, 2000 (the "SERP Agreement"); and WHEREAS, under the SERP Agreement the Executive has certain rights upon the occurrence of a Change in Control (as defined therein); and WHEREAS, Ciba Specialty Chemicals Holding, Inc. ("Ciba SCH"), Ciba Specialty Chemicals Inc. ("Ciba SCI"), Ciba Specialty Chemicals Corporation ("Ciba SCC" and together with Ciba SCH and Ciba SCI, "Ciba"), LXH, L.L.C. ("LXH") and LXH II, L.L.C. ("LXH II" and together with LXH, "the Purchasers") have entered into a Stock Purchase Agreement dated as of October 11, 2000 (the "Stock Purchase Agreement") pursuant to which, among other things, the Purchasers will purchase from Ciba shares of Common Stock; and WHEREAS, the consummation (the "Closing") of the transactions contemplated by the Stock Purchase Agreement (the "Transactions") will constitute a Change in Control under the Plan, the MSPP, the Award Agreements, the Severance Agreement and the SERP Agreement; and WHEREAS, the Company desires the Executive to waive certain rights under the Plan, the MSPP and the Award Agreements and desires to provide additional incentives to the Executive to remain employed by the Company following the Closing. NOW, THEREFORE, the Company and the Executive hereby agree as follows. 1. The consummation of the Transactions shall not constitute a Change in Control for purposes of the Plan, the MSPP or the Award Agreements, notwithstanding anything therein to the contrary. 2. Each Award Agreement, the Severance Agreement and the SERP Agreement is hereby amended to incorporate a new definition of the term Change in Control (and related definitions), in the form annexed hereto as Exhibit A. 3. Each Award Agreement pursuant to which Options have been granted is hereby amended to provide that each Option that is unvested at the Closing will vest and become exercisable on the earliest to occur of (i) as to 50% of the shares subject thereto, on the 1st anniversary of the Closing and as to the remaining 50% of the shares subject thereto, on the 2nd anniversary of the Closing, (ii) the Executive's termination of employment due to death, Disability (as defined in the Severance Agreement), termination by the Company without Cause (as defined in the Severance Agreement) or by the Executive for Good Reason (as defined in the Severance Agreement) or (iii) the occurrence of a Change in Control (as defined in Exhibit A hereto). 4. Each Award Agreement pursuant to which PARs have been granted is hereby amended to provide that each PAR subject thereto will vest and, without being subject to the existing limitations relating to Section 162(m) of the Internal Revenue Code of 1986, as amended, the underlying shares will be distributed on the earliest to occur of (i) as to 50% of the shares subject thereto, on the 1st anniversary of the Closing and as to the remaining 50% of the shares subject thereto, on the 2nd anniversary of the Closing, (ii) the Executive's termination of employment due to death, Disability, termination by the Company without Cause or by the Executive for Good Reason or (iii) the occurrence of a Change in Control (as defined in Exhibit A hereto). 5. Each Award Agreement pursuant to which RSUs have been granted is hereby amended to provide that each RSU subject thereto will vest and the underlying shares will be distributed on the earliest to occur of (i) as to 50% of the shares subject thereto, on the 1st anniversary of the Closing and as to the remaining 50% of the shares subject thereto, on the 2nd anniversary of the Closing, (ii) the Executive's termination of employment due to death, Disability, termination by the Company without Cause or by the Executive for Good Reason or (iii) the occurrence of a Change in Control (as defined in Exhibit A hereto). 6. The Severance Agreement is hereby amended to include a provision, in the form annexed hereto as Exhibit B, pursuant to which, under the circumstances described therein, the Company will hold the Executive harmless from any excise tax that may be imposed on the Executive under section 280G of the Internal Revenue Code of 1986, as amended. 7. Except as otherwise expressly provided herein, the Award Agreements, the Severance Agreement and the SERP shall remain in effect in accordance with their respective terms. 8. Effective as of the date on which the Closing occurs (the "Closing Date"), the Company shall grant to the Executive options to acquire 59,459 shares of Common Stock. Such options shall be at an exercise price per share equal to the greater of (a) the fair market value (as defined in the Plan) of a share of Common Stock on the Closing Date or (b) $11, and shall otherwise be made pursuant to the form of Stock Option Agreement annexed hereto as Exhibit C. The Company agrees that such grant shall not be in lieu of, or otherwise be taken into account in determining the size or terms of, the annual long term incentive grant to the Executive for the 2001 or other fiscal year. 9. For purposes of this Agreement, notices, demands, and all other communications provided for hereunder shall be in writing and shall be deemed to have been duly given when hand delivered or (unless otherwise specified) when mailed by United States certified mail, return receipt requested, postage prepaid, addressed as follows: To the Executive at the address shown in the personnel records of the Company To the Company at: Hexcel Corporation Two Stamford Plaza 281 Tresser Boulevard Stamford Connecticut 06901-3238 Att'n: or to such other address as either 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. 10. The invalidity or unenforceability of any provision hereof shall not affect the other provisions hereof, and this Agreement shall be construed in all respects as if such invalid or unenforceable provision had been omitted. 11. No change, modification or waiver of any provision of this Agreement shall be valid unless the same be in writing and signed by the parties hereto. 12. This Agreement contains the entire understanding of the parties hereto with respect to the subject matter hereof and supersedes all prior communications, representations and negotiations in respect thereto. 13. This Agreement shall be governed by, and construed and enforced in accordance with, the laws of the State of Delaware, without regard to its conflicts of law rules. 14. This Agreement may be executed in counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same instrument. 15. This agreement shall become effective upon the Closing, and shall be null and void and of no effect if the Closing does not occur. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date and year first written above. HEXCEL CORPORATION By: /s/ Ira J. Krakower Name: Ira J. Krakower Title: Senior Vice President /s/ S. C. Forsyth Stephen C. Forsyth EXHIBIT A Affiliate of any Person shall mean any other Person that directly or indirectly, through one or more intermediaries, Controls, is Controlled by, or is under common Control with, such first Person. Control shall have the meaning specified in Rule 12b-2 under the Securities Exchange Act of 1934 as in effect on the date of this Agreement. Beneficial Owner shall have the meaning used in Rule 13d-3 promulgated under the Exchange Act. Change in Control means: (i) any Person is or becomes the Beneficial Owner, directly or indirectly, of 40% or more of either (x) the then outstanding common stock of the Company (the "Out standing Common Stock") or (y) the combined voting power of the then outstanding securities entitled to vote generally in the election of directors of the Company (the "Total Voting Power"), excluding, however, the following (1) any acquisition by the Company or any of its Controlled Affiliates, (2) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any of its Controlled Affiliates and (3) any Person who becomes such a Beneficial Owner in connection with a transaction described in the exception within clause (iii) below; or (ii) a change in the composition of the Board such that the individuals who, on the date hereof, 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 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 considered a member of the Incumbent Board; or (iii) there is consummated a merger or consolidation of the Company or any direct or indirect subsidiary of the Company or a sale or other disposition of all or substantially all of the assets of the Company ("Corporate Transaction"); excluding, how ever, such a Corporate Transaction pursuant to which (x) all or substantially all of the individuals and entities who are the Beneficial Owners, respectively, of the Outstanding Common Stock and the 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 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, and (y) immediately following which the individuals who comprise the Board immediately prior thereto constitute at least a majority of the board 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); or (iv) the approval by the stockholders of the Company of a complete liquidation or dissolution of the Company; or (v) the consummation of the transactions contemplated by the Stock Purchase Agreement.1 Exchange Act shall mean the Securities Exchange Act of 1934, as amended. Governance Agreement shall mean the Governance Agreement, dated [ ], 2000, among LXH, L.L.C., LXH II, L.L.C., Hexcel Corporation and the other parties listed on the signature pages thereto. - -------- 1Clause (v) to be included only in the Severance Agreement and the SERP Agreement. Person shall have the meaning set forth in Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d) of the Exchange Act. Stock Purchase Agreement shall mean the Stock Purchase Agreement dated as of October 11, 2000 by and among Ciba Specialty Chemicals Holding, Inc., Ciba Specialty Chemicals Inc., Ciba Specialty Chemicals Corporation, LXH, L.L.C. ("LXH") and LXH II, L.L.C..2 - -------- 2This definition to be included only in the Severance Agreement and the SERP Agreement. EXHIBIT B Additional Payments. (a) In the event that the Executive becomes entitled to the payments under Section 4 hereof, if any of the payments or benefits received or to be received by the Executive in connection with the transactions contemplated by the Stock Purchase Agreement or the Executive's termination of employment within 2 years thereof (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 and benefits, excluding the Gross-Up Payment, being hereinafter referred to as the "Total Payments") will be subject to the excise tax (the "Excise Tax") imposed under section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), the Company shall pay to the Executive an additional amount (the "Gross-Up Payment") such that the net amount retained by the Executive, after deduction of any Excise Tax on the Total Payments and any federal, state and local income and employment taxes and Excise Tax upon the Gross-Up Payment, shall be equal to the Total Payments. (b) For purposes of determining whether any of the Total Payments will be subject to the Excise Tax and the amount of such Excise Tax, (i) all of the Total Payments shall be treated as "parachute payments" (within the meaning of section 280G(b)(2) of the Code) unless, in the opinion of tax counsel ("Tax Counsel") reasonably acceptable to the Executive and selected by the accounting firm which was, immediately prior to the Change in Control, the Company's independent auditor (the "Auditor"), such payments or benefits (in whole or in part) do not constitute parachute payments, including by reason of section 280G(b)(4)(A) of the Code, (ii) all "excess parachute payments" within the meaning of section 280G(b)(l) of the Code shall be treated as subject to the Excise Tax unless, in the opinion of Tax Counsel, such excess parachute payments (in whole or in part) represent reasonable compensation for services actually rendered (within the meaning of section 280G(b)(4)(B) of the Code) in excess of the base amount (within the meaning of section 280G(b)(3) of the Code) allocable to such reasonable compensation, or are otherwise not subject to the Excise Tax, and (iii) the value of any noncash benefits or any deferred payment or benefit shall be determined by the Auditor in accordance with the principles of sections 280G(d)(3) and (4) of the Code. For purposes of determining the amount of the Gross-Up Payment, the Executive shall be deemed to pay federal income tax at the highest marginal rate of federal income taxation in the calendar year in which the Gross-Up Payment is to be made and state and local income taxes at the highest marginal rate of taxation in the state and locality of the Executive's residence on the Date of Termination (or if there is no Date of Termination, then the date on which the Gross-Up Payment is calculated for purposes of this Section), net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes. (c) In the event that the Excise Tax is finally determined to be less than the amount taken into account hereunder in calculating the Gross-Up Payment, the Executive shall repay to the Company, within five (5) business days following the time that the amount of such reduction in the Excise Tax is finally determined, the portion of the Gross-Up Payment attributable to such reduction (plus that portion of the Gross-Up Payment attributable to the Excise Tax and federal, state and local income and employment taxes imposed on the Gross-Up Payment being repaid by the Executive, to the extent that such repayment results in a reduction in the Excise Tax and a dollar-for-dollar reduction in the Executive's taxable income and wages for purposes of federal, state and local income and employment taxes, plus interest on the amount of such repayment at 120% of the rate provided in section 1274(b)(2)(B) of the Code. In the event that the Excise Tax is determined to exceed the amount taken into account hereunder in calculating the Gross-Up Payment (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross-Up Payment), the Company shall make an additional Gross-Up Payment in respect of such excess (plus any interest, penalties or additions payable by the Executive with respect to such excess) within five (5) business days following the time that the amount of such excess is finally determined. 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. EXHIBIT C EMPLOYEE OPTION AGREEMENT EMPLOYEE OPTION AGREEMENT, dated as of the Grant Date, by and between the Optionee and Hexcel Corporation (the "Corporation"). W I T N E S S E T H: WHEREAS, the Corporation has adopted the Hexcel Corporation Incentive Stock Plan (the "Plan"); and WHEREAS, the Executive Compensation Committee (the "Committee") of the Board of Directors of the Corporation (the "Board") has determined that it is desirable and in the best interest of the Corporation to grant to the Optionee a stock option as an incentive for the Optionee to advance the interests of the Corporation; NOW, THEREFORE, the parties agree as follows: 1. Notice of Grant; Incorporation of Plan. A Notice of Grant is attached hereto as Annex A and incorporated by reference herein. Unless otherwise provided herein, capitalized terms used herein and set forth in such Notice of Grant shall have the meanings ascribed to them in the Notice of Grant and capitalized terms used herein and set forth in the Plan shall have the meanings ascribed to them in the Plan. The Plan is incorporated by reference and made a part of this Employee Option Agreement, and this Employee Option Agreement shall be subject to the terms of the Plan, as the Plan may be amended from time to time, provided that any such amendment of the Plan must be made in accordance with Section X of the Plan. The Option granted herein constitutes an Award within the meaning of the Plan. 2. Grant of Option. Pursuant to the Plan and subject to the terms and conditions set forth herein and therein, the Corporation hereby grants to the Optionee the right and option (the "Option") to purchase all or any part of the Option Shares of the Corporation's common stock, $.01 par value per share (the "Common Stock"), which Option is not intended to qualify as an incentive stock option, as defined in Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"). 3. Purchase Price. The purchase price per share of the Option Shares shall be the Purchase Price. 4. Term of Option. (a) Expiration Date; Term. Subject to Section 4(c) below, the Option shall expire on, and shall no longer be exercisable following, the tenth anniversary of the Grant Date. The ten-year period from the Grant Date to its tenth anniversary shall constitute the "Term" of the Option. (b) Vesting Period; Exercisability. Subject to Section 4(c) below, the Option shall vest and become exercisable at the rate of 33-1/3% of the Option Shares on each of the first three anniversaries of the Grant Date. (c) Termination of Employment; Change in Control. (i) For purposes of the grant hereunder, any transfer of employment by the Optionee among the Corporation and the Subsidiaries shall not be considered a termination of employment. Except as set forth below in this Section 4(c)(i), if the Optionee's employment with the Corporation shall terminate for any reason, (a) the Option (to the extent then vested) may be exercised at any time within ninety (90) days after such termination (but not beyond the Term of the Option) and (b) the Option, to the extent not then vested, shall immediately expire upon such termination. Notwithstanding the foregoing, (a) if the Optionee's employment with the Corporation is terminated for Cause (as defined in the last Section hereof), the Option, whether or not then vested, shall be automatically terminated as of the date of such termination of employment, (b) if the Optionee's employment terminates by reason of Retirement, the termination of the Optionee's employment by the Company other than for Cause, or the termination of the Optionee's employment by the Optionee for Good Reason (as defined in the last Section hereof), the Option shall remain exercisable for three years from the date of such termination of employment (but not beyond the Term of the Option) and (c) if the Optionee dies or becomes Disabled (A) while employed by the Corporation or (B) within 90 days after the termination of his or her employment (other than a termination described in clause (a) or (b) of this sentence), the Option may be exercised at any time within one year after the Optionee's death or Disability (but not beyond the Term of the Option). (ii) If the Optionee's employment terminates by reason of death, Disability, Retirement, the termination of the Optionee's employment by the Company other than for Cause, or the termination of the Optionee's employment by the Optionee for Good Reason, the Option shall become fully and immediately vested and exercisable. In the event of a Change in Control (as defined in the last Section hereof), the Option shall immediately become fully vested and exercisable. 5. Adjustment Upon Changes in Capitalization. (a) The aggregate number of Option Shares and the Purchase Price shall be appropriately adjusted by the Committee for any increase or decrease in the number of issued shares of Common Stock resulting from a subdivision or consolidation of shares or other capital adjustment, or the payment of a stock dividend or other increase or decrease in such shares, effected without receipt of consideration by the Corporation, or other change in corporate or capital structure. The Committee shall also make the foregoing changes and any other changes, including changes in the classes of securities available, to the extent reasonably necessary or desirable to preserve the intended benefits under this Employee Option Agreement in the event of any other reorganization, recapitalization, merger, consolidation, spin-off, extraordinary dividend or other distribution or similar transaction involving the Corporation. (b) Any adjustment under this Section 5 in the number of Option Shares and the Purchase Price shall apply to only the unexercised portion of the Option. If fractions of a share would result from any such adjustment, the adjustment shall be rounded down to the nearest whole number of shares. 6. Method of Exercising Option and Withholding. (a) The Option shall be exercised by the delivery by the Optionee to the Corporation at its principal office (or at such other address as may be established by the Committee) of written notice of the number of Option Shares with respect to which the Option is exercised, accompanied by payment in full of the aggregate Purchase Price for such Option Shares. Payment for such Option Shares shall be made (i) in U.S. dollars by personal check, bank draft or money order payable to the order of the Corporation, or by money transfers or direct account debits to an account designated by the Corporation; (ii) through the delivery of shares of Common Stock with a Fair Market Value equal to the total payment due from the Optionee; (iii) pursuant to a "cashless exercise" program if such a program is established by the Corporation; or (iv) by any combination of the methods described in (i) through (iii) above. (b) The Corporation's obligation to deliver shares of Common Stock upon the exercise of the Option shall be subject to the payment by the Optionee of applicable federal, state and local withholding tax, if any. The Corporation shall, to the extent permitted by law, have the right to deduct from any payment of any kind otherwise due to the Optionee any federal, state or local taxes required to be withheld with respect to such payment. 7. Transfer. Except as provided in this Section 7, the Option is not transferable otherwise than by will or the laws of descent and distribution, and the Option may be exercised during the Optionee's lifetime only by the Optionee. Any attempt to transfer the Option in contravention of this Section 7 is void ab initio. The Option shall not be subject to execution, attachment or other process. Notwithstanding the foregoing, the Optionee shall be permitted to transfer the Option to members of his or her immediate family (i.e., children, grandchildren or spouse), trusts for the benefit of such family members, and partnerships whose only partners are such family members; provided, however, that no consideration can be paid for the transfer of the Option and the transferee of the Option shall be subject to all conditions applicable to the Option prior to its transfer. 8. No Rights in Option Shares. The Optionee shall have none of the rights of a stockholder with respect to the Option Shares unless and until shares of Common Stock are issued upon exercise of the Option. 9. No Right to Employment. Nothing contained herein shall be deemed to confer upon the Optionee any right to remain as an employee of the Corporation. 10. Governing Law/Jurisdiction. This Employee Option Agreement shall be governed by and construed in accordance with the laws of the State of Delaware without reference to principles of conflict of laws. 11. Resolution of Disputes. Any disputes arising under or in connection with this Employee Option Agreement shall be resolved by binding arbitration before a single arbitrator, to be held in New York in accordance with the commercial rules and procedures of the American Arbitration Association. Judgment upon the award rendered by the arbitrator shall be final and subject to appeal only to the extent permitted by law. Each party shall bear such party's own expenses incurred in connection with any arbitration; provided, however, that the cost of the arbitration, including without limitation, reasonable attorneys' fees of the Optionee, shall be borne by the Corporation in the event the Optionee is the prevailing party in the arbitration. Anything to the contrary notwithstanding, each party hereto has the right to proceed with a court action for injunctive relief or relief from violations of law not within the jurisdiction of an arbitrator. 12. Notices. Any notice required or permitted under this Employee Option Agreement shall be deemed given when delivered personally, or when deposited in a United States Post Office, postage prepaid, addressed, as appropriate, to the Optionee at the last address specified in Optionee's employment records, or such other address as the Optionee may designate in writing to the Corporation, or to the Corporation, Attention: Corporate Secretary, or such other address as the Corporation may designate in writing to the Optionee. 13. Failure To Enforce Not a Waiver. The failure of either party hereto to enforce at any time any provision of this Employee Option Agreement shall in no way be construed to be a waiver of such provision or of any other provision hereof. 14. Counterparts. This Employee Option Agreement may be executed in two or more counterparts, each of which shall be an original but all of which together shall represent one and the same agreement. 15. Miscellaneous. This Employee Option Agreement cannot be changed or terminated orally. This Employee Option Agreement and the Plan contain the entire agreement between the parties relating to the subject matter hereof. The section headings herein are intended for reference only and shall not affect the interpretation hereof. 16. Definitions. For purposes of this Employee Option Agreement: (I) the term "Affiliate" of any Person shall mean any other Person that directly or indirectly, through one or more intermediaries, Controls, is Controlled by, or is under common Control with, such first Person. The term "Control" shall have the meaning specified in Rule 12b-2 under the Securities Exchange Act of 1934 as in effect on the date of this Agreement; (II) the term "Beneficial Owner" shall have the meaning used in Rule 13d- 3 promulgated under the Exchange Act; (III) the term "Cause" shall mean (A) the willful and continued failure by the Optionee to substantially perform the Optionee's duties with the Corporation (other than any such failure resulting from the Optionee's incapacity due to physical or mental illness 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 to the Optionee by the Corporation, that specifically identifies the manner in which the Corporation believes that the Optionee has not substantially performed the Optionee's duties, or (B) the willful engaging by the Optionee in misconduct that is demonstrably and materially injurious to the Corporation, monetarily or otherwise including, but not limited to conduct that violates any written noncompetition covenant between the Optionee and the Corporation. No act, or failure to act, on the Optionee's part shall be deemed "willful" unless done, or omitted to be done, by the Optionee not in good faith and without reasonable belief that the Optionee's action or omission was in the best interest of the Corporation. Notwithstanding the foregoing, the Optionee shall not be deemed to have been terminated for Cause without (i) reasonable notice from the Board to the Optionee setting forth the reasons for the Corporation's intention to terminate for Cause, (ii) delivery to the Optionee of a resolution duly adopted by the affirmative vote two-thirds or more of the Board then in office (excluding the Optionee 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 Optionee was guilty of conduct herein set forth and specifying the particulars thereof in detail, (iii) an opportunity for the Optionee, together with his counsel, to be heard before the Board, and (iv) delivery to the Optionee of a Notice of Termination from the Board specifying the particulars in detail. (IV) the term "Change in Control" shall mean any of the following events: (1) any Person is or becomes the Beneficial Owner, directly or indirectly, of 40% or more of either (x) the then outstanding common stock of the Company (the "Outstanding Common Stock") or (y) the combined voting power of the then outstanding securities entitled to vote generally in the election of directors of the Company (the "Total Voting Power"), excluding, however, the following (1) any acquisition by the Company or any of its Controlled Affiliates, (2) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any of its Controlled Affiliates and (3) any Person who becomes such a Beneficial Owner in connection with a transaction described in the exclusion within paragraph (3) below; or (2) a change in the composition of the Board such that the individuals who, on the date hereof, 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 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 considered a member of the Incumbent Board; or (3) there is consummated a merger or consolidation of the Company or any direct or indirect subsidiary of the Company or a sale or other disposition of all or substantially all of the assets of the Company ("Corporate Transaction"); excluding, however, such a Corporate Transaction pursuant to which (x) all or substantially all of the individuals and entities who are the Beneficial Owners, respectively, of the Outstanding Common Stock and the 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 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, and (y) immediately following which the individuals who comprise the Board immediately prior thereto constitute at least a majority of the board 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); or (4) the approval by the stockholders of the Company of a complete liquidation or dissolution of the Company; (V) the term "Disability (or becoming Disabled)" shall mean that, as a result of the Optionee's incapacity due to physical or mental illness or injury, he or she shall not have performed all or substantially all of his or her usual duties as an employee of the Corporation for a period of more than one- hundred-fifty (150) days in any period of one-hundred-eighty (180) consecutive days; (VI) the term "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended; (VII) the term "Good Reason" for termination by the Optionee of the Optionee's employment shall mean: (1) A diminution in the Optionee's position, duties, responsibilities or authority (except during periods when the Executive is unable to perform all or substantially all of his duties on account of illness (either physical or mental) or other incapacity; (2) A reduction in the Optionee's annual rate of base salary as in effect on the date hereof or as the same may be increased from time to time; (3) Failure by the Corporation to continue in effect any compensation plan in which the Optionee participates which is material to the Optionee'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 Corporation to continue the Optionee's participation therein (or in such substitute plan) on a basis not materially less favorable to the Optionee; (4) Failure by the Corporation to continue to provide the Optionee with benefits substantially similar to those enjoyed by the Optionee under any of the Corporation's pension, savings, life insurance, medical, health and accident, or disability plans in which the Optionee was participating (except for across-the-board changes similarly affecting all senior executives of the Corporation and all senior executives of any Person in control of the Corporation), or failure by the Corporation to continue to provide the Optionee with the number of paid vacation days per year equal to the greater 4 weeks and (b) the number to which the Optionee is entitled in accordance with the Corporation's vacation policy; (5) Failure to provide facilities or services which are suitable to the Optionee's position; (6) Failure of any successor (whether direct or indirect, by purchase of stock or assets, merger, consolidation or otherwise) to the Corporation to assume the Corporation's obligations hereunder or failure by the Corporation to remain liable to the Optionee hereunder after such assumption; (7) Any termination by the Corporation of the Optionee's employment which is not effected pursuant to a Notice of Termination satisfying the requirements of a Notice of Termination contained in this Agreement; (8) the relocation of the Optionee's principal place of employment to a location more than fifty (50) miles from the Optionee's principal place of employment as of the date hereof; or (9) Failure to pay the Optionee any portion of current or deferred compensation within seven (7) days of the date such compensation is due. The Optionee'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 Optionee shall be deemed to have waived his rights pursuant to circumstances constituting Good Reason hereunder if he shall not have provided the Corporation a Notice of Termination within ninety (90) days following his knowledge of the occurrence of circumstances constituting Good Reason; (VIII) the term "Governance Agreement shall mean the Governance Agreement, dated [ ], 2000, among LXH, L.L.C., LXH II, L.L.C., Hexcel Corporation and the other parties listed on the signature pages thereto; (IX) the term "Person" shall have the meaning given in Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d) of the Exchange Act; and (X) the term "Retirement" shall mean termination of the Optionee's employment, other than by reason of death or Cause, either (A) at or after age 65 or (B) at or after age 55 after five (5) years of employment by the Corporation (or a Subsidiary thereof). (XI) the term "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 Optionee's employment under the provision so indicated. Annex A NOTICE OF GRANT EMPLOYEE STOCK OPTION HEXCEL CORPORATION INCENTIVE STOCK PLAN The following employee of Hexcel Corporation, a Delaware corporation ("Hexcel") or a Subsidiary, has been granted an option to purchase shares of the Common Stock of Hexcel, $.01 par value, in accordance with the terms of this Notice of Grant and the Employee Option Agreement to which this Notice of Grant is attached. The following is a summary of the principal terms of the option which has been granted. The terms below shall have the meanings ascribed to them below when used in the Employee Option Agreement. Optionee Address of Optionee Employee Number Employee ID Number Foreign Sub Plan, if applicable Grant Date Purchase Price Aggregate Number of Shares Granted (the "Option Shares") - ---------------------------------------------------- -------------------------- IN WITNESS WHEREOF, the parties hereby agree to the terms of this Notice of Grant and the Employee Option Agreement to which this Notice of Grant is attached and execute this Notice of Grant and Employee Option Agreement as of the Grant Date. _______________________ HEXCEL CORPORATION Optionee By: _____________________________ Ira J. Krakower Senior Vice President EX-10 8 0008.txt EXHIBIT 10.9 EXHIBIT 10.9 AMENDMENT TO AGREEMENTS AGREEMENT, dated as of October 11, 2000 by and between Hexcel Corporation, a Delaware corporation (the "Company") and Joseph Shaulson (the "Executive"). WHEREAS, the Company maintains the Hexcel Corporation Incentive Stock Plan (the "Plan") and the Hexcel Corporation Management Stock Purchase Plan (the "MSPP"); and WHEREAS, the Company has granted to the Executive (1) under the Plan, nonqualified options ("NQOs") to acquire shares of the common stock of the Company (the "Common Stock"), performance accelerated stock options ("PASOs" and, together with the NQOs, the "Options") to acquire shares of Common Stock and contractual rights representing the right to earn shares of Common Stock under specified circumstances ("PARs") and (2) contractual rights under the MSPP representing the right to earn shares of Common Stock under specified circumstances ("RSUs"), in each case evidenced by written award agreements entered into between the Company and the Executive (the "Award Agreements"); and WHEREAS, under the Award Agreements the Executive has certain rights upon the occurrence of a Change in Control (as defined thereby); and WHEREAS, the Company and the Executive have entered into an Executive Severance Agreement dated as of February 3, 1999 (the "Severance Agreement"); and WHEREAS, under the Severance Agreement the Executive has certain rights upon the occurrence of a Change in Control (as defined therein); and WHEREAS, Ciba Specialty Chemicals Holding, Inc. ("Ciba SCH"), Ciba Specialty Chemicals Inc. ("Ciba SCI"), Ciba Specialty Chemicals Corporation ("Ciba SCC" and together with Ciba SCH and Ciba SCI, "Ciba"), LXH, L.L.C. ("LXH") and LXH II, L.L.C. ("LXH II" and together with LXH, "the Purchasers") have entered into a Stock Purchase Agreement dated as of October 11, 2000 (the "Stock Purchase Agreement") pursuant to which, among other things, the Purchasers will purchase from Ciba shares of Common Stock; and WHEREAS, the consummation (the "Closing") of the transactions contemplated by the Stock Purchase Agreement (the "Transactions") will constitute a Change in Control under the Plan, the MSPP, the Award Agreements and the Severance Agreement; and WHEREAS, the Company desires the Executive to waive certain rights under the Plan, the MSPP and the Award Agreements and desires to provide additional incentives to the Executive to remain employed by the Company following the Closing. NOW, THEREFORE, the Company and the Executive hereby agree as follows. 1. The consummation of the Transactions shall not constitute a Change in Control for purposes of the Plan, the MSPP or the Award Agreements, notwithstanding anything therein to the contrary. 2. Each Award Agreement and the Severance Agreement is hereby amended to incorporate a new definition of the term Change in Control (and related definitions), in the form annexed hereto as Exhibit A. 3. Each Award Agreement pursuant to which Options have been granted is hereby amended to provide that each Option that is unvested at the Closing will vest and become exercisable on the earliest to occur of (i) as to 50% of the shares subject thereto, on the 1st anniversary of the Closing and as to the remaining 50% of the shares subject thereto, on the 2nd anniversary of the Closing, (ii) the Executive's termination of employment due to death, Disability (as defined in the Severance Agreement), termination by the Company without Cause (as defined in the Severance Agreement) or by the Executive for Good Reason (as defined in the Severance Agreement) or (iii) the occurrence of a Change in Control (as defined in Exhibit A hereto). 4. Each Award Agreement pursuant to which PARs have been granted is hereby amended to provide that each PAR subject thereto will vest and, without being subject to the existing limitations relating to Section 162(m) of the Internal Revenue Code of 1986, as amended, the underlying shares will be distributed on the earliest to occur of (i) as to 50% of the shares subject thereto, on the 1st anniversary of the Closing and as to the remaining 50% of the shares subject thereto, on the 2nd anniversary of the Closing, (ii) the Executive's termination of employment due to death, Disability, termination by the Company without Cause or by the Executive for Good Reason or (iii) the occurrence of a Change in Control (as defined in Exhibit A hereto). 5. Each Award Agreement pursuant to which RSUs have been granted is hereby amended to provide that each RSU subject thereto will vest and the underlying shares will be distributed on the earliest to occur of (i) as to 50% of the shares subject thereto, on the 1st anniversary of the Closing and as to the remaining 50% of the shares subject thereto, on the 2nd anniversary of the Closing, (ii) the Executive's termination of employment due to death, Disability, termination by the Company without Cause or by the Executive for Good Reason or (iii) the occurrence of a Change in Control (as defined in Exhibit A hereto). 6. The Severance Agreement is hereby amended to include a provision, in the form annexed hereto as Exhibit B, pursuant to which, under the circumstances described therein, the Company will hold the Executive harmless from any excise tax that may be imposed on the Executive under section 280G of the Internal Revenue Code of 1986, as amended. 7. Except as otherwise expressly provided herein, the Award Agreements and the Severance Agreement shall remain in effect in accordance with their respective terms. 8. Effective as of the date on which the Closing occurs (the "Closing Date"), the Company shall grant to the Executive options to acquire 27,186 shares of Common Stock. Such options shall be at an exercise price per share equal to the greater of (a) the fair market value (as defined in the Plan) of a share of Common Stock on the Closing Date or (b) $11, and shall otherwise be made pursuant to the form of Stock Option Agreement annexed hereto as Exhibit C. The Company agrees that such grant shall not be in lieu of, or otherwise be taken into account in determining the size or terms of, the annual long term incentive grant to the Executive for the 2001 or other fiscal year. 9. For purposes of this Agreement, notices, demands, and all other communications provided for hereunder shall be in writing and shall be deemed to have been duly given when hand delivered or (unless otherwise specified) when mailed by United States certified mail, return receipt requested, postage prepaid, addressed as follows: To the Executive at the address shown in the personnel records of the Company To the Company at: Hexcel Corporation Two Stamford Plaza 281 Tresser Boulevard Stamford Connecticut 06901-3238 Att'n: or to such other address as either 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. 10. The invalidity or unenforceability of any provision hereof shall not affect the other provisions hereof, and this Agreement shall be construed in all respects as if such invalid or unenforceable provision had been omitted. 11. No change, modification or waiver of any provision of this Agreement shall be valid unless the same be in writing and signed by the parties hereto. 12. This Agreement contains the entire understanding of the parties hereto with respect to the subject matter hereof and supersedes all prior communications, representations and negotiations in respect thereto. 13. This Agreement shall be governed by, and construed and enforced in accordance with, the laws of the State of Delaware, without regard to its conflicts of law rules. 14. This Agreement may be executed in counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same instrument. 15. This agreement shall become effective upon the Closing, and shall be null and void and of no effect if the Closing does not occur. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date and year first written above. HEXCEL CORPORATION By: /s/ Ira J. Krakower Name: Ira J. Krakower Title: Senior Vice President /s/ Joseph Shaulson Joseph Shaulson EXHIBIT A Affiliate of any Person shall mean any other Person that directly or indirectly, through one or more intermediaries, Controls, is Controlled by, or is under common Control with, such first Person. Control shall have the meaning specified in Rule 12b-2 under the Securities Exchange Act of 1934 as in effect on the date of this Agreement. Beneficial Owner shall have the meaning used in Rule 13d-3 promulgated under the Exchange Act. Change in Control means: (i) any Person is or becomes the Beneficial Owner, directly or indirectly, of 40% or more of either (x) the then outstanding common stock of the Company (the "Out standing Common Stock") or (y) the combined voting power of the then outstanding securities entitled to vote generally in the election of directors of the Company (the "Total Voting Power"), excluding, however, the following (1) any acquisition by the Company or any of its Controlled Affiliates, (2) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any of its Controlled Affiliates and (3) any Person who becomes such a Beneficial Owner in connection with a transaction described in the exception within clause (iii) below; or (ii) a change in the composition of the Board such that the individuals who, on the date hereof, 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 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 considered a member of the Incumbent Board; or (iii) there is consummated a merger or consolidation of the Company or any direct or indirect subsidiary of the Company or a sale or other disposition of all or substantially all of the assets of the Company ("Corporate Transaction"); excluding, how- ever, such a Corporate Transaction pursuant to which (x) all or substantially all of the individuals and entities who are the Beneficial Owners, respectively, of the Outstanding Common Stock and the 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 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, and (y) immediately following which the individuals who comprise the Board immediately prior thereto constitute at least a majority of the board 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); or (iv) the approval by the stockholders of the Company of a complete liquidation or dissolution of the Company; or (v) the consummation of the transactions contemplated by the Stock Purchase Agreement.1 Exchange Act shall mean the Securities Exchange Act of 1934, as amended. Governance Agreement shall mean the Governance Agreement, dated [ ], 2000, among LXH, L.L.C., LXH II, L.L.C., Hexcel Corporation and the other parties listed on the signature pages thereto. Person shall have the meaning set forth in Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d) of the Exchange Act. Stock Purchase Agreement shall mean the Stock Purchase Agreement dated as of October 11, 2000 by and among Ciba Specialty Chemicals Holding, Inc., Ciba - -------- 1Clause (v) to be included only in the Severance Agreement. Specialty Chemicals Inc., Ciba Specialty Chemicals Corporation, LXH, L.L.C. ("LXH") and LXH II, L.L.C..2 - -------- 2This definition to be included only in the Severance Agreement. EXHIBIT B Additional Payments. (a) In the event that the Executive becomes entitled to the payments under Section 4 hereof, if any of the payments or benefits received or to be received by the Executive in connection with the transactions contemplated by the Stock Purchase Agreement or the Executive's termination of employment within 2 years thereof (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 and benefits, excluding the Gross-Up Payment, being hereinafter referred to as the "Total Payments") will be subject to the excise tax (the "Excise Tax") imposed under section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), the Company shall pay to the Executive an additional amount (the "Gross-Up Payment") such that the net amount retained by the Executive, after deduction of any Excise Tax on the Total Payments and any federal, state and local income and employment taxes and Excise Tax upon the Gross-Up Payment, shall be equal to the Total Payments. (b) For purposes of determining whether any of the Total Payments will be subject to the Excise Tax and the amount of such Excise Tax, (i) all of the Total Payments shall be treated as "parachute payments" (within the meaning of section 280G(b)(2) of the Code) unless, in the opinion of tax counsel ("Tax Counsel") reasonably acceptable to the Executive and selected by the accounting firm which was, immediately prior to the Change in Control, the Company's independent auditor (the "Auditor"), such payments or benefits (in whole or in part) do not constitute parachute payments, including by reason of section 280G(b)(4)(A) of the Code, (ii) all "excess parachute payments" within the meaning of section 280G(b)(l) of the Code shall be treated as subject to the Excise Tax unless, in the opinion of Tax Counsel, such excess parachute payments (in whole or in part) represent reasonable compensation for services actually rendered (within the meaning of section 280G(b)(4)(B) of the Code) in excess of the base amount (within the meaning of section 280G(b)(3) of the Code) allocable to such reasonable compensation, or are otherwise not subject to the Excise Tax, and (iii) the value of any noncash benefits or any deferred payment or benefit shall be determined by the Auditor in accordance with the principles of sections 280G(d)(3) and (4) of the Code. For purposes of determining the amount of the Gross-Up Payment, the Executive shall be deemed to pay federal income tax at the highest marginal rate of federal income taxation in the calendar year in which the Gross-Up Payment is to be made and state and local income taxes at the highest marginal rate of taxation in the state and locality of the Executive's residence on the Date of Termination (or if there is no Date of Termination, then the date on which the Gross-Up Payment is calculated for purposes of this Section), net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes. (c) In the event that the Excise Tax is finally determined to be less than the amount taken into account hereunder in calculating the Gross-Up Payment, the Executive shall repay to the Company, within five (5) business days following the time that the amount of such reduction in the Excise Tax is finally determined, the portion of the Gross-Up Payment attributable to such reduction (plus that portion of the Gross-Up Payment attributable to the Excise Tax and federal, state and local income and employment taxes imposed on the Gross-Up Payment being repaid by the Executive, to the extent that such repayment results in a reduction in the Excise Tax and a dollar-for-dollar reduction in the Executive's taxable income and wages for purposes of federal, state and local income and employment taxes, plus interest on the amount of such repayment at 120% of the rate provided in section 1274(b)(2)(B) of the Code. In the event that the Excise Tax is determined to exceed the amount taken into account hereunder in calculating the Gross-Up Payment (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross-Up Payment), the Company shall make an additional Gross-Up Payment in respect of such excess (plus any interest, penalties or additions payable by the Executive with respect to such excess) within five (5) business days following the time that the amount of such excess is finally determined. 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. EXHIBIT C EMPLOYEE OPTION AGREEMENT EMPLOYEE OPTION AGREEMENT, dated as of the Grant Date, by and between the Optionee and Hexcel Corporation (the "Corporation"). W I T N E S S E T H: WHEREAS, the Corporation has adopted the Hexcel Corporation Incentive Stock Plan (the "Plan"); and WHEREAS, the Executive Compensation Committee (the "Committee") of the Board of Directors of the Corporation (the "Board") has determined that it is desirable and in the best interest of the Corporation to grant to the Optionee a stock option as an incentive for the Optionee to advance the interests of the Corporation; NOW, THEREFORE, the parties agree as follows: 1. Notice of Grant; Incorporation of Plan. A Notice of Grant is attached hereto as Annex A and incorporated by reference herein. Unless otherwise provided herein, capitalized terms used herein and set forth in such Notice of Grant shall have the meanings ascribed to them in the Notice of Grant and capitalized terms used herein and set forth in the Plan shall have the meanings ascribed to them in the Plan. The Plan is incorporated by reference and made a part of this Employee Option Agreement, and this Employee Option Agreement shall be subject to the terms of the Plan, as the Plan may be amended from time to time, provided that any such amendment of the Plan must be made in accordance with Section X of the Plan. The Option granted herein constitutes an Award within the meaning of the Plan. 2. Grant of Option. Pursuant to the Plan and subject to the terms and conditions set forth herein and therein, the Corporation hereby grants to the Optionee the right and option (the "Option") to purchase all or any part of the Option Shares of the Corporation's common stock, $.01 par value per share (the "Common Stock"), which Option is not intended to qualify as an incentive stock option, as defined in Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"). 3. Purchase Price. The purchase price per share of the Option Shares shall be the Purchase Price. 4. Term of Option. (a) Expiration Date; Term. Subject to Section 4(c) below, the Option shall expire on, and shall no longer be exercisable following, the tenth anniversary of the Grant Date. The ten-year period from the Grant Date to its tenth anniversary shall constitute the "Term" of the Option. (b) Vesting Period; Exercisability. Subject to Section 4(c) below, the Option shall vest and become exercisable at the rate of 33-1/3% of the Option Shares on each of the first three anniversaries of the Grant Date. (c) Termination of Employment; Change in Control. (i) For purposes of the grant hereunder, any transfer of employment by the Optionee among the Corporation and the Subsidiaries shall not be considered a termination of employment. Except as set forth below in this Section 4(c)(i), if the Optionee's employment with the Corporation shall terminate for any reason, (a) the Option (to the extent then vested) may be exercised at any time within ninety (90) days after such termination (but not beyond the Term of the Option) and (b) the Option, to the extent not then vested, shall immediately expire upon such termination. Notwithstanding the foregoing, (a) if the Optionee's employment with the Corporation is terminated for Cause (as defined in the last Section hereof), the Option, whether or not then vested, shall be automatically terminated as of the date of such termination of employment, (b) if the Optionee's employment terminates by reason of Retirement, the termination of the Optionee's employment by the Company other than for Cause, or the termination of the Optionee's employment by the Optionee for Good Reason (as defined in the last Section hereof), the Option shall remain exercisable for three years from the date of such termination of employment (but not beyond the Term of the Option) and (c) if the Optionee dies or becomes Disabled (A) while employed by the Corporation or (B) within 90 days after the termination of his or her employment (other than a termination described in clause (a) or (b) of this sentence), the Option may be exercised at any time within one year after the Optionee's death or Disability (but not beyond the Term of the Option). (ii) If the Optionee's employment terminates by reason of death, Disability, Retirement, the termination of the Optionee's employment by the Company other than for Cause, or the termination of the Optionee's employment by the Optionee for Good Reason, the Option shall become fully and immediately vested and exercisable. In the event of a Change in Control (as defined in the last Section hereof), the Option shall immediately become fully vested and exercisable. 5. Adjustment Upon Changes in Capitalization. (a) The aggregate number of Option Shares and the Purchase Price shall be appropriately adjusted by the Committee for any increase or decrease in the number of issued shares of Common Stock resulting from a subdivision or consolidation of shares or other capital adjustment, or the payment of a stock dividend or other increase or decrease in such shares, effected without receipt of consideration by the Corporation, or other change in corporate or capital structure. The Committee shall also make the foregoing changes and any other changes, including changes in the classes of securities available, to the extent reasonably necessary or desirable to preserve the intended benefits under this Employee Option Agreement in the event of any other reorganization, recapitalization, merger, consolidation, spin-off, extraordinary dividend or other distribution or similar transaction involving the Corporation. (b) Any adjustment under this Section 5 in the number of Option Shares and the Purchase Price shall apply to only the unexercised portion of the Option. If fractions of a share would result from any such adjustment, the adjustment shall be rounded down to the nearest whole number of shares. 6. Method of Exercising Option and Withholding. (a) The Option shall be exercised by the delivery by the Optionee to the Corporation at its principal office (or at such other address as may be established by the Committee) of written notice of the number of Option Shares with respect to which the Option is exercised, accompanied by payment in full of the aggregate Purchase Price for such Option Shares. Payment for such Option Shares shall be made (i) in U.S. dollars by personal check, bank draft or money order payable to the order of the Corporation, or by money transfers or direct account debits to an account designated by the Corporation; (ii) through the delivery of shares of Common Stock with a Fair Market Value equal to the total payment due from the Optionee; (iii) pursuant to a "cashless exercise" program if such a program is established by the Corporation; or (iv) by any combination of the methods described in (i) through (iii) above. (b) The Corporation's obligation to deliver shares of Common Stock upon the exercise of the Option shall be subject to the payment by the Optionee of applicable federal, state and local withholding tax, if any. The Corporation shall, to the extent permitted by law, have the right to deduct from any payment of any kind otherwise due to the Optionee any federal, state or local taxes required to be withheld with respect to such payment. 7. Transfer. Except as provided in this Section 7, the Option is not transferable otherwise than by will or the laws of descent and distribution, and the Option may be exercised during the Optionee's lifetime only by the Optionee. Any attempt to transfer the Option in contravention of this Section 7 is void ab initio. The Option shall not be subject to execution, attachment or other process. Notwithstanding the foregoing, the Optionee shall be permitted to transfer the Option to members of his or her immediate family (i.e., children, grandchildren or spouse), trusts for the benefit of such family members, and partnerships whose only partners are such family members; provided, however, that no consideration can be paid for the transfer of the Option and the transferee of the Option shall be subject to all conditions applicable to the Option prior to its transfer. 8. No Rights in Option Shares. The Optionee shall have none of the rights of a stockholder with respect to the Option Shares unless and until shares of Common Stock are issued upon exercise of the Option. 9. No Right to Employment. Nothing contained herein shall be deemed to confer upon the Optionee any right to remain as an employee of the Corporation. 10. Governing Law/Jurisdiction. This Employee Option Agreement shall be governed by and construed in accordance with the laws of the State of Delaware without reference to principles of conflict of laws. 11. Resolution of Disputes. Any disputes arising under or in connection with this Employee Option Agreement shall be resolved by binding arbitration before a single arbitrator, to be held in New York in accordance with the commercial rules and procedures of the American Arbitration Association. Judgment upon the award rendered by the arbitrator shall be final and subject to appeal only to the extent permitted by law. Each party shall bear such party's own expenses incurred in connection with any arbitration; provided, however, that the cost of the arbitration, including without limitation, reasonable attorneys' fees of the Optionee, shall be borne by the Corporation in the event the Optionee is the prevailing party in the arbitration. Anything to the contrary notwithstanding, each party hereto has the right to proceed with a court action for injunctive relief or relief from violations of law not within the jurisdiction of an arbitrator. 12. Notices. Any notice required or permitted under this Employee Option Agreement shall be deemed given when delivered personally, or when deposited in a United States Post Office, postage prepaid, addressed, as appropriate, to the Optionee at the last address specified in Optionee's employment records, or such other address as the Optionee may designate in writing to the Corporation, or to the Corporation, Attention: Corporate Secretary, or such other address as the Corporation may designate in writing to the Optionee. 13. Failure To Enforce Not a Waiver. The failure of either party hereto to enforce at any time any provision of this Employee Option Agreement shall in no way be construed to be a waiver of such provision or of any other provision hereof. 14. Counterparts. This Employee Option Agreement may be executed in two or more counterparts, each of which shall be an original but all of which together shall represent one and the same agreement. 15. Miscellaneous. This Employee Option Agreement cannot be changed or terminated orally. This Employee Option Agreement and the Plan contain the entire agreement between the parties relating to the subject matter hereof. The section headings herein are intended for reference only and shall not affect the interpretation hereof. 16. Definitions. For purposes of this Employee Option Agreement: (I) the term "Affiliate" of any Person shall mean any other Person that directly or indirectly, through one or more intermediaries, Controls, is Controlled by, or is under common Control with, such first Person. The term "Control" shall have the meaning specified in Rule 12b-2 under the Securities Exchange Act of 1934 as in effect on the date of this Agreement; (II) the term "Beneficial Owner" shall have the meaning used in Rule 13d- 3 promulgated under the Exchange Act; (III) the term "Cause" shall mean (A) the willful and continued failure by the Optionee to substantially perform the Optionee's duties with the Corporation (other than any such failure resulting from the Optionee's incapacity due to physical or mental illness 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 to the Optionee by the Corporation, that specifically identifies the manner in which the Corporation believes that the Optionee has not substantially performed the Optionee's duties, or (B) the willful engaging by the Optionee in misconduct that is demonstrably and materially injurious to the Corporation, monetarily or otherwise including, but not limited to conduct that violates any written noncompetition covenant between the Optionee and the Corporation. No act, or failure to act, on the Optionee's part shall be deemed "willful" unless done, or omitted to be done, by the Optionee not in good faith and without reasonable belief that the Optionee's action or omission was in the best interest of the Corporation. Notwithstanding the foregoing, the Optionee shall not be deemed to have been terminated for Cause without (i) reasonable notice from the Board to the Optionee setting forth the reasons for the Corporation's intention to terminate for Cause, (ii) delivery to the Optionee of a resolution duly adopted by the affirmative vote two-thirds or more of the Board then in office (excluding the Optionee 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 Optionee was guilty of conduct herein set forth and specifying the particulars thereof in detail, (iii) an opportunity for the Optionee, together with his counsel, to be heard before the Board, and (iv) delivery to the Optionee of a Notice of Termination from the Board specifying the particulars in detail. (IV) the term "Change in Control" shall mean any of the following events: (1) any Person is or becomes the Beneficial Owner, directly or indirectly, of 40% or more of either (x) the then outstanding common stock of the Company (the "Outstanding Common Stock") or (y) the combined voting power of the then outstanding securities entitled to vote generally in the election of directors of the Company (the "Total Voting Power"), excluding, however, the following (1) any acquisition by the Company or any of its Controlled Affiliates, (2) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any of its Controlled Affiliates and (3) any Person who becomes such a Beneficial Owner in connection with a transaction described in the exclusion within paragraph (3) below; or (2) a change in the composition of the Board such that the individuals who, on the date hereof, 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 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 considered a member of the Incumbent Board; or (3) there is consummated a merger or consolidation of the Company or any direct or indirect subsidiary of the Company or a sale or other disposition of all or substantially all of the assets of the Company ("Corporate Transaction"); excluding, however, such a Corporate Transaction pursuant to which (x) all or substantially all of the individuals and entities who are the Beneficial Owners, respectively, of the Outstanding Common Stock and the 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 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, and (y) immediately following which the individuals who comprise the Board immediately prior thereto constitute at least a majority of the board 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); or (4) the approval by the stockholders of the Company of a complete liquidation or dissolution of the Company; (V) the term "Disability (or becoming Disabled)" shall mean that, as a result of the Optionee's incapacity due to physical or mental illness or injury, he or she shall not have performed all or substantially all of his or her usual duties as an employee of the Corporation for a period of more than one- hundred-fifty (150) days in any period of one-hundred-eighty (180) consecutive days; (VI) the term "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended; (VII) the term "Good Reason" for termination by the Optionee of the Optionee's employment shall mean: (1) A diminution in the Optionee's position, duties, responsibilities or authority (except during periods when the Executive is unable to perform all or substantially all of his duties on account of illness (either physical or mental) or other incapacity; (2) A reduction in the Optionee's annual rate of base salary as in effect on the date hereof or as the same may be increased from time to time; (3) Failure by the Corporation to continue in effect any compensation plan in which the Optionee participates which is material to the Optionee'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 Corporation to continue the Optionee's participation therein (or in such substitute plan) on a basis not materially less favorable to the Optionee; (4) Failure by the Corporation to continue to provide the Optionee with benefits substantially similar to those enjoyed by the Optionee under any of the Corporation's pension, savings, life insurance, medical, health and accident, or disability plans in which the Optionee was participating (except for across-the-board changes similarly affecting all senior executives of the Corporation and all senior executives of any Person in control of the Corporation), or failure by the Corporation to continue to provide the Optionee with the number of paid vacation days per year equal to the greater 4 weeks and (b) the number to which the Optionee is entitled in accordance with the Corporation's vacation policy; (5) Failure to provide facilities or services which are suitable to the Optionee's position; (6) Failure of any successor (whether direct or indirect, by purchase of stock or assets, merger, consolidation or otherwise) to the Corporation to assume the Corporation's obligations hereunder or failure by the Corporation to remain liable to the Optionee hereunder after such assumption; (7) Any termination by the Corporation of the Optionee's employment which is not effected pursuant to a Notice of Termination satisfying the requirements of a Notice of Termination contained in this Agreement; (8) the relocation of the Optionee's principal place of employment to a location more than fifty (50) miles from the Optionee's principal place of employment as of the date hereof; or (9) Failure to pay the Optionee any portion of current or deferred compensation within seven (7) days of the date such compensation is due. The Optionee'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 Optionee shall be deemed to have waived his rights pursuant to circumstances constituting Good Reason hereunder if he shall not have provided the Corporation a Notice of Termination within ninety (90) days following his knowledge of the occurrence of circumstances constituting Good Reason; (VIII) the term "Governance Agreement shall mean the Governance Agreement, dated [ ], 2000, among LXH, L.L.C., LXH II, L.L.C., Hexcel Corporation and the other parties listed on the signature pages thereto; (IX) the term "Person" shall have the meaning given in Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d) of the Exchange Act; and (X) the term "Retirement" shall mean termination of the Optionee's employment, other than by reason of death or Cause, either (A) at or after age 65 or (B) at or after age 55 after five (5) years of employment by the Corporation (or a Subsidiary thereof). (XI) the term "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 Optionee's employment under the provision so indicated. Annex A NOTICE OF GRANT EMPLOYEE STOCK OPTION HEXCEL CORPORATION INCENTIVE STOCK PLAN The following employee of Hexcel Corporation, a Delaware corporation ("Hexcel") or a Subsidiary, has been granted an option to purchase shares of the Common Stock of Hexcel, $.01 par value, in accordance with the terms of this Notice of Grant and the Employee Option Agreement to which this Notice of Grant is attached. The following is a summary of the principal terms of the option which has been granted. The terms below shall have the meanings ascribed to them below when used in the Employee Option Agreement. Optionee Address of Optionee Employee Number Employee ID Number Foreign Sub Plan, if applicable Grant Date Purchase Price Aggregate Number of Shares Granted (the "Option Shares") - ---------------------------------------- -------------------------------------- IN WITNESS WHEREOF, the parties hereby agree to the terms of this Notice of Grant and the Employee Option Agreement to which this Notice of Grant is attached and execute this Notice of Grant and Employee Option Agreement as of the Grant Date. ____________________________ HEXCEL CORPORATION Optionee By: _____________________________ Ira J. Krakower Senior Vice President EX-10 9 0009.txt EXHIBIT 10.10 EXHIBIT 10.10 AMENDMENT TO AGREEMENTS AGREEMENT, dated as of October 11, 2000 by and between Hexcel Corporation, a Delaware corporation (the "Company") and Steven Warshaw (the "Executive"). WHEREAS, the Company maintains the Hexcel Corporation Incentive Stock Plan (the "Plan"); and WHEREAS, the Company has granted to the Executive under the Plan, nonqualified options ("NQOs" or "Options") to acquire shares of the common stock of the Company (the "Common Stock") and contractual rights representing the right to earn shares of Common Stock under specified circumstances ("PARs") in each case evidenced by written award agreements entered into between the Company and the Executive (the "Award Agreements"); and WHEREAS, under the Award Agreements the Executive has certain rights upon the occurrence of a Change in Control (as defined thereby); and WHEREAS, the Company and the Executive have entered into an Executive Severance Agreement dated as of April 17, 2000 (the "Severance Agreement"); and WHEREAS, under the Severance Agreement the Executive has certain rights upon the occurrence of a Change in Control (as defined therein); and WHEREAS, Ciba Specialty Chemicals Holding, Inc. ("Ciba SCH"), Ciba Specialty Chemicals Inc. ("Ciba SCI"), Ciba Specialty Chemicals Corporation ("Ciba SCC" and together with Ciba SCH and Ciba SCI, "Ciba"), LXH, L.L.C. ("LXH") and LXH II, L.L.C. ("LXH II" and together with LXH, "the Purchasers") have entered into a Stock Purchase Agreement dated as of October 11, 2000 (the "Stock Purchase Agreement") pursuant to which, among other things, the Purchasers will purchase from Ciba shares of Common Stock; and WHEREAS, the consummation (the "Closing") of the transactions contemplated by the Stock Purchase Agreement (the "Transactions") will constitute a Change in Control under the Plan, the Award Agreements and the Severance Agreement; and WHEREAS, the Company desires the Executive to waive certain rights under the Plan and the Award Agreements and desires to provide additional incentives to the Executive to remain employed by the Company following the Closing. NOW, THEREFORE, the Company and the Executive hereby agree as follows. 1. The consummation of the Transactions shall not constitute a Change in Control for purposes of the Plan or the Award Agreements, notwithstanding anything therein to the contrary. 2. Each Award Agreement and the Severance Agreement is hereby amended to incorporate a new definition of the term Change in Control (and related definitions), in the form annexed hereto as Exhibit A. 3. Each Award Agreement pursuant to which Options have been granted is hereby amended to provide that each Option that is unvested at the Closing will vest and become exercisable on the earliest to occur of (i) as to 50% of the shares subject thereto, on the 1st anniversary of the Closing and as to the remaining 50% of the shares subject thereto, on the 2nd anniversary of the Closing, (ii) the Executive's termination of employment due to death, Disability (as defined in the Severance Agreement), termination by the Company without Cause (as defined in the Severance Agreement) or by the Executive for Good Reason (as defined in the Severance Agreement or (iii) the occurrence of a Change in Control (as defined in Exhibit A hereto). 4. Each Award Agreement pursuant to which PARs have been granted is hereby amended to provide that each PAR subject thereto will vest and, without being subject to the existing limitations relating to Section 162(m) of the Internal Revenue Code of 1986, as amended, the underlying shares will be distributed on the earliest to occur of (i) as to 50% of the shares subject thereto, on the 1st anniversary of the Closing and as to the remaining 50% of the shares subject thereto, on the 2nd anniversary of the Closing, (ii) the Executive's termination of employment due to death, Disability, termination by the Company without Cause or by the Executive for Good Reason or (iii) the occurrence of a Change in Control (as defined in Exhibit A hereto). 5. Except as otherwise expressly provided herein, the Award Agreements and the Severance Agreement shall remain in effect in accordance with their respective terms. 6. Effective as of the date on which the Closing occurs (the "Closing Date"), the Company shall grant to the Executive options to acquire 6,610 shares of Common Stock. Such options shall be at an exercise price per share equal to the greater of (a) the fair market value (as defined in the Plan) of a share of Common Stock on the Closing Date or (b) $11, and shall otherwise be made pursuant to the form of Stock Option Agreement annexed hereto as Exhibit B. The Company agrees that such grant shall not be in lieu of, or otherwise be taken into account in determining the size or terms of, the annual long term incentive grant to the Executive for the 2001 or other fiscal year. 7. For purposes of this Agreement, notices, demands, and all other communications provided for hereunder shall be in writing and shall be deemed to have been duly given when hand delivered or (unless otherwise specified) when mailed by United States certified mail, return receipt requested, postage prepaid, addressed as follows: To the Executive at the address shown in the personnel records of the Company To the Company at: Hexcel Corporation Two Stamford Plaza 281 Tresser Boulevard Stamford Connecticut 06901-3238 Att'n: or to such other address as either 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. 8. The invalidity or unenforceability of any provision hereof shall not affect the other provisions hereof, and this Agreement shall be construed in all respects as if such invalid or unenforceable provision had been omitted. 9. No change, modification or waiver of any provision of this Agreement shall be valid unless the same be in writing and signed by the parties hereto. 10. This Agreement contains the entire understanding of the parties hereto with respect to the subject matter hereof and supersedes all prior communications, representations and negotiations in respect thereto. 11. This Agreement shall be governed by, and construed and enforced in accordance with, the laws of the State of Delaware, without regard to its conflicts of law rules. 12. This Agreement may be executed in counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same instrument. 13. This agreement shall become effective upon the Closing, and shall be null and void and of no effect if the Closing does not occur. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date and year first written above. HEXCEL CORPORATION By:/s/ Ira J. Krakower Name: Ira J. Krakower Title: Senior Vice President /s/ Steven Warshaw Steven Warshaw EXHIBIT A Affiliate of any Person shall mean any other Person that directly or indirectly, through one or more intermediaries, Controls, is Controlled by, or is under common Control with, such first Person. Control shall have the meaning specified in Rule 12b-2 under the Securities Exchange Act of 1934 as in effect on the date of this Agreement. Beneficial Owner shall have the meaning used in Rule 13d-3 promulgated under the Exchange Act. Change in Control means: (i) any Person is or becomes the Beneficial Owner, directly or indirectly, of 40% or more of either (x) the then outstanding common stock of the Company (the "Out- standing Common Stock") or (y) the combined voting power of the then outstanding securities entitled to vote generally in the election of directors of the Company (the "Total Voting Power"), excluding, however, the following (1) any acquisition by the Company or any of its Controlled Affiliates, (2) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any of its Controlled Affiliates and (3) any Person who becomes such a Beneficial Owner in connection with a transaction described in the exception within clause (iii) below; or (ii) a change in the composition of the Board such that the individuals who, on the date hereof, 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 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 considered a member of the Incumbent Board; or (iii) there is consummated a merger or consolidation of the Company or any direct or indirect subsidiary of the Company or a sale or other disposition of all or substantially all of the assets of the Company ("Corporate Transaction"); excluding, however, such a Corporate Transaction pursuant to which (x) all or substantially all of the individuals and entities who are the Beneficial Owners, respectively, of the Outstanding Common Stock and the 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 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, and (y) immediately following which the individuals who comprise the Board immediately prior thereto constitute at least a majority of the board 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); or (iv) the approval by the stockholders of the Company of a complete liquidation or dissolution of the Company; or (v) the consummation of the transactions contemplated by the Stock Purchase Agreement.1 Exchange Act shall mean the Securities Exchange Act of 1934, as amended. Governance Agreement shall mean the Governance Agreement, dated [ ], 2000, among LXH, L.L.C., LXH II, L.L.C., Hexcel Corporation and the other parties listed on the signature pages thereto. Person shall have the meaning set forth in Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d) of the Exchange Act. Stock Purchase Agreement shall mean the Stock Purchase Agreement dated as of October 11, 2000 by and among Ciba Specialty Chemicals Holding, Inc., Ciba - -------- 1Clause (v) to be included only in the Severance Agreement. Specialty Chemicals Inc., Ciba Specialty Chemicals Corporation, LXH, L.L.C. ("LXH") and LXH II, L.L.C..2 - -------- 2This definition to be included only in the Severance Agreement. EXHIBIT B EMPLOYEE OPTION AGREEMENT (October, 2000) EMPLOYEE OPTION AGREEMENT, dated as of the Grant Date, by and between the Optionee and Hexcel Corporation (the "Corporation"). W I T N E S S E T H: WHEREAS, the Corporation has adopted the Hexcel Corporation Incentive Stock Plan (the "Plan"); and WHEREAS, the Executive Compensation Committee (the "Committee") of the Board of Directors of the Corporation (the "Board") has determined that it is desirable and in the best interest of the Corporation to grant to the Optionee a stock option as an incentive for the Optionee to advance the interests of the Corporation; NOW, THEREFORE, the parties agree as follows: 1. Notice of Grant; Incorporation of Plan. A Notice of Grant is attached hereto as Annex A and incorporated by reference herein. Unless otherwise provided herein, capitalized terms used herein and set forth in such Notice of Grant shall have the meanings ascribed to them in the Notice of Grant and capitalized terms used herein and set forth in the Plan shall have the meanings ascribed to them in the Plan. The Plan is incorporated by reference and made a part of this Employee Option Agreement, and this Employee Option Agreement shall be subject to the terms of the Plan, as the Plan may be amended from time to time, provided that any such amendment of the Plan must be made in accordance with Section X of the Plan. The Option granted herein constitutes an Award within the meaning of the Plan. 2. Grant of Option. Pursuant to the Plan and subject to the terms and conditions set forth herein and therein, the Corporation hereby grants to the Optionee the right and option (the "Option") to purchase all or any part of the Option Shares of the Corporation's common stock, $.01 par value per share (the "Common Stock"), which Option is not intended to qualify as an incentive stock option, as defined in Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"). 3. Purchase Price. The purchase price per share of the Option Shares shall be the Purchase Price. 4. Term of Option. (a) Expiration Date; Term. Subject to Section 4(c) below, the Option shall expire on, and shall no longer be exercisable following, the tenth anniversary of the Grant Date. The ten-year period from the Grant Date to its tenth anniversary shall constitute the "Term" of the Option. (b) Vesting Period; Exercisability. Subject to Section 4(c) below, the Option shall vest and become exercisable at the rate of 33-1/3% of the Option Shares on each of the first three anniversaries of the Grant Date. (c) Termination of Employment; Change in Control. (i) For purposes of the grant hereunder, any transfer of employment by the Optionee among the Corporation and the Subsidiaries shall not be considered a termination of employment. Except as set forth below in this Section 4(c)(i), if the Optionee's employment with the Corporation shall terminate for any reason, (a) the Option (to the extent then vested) may be exercised at any time within ninety (90) days after such termination (but not beyond the Term of the Option) and (b) the Option, to the extent not then vested, shall immediately expire upon such termination. Notwithstanding the foregoing, (a) if the Optionee's employment with the Corporation is terminated for Cause (as defined in the last Section hereof), the Option, whether or not then vested, shall be automatically terminated as of the date of such termination of employment and (b) if the Optionee dies or is disabled (A) while employed by the Corporation or (B) within 90 days after the termination of his or her employment (other than a termination described in clause (a) of this sentence), the Option may be exercised at any time within 365 days after the Optionee's death or disability (but not beyond the Term of the Option). (ii) If the Optionee's employment terminates by reason of death, Disability, the termination of the Optionee's employment by the Company other than for Cause, or the termination of the Optionee's employment by the Optionee for Good Reason, the Option shall become fully and immediately vested and exercisable. In the event of a Change in Control (as defined in the last Section hereof), the Option shall immediately become fully vested and exercisable. 5. Adjustment Upon Changes in Capitalization. (a) The aggregate number of Option Shares and the Purchase Price shall be appropriately adjusted by the Committee for any increase or decrease in the number of issued shares of Common Stock resulting from a subdivision or consolidation of shares or other capital adjustment, or the payment of a stock dividend or other increase or decrease in such shares, effected without receipt of consideration by the Corporation, or other change in corporate or capital structure. The Committee shall also make the foregoing changes and any other changes, including changes in the classes of securities available, to the extent reasonably necessary or desirable to preserve the intended benefits under this Employee Option Agreement in the event of any other reorganization, recapitalization, merger, consolidation, spin-off, extraordinary dividend or other distribution or similar transaction involving the Corporation. (b) Any adjustment under this Section 5 in the number of Option Shares and the Purchase Price shall apply to only the unexercised portion of the Option. If fractions of a share would result from any such adjustment, the adjustment shall be rounded down to the nearest whole number of shares. 6. Method of Exercising Option and Withholding. (a) The Option shall be exercised by the delivery by the Optionee to the Corporation at its principal office (or at such other address as may be established by the Committee) of written notice of the number of Option Shares with respect to which the Option is exercised, accompanied by payment in full of the aggregate Purchase Price for such Option Shares. Payment for such Option Shares shall be made (i) in U.S. dollars by personal check, bank draft or money order payable to the order of the Corporation, or by money transfers or direct account debits to an account designated by the Corporation; (ii) through the delivery of shares of Common Stock with a Fair Market Value equal to the total payment due from the Optionee; (iii) pursuant to a "cashless exercise" program if such a program is established by the Corporation; or (iv) by any combination of the methods described in (i) through (iii) above. (b) The Corporation's obligation to deliver shares of Common Stock upon the exercise of the Option shall be subject to the payment by the Optionee of applicable federal, state and local withholding tax, if any. The Corporation shall, to the extent permitted by law, have the right to deduct from any payment of any kind otherwise due to the Optionee any federal, state or local taxes required to be withheld with respect to such payment. 7. Transfer. The Option is not transferable otherwise than by will or the laws of descent and distribution, and the Option may be exercised during the Optionee's lifetime only by the Optionee. Any attempt to transfer the Option in contravention of this Section 7 is void ab initio. The Option shall not be subject to execution, attachment or other process. 8. No Rights in Option Shares. The Optionee shall have none of the rights of a stockholder with respect to the Option Shares unless and until shares of Common Stock are issued upon exercise of the Option. 9. No Right to Employment. Nothing contained herein shall be deemed to confer upon the Optionee any right to remain as an employee of the Corporation. 10. Governing Law/Jurisdiction. This Employee Option Agreement shall be governed by and construed in accordance with the laws of the State of Delaware without reference to principles of conflict of laws. 11. Resolution of Disputes. Any disputes arising under or in connection with this Employee Option Agreement shall be resolved by binding arbitration before a single arbitrator, to be held in New York in accordance with the commercial rules and procedures of the American Arbitration Association. Judgment upon the award rendered by the arbitrator shall be final and subject to appeal only to the extent permitted by law. Each party shall bear such party's own expenses incurred in connection with any arbitration; provided, however, that the cost of the arbitration, including without limitation, reasonable attorneys' fees of the Optionee, shall be borne by the Corporation in the event the Optionee is the prevailing party in the arbitration. Anything to the contrary notwithstanding, each party hereto has the right to proceed with a court action for injunctive relief or relief from violations of law not within the jurisdiction of an arbitrator. 12. Notices. Any notice required or permitted under this Employee Option Agreement shall be deemed given when delivered personally, or when deposited in a United States Post Office, postage prepaid, addressed, as appropriate, to the Optionee at the last address specified in Optionee's employment records, or such other address as the Optionee may designate in writing to the Corporation, or to the Corporation, Attention: Corporate Secretary, or such other address as the Corporation may designate in writing to the Optionee. 13. Failure To Enforce Not a Waiver. The failure of either party hereto to enforce at any time any provision of this Employee Option Agreement shall in no way be construed to be a waiver of such provision or of any other provision hereof. 14. Counterparts. This Employee Option Agreement may be executed in two or more counterparts, each of which shall be an original but all of which together shall represent one and the same agreement. 15. Miscellaneous. This Employee Option Agreement cannot be changed or terminated orally. This Employee Option Agreement and the Plan contain the entire agreement between the parties relating to the subject matter hereof. The section headings herein are intended for reference only and shall not affect the interpretation hereof. 16. Definitions. For purposes of this Employee Option Agreement: (I) the term "Affiliate" of any Person shall mean any other Person that directly or indirectly, through one or more intermediaries, Controls, is Controlled by, or is under common Control with, such first Person. The term "Control" shall have the meaning specified in Rule 12b-2 under the Securities Exchange Act of 1934 as in effect on the date of this Agreement; (II) the term "Beneficial Owner" shall have the meaning used in Rule 13d-3 promulgated under the Exchange Act; (III) the term "Cause" shall mean (A) the willful and continued failure by the Optionee to substantially perform the Optionee's duties with the Corporation (other than any such failure resulting from the Optionee's incapacity due to physical or mental illness 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 to the Optionee by the Corporation, that specifically identifies the manner in which the Corporation believes that the Optionee has not substantially performed the Optionee's duties, or (B) the willful engaging by the Optionee in misconduct that is demonstrably and materially injurious to the Corporation, monetarily or otherwise including, but not limited to conduct that violates any written noncompetition covenant between the Optionee and the Corporation. No act, or failure to act, on the Optionee's part shall be deemed "willful" unless done, or omitted to be done, by the Optionee not in good faith and without reasonable belief that the Optionee's action or omission was in the best interest of the Corporation. Notwithstanding the foregoing, the Optionee shall not be deemed to have been terminated for Cause without (i) reasonable notice from the Board to the Optionee setting forth the reasons for the Corporation's intention to terminate for Cause, (ii) delivery to the Optionee of a resolution duly adopted by the affirmative vote two-thirds or more of the Board then in office (excluding the Optionee 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 Optionee was guilty of conduct herein set forth and specifying the particulars thereof in detail, (iii) an opportunity for the Optionee, together with his counsel, to be heard before the Board, and (iv) delivery to the Optionee of a Notice of Termination from the Board specifying the particulars in detail. (IV) the term "Change in Control" shall mean any of the following events: (1) any Person is or becomes the Beneficial Owner, directly or indirectly, of 40% or more of either (x) the then outstanding common stock of the Company (the "Outstanding Common Stock") or (y) the combined voting power of the then outstanding securities entitled to vote generally in the election of directors of the Company (the "Total Voting Power"), excluding, however, the following (1) any acquisition by the Company or any of its Controlled Affiliates, (2) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any of its Controlled Affiliates and (3) any Person who becomes such a Beneficial Owner in connection with a transaction described in the exception within clause (3) below; or (2) a change in the composition of the Board such that the individuals who, on the date hereof, 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 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 considered a member of the Incumbent Board; or (3) there is consummated a merger or consolidation of the Company or any direct or indirect subsidiary of the Company or a sale or other disposition of all or substantially all of the assets of the Company ("Corporate Transaction"); excluding, however, such a Corporate Transaction pursuant to which (x) all or substantially all of the individuals and entities who are the Beneficial Owners, respectively, of the Outstanding Common Stock and the 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 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 Out standing Common Stock and Total Voting Power, as the case may be, and (y) immediately following which the individuals who comprise the Board immediately prior thereto constitute at least a majority of the board 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); or (4) the approval by the stockholders of the Company of a complete liquidation or dissolution of the Company. (V) the term "Disability (or becoming Disabled)" shall mean that, as a result of the Optionee's incapacity due to physical or mental illness or injury, he or she shall not have performed all or substantially all of his or her usual duties as an employee of the Corporation for a period of more than one-hundred-fifty (150) days in any period of one-hundred-eighty (180) consecutive days; (VI) the term "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended from time to time; (VII) the term "Good Reason" for termination by the Optionee of the Optionee's employment shall mean: (1) A diminution in the Optionee's position, duties, responsibilities or authority (except during periods when the Executive is unable to perform all or substantially all of his duties on account of illness (either physical or mental) or other incapacity; (2) A reduction in the Optionee's annual rate of base salary as in effect on the date hereof or as the same may be increased from time to time; (3) Failure by the Corporation to continue in effect any compensation plan in which the Optionee participates which is material to the Optionee'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 Corporation to continue the Optionee's participation therein (or in such substitute plan) on a basis not materially less favorable to the Optionee; (4) Failure by the Corporation to continue to provide the Optionee with benefits substantially similar to those enjoyed by the Optionee under any of the Corporation's pension, savings, life insurance, medical, health and accident, or disability plans in which the Optionee was participating (except for across-the-board changes similarly affecting all senior executives of the Corporation and all senior executives of any Person in control of the Corporation), or failure by the Corporation to continue to provide the Optionee with the number of paid vacation days per year equal to the greater 4 weeks and (b) the number to which the Optionee is entitled in accordance with the Corporation's vacation policy; (5) Failure to provide facilities or services which are suitable to the Optionee's position; (6) Failure of any successor (whether direct or indirect, by purchase of stock or assets, merger, consolidation or otherwise) to the Corporation to assume the Corporation's obligations hereunder or failure by the Corporation to remain liable to the Optionee hereunder after such assumption; (7) Any termination by the Corporation of the Optionee's employment which is not effected pursuant to a Notice of Termination satisfying the requirements of a Notice of Termination contained in this Agreement; (8) the relocation of the Optionee's principal place of employment to a location more than fifty (50) miles from the Optionee's principal place of employment as of the date hereof; or (9) Failure to pay the Optionee any portion of current or deferred compensation within seven (7) days of the date such compensation is due. The Optionee'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 Optionee shall be deemed to have waived his rights pursuant to circumstances constituting Good Reason hereunder if he shall not have provided the Corporation a Notice of Termination within ninety (90) days following his knowledge of the occurrence of circumstances constituting Good Reason; (VIII) the term "Governance Agreement" shall mean the Governance Agreement, dated [ ], 2000, among LXH, L.L.C., LXH II, L.L.C., Hexcel Corporation and the other parties listed on the signature pages thereto; (IX) the term "Person" shall have the meaning given in Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d) of the Exchange Act; and (X) the term "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 Optionee's employment under the provision so indicated. Annex A NOTICE OF GRANT EMPLOYEE STOCK OPTION HEXCEL CORPORATION INCENTIVE STOCK PLAN The following employee of Hexcel Corporation, a Delaware corporation ("Hexcel") or a Subsidiary, has been granted an option to purchase shares of the Common Stock of Hexcel, $.01 par value, in accordance with the terms of this Notice of Grant and the Employee Option Agreement to which this Notice of Grant is attached. The following is a summary of the principal terms of the option which has been granted. The terms below shall have the meanings ascribed to them below when used in the Employee Option Agreement. Optionee - -------------------------------------- ---------------------------------------- Address of Optionee - -------------------------------------- ---------------------------------------- Employee Number - -------------------------------------- ---------------------------------------- Employee ID Number - -------------------------------------- ---------------------------------------- Foreign Sub Plan, if applicable - -------------------------------------- ---------------------------------------- Grant Date - -------------------------------------- ---------------------------------------- Purchase Price - -------------------------------------- ---------------------------------------- Aggregate Number of Shares Granted (the "Option Shares") - -------------------------------------- ---------------------------------------- IN WITNESS WHEREOF, the parties hereby agree to the terms of this Notice of Grant and the Employee Option Agreement to which this Notice of Grant is attached and execute this Notice of Grant and Employee Option Agreement as of the Grant Date. HEXCEL CORPORATION Optionee By: Ira J. Krakower Senior Vice President EX-10 10 0010.txt EXHIBIT 10.11 EXHIBIT 10.11 AMENDMENT TO AGREEMENTS AGREEMENT, dated as of October 11, 2000 by and between Hexcel Corporation, a Delaware corporation (the "Company") and Robert Matthews (the "Executive"). WHEREAS, the Company maintains the Hexcel Corporation Incentive Stock Plan (the "Plan"); and WHEREAS, the Company has granted to the Executive under the Plan, nonqualified options ("NQOs" or "Options") to acquire shares of the common stock of the Company (the "Common Stock") and contractual rights representing the right to earn shares of Common Stock under specified circumstances ("PARs") in each case evidenced by written award agreements entered into between the Company and the Executive (the "Award Agreements"); and WHEREAS, under the Award Agreements the Executive has certain rights upon the occurrence of a Change in Control (as defined thereby); and WHEREAS, the Company and the Executive have entered into an Executive Severance Agreement dated as of July 1, 2000 (the "Severance Agreement"); and WHEREAS, under the Severance Agreement the Executive has certain rights upon the occurrence of a Change in Control (as defined therein); and WHEREAS, Ciba Specialty Chemicals Holding, Inc. ("Ciba SCH"), Ciba Specialty Chemicals Inc. ("Ciba SCI"), Ciba Specialty Chemicals Corporation ("Ciba SCC" and together with Ciba SCH and Ciba SCI, "Ciba"), LXH, L.L.C. ("LXH") and LXH II, L.L.C. ("LXH II" and together with LXH, "the Purchasers") have entered into a Stock Purchase Agreement dated as of October 11, 2000 (the "Stock Purchase Agreement") pursuant to which, among other things, the Purchasers will purchase from Ciba shares of Common Stock; and WHEREAS, the consummation (the "Closing") of the transactions contemplated by the Stock Purchase Agreement (the "Transactions") will constitute a Change in Control under the Plan, the Award Agreements and the Severance Agreement; and WHEREAS, the Company desires the Executive to waive certain rights under the Plan and the Award Agreements and desires to provide additional incentives to the Executive to remain employed by the Company following the Closing. NOW, THEREFORE, the Company and the Executive hereby agree as follows. 1. The consummation of the Transactions shall not constitute a Change in Control for purposes of the Plan or the Award Agreements, notwithstanding anything therein to the contrary. 2. Each Award Agreement and the Severance Agreement is hereby amended to incorporate a new definition of the term Change in Control (and related definitions), in the form annexed hereto as Exhibit A. 3. Each Award Agreement pursuant to which Options have been granted is hereby amended to provide that each Option that is unvested at the Closing will vest and become exercisable on the earliest to occur of (i) as to 50% of the shares subject thereto, on the 1st anniversary of the Closing and as to the remaining 50% of the shares subject thereto, on the 2nd anniversary of the Closing, (ii) the Executive's termination of employment due to death, Disability (as defined in the Severance Agreement), termination by the Company without Cause (as defined in the Severance Agreement) or by the Executive for Good Reason (as defined in the Severance Agreement) or (iii) the occurrence of a Change in Control (as defined in Exhibit A hereto). 4. Each Award Agreement pursuant to which PARs have been granted is hereby amended to provide that each PAR subject thereto will vest and, without being subject to the existing limitations relating to Section 162(m) of the Internal Revenue Code of 1986, as amended, the underlying shares will be distributed on the earliest to occur of (i) as to 50% of the shares subject thereto, on the 1st anniversary of the Closing and as to the remaining 50% of the shares subject thereto, on the 2nd anniversary of the Closing, (ii) the Executive's termination of employment due to death, Disability, termination by the Company without Cause or by the Executive for Good Reason or (iii) the occurrence of a Change in Control (as defined in Exhibit A hereto). 5. Except as otherwise expressly provided herein, the Award Agreements and the Severance Agreement shall remain in effect in accordance with their respective terms. 6. Effective as of the date on which the Closing occurs (the "Closing Date"), the Company shall grant to the Executive options to acquire 2,765 shares of Common Stock. Such options shall be at an exercise price per share equal to the greater of (a) the fair market value (as defined in the Plan) of a share of Common Stock on the Closing Date or (b) $11, and shall otherwise be made pursuant to the form of Stock Option Agreement annexed hereto as Exhibit B. The Company agrees that such grant shall not be in lieu of, or otherwise be taken into account in determining the size or terms of, the annual long term incentive grant to the Executive for the 2001 or other fiscal year. 7. For purposes of this Agreement, notices, demands, and all other communications provided for hereunder shall be in writing and shall be deemed to have been duly given when hand delivered or (unless otherwise specified) when mailed by United States certified mail, return receipt requested, postage prepaid, addressed as follows: To the Executive at the address shown in the personnel records of the Company To the Company at: Hexcel Corporation Two Stamford Plaza 281 Tresser Boulevard Stamford Connecticut 06901-3238 Att'n: or to such other address as either 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. 8. The invalidity or unenforceability of any provision hereof shall not affect the other provisions hereof, and this Agreement shall be construed in all respects as if such invalid or unenforceable provision had been omitted. 9. No change, modification or waiver of any provision of this Agreement shall be valid unless the same be in writing and signed by the parties hereto. 10. This Agreement contains the entire understanding of the parties hereto with respect to the subject matter hereof and supersedes all prior communications, representations and negotiations in respect thereto. 11. This Agreement shall be governed by, and construed and enforced in accordance with, the laws of the State of Delaware, without regard to its conflicts of law rules. 12. This Agreement may be executed in counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same instrument. 13. This agreement shall become effective upon the Closing, and shall be null and void and of no effect if the Closing does not occur. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date and year first written above. HEXCEL CORPORATION By: /s/ Ira J. Krakower Name: Ira J. Krakower Title: Senior Vice President /s/ R. F. Matthews Robert Matthews EXHIBIT A Affiliate of any Person shall mean any other Person that directly or indirectly, through one or more intermediaries, Controls, is Controlled by, or is under common Control with, such first Person. Control shall have the meaning specified in Rule 12b-2 under the Securities Exchange Act of 1934 as in effect on the date of this Agreement. Beneficial Owner shall have the meaning used in Rule 13d-3 promulgated under the Exchange Act. Change in Control means: (i) any Person is or becomes the Beneficial Owner, directly or indirectly, of 40% or more of either (x) the then outstanding common stock of the Company (the "Out standing Common Stock") or (y) the combined voting power of the then outstanding securities entitled to vote generally in the election of directors of the Company (the "Total Voting Power"), excluding, however, the following (1) any acquisition by the Company or any of its Controlled Affiliates, (2) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any of its Controlled Affiliates and (3) any Person who becomes such a Beneficial Owner in connection with a transaction described in the exception within clause (iii) below; or (ii) a change in the composition of the Board such that the individuals who, on the date hereof, 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 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 considered a member of the Incumbent Board; or (iii) there is consummated a merger or consolidation of the Company or any direct or indirect subsidiary of the Company or a sale or other disposition of all or substantially all of the assets of the Company ("Corporate Transaction"); excluding, how ever, such a Corporate Transaction pursuant to which (x) all or substantially all of the individuals and entities who are the Beneficial Owners, respectively, of the Outstanding Common Stock and the 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 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, and (y) immediately following which the individuals who comprise the Board immediately prior thereto constitute at least a majority of the board 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); or (iv) the approval by the stockholders of the Company of a complete liquidation or dissolution of the Company; or (v) the consummation of the transactions contemplated by the Stock Purchase Agreement.1 Exchange Act shall mean the Securities Exchange Act of 1934, as amended. Governance Agreement shall mean the Governance Agreement, dated [ ], 2000, among LXH, L.L.C., LXH II, L.L.C., Hexcel Corporation and the other parties listed on the signature pages thereto. Person shall have the meaning set forth in Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d) of the Exchange Act. - -------- 1Clause (v) to be included only in the Severance Agreement. Stock Purchase Agreement shall mean the Stock Purchase Agreement dated as of October 11, 2000 by and among Ciba Specialty Chemicals Holding, Inc., Ciba Specialty Chemicals Inc., Ciba Specialty Chemicals Corporation, LXH, L.L.C. ("LXH") and LXH II, L.L.C..2 - -------- 2This definition to be included only in the Severance Agreement. EXHIBIT B EMPLOYEE OPTION AGREEMENT EMPLOYEE OPTION AGREEMENT, dated as of the Grant Date, by and between the Optionee and Hexcel Corporation (the "Corporation"). W I T N E S S E T H: WHEREAS, the Corporation has adopted the Hexcel Corporation Incentive Stock Plan (the "Plan"); and WHEREAS, the Executive Compensation Committee (the "Committee") of the Board of Directors of the Corporation (the "Board") has determined that it is desirable and in the best interest of the Corporation to grant to the Optionee a stock option as an incentive for the Optionee to advance the interests of the Corporation; NOW, THEREFORE, the parties agree as follows: 1. Notice of Grant; Incorporation of Plan. A Notice of Grant is attached hereto as Annex A and incorporated by reference herein. Unless otherwise provided herein, capitalized terms used herein and set forth in such Notice of Grant shall have the meanings ascribed to them in the Notice of Grant and capitalized terms used herein and set forth in the Plan shall have the meanings ascribed to them in the Plan. The Plan is incorporated by reference and made a part of this Employee Option Agreement, and this Employee Option Agreement shall be subject to the terms of the Plan, as the Plan may be amended from time to time, provided that any such amendment of the Plan must be made in accordance with Section X of the Plan. The Option granted herein constitutes an Award within the meaning of the Plan. 2. Grant of Option. Pursuant to the Plan and subject to the terms and conditions set forth herein and therein, the Corporation hereby grants to the Optionee the right and option (the "Option") to purchase all or any part of the Option Shares of the Corporation's common stock, $.01 par value per share (the "Common Stock"), which Option is not intended to qualify as an incentive stock option, as defined in Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"). 3. Purchase Price. The purchase price per share of the Option Shares shall be the Purchase Price. 4. Term of Option. (a) Expiration Date; Term. Subject to Section 4(c) below, the Option shall expire on, and shall no longer be exercisable following, the tenth anniversary of the Grant Date. The ten-year period from the Grant Date to its tenth anniversary shall constitute the "Term" of the Option. (b) Vesting Period; Exercisability. Subject to Section 4(c) below, the Option shall vest and become exercisable at the rate of 33-1/3% of the Option Shares on each of the first three anniversaries of the Grant Date. (c) Termination of Employment; Change in Control. (i) For purposes of the grant hereunder, any transfer of employment by the Optionee among the Corporation and the Subsidiaries shall not be considered a termination of employment. Except as set forth below in this Section 4(c)(i), if the Optionee's employment with the Corporation shall terminate for any reason, (a) the Option (to the extent then vested) may be exercised at any time within ninety (90) days after such termination (but not beyond the Term of the Option) and (b) the Option, to the extent not then vested, shall immediately expire upon such termination. Notwithstanding the foregoing, (a) if the Optionee's employment with the Corporation is terminated for Cause (as defined in the last Section hereof), the Option, whether or not then vested, shall be automatically terminated as of the date of such termination of employment, (b) if the Optionee's employment terminates by reason of Retirement, the termination of the Optionee's employment by the Company other than for Cause, or the termination of the Optionee's employment by the Optionee for Good Reason (as defined in the last Section hereof), the Option shall remain exercisable for three years from the date of such termination of employment (but not beyond the Term of the Option) and (c) if the Optionee dies or becomes Disabled (A) while employed by the Corporation or (B) within 90 days after the termination of his or her employment (other than a termination described in clause (a) or (b) of this sentence), the Option may be exercised at any time within one year after the Optionee's death or Disability (but not beyond the Term of the Option). (ii) If the Optionee's employment terminates by reason of death, Disability, Retirement, the termination of the Optionee's employment by the Company other than for Cause, or the termination of the Optionee's employment by the Optionee for Good Reason, the Option shall become fully and immediately vested and exercisable. In the event of a Change in Control (as defined in the last Section hereof), the Option shall immediately become fully vested and exercisable. 5. Adjustment Upon Changes in Capitalization. (a) The aggregate number of Option Shares and the Purchase Price shall be appropriately adjusted by the Committee for any increase or decrease in the number of issued shares of Common Stock resulting from a subdivision or consolidation of shares or other capital adjustment, or the payment of a stock dividend or other increase or decrease in such shares, effected without receipt of consideration by the Corporation, or other change in corporate or capital structure. The Committee shall also make the foregoing changes and any other changes, including changes in the classes of securities available, to the extent reasonably necessary or desirable to preserve the intended benefits under this Employee Option Agreement in the event of any other reorganization, recapitalization, merger, consolidation, spin-off, extraordinary dividend or other distribution or similar transaction involving the Corporation. (b) Any adjustment under this Section 5 in the number of Option Shares and the Purchase Price shall apply to only the unexercised portion of the Option. If fractions of a share would result from any such adjustment, the adjustment shall be rounded down to the nearest whole number of shares. 6. Method of Exercising Option and Withholding. (a) The Option shall be exercised by the delivery by the Optionee to the Corporation at its principal office (or at such other address as may be established by the Committee) of written notice of the number of Option Shares with respect to which the Option is exercised, accompanied by payment in full of the aggregate Purchase Price for such Option Shares. Payment for such Option Shares shall be made (i) in U.S. dollars by personal check, bank draft or money order payable to the order of the Corporation, or by money transfers or direct account debits to an account designated by the Corporation; (ii) through the delivery of shares of Common Stock with a Fair Market Value equal to the total payment due from the Optionee; (iii) pursuant to a "cashless exercise" program if such a program is established by the Corporation; or (iv) by any combination of the methods described in (i) through (iii) above. (b) The Corporation's obligation to deliver shares of Common Stock upon the exercise of the Option shall be subject to the payment by the Optionee of applicable federal, state and local withholding tax, if any. The Corporation shall, to the extent permitted by law, have the right to deduct from any payment of any kind otherwise due to the Optionee any federal, state or local taxes required to be withheld with respect to such payment. 7. Transfer. Except as provided in this Section 7, the Option is not transferable otherwise than by will or the laws of descent and distribution, and the Option may be exercised during the Optionee's lifetime only by the Optionee. Any attempt to transfer the Option in contravention of this Section 7 is void ab initio. The Option shall not be subject to execution, attachment or other process. Notwithstanding the foregoing, the Optionee shall be permitted to transfer the Option to members of his or her immediate family (i.e., children, grandchildren or spouse), trusts for the benefit of such family members, and partnerships whose only partners are such family members; provided, however, that no consideration can be paid for the transfer of the Option and the transferee of the Option shall be subject to all conditions applicable to the Option prior to its transfer. 8. No Rights in Option Shares. The Optionee shall have none of the rights of a stockholder with respect to the Option Shares unless and until shares of Common Stock are issued upon exercise of the Option. 9. No Right to Employment. Nothing contained herein shall be deemed to confer upon the Optionee any right to remain as an employee of the Corporation. 10. Governing Law/Jurisdiction. This Employee Option Agreement shall be governed by and construed in accordance with the laws of the State of Delaware without reference to principles of conflict of laws. 11. Resolution of Disputes. Any disputes arising under or in connection with this Employee Option Agreement shall be resolved by binding arbitration before a single arbitrator, to be held in New York in accordance with the commercial rules and procedures of the American Arbitration Association. Judgment upon the award rendered by the arbitrator shall be final and subject to appeal only to the extent permitted by law. Each party shall bear such party's own expenses incurred in connection with any arbitration; provided, however, that the cost of the arbitration, including without limitation, reasonable attorneys' fees of the Optionee, shall be borne by the Corporation in the event the Optionee is the prevailing party in the arbitration. Anything to the contrary notwithstanding, each party hereto has the right to proceed with a court action for injunctive relief or relief from violations of law not within the jurisdiction of an arbitrator. 12. Notices. Any notice required or permitted under this Employee Option Agreement shall be deemed given when delivered personally, or when deposited in a United States Post Office, postage prepaid, addressed, as appropriate, to the Optionee at the last address specified in Optionee's employment records, or such other address as the Optionee may designate in writing to the Corporation, or to the Corporation, Attention: Corporate Secretary, or such other address as the Corporation may designate in writing to the Optionee. 13. Failure To Enforce Not a Waiver. The failure of either party hereto to enforce at any time any provision of this Employee Option Agreement shall in no way be construed to be a waiver of such provision or of any other provision hereof. 14. Counterparts. This Employee Option Agreement may be executed in two or more counterparts, each of which shall be an original but all of which together shall represent one and the same agreement. 15. Miscellaneous. This Employee Option Agreement cannot be changed or terminated orally. This Employee Option Agreement and the Plan contain the entire agreement between the parties relating to the subject matter hereof. The section headings herein are intended for reference only and shall not affect the interpretation hereof. 16. Definitions. For purposes of this Employee Option Agreement: (I) the term "Affiliate" of any Person shall mean any other Person that directly or indirectly, through one or more intermediaries, Controls, is Controlled by, or is under common Control with, such first Person. The term "Control" shall have the meaning specified in Rule 12b-2 under the Securities Exchange Act of 1934 as in effect on the date of this Agreement; (II) the term "Beneficial Owner" shall have the meaning used in Rule 13d- 3 promulgated under the Exchange Act; (III) the term "Cause" shall mean (A) the willful and continued failure by the Optionee to substantially perform the Optionee's duties with the Corporation (other than any such failure resulting from the Optionee's incapacity due to physical or mental illness 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 to the Optionee by the Corporation, that specifically identifies the manner in which the Corporation believes that the Optionee has not substantially performed the Optionee's duties, or (B) the willful engaging by the Optionee in misconduct that is demonstrably and materially injurious to the Corporation, monetarily or otherwise including, but not limited to conduct that violates any written noncompetition covenant between the Optionee and the Corporation. No act, or failure to act, on the Optionee's part shall be deemed "willful" unless done, or omitted to be done, by the Optionee not in good faith and without reasonable belief that the Optionee's action or omission was in the best interest of the Corporation. Notwithstanding the foregoing, the Optionee shall not be deemed to have been terminated for Cause without (i) reasonable notice from the Board to the Optionee setting forth the reasons for the Corporation's intention to terminate for Cause, (ii) delivery to the Optionee of a resolution duly adopted by the affirmative vote two-thirds or more of the Board then in office (excluding the Optionee 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 Optionee was guilty of conduct herein set forth and specifying the particulars thereof in detail, (iii) an opportunity for the Optionee, together with his counsel, to be heard before the Board, and (iv) delivery to the Optionee of a Notice of Termination from the Board specifying the particulars in detail. (IV) the term "Change in Control" shall mean any of the following events: (1) any Person is or becomes the Beneficial Owner, directly or indirectly, of 40% or more of either (x) the then outstanding common stock of the Company (the "Outstanding Common Stock") or (y) the combined voting power of the then outstanding securities entitled to vote generally in the election of directors of the Company (the "Total Voting Power"), excluding, however, the following (1) any acquisition by the Company or any of its Controlled Affiliates, (2) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any of its Controlled Affiliates and (3) any Person who becomes such a Beneficial Owner in connection with a transaction described in the exclusion within paragraph (3) below; or (2) a change in the composition of the Board such that the individuals who, on the date hereof, 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 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 considered a member of the Incumbent Board; or (3) there is consummated a merger or consolidation of the Company or any direct or indirect subsidiary of the Company or a sale or other disposition of all or substantially all of the assets of the Company ("Corporate Transaction"); excluding, however, such a Corporate Transaction pursuant to which (x) all or substantially all of the individuals and entities who are the Beneficial Owners, respectively, of the Outstanding Common Stock and the 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 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, and (y) immediately following which the individuals who comprise the Board immediately prior thereto constitute at least a majority of the board 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); or (4) the approval by the stockholders of the Company of a complete liquidation or dissolution of the Company; (V) the term "Disability (or becoming Disabled)" shall mean that, as a result of the Optionee's incapacity due to physical or mental illness or injury, he or she shall not have performed all or substantially all of his or her usual duties as an employee of the Corporation for a period of more than one- hundred-fifty (150) days in any period of one-hundred-eighty (180) consecutive days; (VI) the term "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended; (VII) the term "Good Reason" for termination by the Optionee of the Optionee's employment shall mean: (1) A diminution in the Optionee's position, duties, responsibilities or authority (except during periods when the Executive is unable to perform all or substantially all of his duties on account of illness (either physical or mental) or other incapacity; (2) A reduction in the Optionee's annual rate of base salary as in effect on the date hereof or as the same may be increased from time to time; (3) Failure by the Corporation to continue in effect any compensation plan in which the Optionee participates which is material to the Optionee'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 Corporation to continue the Optionee's participation therein (or in such substitute plan) on a basis not materially less favorable to the Optionee; (4) Failure by the Corporation to continue to provide the Optionee with benefits substantially similar to those enjoyed by the Optionee under any of the Corporation's pension, savings, life insurance, medical, health and accident, or disability plans in which the Optionee was participating (except for across-the-board changes similarly affecting all senior executives of the Corporation and all senior executives of any Person in control of the Corporation), or failure by the Corporation to continue to provide the Optionee with the number of paid vacation days per year equal to the greater 4 weeks and (b) the number to which the Optionee is entitled in accordance with the Corporation's vacation policy; (5) Failure to provide facilities or services which are suitable to the Optionee's position; (6) Failure of any successor (whether direct or indirect, by purchase of stock or assets, merger, consolidation or otherwise) to the Corporation to assume the Corporation's obligations hereunder or failure by the Corporation to remain liable to the Optionee hereunder after such assumption; (7) Any termination by the Corporation of the Optionee's employment which is not effected pursuant to a Notice of Termination satisfying the requirements of a Notice of Termination contained in this Agreement; (8) the relocation of the Optionee's principal place of employment to a location more than fifty (50) miles from the Optionee's principal place of employment as of the date hereof; or (9) Failure to pay the Optionee any portion of current or deferred compensation within seven (7) days of the date such compensation is due. The Optionee'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 Optionee shall be deemed to have waived his rights pursuant to circumstances constituting Good Reason hereunder if he shall not have provided the Corporation a Notice of Termination within ninety (90) days following his knowledge of the occurrence of circumstances constituting Good Reason; (VIII) the term "Governance Agreement shall mean the Governance Agreement, dated [ ], 2000, among LXH, L.L.C., LXH II, L.L.C., Hexcel Corporation and the other parties listed on the signature pages thereto; (IX) the term "Person" shall have the meaning given in Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d) of the Exchange Act; and (X) the term "Retirement" shall mean termination of the Optionee's employment, other than by reason of death or Cause, either (A) at or after age 65 or (B) at or after age 55 after five (5) years of employment by the Corporation (or a Subsidiary thereof). (XI) the term "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 Optionee's employment under the provision so indicated. Annex A NOTICE OF GRANT EMPLOYEE STOCK OPTION HEXCEL CORPORATION INCENTIVE STOCK PLAN The following employee of Hexcel Corporation, a Delaware corporation ("Hexcel") or a Subsidiary, has been granted an option to purchase shares of the Common Stock of Hexcel, $.01 par value, in accordance with the terms of this Notice of Grant and the Employee Option Agreement to which this Notice of Grant is attached. The following is a summary of the principal terms of the option which has been granted. The terms below shall have the meanings ascribed to them below when used in the Employee Option Agreement. Optionee Address of Optionee Employee Number Employee ID Number Foreign Sub Plan, if applicable Grant Date Purchase Price Aggregate Number of Shares Granted (the "Option Shares") - ------------------------------------- ----------------------------------------- IN WITNESS WHEREOF, the parties hereby agree to the terms of this Notice of Grant and the Employee Option Agreement to which this Notice of Grant is attached and execute this Notice of Grant and Employee Option Agreement as of the Grant Date. _______________________ HEXCEL CORPORATION Optionee By: _____________________________ Ira J. Krakower Senior Vice President EX-10 11 0011.txt EXHIBIT 10.12 EXHIBIT 10.12 AMENDMENT TO AGREEMENTS AGREEMENT, dated as of October 11, 2000 by and between Hexcel Corporation, a Delaware corporation (the "Company") and David Tanonis (the "Executive"). WHEREAS, the Company maintains the Hexcel Corporation Incentive Stock Plan (the "Plan") and the Hexcel Corporation Management Stock Purchase Plan (the "MSPP"); and WHEREAS, the Company has granted to the Executive (1) under the Plan, nonqualified options ("NQOs") to acquire shares of the common stock of the Company (the "Common Stock"), performance accelerated stock options ("PASOs" and, together with the NQOs, the "Options") to acquire shares of Common Stock and contractual rights representing the right to earn shares of Common Stock under specified circumstances ("PARs") and (2) contractual rights under the MSPP representing the right to earn shares of Common Stock under specified circumstances ("RSUs"), in each case evidenced by written award agreements entered into between the Company and the Executive (the "Award Agreements"); and WHEREAS, under the Award Agreements the Executive has certain rights upon the occurrence of a Change in Control (as defined thereby); and WHEREAS, Ciba Specialty Chemicals Holding, Inc. ("Ciba SCH"), Ciba Specialty Chemicals Inc. ("Ciba SCI"), Ciba Specialty Chemicals Corporation ("Ciba SCC" and together with Ciba SCH and Ciba SCI, "Ciba"), LXH, L.L.C. ("LXH") and LXH II, L.L.C. ("LXH II" and together with LXH, "the Purchasers") have entered into a Stock Purchase Agreement dated as of October 11, 2000 (the "Stock Purchase Agreement") pursuant to which, among other things, the Purchasers will purchase from Ciba shares of Common Stock; and WHEREAS, the consummation (the "Closing") of the transactions contemplated by the Stock Purchase Agreement (the "Transactions") will constitute a Change in Control under the Plan, the MSPP and the Award Agreements; and WHEREAS, the Company desires the Executive to waive certain rights under the Plan, the MSPP and the Award Agreements and desires to provide additional incentives to the Executive to remain employed by the Company following the Closing. NOW, THEREFORE, the Company and the Executive hereby agree as follows. 1. The consummation of the Transactions shall not constitute a Change in Control for purposes of the Plan, the MSPP or the Award Agreements, notwithstanding anything therein to the contrary. 2. Each Award Agreement is hereby amended to incorporate a new definition of the term Change in Control (and related definitions), in the form annexed hereto as Exhibit A. 3. Each Award Agreement pursuant to which Options have been granted is hereby amended to provide that each Option that is unvested at the Closing will vest and become exercisable on the earliest to occur of (i) as to 50% of the shares subject thereto, on the 1st anniversary of the Closing and as to the remaining 50% of the shares subject thereto, on the 2nd anniversary of the Closing, (ii) the Executive's termination of employment due to death, Disability (as defined in Exhibit B hereto), termination by the Company without Cause (as defined in Exhibit B hereto) or by the Executive for Good Reason (as defined in Exhibit B hereto) or (iii) the occurrence of a Change in Control (as defined in Exhibit A hereto). 4. Each Award Agreement pursuant to which PARs have been granted is hereby amended to provide that each PAR subject thereto will vest and, without being subject to the existing limitations relating to Section 162(m) of the Internal Revenue Code of 1986, as amended, the underlying shares will be distributed on the earliest to occur of (i) as to 50% of the shares subject thereto, on the 1st anniversary of the Closing and as to the remaining 50% of the shares subject thereto, on the 2nd anniversary of the Closing, (ii) the Executive's termination of employment due to death, Disability, termination by the Company without Cause or by the Executive for Good Reason or (iii) the occurrence of a Change in Control (as defined in Exhibit A hereto). 5. Each Award Agreement pursuant to which RSUs have been granted is hereby amended to provide that each RSU subject thereto will vest and the underlying shares will be distributed on the earliest to occur of (i) as to 50% of the shares subject thereto, on the 1st anniversary of the Closing and as to the remaining 50% of the shares subject thereto, on the 2nd anniversary of the Closing, (ii) the Executive's termination of employment due to death, Disability, termination by the Company without Cause or by the Executive for Good Reason or (iii) the occurrence of a Change in Control (as defined in Exhibit A hereto). 6. Except as otherwise expressly provided herein, the Award Agreements shall remain in effect in accordance with their respective terms. 7. Effective as of the date on which the Closing occurs (the "Closing Date"), the Company shall grant to the Executive options to acquire 13,540 shares of Common Stock. Such options shall be at an exercise price per share equal to the greater of (a) the fair market value (as defined in the Plan) of a share of Common Stock on the Closing Date or (b) $11, and shall otherwise be made pursuant to the form of Stock Option Agreement annexed hereto as Exhibit C. The Company agrees that such grant shall not be in lieu of, or otherwise be taken into account in determining the size or terms of, the annual long term incentive grant to the Executive for the 2001 or other fiscal year. 8. For purposes of this Agreement, notices, demands, and all other communications provided for hereunder shall be in writing and shall be deemed to have been duly given when hand delivered or (unless otherwise specified) when mailed by United States certified mail, return receipt requested, postage prepaid, addressed as follows: To the Executive at the address shown in the personnel records of the Company To the Company at: Hexcel Corporation Two Stamford Plaza 281 Tresser Boulevard Stamford Connecticut 06901-3238 Att'n: or to such other address as either 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. 9. The invalidity or unenforceability of any provision hereof shall not affect the other provisions hereof, and this Agreement shall be construed in all respects as if such invalid or unenforceable provision had been omitted. 10. No change, modification or waiver of any provision of this Agreement shall be valid unless the same be in writing and signed by the parties hereto. 11. This Agreement contains the entire understanding of the parties hereto with respect to the subject matter hereof and supersedes all prior communications, representations and negotiations in respect thereto. 12. This Agreement shall be governed by, and construed and enforced in accordance with, the laws of the State of Delaware, without regard to its conflicts of law rules. 13. This Agreement may be executed in counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same instrument. 14. This agreement shall become effective upon the Closing, and shall be null and void and of no effect if the Closing does not occur. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date and year first written above. HEXCEL CORPORATION By: /s/ Ira J. Krakower Name: Ira J. Krakower Title: Senior Vice President /s/ David Tanonis David Tanonis EXHIBIT A Affiliate of any Person shall mean any other Person that directly or indirectly, through one or more intermediaries, Controls, is Controlled by, or is under common Control with, such first Person. Control shall have the meaning specified in Rule 12b-2 under the Securities Exchange Act of 1934 as in effect on the date of this Agreement. Beneficial Owner shall have the meaning used in Rule 13d-3 promulgated under the Exchange Act. Change in Control means: (i) any Person is or becomes the Beneficial Owner, directly or indirectly, of 40% or more of either (x) the then outstanding common stock of the Company (the "Outstanding Common Stock") or (y) the combined voting power of the then outstanding securities entitled to vote generally in the election of directors of the Company (the "Total Voting Power"), excluding, however, the following (1) any acquisition by the Company or any of its Controlled Affiliates, (2) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any of its Controlled Affiliates and (3) any Person who becomes such a Beneficial Owner in connection with a transaction described in the exclusion within clause (iii) below; or (ii) a change in the composition of the Board such that the individuals who, on the date hereof, 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 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 considered a member of the Incumbent Board; or (iii) there is consummated a merger or consolidation of the Company or any direct or indirect subsidiary of the Company or a sale or other disposition of all or substantially all of the assets of the Company ("Corporate Transaction"); excluding, however, such a Corporate Transaction pursuant to which (x) all or substantially all of the individuals and entities who are the Beneficial Owners, respectively, of the Outstanding Common Stock and the 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 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, and (y) immediately following which the individuals who comprise the Board immediately prior thereto constitute at least a majority of the board 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); or (iv) the approval by the stockholders of the Company of a complete liquidation or dissolution of the Company. Exchange Act shall mean the Securities Exchange Act of 1934, as amended. Governance Agreement shall mean the Governance Agreement, dated [ ], 2000, among LXH, L.L.C., LXH II, L.L.C., Hexcel Corporation and the other parties listed on the signature pages thereto. Person shall have the meaning set forth in Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d) of the Exchange Act. EXHIBIT B "Cause" shall mean (A) the willful and continued failure by the Optionee to substantially perform the Optionee's duties with the Corporation (other than any such failure resulting from the Optionee's incapacity due to physical or mental illness 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 to the Optionee by the Corporation, that specifically identifies the manner in which the Corporation believes that the Optionee has not substantially performed the Optionee's duties, or (B) the willful engaging by the Optionee in misconduct that is demonstrably and materially injurious to the Corporation, monetarily or otherwise including, but not limited to conduct that violates any written noncompetition covenant between the Optionee and the Corporation. No act, or failure to act, on the Optionee's part shall be deemed "willful" unless done, or omitted to be done, by the Optionee not in good faith and without reasonable belief that the Optionee's action or omission was in the best interest of the Corporation. Notwithstanding the foregoing, the Optionee shall not be deemed to have been terminated for Cause without (i) reasonable notice from the Board to the Optionee setting forth the reasons for the Corporation's intention to terminate for Cause, (ii) delivery to the Optionee of a resolution duly adopted by the affirmative vote two-thirds or more of the Board then in office (excluding the Optionee 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 Optionee was guilty of conduct herein set forth and specifying the particulars thereof in detail, (iii) an opportunity for the Optionee, together with his counsel, to be heard before the Board, and (iv) delivery to the Optionee of a Notice of Termination from the Board specifying the particulars in detail. "Disability" shall mean that, as a result of the Optionee's incapacity due to physical or mental illness or injury, he or she shall not have performed all or substantially all of his or her usual duties as an employee of the Corporation for a period of more than one-hundred-fifty (150) days in any period of one-hundred-eighty (180) consecutive days. "Good Reason" for termination by the Optionee of the Optionee's employment shall mean: (a) A diminution in the Optionee's position, duties, responsibilities or authority (except during periods when the Executive is unable to perform all or substantially all of his duties on account of illness (either physical or mental) or other incapacity; (b) A reduction in the Optionee's annual rate of base salary as in effect on the date hereof or as the same may be increased from time to time; (c) Failure by the Corporation to continue in effect any compensation plan in which the Optionee participates which is material to the Optionee'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 Corporation to continue the Optionee's participation therein (or in such substitute plan) on a basis not materially less favorable to the Optionee; (d) Failure by the Corporation to continue to provide the Optionee with benefits substantially similar to those enjoyed by the Optionee under any of the Corporation's pension, savings, life insurance, medical, health and accident, or disability plans in which the Optionee was participating (except for across-the-board changes similarly affecting all senior executives of the Corporation and all senior executives of any Person in control of the Corporation), or failure by the Corporation to continue to provide the Optionee with the number of paid vacation days per year equal to the greater 4 weeks and (b) the number to which the Optionee is entitled in accordance with the Corporation's vacation policy; (e) Failure to provide facilities or services which are suitable to the Optionee 's position; (f) Failure of any successor (whether direct or indirect, by purchase of stock or assets, merger, consolidation or otherwise) to the Corporation to assume the Corporation's obligations hereunder or failure by the Corporation to remain liable to the Optionee hereunder after such assumption; (g) Any termination by the Corporation of the Optionee's employment which is not effected pursuant to a Notice of Termination satisfying the requirements of a Notice of Termination contained in this Agreement; (h) The relocation of the Optionee's principal place of employment to a location more than fifty (50) miles from the Optionee's principal place of employment as of the date hereof; or (i) Failure to pay the Optionee any portion of current or deferred compensation within seven (7) days of the date such compensation is due. The Optionee'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 Optionee shall be deemed to have waived his rights pursuant to circumstances constituting Good Reason hereunder if he shall not have provided the Corporation a Notice of Termination within ninety (90) days following his knowledge of the occurrence of circumstances constituting Good Reason. "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 Optionee's employment under the provision so indicated. EXHIBIT C EMPLOYEE OPTION AGREEMENT (October , 2000) EMPLOYEE OPTION AGREEMENT, dated as of the Grant Date, by and between the Optionee and Hexcel Corporation (the "Corporation"). W I T N E S S E T H: WHEREAS, the Corporation has adopted the Hexcel Corporation Incentive Stock Plan (the "Plan"); and WHEREAS, the Executive Compensation Committee (the "Committee") of the Board of Directors of the Corporation (the "Board") has determined that it is desirable and in the best interest of the Corporation to grant to the Optionee a stock option as an incentive for the Optionee to advance the interests of the Corporation; NOW, THEREFORE, the parties agree as follows: 1. Notice of Grant; Incorporation of Plan. A Notice of Grant is attached hereto as Annex A and incorporated by reference herein. Unless otherwise provided herein, capitalized terms used herein and set forth in such Notice of Grant shall have the meanings ascribed to them in the Notice of Grant and capitalized terms used herein and set forth in the Plan shall have the meanings ascribed to them in the Plan. The Plan is incorporated by reference and made a part of this Employee Option Agreement, and this Employee Option Agreement shall be subject to the terms of the Plan, as the Plan may be amended from time to time, provided that any such amendment of the Plan must be made in accordance with Section X of the Plan. The Option granted herein constitutes an Award within the meaning of the Plan. 2. Grant of Option. Pursuant to the Plan and subject to the terms and conditions set forth herein and therein, the Corporation hereby grants to the Optionee the right and option (the "Option") to purchase all or any part of the Option Shares of the Corporation's common stock, $.01 par value per share (the "Common Stock"), which Option is not intended to qualify as an incentive stock option, as defined in Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"). 3. Purchase Price. The purchase price per share of the Option Shares shall be the Purchase Price. 4. Term of Option. (a) Expiration Date; Term. Subject to Section 4(c) below, the Option shall expire on, and shall no longer be exercisable following, the tenth anniversary of the Grant Date. The ten-year period from the Grant Date to its tenth anniversary shall constitute the "Term" of the Option. (b) Vesting Period; Exercisability. Subject to Section 4(c) below, the Option shall vest and become exercisable at the rate of 33-1/3% of the Option Shares on each of the first three anniversaries of the Grant Date. (c) Termination of Employment; Change in Control. (i) For purposes of the grant hereunder, any transfer of employment by the Optionee among the Corporation and the Subsidiaries shall not be considered a termination of employment. Except as set forth below in this Section 4(c)(i), if the Optionee's employment with the Corporation shall terminate for any reason, (a) the Option (to the extent then vested) may be exercised at any time within ninety (90) days after such termination (but not beyond the Term of the Option) and (b) the Option, to the extent not then vested, shall immediately expire upon such termination. Notwithstanding the foregoing, (a) if the Optionee's employment with the Corporation is terminated for Cause (as defined in the last Section hereof), the Option, whether or not then vested, shall be automatically terminated as of the date of such termination of employment and (b) if the Optionee dies or is disabled (A) while employed by the Corporation or (B) within 90 days after the termination of his or her employment (other than a termination described in clause (a) of this sentence), the Option may be exercised at any time within 365 days after the Optionee's death or disability (but not beyond the Term of the Option). (ii) If the Optionee's employment terminates by reason of death, Disability, the termination of the Optionee's employment by the Company other than for Cause, or the termination of the Optionee's employment by the Optionee for Good Reason, the Option shall become fully and immediately vested and exercisable. In the event of a Change in Control (as defined in the last Section hereof), the Option shall immediately become fully vested and exercisable. 5. Adjustment Upon Changes in Capitalization. (a) The aggregate number of Option Shares and the Purchase Price shall be appropriately adjusted by the Committee for any increase or decrease in the number of issued shares of Common Stock resulting from a subdivision or consolidation of shares or other capital adjustment, or the payment of a stock dividend or other increase or decrease in such shares, effected without receipt of consideration by the Corporation, or other change in corporate or capital structure. The Committee shall also make the foregoing changes and any other changes, including changes in the classes of securities available, to the extent reasonably necessary or desirable to preserve the intended benefits under this Employee Option Agreement in the event of any other reorganization, recapitalization, merger, consolidation, spin-off, extraordinary dividend or other distribution or similar transaction involving the Corporation. (b) Any adjustment under this Section 5 in the number of Option Shares and the Purchase Price shall apply to only the unexercised portion of the Option. If fractions of a share would result from any such adjustment, the adjustment shall be rounded down to the nearest whole number of shares. 6. Method of Exercising Option and Withholding. (a) The Option shall be exercised by the delivery by the Optionee to the Corporation at its principal office (or at such other address as may be established by the Committee) of written notice of the number of Option Shares with respect to which the Option is exercised, accompanied by payment in full of the aggregate Purchase Price for such Option Shares. Payment for such Option Shares shall be made (i) in U.S. dollars by personal check, bank draft or money order payable to the order of the Corporation, or by money transfers or direct account debits to an account designated by the Corporation; (ii) through the delivery of shares of Common Stock with a Fair Market Value equal to the total payment due from the Optionee; (iii) pursuant to a "cashless exercise" program if such a program is established by the Corporation; or (iv) by any combination of the methods described in (i) through (iii) above. (b) The Corporation's obligation to deliver shares of Common Stock upon the exercise of the Option shall be subject to the payment by the Optionee of applicable federal, state and local withholding tax, if any. The Corporation shall, to the extent permitted by law, have the right to deduct from any payment of any kind otherwise due to the Optionee any federal, state or local taxes required to be withheld with respect to such payment. 7. Transfer. The Option is not transferable otherwise than by will or the laws of descent and distribution, and the Option may be exercised during the Optionee's lifetime only by the Optionee. Any attempt to transfer the Option in contravention of this Section 7 is void ab initio. The Option shall not be subject to execution, attachment or other process. 8. No Rights in Option Shares. The Optionee shall have none of the rights of a stockholder with respect to the Option Shares unless and until shares of Common Stock are issued upon exercise of the Option. 9. No Right to Employment. Nothing contained herein shall be deemed to confer upon the Optionee any right to remain as an employee of the Corporation. 10. Governing Law/Jurisdiction. This Employee Option Agreement shall be governed by and construed in accordance with the laws of the State of Delaware without reference to principles of conflict of laws. 11. Resolution of Disputes. Any disputes arising under or in connection with this Employee Option Agreement shall be resolved by binding arbitration before a single arbitrator, to be held in New York in accordance with the commercial rules and procedures of the American Arbitration Association. Judgment upon the award rendered by the arbitrator shall be final and subject to appeal only to the extent permitted by law. Each party shall bear such party's own expenses incurred in connection with any arbitration; provided, however, that the cost of the arbitration, including without limitation, reasonable attorneys' fees of the Optionee, shall be borne by the Corporation in the event the Optionee is the prevailing party in the arbitration. Anything to the contrary notwithstanding, each party hereto has the right to proceed with a court action for injunctive relief or relief from violations of law not within the jurisdiction of an arbitrator. 12. Notices. Any notice required or permitted under this Employee Option Agreement shall be deemed given when delivered personally, or when deposited in a United States Post Office, postage prepaid, addressed, as appropriate, to the Optionee at the last address specified in Optionee's employment records, or such other address as the Optionee may designate in writing to the Corporation, or to the Corporation, Attention: Corporate Secretary, or such other address as the Corporation may designate in writing to the Optionee. 13. Failure To Enforce Not a Waiver. The failure of either party hereto to enforce at any time any provision of this Employee Option Agreement shall in no way be construed to be a waiver of such provision or of any other provision hereof. 14. Counterparts. This Employee Option Agreement may be executed in two or more counterparts, each of which shall be an original but all of which together shall represent one and the same agreement. 15. Miscellaneous. This Employee Option Agreement cannot be changed or terminated orally. This Employee Option Agreement and the Plan contain the entire agreement between the parties relating to the subject matter hereof. The section headings herein are intended for reference only and shall not affect the interpretation hereof. 16. Definitions. For purposes of this Employee Option Agreement: (I) the term "Affiliate" of any Person shall mean any other Person that directly or indirectly, through one or more intermediaries, Controls, is Controlled by, or is under common Control with, such first Person. The term "Control" shall have the meaning specified in Rule 12b-2 under the Securities Exchange Act of 1934 as in effect on the date of this Agreement; (II) the term "Beneficial Owner" shall have the meaning used in Rule 13d-3 promulgated under the Exchange Act; (III) the term "Cause" shall mean (A) the willful and continued failure by the Optionee to substantially perform the Optionee's duties with the Corporation (other than any such failure resulting from the Optionee's incapacity due to physical or mental illness 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 to the Optionee by the Corporation, that specifically identifies the manner in which the Corporation believes that the Optionee has not substantially performed the Optionee's duties, or (B) the willful engaging by the Optionee in misconduct that is demonstrably and materially injurious to the Corporation, monetarily or otherwise including, but not limited to conduct that violates any written noncompetition covenant between the Optionee and the Corporation. No act, or failure to act, on the Optionee's part shall be deemed "willful" unless done, or omitted to be done, by the Optionee not in good faith and without reasonable belief that the Optionee's action or omission was in the best interest of the Corporation. Notwithstanding the foregoing, the Optionee shall not be deemed to have been terminated for Cause without (i) reasonable notice from the Board to the Optionee setting forth the reasons for the Corporation's intention to terminate for Cause, (ii) delivery to the Optionee of a resolution duly adopted by the affirmative vote two-thirds or more of the Board then in office (excluding the Optionee 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 Optionee was guilty of conduct herein set forth and specifying the particulars thereof in detail, (iii) an opportunity for the Optionee, together with his counsel, to be heard before the Board, and (iv) delivery to the Optionee of a Notice of Termination from the Board specifying the particulars in detail. (IV) the term "Change in Control" shall mean any of the following events: (1) any Person is or becomes the Beneficial Owner, directly or indirectly, of 40% or more of either (x) the then outstanding common stock of the Company (the "Outstanding Common Stock") or (y) the combined voting power of the then outstanding securities entitled to vote generally in the election of directors of the Company (the "Total Voting Power"), excluding, however, the following (1) any acquisition by the Company or any of its Controlled Affiliates, (2) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any of its Controlled Affiliates and (3) any Person who becomes such a Beneficial Owner in connection with a transaction described in the exception within clause (3) below; or (2) a change in the composition of the Board such that the individuals who, on the date hereof, 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 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 be half of a person or legal entity other than the Board shall not be considered a member of the Incumbent Board; or (3) there is consummated a merger or consolidation of the Company or any direct or indirect subsidiary of the Company or a sale or other disposition of all or substantially all of the assets of the Company ("Corporate Transaction"); excluding, however, such a Corporate Transaction pursuant to which (x) all or substantially all of the individuals and entities who are the Beneficial Owners, respectively, of the Outstanding Common Stock and the 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 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, and (y) immediately following which the individuals who comprise the Board immediately prior thereto constitute at least a majority of the board 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); or (4) the approval by the stockholders of the Company of a complete liquidation or dissolution of the Company. (V) the term "Disability (or becoming Disabled)" shall mean that, as a result of the Optionee's incapacity due to physical or mental illness or injury, he or she shall not have performed all or substantially all of his or her usual duties as an employee of the Corporation for a period of more than one-hundred-fifty (150) days in any period of one-hundred-eighty (180) consecutive days; (VI) the term "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended from time to time; (VII) the term "Good Reason" for termination by the Optionee of the Optionee's employment shall mean: (1) A diminution in the Optionee's position, duties, responsibilities or authority (except during periods when the Executive is unable to perform all or substantially all of his duties on account of illness (either physical or mental) or other incapacity; (2) A reduction in the Optionee's annual rate of base salary as in effect on the date hereof or as the same may be increased from time to time; (3) Failure by the Corporation to continue in effect any compensation plan in which the Optionee participates which is material to the Optionee'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 Corporation to continue the Optionee's participation therein (or in such substitute plan) on a basis not materially less favorable to the Optionee; (4) Failure by the Corporation to continue to provide the Optionee with benefits substantially similar to those enjoyed by the Optionee under any of the Corporation's pension, savings, life insurance, medical, health and accident, or disability plans in which the Optionee was participating (except for across-the-board changes similarly affecting all senior executives of the Corporation and all senior executives of any Person in control of the Corporation), or failure by the Corporation to continue to provide the Optionee with the number of paid vacation days per year equal to the greater 4 weeks and (b) the number to which the Optionee is entitled in accordance with the Corporation's vacation policy; (5) Failure to provide facilities or services which are suitable to the Optionee's position; (6) Failure of any successor (whether direct or indirect, by purchase of stock or assets, merger, consolidation or otherwise) to the Corporation to assume the Corporation's obligations hereunder or failure by the Corporation to remain liable to the Optionee hereunder after such assumption; (7) Any termination by the Corporation of the Optionee's employment which is not effected pursuant to a Notice of Termination satisfying the requirements of a Notice of Termination contained in this Agreement; (8) the relocation of the Optionee's principal place of employment to a location more than fifty (50) miles from the Optionee's principal place of employment as of the date hereof; or (9) Failure to pay the Optionee any portion of current or deferred compensation within seven (7) days of the date such compensation is due. The Optionee'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 Optionee shall be deemed to have waived his rights pursuant to circumstances constituting Good Reason hereunder if he shall not have provided the Corporation a Notice of Termination within ninety (90) days following his knowledge of the occurrence of circumstances constituting Good Reason; (VIII) the term "Governance Agreement" shall mean the Governance Agreement, dated [ ], 2000, among LXH, L.L.C., LXH II, L.L.C., Hexcel Corporation and the other parties listed on the signature pages thereto; (IX) the term "Person" shall have the meaning given in Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d) of the Exchange Act; and (X) the term "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 Optionee's employment under the provision so indicated. Annex A NOTICE OF GRANT EMPLOYEE STOCK OPTION HEXCEL CORPORATION INCENTIVE STOCK PLAN The following employee of Hexcel Corporation, a Delaware corporation ("Hexcel") or a Subsidiary, has been granted an option to purchase shares of the Common Stock of Hexcel, $.01 par value, in accordance with the terms of this Notice of Grant and the Employee Option Agreement to which this Notice of Grant is attached. The following is a summary of the principal terms of the option which has been granted. The terms below shall have the meanings ascribed to them below when used in the Employee Option Agreement. Optionee - -------------------------------------- ---------------------------------------- Address of Optionee - -------------------------------------- ---------------------------------------- Employee Number - -------------------------------------- ---------------------------------------- Employee ID Number - -------------------------------------- ---------------------------------------- Foreign Sub Plan, if applicable - -------------------------------------- ---------------------------------------- Grant Date - -------------------------------------- ---------------------------------------- Purchase Price - -------------------------------------- ---------------------------------------- Aggregate Number of Shares Granted (the "Option Shares") - -------------------------------------- ---------------------------------------- IN WITNESS WHEREOF, the parties hereby agree to the terms of this Notice of Grant and the Employee Option Agreement to which this Notice of Grant is attached and execute this Notice of Grant and Employee Option Agreement as of the Grant Date. HEXCEL CORPORATION Optionee By: Ira J. Krakower Senior Vice President EX-10 12 0012.txt EXHIBIT 10.13 EXHIBIT 10.13 AMENDMENT TO AGREEMENTS AGREEMENT, dated as of October 11, 2000 by and between Hexcel Corporation, a Delaware corporation (the "Company") and Justin Taylor (the "Executive"). WHEREAS, the Company maintains the Hexcel Corporation Incentive Stock Plan (the "Plan") and the Hexcel Corporation Management Stock Purchase Plan (the "MSPP"); and WHEREAS, the Company has granted to the Executive (1) under the Plan, nonqualified options ("NQOs") to acquire shares of the common stock of the Company (the "Common Stock"), performance accelerated stock options ("PASOs" and, together with the NQOs, the "Options") to acquire shares of Common Stock and contractual rights representing the right to earn shares of Common Stock under specified circumstances ("PARs") and (2) contractual rights under the MSPP representing the right to earn shares of Common Stock under specified circumstances ("RSUs"), in each case evidenced by written award agreements entered into between the Company and the Executive (the "Award Agreements"); and WHEREAS, under the Award Agreements the Executive has certain rights upon the occurrence of a Change in Control (as defined thereby); and WHEREAS, Ciba Specialty Chemicals Holding, Inc. ("Ciba SCH"), Ciba Specialty Chemicals Inc. ("Ciba SCI"), Ciba Specialty Chemicals Corporation ("Ciba SCC" and together with Ciba SCH and Ciba SCI, "Ciba"), LXH, L.L.C. ("LXH") and LXH II, L.L.C. ("LXH II" and together with LXH, "the Purchasers") have entered into a Stock Purchase Agreement dated as of October 11, 2000 (the "Stock Purchase Agreement") pursuant to which, among other things, the Purchasers will purchase from Ciba shares of Common Stock; and WHEREAS, the consummation (the "Closing") of the transactions contemplated by the Stock Purchase Agreement (the "Transactions") will constitute a Change in Control under the Plan, the MSPP and the Award Agreements; and WHEREAS, the Company desires the Executive to waive certain rights under the Plan, the MSPP and the Award Agreements and desires to provide additional incentives to the Executive to remain employed by the Company following the Closing. NOW, THEREFORE, the Company and the Executive hereby agree as follows. 1. The consummation of the Transactions shall not constitute a Change in Control for purposes of the Plan, the MSPP or the Award Agreements, notwithstanding anything therein to the contrary. 2. Each Award Agreement is hereby amended to incorporate a new definition of the term Change in Control (and related definitions), in the form annexed hereto as Exhibit A. 3. Each Award Agreement pursuant to which Options have been granted is hereby amended to provide that each Option that is unvested at the Closing will vest and become exercisable on the earliest to occur of (i) as to 50% of the shares subject thereto, on the 1st anniversary of the Closing and as to the remaining 50% of the shares subject thereto, on the 2nd anniversary of the Closing, (ii) the Executive's termination of employment due to death, Disability (as defined in Exhibit B hereto), termination by the Company without Cause (as defined in Exhibit B hereto) or by the Executive for Good Reason (as defined in Exhibit B hereto) or (iii) the occurrence of a Change in Control (as defined in Exhibit A hereto). 4. Each Award Agreement pursuant to which PARs have been granted is hereby amended to provide that each PAR subject thereto will vest and, without being subject to the existing limitations relating to Section 162(m) of the Internal Revenue Code of 1986, as amended, the underlying shares will be distributed on the earliest to occur of (i) as to 50% of the shares subject thereto, on the 1st anniversary of the Closing and as to the remaining 50% of the shares subject thereto, on the 2nd anniversary of the Closing, (ii) the Executive's termination of employment due to death, Disability, termination by the Company without Cause or by the Executive for Good Reason or (iii) the occurrence of a Change in Control (as defined in Exhibit A hereto). 5. Each Award Agreement pursuant to which RSUs have been granted is hereby amended to provide that each RSU subject thereto will vest and the underlying shares will be distributed on the earliest to occur of (i) as to 50% of the shares subject thereto, on the 1st anniversary of the Closing and as to the remaining 50% of the shares subject thereto, on the 2nd anniversary of the Closing, (ii) the Executive's termination of employment due to death, Disability, termination by the Company without Cause or by the Executive for Good Reason or (iii) the occurrence of a Change in Control (as defined in Exhibit A hereto). 6. Except as otherwise expressly provided herein, the Award Agreements shall remain in effect in accordance with their respective terms. 7. Effective as of the date on which the Closing occurs (the "Closing Date"), the Company shall grant to the Executive options to acquire 21,078 shares of Common Stock. Such options shall be at an exercise price per share equal to the greater of (a) the fair market value (as defined in the Plan) of a share of Common Stock on the Closing Date or (b) $11, and shall otherwise be made pursuant to the form of Stock Option Agreement annexed hereto as Exhibit C. The Company agrees that such grant shall not be in lieu of, or otherwise be taken into account in determining the size or terms of, the annual long term incentive grant to the Executive for the 2001 or other fiscal year. 8. For purposes of this Agreement, notices, demands, and all other communications provided for hereunder shall be in writing and shall be deemed to have been duly given when hand delivered or (unless otherwise specified) when mailed by United States certified mail, return receipt requested, postage prepaid, addressed as follows: To the Executive at the address shown in the personnel records of the Company To the Company at: Hexcel Corporation Two Stamford Plaza 281 Tresser Boulevard Stamford Connecticut 06901-3238 Att'n: or to such other address as either 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. 9. The invalidity or unenforceability of any provision hereof shall not affect the other provisions hereof, and this Agreement shall be construed in all respects as if such invalid or unenforceable provision had been omitted. 10. No change, modification or waiver of any provision of this Agreement shall be valid unless the same be in writing and signed by the parties hereto. 11. This Agreement contains the entire understanding of the parties hereto with respect to the subject matter hereof and supersedes all prior communications, representations and negotiations in respect thereto. 12. This Agreement shall be governed by, and construed and enforced in accordance with, the laws of the State of Delaware, without regard to its conflicts of law rules. 13. This Agreement may be executed in counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same instrument. 14. This agreement shall become effective upon the Closing, and shall be null and void and of no effect if the Closing does not occur. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date and year first written above. HEXCEL CORPORATION By: /s/ Ira J. Krakower Name: Ira J. Krakower Title: Senior Vice President /s/ Justin Taylor Justin Taylor EXHIBIT A Affiliate of any Person shall mean any other Person that directly or indirectly, through one or more intermediaries, Controls, is Controlled by, or is under common Control with, such first Person. Control shall have the meaning specified in Rule 12b-2 under the Securities Exchange Act of 1934 as in effect on the date of this Agreement. Beneficial Owner shall have the meaning used in Rule 13d-3 promulgated under the Exchange Act. Change in Control means: (i) any Person is or becomes the Beneficial Owner, directly or indirectly, of 40% or more of either (x) the then outstanding common stock of the Company (the "Out- standing Common Stock") or (y) the combined voting power of the then outstanding securities entitled to vote generally in the election of directors of the Company (the "Total Voting Power"), excluding, however, the following (1) any acquisition by the Company or any of its Controlled Affiliates, (2) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any of its Controlled Affiliates and (3) any Person who becomes such a Beneficial Owner in connection with a transaction described in the exclusion within clause (iii) below; or (ii) a change in the composition of the Board such that the individuals who, on the date hereof, 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 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 considered a member of the Incumbent Board; or (iii) there is consummated a merger or consolidation of the Company or any direct or indirect subsidiary of the Company or a sale or other disposition of all or substantially all of the assets of the Company ("Corporate Transaction"); excluding, how- ever, such a Corporate Transaction pursuant to which (x) all or substantially all of the individuals and entities who are the Beneficial Owners, respectively, of the Outstanding Common Stock and the 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 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, and (y) immediately following which the individuals who comprise the Board immediately prior thereto constitute at least a majority of the board 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); or (iv) the approval by the stockholders of the Company of a complete liquidation or dissolution of the Company. Exchange Act shall mean the Securities Exchange Act of 1934, as amended. Governance Agreement shall mean the Governance Agreement, dated [ ], 2000, among LXH, L.L.C., LXH II, L.L.C., Hexcel Corporation and the other parties listed on the signature pages thereto. Person shall have the meaning set forth in Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d) of the Exchange Act. EXHIBIT B "Cause" shall mean (A) the willful and continued failure by the Optionee to substantially perform the Optionee's duties with the Corporation (other than any such failure resulting from the Optionee's incapacity due to physical or mental illness 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 to the Optionee by the Corporation, that specifically identifies the manner in which the Corporation believes that the Optionee has not substantially performed the Optionee's duties, or (B) the willful engaging by the Optionee in misconduct that is demonstrably and materially injurious to the Corporation, monetarily or otherwise including, but not limited to conduct that violates any written noncompetition covenant between the Optionee and the Corporation. No act, or failure to act, on the Optionee's part shall be deemed "willful" unless done, or omitted to be done, by the Optionee not in good faith and without reasonable belief that the Optionee's action or omission was in the best interest of the Corporation. Notwithstanding the foregoing, the Optionee shall not be deemed to have been terminated for Cause without (i) reasonable notice from the Board to the Optionee setting forth the reasons for the Corporation's intention to terminate for Cause, (ii) delivery to the Optionee of a resolution duly adopted by the affirmative vote two-thirds or more of the Board then in office (excluding the Optionee 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 Optionee was guilty of conduct herein set forth and specifying the particulars thereof in detail, (iii) an opportunity for the Optionee, together with his counsel, to be heard before the Board, and (iv) delivery to the Optionee of a Notice of Termination from the Board specifying the particulars in detail. "Disability" shall mean that, as a result of the Optionee's incapacity due to physical or mental illness or injury, he or she shall not have performed all or substantially all of his or her usual duties as an employee of the Corporation for a period of more than one-hundred-fifty (150) days in any period of one-hundred-eighty (180) consecutive days. "Good Reason" for termination by the Optionee of the Optionee's employment shall mean: (a) A diminution in the Optionee's position, duties, responsibilities or authority (except during periods when the Executive is unable to perform all or substantially all of his duties on account of illness (either physical or mental) or other incapacity; (b) A reduction in the Optionee's annual rate of base salary as in effect on the date hereof or as the same may be increased from time to time; (c) Failure by the Corporation to continue in effect any compensation plan in which the Optionee participates which is material to the Optionee'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 Corporation to continue the Optionee's participation therein (or in such substitute plan) on a basis not materially less favorable to the Optionee; (d) Failure by the Corporation to continue to provide the Optionee with benefits substantially similar to those enjoyed by the Optionee under any of the Corporation's pension, savings, life insurance, medical, health and accident, or disability plans in which the Optionee was participating (except for across-the-board changes similarly affecting all senior executives of the Corporation and all senior executives of any Person in control of the Corporation), or failure by the Corporation to continue to provide the Optionee with the number of paid vacation days per year equal to the greater 4 weeks and (b) the number to which the Optionee is entitled in accordance with the Corporation's vacation policy; (e) Failure to provide facilities or services which are suitable to the Optionee's position; (f) Failure of any successor (whether direct or indirect, by purchase of stock or assets, merger, consolidation or otherwise) to the Corporation to assume the Corporation's obligations hereunder or failure by the Corporation to remain liable to the Optionee hereunder after such assumption; (g) Any termination by the Corporation of the Optionee's employment which is not effected pursuant to a Notice of Termination satisfying the requirements of a Notice of Termination contained in this Agreement; (h) The relocation of the Optionee's principal place of employment to a location more than fifty (50) miles from the Optionee's principal place of employment as of the date hereof; or (i) Failure to pay the Optionee any portion of current or deferred compensation within seven (7) days of the date such compensation is due. The Optionee'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 Optionee shall be deemed to have waived his rights pursuant to circumstances constituting Good Reason hereunder if he shall not have provided the Corporation a Notice of Termination within ninety (90) days following his knowledge of the occurrence of circumstances constituting Good Reason. "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 Optionee's employment under the provision so indicated. EXHIBIT C EMPLOYEE OPTION AGREEMENT (October , 2000) EMPLOYEE OPTION AGREEMENT, dated as of the Grant Date, by and between the Optionee and Hexcel Corporation (the "Corporation"). W I T N E S S E T H: WHEREAS, the Corporation has adopted the Hexcel Corporation Incentive Stock Plan (the "Plan"); and WHEREAS, the Executive Compensation Committee (the "Committee") of the Board of Directors of the Corporation (the "Board") has determined that it is desirable and in the best interest of the Corporation to grant to the Optionee a stock option as an incentive for the Optionee to advance the interests of the Corporation; NOW, THEREFORE, the parties agree as follows: 1. Notice of Grant; Incorporation of Plan. A Notice of Grant is attached hereto as Annex A and incorporated by reference herein. Unless otherwise provided herein, capitalized terms used herein and set forth in such Notice of Grant shall have the meanings ascribed to them in the Notice of Grant and capitalized terms used herein and set forth in the Plan shall have the meanings ascribed to them in the Plan. The Plan is incorporated by reference and made a part of this Employee Option Agreement, and this Employee Option Agreement shall be subject to the terms of the Plan, as the Plan may be amended from time to time, provided that any such amendment of the Plan must be made in accordance with Section X of the Plan. The Option granted herein constitutes an Award within the meaning of the Plan. 2. Grant of Option. Pursuant to the Plan and subject to the terms and conditions set forth herein and therein, the Corporation hereby grants to the Optionee the right and option (the "Option") to purchase all or any part of the Option Shares of the Corporation's common stock, $.01 par value per share (the "Common Stock"), which Option is not intended to qualify as an incentive stock option, as defined in Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"). 3. Purchase Price. The purchase price per share of the Option Shares shall be the Purchase Price. 4. Term of Option. (a) Expiration Date; Term. Subject to Section 4(c) below, the Option shall expire on, and shall no longer be exercisable following, the tenth anniversary of the Grant Date. The ten-year period from the Grant Date to its tenth anniversary shall constitute the "Term" of the Option. (b) Vesting Period; Exercisability. Subject to Section 4(c) below, the Option shall vest and become exercisable at the rate of 33-1/3% of the Option Shares on each of the first three anniversaries of the Grant Date. (c) Termination of Employment; Change in Control. (i) For purposes of the grant hereunder, any transfer of employment by the Optionee among the Corporation and the Subsidiaries shall not be considered a termination of employment. Except as set forth below in this Section 4(c)(i), if the Optionee's employment with the Corporation shall terminate for any reason, (a) the Option (to the extent then vested) may be exercised at any time within ninety (90) days after such termination (but not beyond the Term of the Option) and (b) the Option, to the extent not then vested, shall immediately expire upon such termination. Notwithstanding the foregoing, (a) if the Optionee's employment with the Corporation is terminated for Cause (as defined in the last Section hereof), the Option, whether or not then vested, shall be automatically terminated as of the date of such termination of employment and (b) if the Optionee dies or is disabled (A) while employed by the Corporation or (B) within 90 days after the termination of his or her employment (other than a termination described in clause (a) of this sentence), the Option may be exercised at any time within 365 days after the Optionee's death or disability (but not beyond the Term of the Option). (ii) If the Optionee's employment terminates by reason of death, Disability, the termination of the Optionee's employment by the Company other than for Cause, or the termination of the Optionee's employment by the Optionee for Good Reason, the Option shall become fully and immediately vested and exercisable. In the event of a Change in Control (as defined in the last Section hereof), the Option shall immediately become fully vested and exercisable. 5. Adjustment Upon Changes in Capitalization. (a) The aggregate number of Option Shares and the Purchase Price shall be appropriately adjusted by the Committee for any increase or decrease in the number of issued shares of Common Stock resulting from a subdivision or consolidation of shares or other capital adjustment, or the payment of a stock dividend or other increase or decrease in such shares, effected without receipt of consideration by the Corporation, or other change in corporate or capital structure. The Committee shall also make the foregoing changes and any other changes, including changes in the classes of securities available, to the extent reasonably necessary or desirable to preserve the intended benefits under this Employee Option Agreement in the event of any other reorganization, recapitalization, merger, consolidation, spin-off, extraordinary dividend or other distribution or similar transaction involving the Corporation. (b) Any adjustment under this Section 5 in the number of Option Shares and the Purchase Price shall apply to only the unexercised portion of the Option. If fractions of a share would result from any such adjustment, the adjustment shall be rounded down to the nearest whole number of shares. 6. Method of Exercising Option and Withholding. (a) The Option shall be exercised by the delivery by the Optionee to the Corporation at its principal office (or at such other address as may be established by the Committee) of written notice of the number of Option Shares with respect to which the Option is exercised, accompanied by payment in full of the aggregate Purchase Price for such Option Shares. Payment for such Option Shares shall be made (i) in U.S. dollars by personal check, bank draft or money order payable to the order of the Corporation, or by money transfers or direct account debits to an account designated by the Corporation; (ii) through the delivery of shares of Common Stock with a Fair Market Value equal to the total payment due from the Optionee; (iii) pursuant to a "cashless exercise" program if such a program is established by the Corporation; or (iv) by any combination of the methods described in (i) through (iii) above. (b) The Corporation's obligation to deliver shares of Common Stock upon the exercise of the Option shall be subject to the payment by the Optionee of applicable federal, state and local withholding tax, if any. The Corporation shall, to the extent permitted by law, have the right to deduct from any payment of any kind otherwise due to the Optionee any federal, state or local taxes required to be withheld with respect to such payment. 7. Transfer. The Option is not transferable otherwise than by will or the laws of descent and distribution, and the Option may be exercised during the Optionee's lifetime only by the Optionee. Any attempt to transfer the Option in contravention of this Section 7 is void ab initio. The Option shall not be subject to execution, attachment or other process. 8. No Rights in Option Shares. The Optionee shall have none of the rights of a stockholder with respect to the Option Shares unless and until shares of Common Stock are issued upon exercise of the Option. 9. No Right to Employment. Nothing contained herein shall be deemed to confer upon the Optionee any right to remain as an employee of the Corporation. 10. Governing Law/Jurisdiction. This Employee Option Agreement shall be governed by and construed in accordance with the laws of the State of Delaware without reference to principles of conflict of laws. 11. Resolution of Disputes. Any disputes arising under or in connection with this Employee Option Agreement shall be resolved by binding arbitration before a single arbitrator, to be held in New York in accordance with the commercial rules and procedures of the American Arbitration Association. Judgment upon the award rendered by the arbitrator shall be final and subject to appeal only to the extent permitted by law. Each party shall bear such party's own expenses incurred in connection with any arbitration; provided, however, that the cost of the arbitration, including without limitation, reasonable attorneys' fees of the Optionee, shall be borne by the Corporation in the event the Optionee is the prevailing party in the arbitration. Anything to the contrary notwithstanding, each party hereto has the right to proceed with a court action for injunctive relief or relief from violations of law not within the jurisdiction of an arbitrator. 12. Notices. Any notice required or permitted under this Employee Option Agreement shall be deemed given when delivered personally, or when deposited in a United States Post Office, postage prepaid, addressed, as appropriate, to the Optionee at the last address specified in Optionee's employment records, or such other address as the Optionee may designate in writing to the Corporation, or to the Corporation, Attention: Corporate Secretary, or such other address as the Corporation may designate in writing to the Optionee. 13. Failure To Enforce Not a Waiver. The failure of either party hereto to enforce at any time any provision of this Employee Option Agreement shall in no way be construed to be a waiver of such provision or of any other provision hereof. 14. Counterparts. This Employee Option Agreement may be executed in two or more counterparts, each of which shall be an original but all of which together shall represent one and the same agreement. 15. Miscellaneous. This Employee Option Agreement cannot be changed or terminated orally. This Employee Option Agreement and the Plan contain the entire agreement between the parties relating to the subject matter hereof. The section headings herein are intended for reference only and shall not affect the interpretation hereof. 16. Definitions. For purposes of this Employee Option Agreement: (I) the term "Affiliate" of any Person shall mean any other Person that directly or indirectly, through one or more intermediaries, Controls, is Controlled by, or is under common Control with, such first Person. The term "Control" shall have the meaning specified in Rule 12b-2 under the Securities Exchange Act of 1934 as in effect on the date of this Agreement; (II) the term "Beneficial Owner" shall have the meaning used in Rule 13d-3 promulgated under the Exchange Act; (III) the term "Cause" shall mean (A) the willful and continued failure by the Optionee to substantially perform the Optionee's duties with the Corporation (other than any such failure resulting from the Optionee's incapacity due to physical or mental illness 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 to the Optionee by the Corporation, that specifically identifies the manner in which the Corporation believes that the Optionee has not substantially performed the Optionee's duties, or (B) the willful engaging by the Optionee in misconduct that is demonstrably and materially injurious to the Corporation, monetarily or otherwise including, but not limited to conduct that violates any written noncompetition covenant between the Optionee and the Corporation. No act, or failure to act, on the Optionee's part shall be deemed "willful" unless done, or omitted to be done, by the Optionee not in good faith and without reasonable belief that the Optionee's action or omission was in the best interest of the Corporation. Notwithstanding the foregoing, the Optionee shall not be deemed to have been terminated for Cause without (i) reasonable notice from the Board to the Optionee setting forth the reasons for the Corporation's intention to terminate for Cause, (ii) delivery to the Optionee of a resolution duly adopted by the affirmative vote two-thirds or more of the Board then in office (excluding the Optionee 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 Optionee was guilty of conduct herein set forth and specifying the particulars thereof in detail, (iii) an opportunity for the Optionee, together with his counsel, to be heard before the Board, and (iv) delivery to the Optionee of a Notice of Termination from the Board specifying the particulars in detail. (IV) the term "Change in Control" shall mean any of the following events: (1) any Person is or becomes the Beneficial Owner, directly or indirectly, of 40% or more of either (x) the then outstanding common stock of the Company (the "Outstanding Common Stock") or (y) the combined voting power of the then outstanding securities entitled to vote generally in the election of directors of the Company (the "Total Voting Power"), excluding, however, the following (1) any acquisition by the Company or any of its Controlled Affiliates, (2) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any of its Controlled Affiliates and (3) any Person who becomes such a Beneficial Owner in connection with a transaction described in the exception within clause (3) below; or (2) a change in the composition of the Board such that the individuals who, on the date hereof, 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 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 considered a member of the Incumbent Board; or (3) there is consummated a merger or consolidation of the Company or any direct or indirect subsidiary of the Company or a sale or other disposition of all or substantially all of the assets of the Company ("Corporate Transaction"); excluding, however, such a Corporate Transaction pursuant to which (x) all or substantially all of the individuals and entities who are the Beneficial Owners, respectively, of the Outstanding Common Stock and the 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 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, and (y) immediately following which the individuals who comprise the Board immediately prior thereto constitute at least a majority of the board 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); or (4) the approval by the stockholders of the Company of a complete liquidation or dissolution of the Company. (V) the term "Disability (or becoming Disabled)" shall mean that, as a result of the Optionee's incapacity due to physical or mental illness or injury, he or she shall not have performed all or substantially all of his or her usual duties as an employee of the Corporation for a period of more than one-hundred-fifty (150) days in any period of one-hundred-eighty (180) consecutive days; (VI) the term "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended from time to time; (VII) the term "Good Reason" for termination by the Optionee of the Optionee's employment shall mean: (1) A diminution in the Optionee's position, duties, responsibilities or authority (except during periods when the Executive is unable to perform all or substantially all of his duties on account of illness (either physical or mental) or other incapacity; (2) A reduction in the Optionee's annual rate of base salary as in effect on the date hereof or as the same may be increased from time to time; (3) Failure by the Corporation to continue in effect any compensation plan in which the Optionee participates which is material to the Optionee'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 Corporation to continue the Optionee's participation therein (or in such substitute plan) on a basis not materially less favorable to the Optionee; (4) Failure by the Corporation to continue to provide the Optionee with benefits substantially similar to those enjoyed by the Optionee under any of the Corporation's pension, savings, life insurance, medical, health and accident, or disability plans in which the Optionee was participating (except for across- the-board changes similarly affecting all senior executives of the Corporation and all senior executives of any Person in control of the Corporation), or failure by the Corporation to continue to provide the Optionee with the number of paid vacation days per year equal to the greater 4 weeks and (b) the number to which the Optionee is entitled in accordance with the Corporation's vacation policy; (5) Failure to provide facilities or services which are suitable to the Optionee's position; (6) Failure of any successor (whether direct or indirect, by purchase of stock or assets, merger, consolidation or otherwise) to the Corporation to assume the Corporation's obligations hereunder or failure by the Corporation to remain liable to the Optionee hereunder after such assumption; (7) Any termination by the Corporation of the Optionee's employment which is not effected pursuant to a Notice of Termination satisfying the requirements of a Notice of Termination contained in this Agreement; (8) the relocation of the Optionee's principal place of employment to a location more than fifty (50) miles from the Optionee's principal place of employment as of the date hereof; or (9) Failure to pay the Optionee any portion of current or deferred compensation within seven (7) days of the date such compensation is due. The Optionee'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 Optionee shall be deemed to have waived his rights pursuant to circumstances constituting Good Reason hereunder if he shall not have provided the Corporation a Notice of Termination within ninety (90) days following his knowledge of the occurrence of circumstances constituting Good Reason; (VIII) the term "Governance Agreement" shall mean the Governance Agreement, dated [ ], 2000, among LXH, L.L.C., LXH II, L.L.C., Hexcel Corporation and the other parties listed on the signature pages thereto; (IX) the term "Person" shall have the meaning given in Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d) of the Exchange Act; and (X) the term "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 Optionee's employment under the provision so indicated. Annex A NOTICE OF GRANT EMPLOYEE STOCK OPTION HEXCEL CORPORATION INCENTIVE STOCK PLAN The following employee of Hexcel Corporation, a Delaware corporation ("Hexcel") or a Subsidiary, has been granted an option to purchase shares of the Common Stock of Hexcel, $.01 par value, in accordance with the terms of this Notice of Grant and the Employee Option Agreement to which this Notice of Grant is attached. The following is a summary of the principal terms of the option which has been granted. The terms below shall have the meanings ascribed to them below when used in the Employee Option Agreement. Optionee - ------------------------------------- ----------------------------------------- Address of Optionee - ------------------------------------- ----------------------------------------- Employee Number - ------------------------------------- ----------------------------------------- Employee ID Number - ------------------------------------- ----------------------------------------- Foreign Sub Plan, if applicable - ------------------------------------- ----------------------------------------- Grant Date - ------------------------------------- ----------------------------------------- Purchase Price - ------------------------------------- ----------------------------------------- Aggregate Number of Shares Granted (the "Option Shares") - ------------------------------------- ----------------------------------------- IN WITNESS WHEREOF, the parties hereby agree to the terms of this Notice of Grant and the Employee Option Agreement to which this Notice of Grant is attached and execute this Notice of Grant and Employee Option Agreement as of the Grant Date. HEXCEL CORPORATION Optionee By: Ira J. Krakower Senior Vice President EX-10 13 0013.txt EXHIBIT 10.14 EXHIBIT 10.14 AMENDMENT TO AGREEMENTS AGREEMENT, dated as of October 11, 2000 by and between Hexcel Corporation, a Delaware corporation (the "Company") and William Hunt (the "Executive"). WHEREAS, the Company maintains the Hexcel Corporation Incentive Stock Plan (the "Plan") and the Hexcel Corporation Management Stock Purchase Plan (the "MSPP"); and WHEREAS, the Company has granted to the Executive (1) under the Plan, nonqualified options ("NQOs") to acquire shares of the common stock of the Company (the "Common Stock"), performance accelerated stock options ("PASOs" and, together with the NQOs, the "Options") to acquire shares of Common Stock and contractual rights representing the right to earn shares of Common Stock under specified circumstances ("PARs") and (2) contractual rights under the MSPP representing the right to earn shares of Common Stock under specified circumstances ("RSUs"), in each case evidenced by written award agreements entered into between the Company and the Executive (the "Award Agreements"); and WHEREAS, under the Award Agreements the Executive has certain rights upon the occurrence of a Change in Control (as defined thereby); and WHEREAS, Ciba Specialty Chemicals Holding, Inc. ("Ciba SCH"), Ciba Specialty Chemicals Inc. ("Ciba SCI"), Ciba Specialty Chemicals Corporation ("Ciba SCC" and together with Ciba SCH and Ciba SCI, "Ciba"), LXH, L.L.C. ("LXH") and LXH II, L.L.C. ("LXH II" and together with LXH, "the Purchasers") have entered into a Stock Purchase Agreement dated as of October 11, 2000 (the "Stock Purchase Agreement") pursuant to which, among other things, the Purchasers will purchase from Ciba shares of Common Stock; and WHEREAS, the consummation (the "Closing") of the transactions contemplated by the Stock Purchase Agreement (the "Transactions") will constitute a Change in Control under the Plan, the MSPP and the Award Agreements; and WHEREAS, the Company desires the Executive to waive certain rights under the Plan, the MSPP and the Award Agreements and desires to provide additional incentives to the Executive to remain employed by the Company following the Closing. NOW, THEREFORE, the Company and the Executive hereby agree as follows. 1. The consummation of the Transactions shall not constitute a Change in Control for purposes of the Plan, the MSPP or the Award Agreements, notwithstanding anything therein to the contrary. 2. Each Award Agreement is hereby amended to incorporate a new definition of the term Change in Control (and related definitions), in the form annexed hereto as Exhibit A. 3. Each Award Agreement pursuant to which Options have been granted is hereby amended to provide that each Option that is unvested at the Closing will vest and become exercisable on the earliest to occur of (i) as to 50% of the shares subject thereto, on the 1st anniversary of the Closing and as to the remaining 50% of the shares subject thereto, on the 2nd anniversary of the Closing, (ii) the Executive's termination of employment due to death, Disability (as defined in Exhibit B hereto), termination by the Company without Cause (as defined in Exhibit B hereto) or by the Executive for Good Reason (as defined in Exhibit B hereto) or (iii) the occurrence of a Change in Control (as defined in Exhibit A hereto). 4. Each Award Agreement pursuant to which PARs have been granted is hereby amended to provide that each PAR subject thereto will vest and, without being subject to the existing limitations relating to Section 162(m) of the Internal Revenue Code of 1986, as amended, the underlying shares will be distrib- uted on the earliest to occur of (i) as to 50% of the shares subject thereto, on the 1st anniversary of the Closing and as to the remaining 50% of the shares subject thereto, on the 2nd anniversary of the Closing, (ii) the Executive's termination of employment due to death, Disability, termination by the Company without Cause or by the Executive for Good Reason or (iii) the occurrence of a Change in Control (as defined in Exhibit A hereto). 5. Each Award Agreement pursuant to which RSUs have been granted is hereby amended to provide that each RSU subject thereto will vest and the underlying shares will be distributed on the earliest to occur of (i) as to 50% of the shares subject thereto, on the 1st anniversary of the Closing and as to the remaining 50% of the shares subject thereto, on the 2nd anniversary of the Closing, (ii) the Executive's termination of employment due to death, Disability, termination by the Company without Cause or by the Executive for Good Reason or (iii) the occurrence of a Change in Control (as defined in Exhibit A hereto). 6. Except as otherwise expressly provided herein, the Award Agreements shall remain in effect in accordance with their respective terms. 7. Effective as of the date on which the Closing occurs (the "Closing Date"), the Company shall grant to the Executive options to acquire 23,626 shares of Common Stock. Such options shall be at an exercise price per share equal to the greater of (a) the fair market value (as defined in the Plan) of a share of Common Stock on the Closing Date or (b) $11, and shall otherwise be made pursuant to the form of Stock Option Agreement annexed hereto as Exhibit C. The Company agrees that such grant shall not be in lieu of, or otherwise be taken into account in determining the size or terms of, the annual long term incentive grant to the Executive for the 2001 or other fiscal year. 8. For purposes of this Agreement, notices, demands, and all other communications provided for hereunder shall be in writing and shall be deemed to have been duly given when hand delivered or (unless otherwise specified) when mailed by United States certified mail, return receipt requested, postage prepaid, addressed as follows: To the Executive at the address shown in the personnel records of the Company To the Company at: Hexcel Corporation Two Stamford Plaza 281 Tresser Boulevard Stamford Connecticut 06901-3238 Att'n: or to such other address as either 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. 9. The invalidity or unenforceability of any provision hereof shall not affect the other provisions hereof, and this Agreement shall be construed in all respects as if such invalid or unenforceable provision had been omitted. 10. No change, modification or waiver of any provision of this Agreement shall be valid unless the same be in writing and signed by the parties hereto. 11. This Agreement contains the entire understanding of the parties hereto with respect to the subject matter hereof and supersedes all prior communications, representations and negotiations in respect thereto. 12. This Agreement shall be governed by, and construed and enforced in accordance with, the laws of the State of Delaware, without regard to its conflicts of law rules. 13. This Agreement may be executed in counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same instrument. 14. This agreement shall become effective upon the Closing, and shall be null and void and of no effect if the Closing does not occur. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date and year first written above. HEXCEL CORPORATION By: /s/ Ira J. Krakower Name: Ira J. Krakower Title: Senior Vice President /s/ William Hunt William Hunt EXHIBIT A Affiliate of any Person shall mean any other Person that directly or indirectly, through one or more intermediaries, Controls, is Controlled by, or is under common Control with, such first Person. Control shall have the meaning specified in Rule 12b-2 under the Securities Exchange Act of 1934 as in effect on the date of this Agreement. Beneficial Owner shall have the meaning used in Rule 13d-3 promulgated under the Exchange Act. Change in Control means: (i) any Person is or becomes the Beneficial Owner, directly or indirectly, of 40% or more of either (x) the then outstanding common stock of the Company (the "Out standing Common Stock") or (y) the combined voting power of the then outstanding securities entitled to vote generally in the election of directors of the Company (the "Total Voting Power"), excluding, however, the following (1) any acquisition by the Company or any of its Controlled Affiliates, (2) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any of its Controlled Affiliates and (3) any Person who becomes such a Beneficial Owner in connection with a transaction described in the exception within clause (iii) below; or (ii) a change in the composition of the Board such that the individuals who, on the date hereof, 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 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 considered a member of the Incumbent Board; or (iii) there is consummated a merger or consolidation of the Company or any direct or indirect subsidiary of the Company or a sale or other disposition of all or substantially all of the assets of the Company ("Corporate Transaction"); excluding, how- ever, such a Corporate Transaction pursuant to which (x) all or substantially all of the individuals and entities who are the Beneficial Owners, respectively, of the Outstanding Common Stock and the 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 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, and (y) immediately following which the individuals who comprise the Board immediately prior thereto constitute at least a majority of the board 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); or (iv) the approval by the stockholders of the Company of a complete liquidation or dissolution of the Company. Exchange Act shall mean the Securities Exchange Act of 1934, as amended. Governance Agreement shall mean the Governance Agreement, dated [ ], 2000, among LXH, L.L.C., LXH II, L.L.C., Hexcel Corporation and the other parties listed on the signature pages thereto. Person shall have the meaning set forth in Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d) of the Exchange Act. EXHIBIT B "Cause" shall mean (A) the willful and continued failure by the Optionee to substantially perform the Optionee's duties with the Corporation (other than any such failure resulting from the Optionee's incapacity due to physical or mental illness 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 to the Optionee by the Corporation, that specifically identifies the manner in which the Corporation believes that the Optionee has not substantially performed the Optionee's duties, or (B) the willful engaging by the Optionee in misconduct that is demonstrably and materially injurious to the Corporation, monetarily or otherwise including, but not limited to conduct that violates any written noncompetition covenant between the Optionee and the Corporation. No act, or failure to act, on the Optionee's part shall be deemed "willful" unless done, or omitted to be done, by the Optionee not in good faith and without reasonable belief that the Optionee's action or omission was in the best interest of the Corporation. Notwithstanding the foregoing, the Optionee shall not be deemed to have been terminated for Cause without (i) reasonable notice from the Board to the Optionee setting forth the reasons for the Corporation's intention to terminate for Cause, (ii) delivery to the Optionee of a resolution duly adopted by the affirmative vote two-thirds or more of the Board then in office (excluding the Optionee 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 Optionee was guilty of conduct herein set forth and specifying the particulars thereof in detail, (iii) an opportunity for the Optionee, together with his counsel, to be heard before the Board, and (iv) delivery to the Optionee of a Notice of Termination from the Board specifying the particulars in detail. "Disability" shall mean that, as a result of the Optionee's incapacity due to physical or mental illness or injury, he or she shall not have performed all or substantially all of his or her usual duties as an employee of the Corporation for a period of more than one-hundred-fifty (150) days in any period of one-hundred-eighty (180) consecutive days. "Good Reason" for termination by the Optionee of the Optionee's employment shall mean: (a) A diminution in the Optionee's position, duties, responsibilities or authority (except during periods when the Executive is unable to perform all or substantially all of his duties on account of illness (either physical or mental) or other incapacity; (b) A reduction in the Optionee's annual rate of base salary as in effect on the date hereof or as the same may be increased from time to time; (c) Failure by the Corporation to continue in effect any compensation plan in which the Optionee participates which is material to the Optionee'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 Corporation to continue the Optionee's participation therein (or in such substitute plan) on a basis not materially less favorable to the Optionee; (d) Failure by the Corporation to continue to provide the Optionee with benefits substantially similar to those enjoyed by the Optionee under any of the Corporation's pension, savings, life insurance, medical, health and accident, or disability plans in which the Optionee was participating (except for across-the-board changes similarly affecting all senior executives of the Corporation and all senior executives of any Person in control of the Corporation), or failure by the Corporation to continue to provide the Optionee with the number of paid vacation days per year equal to the greater 28 days and (b) the number to which the Optionee is entitled in accordance with the Corporation's vacation policy; (e) Failure to provide facilities or services which are suitable to the Optionee's position; (f) Failure of any successor (whether direct or indirect, by purchase of stock or assets, merger, consolidation or otherwise) to the Corporation to assume the Corporation's obligations hereunder or failure by the Corporation to remain liable to the Optionee hereunder after such assumption; (g) Any termination by the Corporation of the Optionee's employment which is not effected pursuant to a Notice of Termination satisfying the requirements of a Notice of Termination contained in this Agreement; (h) The relocation of the Optionee's principal place of employment to a location more than fifty (50) miles from the Optionee's principal place of employment as of the date hereof; or (i) Failure to pay the Optionee any portion of current or deferred compensation within seven (7) days of the date such compensation is due. The Optionee'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 Optionee shall be deemed to have waived his rights pursuant to circumstances constituting Good Reason hereunder if he shall not have provided the Corporation a Notice of Termination within ninety (90) days following his knowledge of the occurrence of circumstances constituting Good Reason. "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 Optionee's employment under the provision so indicated. EXHIBIT C EMPLOYEE OPTION AGREEMENT EMPLOYEE OPTION AGREEMENT, dated as of the Grant Date, by and between the Optionee and Hexcel Corporation (the "Corporation"). W I T N E S S E T H: WHEREAS, the Corporation has adopted the Hexcel Corporation Incentive Stock Plan (the "Plan"); and WHEREAS, the Executive Compensation Committee (the "Committee") of the Board of Directors of the Corporation (the "Board") has determined that it is desirable and in the best interest of the Corporation to grant to the Optionee a stock option as an incentive for the Optionee to advance the interests of the Corporation; NOW, THEREFORE, the parties agree as follows: 1. Notice of Grant; Incorporation of Plan. A Notice of Grant is attached hereto as Annex A and incorporated by reference herein. Unless otherwise provided herein, capitalized terms used herein and set forth in such Notice of Grant shall have the meanings ascribed to them in the Notice of Grant and capitalized terms used herein and set forth in the Plan shall have the meanings ascribed to them in the Plan. The Plan is incorporated by reference and made a part of this Employee Option Agreement, and this Employee Option Agreement shall be subject to the terms of the Plan, as the Plan may be amended from time to time, provided that any such amendment of the Plan must be made in accordance with Section X of the Plan. The Option granted herein constitutes an Award within the meaning of the Plan. 2. Grant of Option. Pursuant to the Plan and subject to the terms and conditions set forth herein and therein, the Corporation hereby grants to the Optionee the right and option (the "Option") to purchase all or any part of the Option Shares of the Corporation's common stock, $.01 par value per share (the "Common Stock"), which Option is not intended to qualify as an incentive stock option, as defined in Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"). 3. Purchase Price. The purchase price per share of the Option Shares shall be the Purchase Price. 4. Term of Option. (a) Expiration Date; Term. Subject to Section 4(c) below, the Option shall expire on, and shall no longer be exercisable following, the tenth anniversary of the Grant Date. The ten-year period from the Grant Date to its tenth anniversary shall constitute the "Term" of the Option. (b) Vesting Period; Exercisability. Subject to Section 4(c) below, the Option shall vest and become exercisable at the rate of 33-1/3% of the Option Shares on each of the first three anniversaries of the Grant Date. (c) Termination of Employment; Change in Control. (i) For purposes of the grant hereunder, any transfer of employment by the Optionee among the Corporation and the Subsidiaries shall not be considered a termination of employment. Except as set forth below in this Section 4(c)(i), if the Optionee's employment with the Corporation shall terminate for any reason, (a) the Option (to the extent then vested) may be exercised at any time within ninety (90) days after such termination (but not beyond the Term of the Option) and (b) the Option, to the extent not then vested, shall immediately expire upon such termination. Notwithstanding the foregoing, (a) if the Optionee's employment with the Corporation is terminated for Cause (as defined in the last Section hereof), the Option, whether or not then vested, shall be automatically terminated as of the date of such termination of employment, (b) if the Optionee's employment terminates by reason of Retirement, the termination of the Optionee's employment by the Company other than for Cause, or the termination of the Optionee's employment by the Optionee for Good Reason (as defined in the last Section hereof), the Option shall remain exercisable for three years from the date of such termination of employment (but not beyond the Term of the Option) and (c) if the Optionee dies or becomes Disabled (A) while employed by the Corporation or (B) within 90 days after the termination of his or her employment (other than a termination described in clause (a) or (b) of this sentence), the Option may be exercised at any time within one year after the Optionee's death or Disability (but not beyond the Term of the Option). (ii) If the Optionee's employment terminates by reason of death, Disability, Retirement, the termination of the Optionee's employment by the Company other than for Cause, or the termination of the Optionee's employment by the Optionee for Good Reason, the Option shall become fully and immediately vested and exercisable. In the event of a Change in Control (as defined in the last Section hereof), the Option shall immediately become fully vested and exercisable. 5. Adjustment Upon Changes in Capitalization. (a) The aggregate number of Option Shares and the Purchase Price shall be appropriately adjusted by the Committee for any increase or decrease in the number of issued shares of Common Stock resulting from a subdivision or consolidation of shares or other capital adjustment, or the payment of a stock dividend or other increase or decrease in such shares, effected without receipt of consideration by the Corporation, or other change in corporate or capital structure. The Committee shall also make the foregoing changes and any other changes, including changes in the classes of securities available, to the extent reasonably necessary or desirable to preserve the intended benefits under this Employee Option Agreement in the event of any other reorganization, recapitalization, merger, consolidation, spin-off, extraordinary dividend or other distribution or similar transaction involving the Corporation. (b) Any adjustment under this Section 5 in the number of Option Shares and the Purchase Price shall apply to only the unexercised portion of the Option. If fractions of a share would result from any such adjustment, the adjustment shall be rounded down to the nearest whole number of shares. 6. Method of Exercising Option and Withholding. (a) The Option shall be exercised by the delivery by the Optionee to the Corporation at its principal office (or at such other address as may be established by the Committee) of written notice of the number of Option Shares with respect to which the Option is exercised, accompanied by payment in full of the aggregate Purchase Price for such Option Shares. Payment for such Option Shares shall be made (i) in U.S. dollars by personal check, bank draft or money order payable to the order of the Corporation, or by money transfers or direct account debits to an account designated by the Corporation; (ii) through the delivery of shares of Common Stock with a Fair Market Value equal to the total payment due from the Optionee; (iii) pursuant to a "cashless exercise" program if such a program is established by the Corporation; or (iv) by any combination of the methods described in (i) through (iii) above. (b) The Corporation's obligation to deliver shares of Common Stock upon the exercise of the Option shall be subject to the payment by the Optionee of applicable federal, state and local withholding tax, if any. The Corporation shall, to the extent permitted by law, have the right to deduct from any payment of any kind otherwise due to the Optionee any federal, state or local taxes required to be withheld with respect to such payment. 7. Transfer. Except as provided in this Section 7, the Option is not transferable otherwise than by will or the laws of descent and distribution, and the Option may be exercised during the Optionee's lifetime only by the Optionee. Any attempt to transfer the Option in contravention of this Section 7 is void ab initio. The Option shall not be subject to execution, attachment or other process. Notwithstanding the foregoing, the Optionee shall be permitted to transfer the Option to members of his or her immediate family (i.e., children, grandchildren or spouse), trusts for the benefit of such family members, and partnerships whose only partners are such family members; provided, however, that no consideration can be paid for the transfer of the Option and the transferee of the Option shall be subject to all conditions applicable to the Option prior to its transfer. 8. No Rights in Option Shares. The Optionee shall have none of the rights of a stockholder with respect to the Option Shares unless and until shares of Common Stock are issued upon exercise of the Option. 9. No Right to Employment. Nothing contained herein shall be deemed to confer upon the Optionee any right to remain as an employee of the Corporation. 10. Governing Law/Jurisdiction. This Employee Option Agreement shall be governed by and construed in accordance with the laws of the State of Delaware without reference to principles of conflict of laws. 11. Resolution of Disputes. Any disputes arising under or in connection with this Employee Option Agreement shall be resolved by binding arbitration before a single arbitrator, to be held in New York in accordance with the commercial rules and procedures of the American Arbitration Association. Judgment upon the award rendered by the arbitrator shall be final and subject to appeal only to the extent permitted by law. Each party shall bear such party's own expenses incurred in connection with any arbitration; provided, however, that the cost of the arbitration, including without limitation, reasonable attorneys' fees of the Optionee, shall be borne by the Corporation in the event the Optionee is the prevailing party in the arbitration. Anything to the contrary notwithstanding, each party hereto has the right to proceed with a court action for injunctive relief or relief from violations of law not within the jurisdiction of an arbitrator. 12. Notices. Any notice required or permitted under this Employee Option Agreement shall be deemed given when delivered personally, or when deposited in a United States Post Office, postage prepaid, addressed, as appropriate, to the Optionee at the last address specified in Optionee's employment records, or such other address as the Optionee may designate in writing to the Corporation, or to the Corporation, Attention: Corporate Secretary, or such other address as the Corporation may designate in writing to the Optionee. 13. Failure To Enforce Not a Waiver. The failure of either party hereto to enforce at any time any provision of this Employee Option Agreement shall in no way be construed to be a waiver of such provision or of any other provision hereof. 14. Counterparts. This Employee Option Agreement may be executed in two or more counterparts, each of which shall be an original but all of which together shall represent one and the same agreement. 15. Miscellaneous. This Employee Option Agreement cannot be changed or terminated orally. This Employee Option Agreement and the Plan contain the entire agreement between the parties relating to the subject matter hereof. The section headings herein are intended for reference only and shall not affect the interpretation hereof. 16. Definitions. For purposes of this Employee Option Agreement: (I) the term "Affiliate" of any Person shall mean any other Person that directly or indirectly, through one or more intermediaries, Controls, is Controlled by, or is under common Control with, such first Person. The term "Control" shall have the meaning specified in Rule 12b-2 under the Securities Exchange Act of 1934 as in effect on the date of this Agreement; (II) the term "Beneficial Owner" shall have the meaning used in Rule 13d- 3 promulgated under the Exchange Act; (III) the term "Cause" shall mean (A) the willful and continued failure by the Optionee to substantially perform the Optionee's duties with the Corporation (other than any such failure resulting from the Optionee's incapacity due to physical or mental illness 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 to the Optionee by the Corporation, that specifically identifies the manner in which the Corporation believes that the Optionee has not substantially performed the Optionee's duties, or (B) the willful engaging by the Optionee in misconduct that is demonstrably and materially injurious to the Corporation, monetarily or otherwise including, but not limited to conduct that violates any written noncompetition covenant between the Optionee and the Corporation. No act, or failure to act, on the Optionee's part shall be deemed "willful" unless done, or omitted to be done, by the Optionee not in good faith and without reasonable belief that the Optionee's action or omission was in the best interest of the Corporation. Notwithstanding the foregoing, the Optionee shall not be deemed to have been terminated for Cause without (i) reasonable notice from the Board to the Optionee setting forth the reasons for the Corporation's intention to terminate for Cause, (ii) delivery to the Optionee of a resolution duly adopted by the affirmative vote two-thirds or more of the Board then in office (excluding the Optionee 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 Optionee was guilty of conduct herein set forth and specifying the particulars thereof in detail, (iii) an opportunity for the Optionee, together with his counsel, to be heard before the Board, and (iv) delivery to the Optionee of a Notice of Termination from the Board specifying the particulars in detail. (IV) the term "Change in Control" shall mean any of the following events: (1) any Person is or becomes the Beneficial Owner, directly or indirectly, of 40% or more of either (x) the then outstanding common stock of the Company (the "Outstanding Common Stock") or (y) the combined voting power of the then outstanding securities entitled to vote generally in the election of directors of the Company (the "Total Voting Power"), excluding, however, the following (1) any acquisition by the Company or any of its Controlled Affiliates, (2) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any of its Controlled Affiliates and (3) any Person who becomes such a Beneficial Owner in connection with a transaction described in the exclusion within paragraph (3) below; or (2) a change in the composition of the Board such that the individuals who, on the date hereof, 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 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 considered a member of the Incumbent Board; or (3) there is consummated a merger or consolidation of the Company or any direct or indirect subsidiary of the Company or a sale or other disposition of all or substantially all of the assets of the Company ("Corporate Transaction"); excluding, however, such a Corporate Transaction pursuant to which (x) all or substantially all of the individuals and entities who are the Beneficial Owners, respectively, of the Outstanding Common Stock and the 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 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, and (y) immediately following which the individuals who comprise the Board immediately prior thereto constitute at least a majority of the board 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); or (4) the approval by the stockholders of the Company of a complete liquidation or dissolution of the Company; (V) the term "Disability (or becoming Disabled)" shall mean that, as a result of the Optionee's incapacity due to physical or mental illness or injury, he or she shall not have performed all or substantially all of his or her usual duties as an employee of the Corporation for a period of more than one- hundred-fifty (150) days in any period of one-hundred-eighty (180) consecutive days; (VI) the term "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended; (VII) the term "Good Reason" for termination by the Optionee of the Optionee's employment shall mean: (1) A diminution in the Optionee's position, duties, responsibilities or authority (except during periods when the Executive is unable to perform all or substantially all of his duties on account of illness (either physical or mental) or other incapacity; (2) A reduction in the Optionee's annual rate of base salary as in effect on the date hereof or as the same may be increased from time to time; (3) Failure by the Corporation to continue in effect any compensation plan in which the Optionee participates which is material to the Optionee'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 Corporation to continue the Optionee's participation therein (or in such substitute plan) on a basis not materially less favorable to the Optionee; (4) Failure by the Corporation to continue to provide the Optionee with benefits substantially similar to those enjoyed by the Optionee under any of the Corporation's pension, savings, life insurance, medical, health and accident, or disability plans in which the Optionee was participating (except for across-the-board changes similarly affecting all senior executives of the Corporation and all senior executives of any Person in control of the Corporation), or failure by the Corporation to continue to provide the Optionee with the number of paid vacation days per year equal to the greater 28 days and (b) the number to which the Optionee is entitled in accordance with the Corporation's vacation policy; (5) Failure to provide facilities or services which are suitable to the Optionee's position; (6) Failure of any successor (whether direct or indirect, by purchase of stock or assets, merger, consolidation or otherwise) to the Corporation to assume the Corporation's obligations hereunder or failure by the Corporation to remain liable to the Optionee hereunder after such assumption; (7) Any termination by the Corporation of the Optionee's employment which is not effected pursuant to a Notice of Termination satisfying the requirements of a Notice of Termination contained in this Agreement; (8) the relocation of the Optionee's principal place of employment to a location more than fifty (50) miles from the Optionee's principal place of employment as of the date hereof; or (9) Failure to pay the Optionee any portion of current or deferred compensation within seven (7) days of the date such compensation is due. The Optionee'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 Optionee shall be deemed to have waived his rights pursuant to circumstances constituting Good Reason hereunder if he shall not have provided the Corporation a Notice of Termination within ninety (90) days following his knowledge of the occurrence of circumstances constituting Good Reason; (VIII) the term "Governance Agreement shall mean the Governance Agreement, dated [ ], 2000, among LXH, L.L.C., LXH II, L.L.C., Hexcel Corporation and the other parties listed on the signature pages thereto; (IX) the term "Person" shall have the meaning given in Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d) of the Exchange Act; and (X) the term "Retirement" shall mean termination of the Optionee's employment, other than by reason of death or Cause, either (A) at or after age 65 or (B) at or after age 55 after five (5) years of employment by the Corporation (or a Subsidiary thereof). (XI) the term "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 Optionee's employment under the provision so indicated. Annex A NOTICE OF GRANT EMPLOYEE STOCK OPTION HEXCEL CORPORATION INCENTIVE STOCK PLAN The following employee of Hexcel Corporation, a Delaware corporation ("Hexcel") or a Subsidiary, has been granted an option to purchase shares of the Common Stock of Hexcel, $.01 par value, in accordance with the terms of this Notice of Grant and the Employee Option Agreement to which this Notice of Grant is attached. The following is a summary of the principal terms of the option which has been granted. The terms below shall have the meanings ascribed to them below when used in the Employee Option Agreement. Optionee Address of Optionee Employee Number Employee ID Number Foreign Sub Plan, if applicable Grant Date Purchase Price Aggregate Number of Shares Granted (the "Option Shares") - ------------------------------------- ----------------------------------------- IN WITNESS WHEREOF, the parties hereby agree to the terms of this Notice of Grant and the Employee Option Agreement to which this Notice of Grant is attached and execute this Notice of Grant and Employee Option Agreement as of the Grant Date. ____________________________ HEXCEL CORPORATION Optionee By: _____________________________ Ira J. Krakower Senior Vice President EX-27 14 0014.txt FDS --
5 EXHIBIT 27 FINANCIAL DATA SCHEDULE Q3 - 2000 0000717605 Hexcel Corp. 1,000 9-MOS DEC-31-2000 JAN-01-2000 SEP-30-2000 13,800 0 171,300 10,700 152,400 342,100 591,100 239,600 1,216,400 201,100 653,200 0 0 400 315,300 1,216,400 798,800 798,800 624,400 624,400 115,000 0 51,600 76,100 26,800 53,200 0 0 0 53,200 1.45 1.28
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