-----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, NEht/m8HTQUuWKlvxYcp/24ZhszVOEg7kWGR+F3C3lVPG9hVGNYQjE+EZm/fe6fZ l8usD0x599yqyhYlSPtmQA== 0000717605-01-000008.txt : 20010328 0000717605-01-000008.hdr.sgml : 20010328 ACCESSION NUMBER: 0000717605-01-000008 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 23 CONFORMED PERIOD OF REPORT: 20010326 FILED AS OF DATE: 20010327 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HEXCEL CORP /DE/ CENTRAL INDEX KEY: 0000717605 STANDARD INDUSTRIAL CLASSIFICATION: METAL FORGING & STAMPINGS [3460] IRS NUMBER: 941109521 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-08472 FILM NUMBER: 1579571 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-K 1 0001.txt 10-K ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 - -------------------------------------------------------------------------------- FORM 10-K - -------------------------------------------------------------------------------- X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended December 31, 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.) 281 Tresser Boulevard Stamford, Connecticut 06901 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES AND ZIP CODE) Registrant's telephone number, including area code: (203) 969-0666 Securities registered pursuant to Section 12(b) of the Act: TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED - ------------------- ----------------------------------------- COMMON STOCK NEW YORK STOCK EXCHANGE PACIFIC STOCK EXCHANGE Securities registered pursuant to Section 12(g) of the Act: 7% CONVERTIBLE SUBORDINATED NOTES DUE 2003 7% CONVERTIBLE SUBORDINATED DEBENTURES DUE 2011 93/4% SENIOR SUBORDINATED NOTES DUE 2009 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value as of March 23, 2001 of voting stock held by nonaffiliates of the registrant: $209,668,712 The number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date. CLASS OUTSTANDING AS OF MARCH 23, 2001 ----- -------------------------------- COMMON STOCK 37,216,419 DOCUMENTS INCORPORATED BY REFERENCE: PROXY STATEMENT FOR ANNUAL MEETING OF STOCKHOLDERS (TO THE EXTENT SPECIFIED HEREIN) -- PART III. ================================================================================ PART I ITEM 1. BUSINESS. GENERAL DEVELOPMENT OF BUSINESS Hexcel Corporation, founded in 1946, was incorporated in California in 1948, and reincorporated in Delaware in 1983. Hexcel Corporation, together with its subsidiaries (herein referred to as "Hexcel" or the "Company"), is a leading producer of advanced structural materials. The Company develops, manufactures and markets lightweight, high-performance reinforcement products, composite materials and engineered products for use in the commercial aerospace, space and defense, electronics, and industrial markets. The Company's products are used in a wide variety of end products, such as commercial and military aircraft, space launch vehicles and satellites, printed wiring boards, computers, cellular telephones, televisions, soft body armor, high-speed trains and ferries, cars and trucks, windmill blades, reinforcements for bridges and other structures, window blinds, skis and snowboards, golf clubs, fishing poles, tennis rackets and bicycles. The Company serves international markets through manufacturing facilities and sales offices located in the United States and Europe, and through sales offices located in Asia, Australia and South America. The Company is also a member of six joint ventures, four of which manufacture and market reinforcement products and composite materials in Europe, Asia and the United States, and two of which will manufacture composite structures and interiors in Asia. SIGNIFICANT TRANSACTIONS PURCHASE OF APPROXIMATELY 14.5 MILLION SHARES OF HEXCEL COMMON STOCK BY AN INVESTOR GROUP On December 19, 2000, an investor group controlled by subsidiaries of The Goldman Sachs Group, Inc. (the "Investor Group") completed a previously announced purchase of approximately 14.5 million of the approximately 18 million shares of Hexcel common stock owned by subsidiaries of Ciba Specialty Chemicals Holding, Inc. (together with its subsidiaries, "Ciba"). The shares acquired by the Investor Group represent approximately 39% of the Company's outstanding common stock. In addition, the Company and the Investor Group entered into a governance agreement that became effective on December 19, 2000. Under this governance agreement, the Investor Group has the right to, among other things, designate three directors to sit on the Company's ten-member board of directors. As a result of this transaction, Ciba's ownership of Hexcel common stock was reduced to approximately 3.5 million shares. In addition, the governance agreement between Ciba and Hexcel, which gave Ciba the right to designate four directors to sit on the Company's board, terminated. Ciba has stated that its investment in Hexcel is non-strategic and that it will explore options for the future disposition of its remaining interest in the Company. SALE OF THE BELLINGHAM AIRCRAFT INTERIORS BUSINESS On April 26, 2000, Hexcel sold 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, which resulted in an after-tax gain of approximately $44 million. The Bellingham business generated net sales of $18.9 million for the period from January 1 through April 26, 2000, and $70.0 million and $34.3 million for 1999 and 1998, respectively. The Bellingham business is engaged in the manufacture and sale of airline interior refurbishment applications and its operating results were reflected as a component of Hexcel's Engineered Products business segment up to the date of disposal. 1 ACQUISITION OF THE CLARK-SCHWEBEL INDUSTRIAL FABRICS BUSINESS Hexcel acquired the industrial fabrics business of Clark-Schwebel, Inc. and its subsidiaries ("Clark-Schwebel") on September 15, 1998. The business acquired from Clark-Schwebel is engaged in the manufacture and sale of high-quality fiberglass fabrics, which are used to make printed wiring boards for electronic equipment such as computers, cellular telephones, televisions and automobiles. This business also produces high-performance specialty products for use in insulation, filtration, wall and facade claddings, soft body armor and reinforcements for composite materials. The acquisition of the Clark-Schwebel business was an important strategic transaction for Hexcel. The acquisition established Hexcel as a leading global materials supplier to the electronics and telecommunications industries, which the Company believes have attractive long-term growth potential. Furthermore, the acquisition added to Hexcel's revenue base and has further diversified the Company's business beyond the historically cyclical commercial aerospace market. Further discussion of these significant transactions is contained under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations," and in Notes 1, 2 and 3 to the accompanying consolidated financial statements in this Annual Report on Form 10-K. 2 BUSINESS SEGMENTS AND OVERVIEW Hexcel is a vertically integrated manufacturer of products within a single industry: Advanced Structural Materials. Hexcel's advanced structural materials business is organized around three strategic business segments: reinforcement products, composite materials and engineered products. The following table identifies, by each of these segments, the Company's principal products and examples of the primary end-uses:
- -------------------------------- ------------------------ ---------------------------------------------------------------- BUSINESS SEGMENTS PRODUCTS PRIMARY END-USE - -------------------------------- ------------------------ ---------------------------------------------------------------- REINFORCEMENT Carbon Fibers o Raw materials for industrial fabrics and prepregs PRODUCTS o Filament winding for various space, defense and industrial applications Industrial Fabrics o Printed circuit boards o Raw materials for prepregs and honeycomb o Various marine applications o Window blinds o Insulation o Metal and fume filtration systems o Soft body armor o Civil engineering and construction applications - -------------------------------- ------------------------ ---------------------------------------------------------------- COMPOSITE MATERIALS Prepregs o Raw materials for composite structures and interiors o Semi-finished aircraft components o Munitions and defense systems o Skis, snowboards, golf club shafts, fishing rods and tennis rackets Structural Adhesives o Bonding of structural materials and components, including composite panels Honeycomb, o Raw materials for composite structures and interiors Honeycomb o Semi-finished aircraft components used in: Parts & Composite Helicopter blades Panels Aircraft surfaces (flaps, wing tips, elevators and fairings) High-speed ferries, truck and train components Automotive components Space shuttle doors - -------------------------------- ------------------------ ------------------------------------------------------------------ ENGINEERED PRODUCTS Composite Structures o Aircraft structures and finished aircraft components, including: and OEM aircraft Wing-to-body and flap track fairings interiors Radomes Engine cowls and inlet ducts Wing panels o OEM aircraft interiors, including: Overhead storage compartments Flight deck panels Door liners - -------------------------------- ------------------------ ------------------------------------------------------------
REINFORCEMENT PRODUCTS The Reinforcement Products business segment manufactures and markets carbon fibers and industrial fabrics. Hexcel expanded this business segment in 1998 with the acquisition of the Clark-Schwebel business. CARBON FIBERS: Carbon fibers are manufactured for sale to third party customers and for use by Hexcel in manufacturing certain industrial fabrics and composite materials. Carbon fibers are woven into carbon fabrics, used as reinforcement in conjunction with a resin matrix to produce pre-impregnated composite materials ("prepregs"), and used in filament winding and advanced fiber placement to produce various other composite materials. Key product applications include structural components for commercial and military aircraft and space launch vehicles, as well as certain other applications such as golf club shafts and tennis racquets. 3 INDUSTRIAL FABRICS: Industrial fabrics are made from a variety of fibers, including several types of fiberglass as well as carbon, aramid, quartz, ceramic and other specialty reinforcements. These fabrics are sold to third-party customers for use in a wide range of products, including printed wiring boards, window coverings and other architectural products, soft body armor, and a variety of structural materials and components used in aerospace, marine and rail applications. These fabrics are also used internally by Hexcel to manufacture prepregs and other composite materials. Hexcel's net sales and pro forma net sales of reinforcement products to third party customers, after giving effect to the acquisition of the Clark-Schwebel business as if the transaction had occurred at the beginning of 1998, were as follows:
- -------------------------------------------------------------------- ------------------ ------------ --------------- (IN MILLIONS) 2000 1999 1998 - -------------------------------------------------------------------- ------------------ ------------ --------------- - -------------------------------------------------------------------- ------- ---------- --- -------- ------ -------- Net sales $ 359.2 $ 330.9 $ 224.8 Pro forma net sales 359.2 330.9 370.6 - -------------------------------------------------------------------- ------- ---------- --- -------- ------ --------
The increase in net sales from 1999 to 2000 was primarily the result of increasing demand in 2000 for lightweight fabrics used in multi-layer printed wiring boards, and higher sales of aramid and other specialty fabrics used in the manufacture of soft body armor. The decrease in pro forma net sales from 1998 to 1999 was the result of various factors, including a reduction in demand for printed wiring boards in 1998 due to a change in the electronics industry inventory cycle, reduced Asian market demand and increased competition from Asian and other producers in western markets. This resulted in a rapid reduction in prices for glass fabrics in early 1999. In 1999, sales of reinforcement fabrics for composite materials also declined as The Boeing Company ("Boeing") began to reduce aircraft build rates in the second half of the year from the record levels achieved in 1998. Approximately 21%, 25% and 37% of the Company's production of reinforcement products was used internally to manufacture composite materials in 2000, 1999, and 1998, respectively. The percentage of production of reinforcement products for internal use has decreased over the last two years due to the acquisition of the Clark-Schwebel business, the growth in sales to the electronics market and the decline in sales made to the commercial aerospace market. - -------------------------------------------------------------------------------- REINFORCEMENT PRODUCTS - -------------------------------------------------------------------------------- KEY CUSTOMERS MANUFACTURING FACILITIES - -------------------------------------------------------------------------------- Cytec Fiberite Anderson, SC Isola Decatur, AL Nelco Decines, France Piad Les Avenieres, France DHB Salt Lake City, UT Second Chance Seguin, TX Von Roll Statesville, NC Washington, GA - -------------------------------------------------------------------------------- COMPOSITE MATERIALS The Composite Materials business segment has worldwide responsibility for manufacturing and marketing prepregs, structural adhesives, honeycomb, specially machined honeycomb parts and composite panels. 4 PREPREGS AND STRUCTURAL ADHESIVES: Prepregs are manufactured for sale to third party customers and for use by Hexcel in manufacturing other composite materials and structures, including finished components for aircraft structures and interiors. Prepregs are manufactured by combining high performance reinforcement fabrics or unidirectional fibers with a resin matrix to form a composite material with exceptional structural properties not present in either of the constituent materials. Industrial fabrics used in the manufacture of prepregs include S-2(R) and E-type fiberglass, carbon, aramid, quartz, ceramic, Thorstrand(R), polyethylENE and other specialty reinforcements. Resin matrices include bismaleimide, cyanate ester, epoxy, phenolic, polyester, polyimide and other specialty resins. Hexcel designs and markets a comprehensive range of Redux(R) film adhesives. These structural adhesives, which bond a wide range of composite, metallic and honeycomb surfaces, are used in a variety of product applications. HONEYCOMB, HONEYCOMB PARTS AND COMPOSITE PANELS: Honeycomb is a unique, lightweight, cellular structure generally composed of hexagonal nested cells. The product is similar in appearance to a cross-sectional slice of a beehive. The hexagonal cell design gives honeycomb a high strength-to-weight ratio and a uniform resistance to crushing. These basic characteristics are combined with the physical properties of the material from which the honeycomb is made to meet various engineering requirements. Hexcel produces honeycomb from a number of metallic and non-metallic materials. Most metallic honeycomb is made from aluminum and is available in a selection of alloys, cell sizes and dimensions. Non-metallic honeycomb materials include fiberglass, carbon, thermoplastics, non-flammable aramid papers and other specialty materials. Hexcel sells honeycomb core material in standard block and sheet form and in laminated panel form. In the construction of composite panels, sheets of aluminum, stainless steel, prepreg or other laminates are bonded with adhesives to each side of a slice of honeycomb core, creating a "sandwich" structure. Hexcel also possesses advanced processing capabilities that enable the Company to design and manufacture complex fabricated honeycomb parts and bonded assemblies to meet customer specifications. Such parts and assemblies are used as semi-finished components in the manufacture of composite structures. The largest market for honeycomb products is the aerospace market. Hexcel also sells honeycomb for non-aerospace applications including high-speed trains and mass transit vehicles, automotive parts, energy absorption products, marine vessel compartments, portable shelters, business machine cabinets and other industrial uses. In addition, the Company produces honeycomb for its Engineered Products business segment for use in manufacturing finished parts for airframe manufacturers. Hexcel's net sales of composite materials to third party customers were $567.0 million in 2000, $605.9 million in 1999, and $658.0 million in 1998. Net sales for composite materials are highly dependent upon commercial aircraft build rates as further discussed under the captions "Markets and Customers" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." Approximately 2% of the Company's production of composite materials are used internally to manufacture OEM composite structures and interiors. 5 - -------------------------------------------------------------------------------- COMPOSITE MATERIALS - -------------------------------------------------------------------------------- KEY CUSTOMERS MANUFACTURING FACILITIES - -------------------------------------------------------------------------------- North America: United States: Boeing Burlington, WA Bombardier Casa Grande, AZ CFAN Gilbert, AZ Embraer-Empresa Lancaster, OH Hawker de Havilland Livermore, CA Lockheed Martin Pottsville, PA Northrop Grumman Salt Lake City, UT Rohr Europe: United Technologies Dagneux, France Europe: Duxford, England Alenia Linz, Austria British Aerospace Parla, Spain European Aeronautic Welkenraedt, Belgium Defence and Space - -------------------------------------------------------------------------------- The Company also operates sales offices in Melbourne, Australia; Shanghai, China; Sao Paulo, Brazil; Munich, Germany; and Saronno, Italy. As part of Hexcel's business consolidation activities, the Company's Lancaster, Ohio and Gilbert, Arizona manufacturing facilities will be closed by early 2002. The manufacturing output from these two facilities will be produced by the Livermore, California and Salt Lake City, Utah facilities. ENGINEERED PRODUCTS The Engineered Products business segment has worldwide responsibility for manufacturing and marketing composite structures primarily for use in the aerospace industry, as well as OEM aircraft interiors. Composite structures and aircraft interior components are manufactured from a variety of composite and other materials (including prepregs, honeycomb and structural adhesives) using such manufacturing processes as resin transfer molding, autoclave processing, multi-axis numerically controlled machining, press laminating, heat forming and other composite manufacturing techniques. Composite structures include such items as wing-to-body and flap track fairings, radomes, engine cowls, inlet ducts, wing panels and other aircraft components. Aircraft interior components include such items as overhead storage bins, flight deck panels and door liners. As previously discussed, in April 2000, the Company sold its Bellingham aircraft interiors business. This business segment was responsible for the design, engineering and manufacture of commercial aircraft interior components and systems for airline refurbishment applications. Hexcel's net sales and pro forma net sales of engineered products to third party customers, after giving effect to the disposition of the Bellingham business, as if the transaction occurred at the beginning of 1998, were as follows:
- -------------------------------------------------------------------- ------------------ ------------ --------------- (IN MILLIONS) 2000 1999 1998 - -------------------------------------------------------------------- ------------------ ------------ --------------- Net sales $ 129.5 $ 214.7 $ 206.2 Pro forma net sales 110.6 144.7 171.9 - -------------------------------------------------------------------- ------- ---------- --- -------- ------ --------
6 The decline in the pro forma net sales of the Engineered Products business from 1998 to 2000 is primarily attributable to a decrease in sales made to Boeing as a result of their reduction in aircraft production rates during the second half of 1999 and the first half of 2000, together with certain price reductions. - -------------------------------------------------------------------------------- ENGINEERED PRODUCTS - -------------------------------------------------------------------------------- KEY CUSTOMERS MANUFACTURING FACILITIES - -------------------------------------------------------------------------------- Boeing Kent, WA Aviation Partners Boeing Vought Mitsubishi Heavy Industries - -------------------------------------------------------------------------------- Further discussion of Hexcel's business operations and operating segments are contained under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations" and in Note 18 to the accompanying consolidated financial statements included in this Annual Report on Form 10-K. JOINT VENTURES In 1999, Hexcel, Boeing and Aviation Industries of China formed a joint venture, BHA Aero Composite Parts Co., Ltd., to manufacture composite parts for secondary structures and interior applications for commercial aircraft. Hexcel has a 33% equity ownership interest in this joint venture, which is located in Tianjin, China. Also in 1999, Hexcel formed another joint venture, Asian Composites Manufacturing Sdn. Bhd., with Boeing, Sime Link Sdn. Bhd., and Malaysia Helicopter Services Bhd. (now known as Naluri Berhadto), to manufacture composite parts for secondary structures for commercial aircraft. Hexcel has a 25% equity ownership interest in this joint venture, which is located in Alor Setar, Malaysia. Products manufactured by both joint ventures will be shipped to Hexcel's customers worldwide, and it is anticipated that the first parts will be delivered to customers in 2001. As part of the acquired Clark-Schwebel business, the Company acquired equity ownership interests in three joint ventures: a 43.6% share in Interglas Technologies AG, formerly CS-Interglas AG ("Interglas"), headquartered in Germany; a 43.3% share in Asahi-Schwebel Co., Ltd. ("Asahi-Schwebel"), headquartered in Japan; and a 50.0% share in Clark-Schwebel Tech-Fab Company ("CS Tech-Fab"), headquartered in the United States. Interglas and Asahi-Schwebel are fiberglass fabric producers serving the European and Asian electronics industry as well as other markets for fiberglass fabrics. CS Tech-Fab manufactures non-woven materials for roofing, construction and other specialty applications. Hexcel owns a 45% equity interest in DIC-Hexcel Limited ("DHL"), a joint venture with Dainippon Ink and Chemicals, Inc. ("DIC"). This joint venture is located in Komatsu, Japan, and produces and sells prepregs, honeycomb and decorative laminates using technology licensed from Hexcel and DIC. BUSINESS CONSOLIDATION PROGRAMS As a result of four substantial business acquisitions from 1996 through 1998, and the need to respond to significant changes in commercial aerospace and space and defense markets, Hexcel initiated three business consolidation programs in May 1996, December 1998 and September 1999. The primary purpose of these programs has been to integrate acquired assets and operations into the Company, and to close or restructure insufficiently profitable facilities and activities. For the years ended December 31, 2000, 1999 and 1998, Hexcel recorded business consolidation expenses of $10.9 million, $20.1 million and $12.7 million, respectively. Further discussion of the Company's business consolidation activities is contained under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations," and in Note 4 to the accompanying consolidated financial statements included in this Annual Report on Form 10-K. 7 LEAN ENTERPRISE In 1998, Hexcel initiated its Lean Enterprise program, which is designed to create a common way of managing the Company, with a focus on creating value for the Company's customers and eliminating waste throughout the value chain. The goals of the program are faster processing of customer orders and deliveries, faster manufacturing cycle times, shorter equipment set-up and clean-down times, lower manufacturing rejects and warranty claims, simplified manufacturing procedures and improved manufacturing processes. All of these actions, if successful, are expected to result in higher throughput and greater capacity on existing manufacturing equipment, thereby reducing both capital expenditures and facility requirements. Improved efficiency and quality are expected to result in lower unit labor requirements and thereby lower product costs and lower inventory requirements. The Lean Enterprise program is also systematically linked with key initiatives, such as Six Sigma, to improve quality and the effectiveness of global procurement activities. This program contributed to Hexcel's reduction in working capital and capital spending from 1998 to 1999, as well as improvements in gross margin and operating income as a percentage of net sales from 1999 to 2000. RAW MATERIALS AND PRODUCTION ACTIVITIES Due to the vertically integrated nature of Hexcel's operations, the Company produces several materials used in the manufacture of certain industrial fabrics, composite materials and engineered products, as well as the polyacrylonitrile ("PAN") precursor material used in the manufacture of carbon fibers. The Company consumed internally approximately 50% and 20% of its carbon fiber and industrial fabric production, respectively, in 2000. However, the Company purchases most of the raw materials used in production from third parties. Several key materials are available from relatively few sources, and in many cases the cost of product qualification makes it impractical to develop multiple sources of supply. The unavailability of these materials, which the Company does not currently anticipate, could have a material adverse effect on operations. In addition, certain raw materials and operating supplies used by Hexcel are subject to price fluctuations caused by the volatility of underlying commodity prices. The commodities most likely to have an impact on the Company's results of operations in the event of significant price changes are electricity, natural gas, aluminum and certain chemicals. The Company attempts to minimize the impact of commodity price risk, when feasible, by entering into supply agreements that specify raw material prices or limit price increases for a reasonable period of time. The Company generally does not employ forward contracts or other financial instruments to hedge commodity price risk. Hexcel's production activities are generally based on a combination of "make-to-order" and "make-to-forecast" production requirements. The Company coordinates closely with key suppliers in an effort to avoid raw material shortages and excess inventories. RESEARCH AND TECHNOLOGY; PATENTS AND KNOW-HOW Hexcel's Research and Technology ("R&T") departments support the Company's core businesses worldwide. Through R&T activities, the Company maintains expertise in chemical formulation and curatives, fabric forming and textile architectures, advanced composite structures, process engineering, application development analysis and testing of composite materials, computational design and prediction, and other scientific disciplines related to the Company's worldwide business base. Additionally, Hexcel's R&T function performs a limited amount of contract research and development in the U.S. and Europe for strategically important customers and government agencies in the areas of carbon fiber ceramics, high temperature polymers, advanced textiles and composite structures manufacturing. 8 Hexcel's products rely primarily on the Company's expertise in materials science, textiles, process engineering and polymer chemistry. Consistent with market demand, the Company has been placing more emphasis on cost effective product design and lean manufacturing in recent years. Towards this end, the Company has entered into formal and informal alliances, as well as licensing and teaming arrangements, with several customers, suppliers, external agencies and laboratories. Management believes that the Company possesses unique capabilities to design, develop and manufacture composite materials and structures. The Company owns and maintains in excess of 100 patents worldwide, has licensed many key technologies, and has granted technology licenses and patent rights to several third parties in connection with joint ventures and joint development programs. It is the Company's policy to actively enforce its proprietary rights. The Company believes that the patents and know-how rights currently owned or licensed by the Company are adequate for the conduct of its business. Hexcel spent $21.2 million for research and technology in 2000, $24.8 million in 1999 and $23.7 million in 1998. These expenditures were expensed as incurred. MARKETS AND CUSTOMERS Hexcel's products are sold for a broad range of end uses. The following tables summarize net sales to third-party customers by market and by geography for the three years ended December 31:
- ---------------------------------------------------------------- ----------------- ---------------- ----------------- 2000 1999 1998 - ---------------------------------------------------------------- ----------------- ---------------- ----------------- NET SALES BY MARKET Commercial aerospace 50% 57% 62% Space and defense 11 11 13 Electronics 17 14 8 Industrial 22 18 17 - ---------------------------------------------------------------- ----------------- ---------------- ----------------- Total 100% 100% 100% - ---------------------------------------------------------------- ----------------- ---------------- ----------------- NET SALES BY GEOGRAPHY United States 57% 57% 54% U.S. exports 5 8 9 International 38 35 37 - ---------------------------------------------------------------- ----------------- ---------------- ----------------- Total 100% 100% 100% - ---------------------------------------------------------------- ----------------- ---------------- -----------------
COMMERCIAL AEROSPACE Historically, the commercial aerospace industry has led the development of applications for advanced structural materials and components because it has the strongest need for the performance properties of these materials and is well positioned to maximize the economic benefits from their use. Accordingly, the demand for advanced structural material products is closely correlated to the demand for commercial aircraft. Commercial aerospace activity fluctuates in relation to two principal factors. First, the number of revenue passenger miles flown by the airlines affects the size of the airline fleets and generally follows the level of overall economic activity. The second factor, which is less sensitive to the general economy, is the replacement and retrofit rates for existing aircraft. These rates, resulting mainly from obsolescence, are determined in part by the regulatory requirements established by various civil aviation authorities as well as public concern regarding aircraft age, safety and noise. These rates may also be affected by the desire of the various airlines for higher payloads and more fuel efficient aircraft, which in turn is influenced by the price of fuel. 9 Reflecting the demand factors noted above, the number of commercial aircraft delivered by Boeing and Airbus Industrie ("Airbus") declined by 48% from 1992 to 1995. At the lowest point during this period, Boeing and Airbus reported combined deliveries of 380 aircraft. Beginning in 1996, however, aircraft deliveries by Boeing and Airbus began to rise, growing to a combined record peak of 914 in 1999, which decreased to 800 in 2000. Set forth below are historical deliveries as published by Boeing and Airbus:
- -------------------------------------------------------------------------------------------------------------------- 1992 1993 1994 1995 1996 1997 1998 1999 2000 - -------------------------------------------------------------------------------------------------------------------- Boeing (including McDonnell Douglas) 573 409 311 256 271 375 559 620 489 Airbus 157 138 127 124 126 182 229 294 311 - -------------------------------------------------------------------------------------------------------------------- Total 730 547 438 380 397 557 788 914 800 - --------------------------------------------------------------------------------------------------------------------
Approximately 20%, 28% and 35% of Hexcel's 2000, 1999, and 1998 net sales, respectively, were to Boeing and related subcontractors. Of the 20% of sales to Boeing and its subcontractors, 17% and 3% related to commercial aerospace and space and defense market applications, respectively. Approximately 13%, 10% and 11% of Hexcel's 2000, 1999 and 1998 net sales, respectively, were to Airbus and related subcontractors. The decrease in the percentages of sales made to Boeing and related subcontractors primarily reflect the increased sales from the acquired Clark-Schwebel business as well as the decline in sales to Boeing as a result of Boeing's 1999 build rate reductions. On average, the Company delivers products into the Boeing supply chain about six months prior to aircraft delivery. As a result, the Company began to see the impact of reduced Boeing production rates in the second quarter of 1999. The loss of all or a significant portion of the business with Boeing or Airbus could have a material adverse effect on sales and earnings. Depending on the product, orders placed with Hexcel are received anywhere between one and eighteen months prior to delivery of the aircraft to the customer. Based on published projections, combined deliveries for Boeing and Airbus are expected to increase from 800 in 2000 to approximately 860 in 2001, and to more than 880 in 2002. The Company is also expecting continued strength in the demand for regional and business aircraft produced by Hexcel customers such as Bombardier Aerospace and Embraer-Empresa Brasileira de Aeronautica. SPACE AND DEFENSE The space and defense markets have historically been innovators in and sources of significant demand for advanced structural materials. For example, advanced structural materials made a major contribution to the development of "stealth" aircraft technologies. However, aggregate demand by space and defense customers is primarily a function of military aircraft procurement by the U.S. and certain European governments. Presently, there are a number of potentially significant military aircraft programs in various stages of development or initial production that utilize advanced structural materials. The Company is currently qualified to supply materials to a broad range of military aircraft and helicopter programs anticipated either to enter full-scale production in the near future or to significantly increase production rates. These programs include the F/A-18E/F Hornet, the F-22 Raptor, and the Eurofighter/Typhoon, as well as the C-17, the V-22 Osprey tiltrotor aircraft, and the RAH-66 Comanche and NH90 helicopters. The benefits the Company obtains from these programs will depend upon which ones are funded and the extent of such funding. Contracts to supply materials for military and some commercial projects contain provisions for termination at the convenience of the U.S. government or the buyer. In the case of such a termination, Hexcel is entitled to recover reasonable incurred cost plus a provision for profit on the incurred cost. In addition, the Company is subject to U.S. government cost accounting standards, which are applicable to companies with more than $25 million of government contract or subcontract awards each year. 10 ELECTRONICS The acquisition of the Clark-Schwebel business has provided Hexcel with a global platform to supply the electronics industry, which the Company believes has attractive long-term growth potential. The Company is the largest producer of fine, lightweight fiberglass fabrics used in the fabrication of multilayer printed wiring boards, with an estimated 45% market share in the U.S. and 28% market share in Europe. In addition to its U.S. businesses, the Company has significant ownership positions in three joint ventures: Interglas, Asahi-Schwebel and CS Tech-Fab. Interglas and Asahi-Schwebel are leading fiberglass fabric manufacturers in Europe, Japan and Southeast Asia. Fiberglass fabrics are a critical component used in the production of printed wiring boards, which are integral to most advanced electronic products, including computers, telecommunications equipment, advanced cable television equipment, network servers, televisions, automotive equipment and home appliances. INDUSTRIAL MARKETS Hexcel has focused its participation in industrial markets in areas where the application of advanced structural material technology offers significant benefits to the end user. As a result, the Company has chosen to focus on select opportunities where high performance is the key product criterion. Future opportunities and growth depend primarily upon the success of the individual programs and industries in which the Company has elected to participate. Within industrial markets, key applications include surface transportation (automobiles, mass transit and high-speed rail and marine applications), wind energy, civil engineering, skis, snowboards, golf club shafts, fishing rods, tennis rackets, bicycles and soft body armor. Hexcel's participation in these markets is a valuable complement to its commercial and military aerospace businesses, and the Company is committed to pursuing the utilization of advanced structural material technology in its industrial markets. Further discussion of Hexcel's markets and customers, including certain risks, uncertainties and other factors with respect to "forward-looking statements" about those markets and customers, is contained under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations." SALES AND MARKETING A staff of salaried market managers, product managers and salespeople sell and market Hexcel products directly to customers worldwide. The Company also uses independent distributors and manufacturer representatives for certain products, markets and regions. COMPETITION In the production and sale of advanced structural materials, Hexcel competes with numerous U.S. and international companies on a worldwide basis. The broad markets for the Company's products are highly competitive, and the Company has focused on both specific markets and specialty products within markets to obtain market share. In addition to competing directly with companies offering similar products, the Company competes with producers of substitute structural materials such as structural foam, wood, metal, and concrete. Depending upon the material and markets, relevant competitive factors include price, delivery, service, quality and product performance. ENVIRONMENTAL MATTERS To date, environmental control regulations have not had a significant adverse effect on overall operations. A discussion of environmental matters is contained under the caption, "Legal Proceedings," and in Note 16 to the accompanying consolidated financial statements included in this Annual Report on Form 10-K. 11 EMPLOYEES As of December 31, 2000, Hexcel employed 6,072 full-time employees, compared with 6,328 and 7,139 as of December 31, 1999 and 1998, respectively. The decrease in the number of employees from 1998 to the end of 2000 was primarily attributable to Hexcel's business consolidation programs, including the closure of a facility in Cleveland, Georgia and the disposition of a business in Brindisi, Italy, as well as the divestiture of the Bellingham business. ITEM 2. PROPERTIES Hexcel owns and leases manufacturing facilities and sales offices located throughout the United States and in other countries as noted below. The corporate offices and principal corporate support activities for the Company are located in leased facilities in Stamford, Connecticut and Wilton, Connecticut. The Company's corporate research and technology administration and certain composite materials laboratories are located in Dublin, California. The following table lists the manufacturing facilities of Hexcel by geographic location, approximate square footage, and principal products manufactured. This table does not include manufacturing facilities owned by entities in which the Company has a joint venture interest.
MANUFACTURING FACILITIES Approximate FACILITY LOCATION SQUARE FOOTAGE PRINCIPAL PRODUCTS United States: Anderson, South Carolina 432,000 Industrial fabrics Burlington, Washington 73,000 Honeycomb Parts Casa Grande, Arizona 307,000 Honeycomb and Honeycomb Parts Decatur, Alabama 159,000 PAN Precursor (used to produce Carbon Fibers) Gilbert, Arizona 30,000 Prepregs Kent, Washington 733,000 Composite Structures; OEM Aircraft Interiors Lancaster, Ohio 49,000 Prepregs Livermore, California 141,000 Prepregs Pottsville, Pennsylvania 134,000 Honeycomb Parts Salt Lake City, Utah 457,000 Carbon Fibers; Prepregs Seguin, Texas 204,000 Industrial fabrics Statesville, North Carolina 553,000 Electronic fabrics; Industrial fabrics Washington, Georgia 160,000 Electronic fabrics International: Dagneux, France 130,000 Prepregs Decines, France 90,000 Industrial fabrics Duxford, United Kingdom 440,000 Prepregs; Honeycomb and Honeycomb Parts Les Avenieres, France 476,000 Electronic fabrics; Industrial fabrics Linz, Austria 163,000 Prepregs Parla, Spain 43,000 Prepregs Welkenraedt, Belgium 223,000 Honeycomb and Honeycomb Parts
Hexcel leases the facilities located in Anderson, South Carolina; Washington, Georgia; Statesville, North Carolina; and Gilbert, Arizona; and the land on which the Burlington, Washington, facility is located. The Company also leases portions of the facilities located in Casa Grande, Arizona; Linz, Austria; and Les Avenieres, France. 12 As previously discussed, as part of Hexcel's business consolidation programs, the Lancaster, Ohio and Gilbert, Arizona manufacturing facilities will be closed by early 2002. The manufacturing output from these two facilities will be produced by the Livermore, California and Salt Lake City, Utah facilities. ITEM 3. LEGAL PROCEEDINGS Hexcel is involved in litigation, investigations and claims arising out of the conduct of its business, including those relating to commercial transactions, as well as to environmental, health and safety matters. The Company estimates and accrues its liabilities resulting from such matters based on a variety of factors, including outstanding legal claims and proposed settlements; assessments by internal and external counsel of pending or threatened litigation; and assessments by environmental engineers and consultants of potential environmental liabilities and remediation costs. Such estimates exclude counterclaims against other third parties. Such estimates are not discounted to reflect the time value of money due to the uncertainty in estimating the timing of the expenditures, which may extend over several years. Although it is impossible to determine the level of future expenditures for legal, environmental and related matters with any degree of certainty, it is the Company's opinion, based on available information, that it is unlikely that these matters, individually or in the aggregate, will have a material adverse effect on the consolidated financial position, results of operations or cash flows of the Company. LEGAL AND ENVIRONMENTAL CLAIMS AND PROCEEDINGS The Company is subject to numerous federal, state, local and foreign laws and regulations that impose strict requirements for the control and abatement of air, water and soil pollutants and the manufacturing, storage, handling and disposal of hazardous substances and waste. These laws and regulations include the Federal Comprehensive Environmental Response, Compensation, and Liability Act ("CERCLA" or "Superfund"), the Clean Air Act, the Clean Water Act and the Resource Conservation and Recovery Act, and analogous state laws and regulations. Regulatory standards under these environmental laws and regulations have tended to become increasingly stringent over time. Hexcel has been named as a potentially responsible party with respect to several hazardous waste disposal sites that it does not own or possess, which are included on the Superfund National Priority List of the U.S. Environmental Protection Agency or on equivalent lists of various state governments. Because CERCLA provides for joint and several liability, the Company could be responsible for all remediation costs at such sites, even if it is one of many potentially responsible parties ("PRPs"). While the Company believes, based on the amount and the nature of its waste, and the number of other financially viable PRPs, that its liability in connection with such matters will not be material, the Company has nonetheless accrued an estimate of its liability with respect to this matter. Pursuant to the New Jersey Environmental Responsibility and Clean-Up Act, Hexcel signed an administrative consent order and later entered into a Remediation Agreement to pay for the environmental remediation of a manufacturing facility it owns and formerly operated in Lodi, New Jersey. The Company's estimate of the remaining cost to satisfy this consent order is accrued in its consolidated balance sheets. The ultimate cost of remediating the Lodi site will depend on developing circumstances. Hexcel was party to a cost-sharing agreement regarding the operation of certain environmental remediation systems necessary to satisfy a post-closure care permit issued to a previous owner of the Company's Kent, Washington, site by the U.S. Environmental Protection Agency. Under the terms of the cost-sharing agreement, the Company was obligated to reimburse the previous owner for a portion of the cost of the required remediation activities. Management has determined that the cost-sharing agreement terminated in December 1998; however, the other party disputes this determination. The Company's estimate of the remaining costs associated with the cleanup of this site is accrued in its consolidated balance sheets. 13 Hexcel is aware of a grand jury investigation being conducted by the Antitrust Division of the United States Department of Justice with respect to the carbon fiber and carbon fiber prepreg industries. The Department of Justice appears to be reviewing the pricing of all manufacturers of carbon fiber and carbon fiber prepreg since 1993. The Company, along with other manufacturers of these products, has received a grand jury subpoena requiring production of documents to the Department of Justice. The Company is not in a position to predict the direction or outcome of the investigation; however, it is cooperating with the Department of Justice. In 1999, Hexcel was joined in a purported class action lawsuit alleging antitrust violations in the sale of carbon fiber, carbon fiber industrial fabrics and carbon fiber prepreg (Thomas & Thomas Rodmakers, Inc. et. al. v. Newport Adhesives and Composites, Inc., et. al., Amended and Consolidated Class Action Complaint filed October 4, 1999, United States District Court, Central District of California, Western Division, CV-99-07796-GHK (CTx). The Company was one of many manufacturers joined in the lawsuit, which was spawned from the Department of Justice investigation. The lawsuit is in its preliminary stages and the Company is not in a position to predict the outcome, but believes that the lawsuit is without merit as to the Company. At its Livermore, California facility, Hexcel has recently received a series of notices of violation of air quality standards from the Bay Area Air Quality Management District. Hexcel is investigating the issues and is cooperating with the District. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Hexcel common stock is traded on the New York and Pacific Stock Exchanges. The range of high and low sales prices of Hexcel common stock on the New York Stock Exchange Composite Tape is contained in Note 19 to the accompanying consolidated financial statements included in this Annual Report on Form 10-K and is incorporated herein by reference. Hexcel did not declare or pay any dividends in 2000, 1999, or 1998. The payment of dividends is generally prohibited under the terms of certain of the Company's credit agreements. On March 23, 2001, there were 1,565 holders of record of Hexcel common stock. ITEM 6. SELECTED FINANCIAL DATA The information required by Item 6 is contained on page 34 of this Form 10-K under the caption "Selected Financial Data" and is incorporated herein by reference. 14 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information required by Item 7 is contained on pages 35 to 54 of this Form 10-K under "Management's Discussion and Analysis of Financial Condition and Results of Operations" and is incorporated herein by reference. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCUSSION DISCLOSURES ABOUT MARKET RISK The information required by Item 7A is contained under the heading "Market Risks" on pages 51 to 53 of this Form 10-K and is incorporated herein by reference. ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The information required by Item 8 is contained on pages 55 to 84 of this Form 10-K under "Consolidated Financial Statements and Supplementary Data" and is incorporated herein by reference. The report of the independent public accountants for the years ended December 31, 2000, 1999 and 1998 is contained on page 57 of this Form 10-K under the caption "Report of Independent Accountants" and is incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH INDEPENDENT ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT: Listed below are the directors of Hexcel as of March 23, 2001, the positions with the Company held by them and a brief description of each director's prior business experience.
DIRECTOR NAME AGE SINCE POSITION(S) WITH HEXCEL - -------------------------------------------------------------------------------------------------------------------- John J. Lee...................... 64 1993 Chairman of the Board; Chief Executive Officer; Director Harold E. Kinne............... 61 1998 President; Chief Operating Officer; Director H. Arthur Bellows, Jr.......... 63 2000 Director Robert S. Evans................ 57 1999 Director James J. Gaffney ............. 60 2000 Director Marshall S. Geller............ 62 1994 Director Sanjeev K. Mehra............. 42 2000 Director Lewis Rubin.................... 63 1999 Director Peter M. Sacerdote............ 63 2000 Director Martin L. Solomon............ 64 1996 Director - --------------------------------------------------------------------------------------------------------------------
JOHN J. LEE, age 64, has served as Chairman of the Board of Directors of Hexcel since February 1996, Chief Executive Officer since January 1994, Chairman and Chief Executive Officer from January 1994 to February 1995, Chairman and Co-Chief Executive Officer from July 1993 to December 1993 and a director since May 1993. Mr. Lee also serves as Chairman of the Nominating and Finance 15 Committees of Hexcel. He has served as Chairman of the Board, President and Chief Executive Officer of Lee Development Corporation, a merchant banking company, since 1987 and an advisor to the Clipper Group, a private investment partnership, since 1993. He is also a director of Crane Co. and other various privately held corporations. Mr. Lee was a director of XTRA Corporation, a transportation equipment leasing company, from 1990 to 1996 and a director of Hvide Marine Inc., a marine support and transportation services company, from 1994 to October 1999. HAROLD E. KINNE, age 61, has served as President and Chief Operating Officer of Hexcel since July 1998. Prior to joining Hexcel, he was President of the Additives Division, corporate vice president and a member of the corporate management committee of Ciba Specialty Chemicals Corporation, a wholly owned affiliate of Ciba ("CSC"), from 1996 to June 1998. Mr. Kinne also held the same positions in and was a director of Ciba-Geigy Corporation, a wholly owned affiliate of Ciba-Geigy Limited ("CGC"), from 1988 through 1996. Prior to that, Mr. Kinne served as Vice President, Pigments, for the Plastics & Additives Division of CGC from 1986 to 1988. Mr. Kinne held various other technical and managerial positions with CGC from 1965 to 1986. H. ARTHUR BELLOWS, JR., age 63, has been a director of Hexcel since December 2000. Mr. Bellows also serves as a member of the Audit Committee of Hexcel. He has served as Chairman of Braeburn Associates, a private merchant banking firm, from 1999, and Chairman of The Finance Network, a private financial services firm, from 1999. Mr. Bellows was President, Chief Operating Officer and a director of Audits & Surveys Worldwide, Inc., an international market research firm, from 1995 to March 1999, and continues to serve as a director. In 1967, he founded The Triangle Corporation, a manufacturer of hand tools, aerosol chemicals, diagnostic equipment for automobiles and various hardware products, and served as its Chairman, President and Chief Executive Officer from its founding to March, 1995. Mr. Bellows also acts as an officer and director of various civic organizations. ROBERT S. EVANS, age 57, has been a director of Hexcel since November 1999. Mr. Evans also serves as a member of the Finance Committee of Hexcel. He is Chairman and Chief Executive Officer and a director of Crane Co., a New York Stock Exchange company. Crane Co. is a diversified manufacturer of engineered industrial products serving a number of industrial markets, including aerospace and specialty materials markets in which Hexcel does not participate. Mr. Evans has been Chairman and CEO of Crane Co. since 1984 and a director since 1979. In addition, Mr. Evans is also a director of Fansteel, Inc., HBD Industries Inc. and Chairman of Huttig Building Products. JAMES J. GAFFNEY, age 60, has been a director of Hexcel since December 2000. Mr. Gaffney also serves as a member of the Audit Committee of Hexcel. Since 1997 he has served as a consultant to certain private investment funds ("GS Funds") affiliated with Goldman Sachs & Co. ("Goldman Sachs") in relation to GS Funds' investment in Viking Pacific Holdings and Vermont Investments Limited. Since 1997 he has served as Vice Chairman of Viking Pacific Holdings Ltd. From 1995 through 1997, Mr. Gaffney served as Chairman of the Board and Chief Executive Officer of General Aquatics, Inc., which manufactures swimming pool equipment and constructs swimming pools. From 1993 through 1995 he was President and Chief Executive Officer of KDI Corporation, a conglomerate which was involved in swimming pool construction and manufactured products for a variety of industries. Prior to 1993, Mr. Gaffney held numerous other executive and financial positions. He also is a director of SCP Pool, Inc., Advantica Restaurant Group, Purina Mills, Safelite Glass Corp. and Hvide Marine Inc., where he serves as Chairman of the Board, and of various private companies. MARSHALL S. GELLER, age 62, served as Co-Chairman of the Board of Directors of Hexcel from February 1995 to February 1996 and has been a director of Hexcel since August 1994. Mr. Geller also serves as a member of the Compensation and Nominating Committees of Hexcel. Mr. Geller has served as Chairman of the Board, Chief Executive Officer and founding partner at Geller & Friend Capital 16 Partners, Inc., a merchant banking firm, since 1995. Mr. Geller was Senior Managing Director of Golenberg & Geller, Inc., a merchant banking firm, from 1991 to 1995; Vice Chairman of Gruntal & Company, an investment banking firm, from 1988 to 1990; and a Senior Managing Director of Bear, Stearns & Co., Inc., an investment banking firm, from 1967 to 1988. Mr. Geller is currently a director of Ballantyne of Omaha, Inc., ValueVision International, Inc., drkoop.com, Inc., FutureLink Corp., Concepts Direct Inc., and various other privately held corporations and charitable organizations. SANJEEV K. MEHRA, age 42, has been a director of Hexcel since December 2000. Mr. Mehra also serves as a member of the Finance, Compensation and Nominating Committees of Hexcel. Mr. Mehra joined Goldman Sachs in 1986, and has served since 1996 as a Managing Director in the Principal Investment Area of Goldman Sachs' Merchant Banking Division and, serves on the Principal Investment Area Investment Committee. Mr. Mehra is a director of Amscan Holdings, Inc., ProMedCo Management Company, Inc. and various privately held companies. LEWIS RUBIN, age 63, has been a director of Hexcel since November 1999. He also served on Hexcel's Board from 1993 to 1995. Mr. Rubin also serves as Chairman of the Audit Committee of Hexcel. Mr. Rubin is President, Chief Executive Officer and a director of XTRA Corporation, a New York Stock Exchange company, and has served in those positions since 1990. XTRA Corporation is a leading global transportation equipment lessor with operations in highway, domestic intermodal and marine container markets. From 1988 to 1990, he was a consultant with Lewis Rubin Associates, a consulting firm advising the transportation equipment industry. From 1984 to 1988, Mr. Rubin served as President and Chief Executive Officer of Gelco CTI Container Services, a subsidiary of Gelco Corporation, a diversified international management services corporation, and as an Executive Vice President of Gelco Corporation. From 1981 to 1983, Mr. Rubin was President and Chief Executive Officer of Flexi-Van Corporation, a company engaged in the leasing of intermodal transportation equipment. PETER M. SACERDOTE, age 63, has been a director of Hexcel since December 2000. Mr. Sacerdote has been an advisory director of Goldman Sachs since May 1999 where he also serves as chairman of its Investment Committee and as a member of its Real Estate Principal Investment Committee. He joined Goldman Sachs in 1964 and served as a general partner from 1973 through 1990 and a limited partner from 1991 through 1999. He also serves as a director of AMF Bowling, Inc., AMF Group Holdings Inc., Qualcomm Incorporated and Franklin Resources, Inc. He is also a director and/or officer of various civic organizations. MARTIN L. SOLOMON, age 64, has been a director of Hexcel since May 1996. Mr. Solomon also serves as Chairman of the Compensation Committee and is a member of the Finance Committee of Hexcel. Mr. Solomon has been Co-Chairman of American County Holdings, Inc., an insurance holding company, since 2000 and, from 1997 to 2000 he served as Chairman and Chief Executive Officer. Mr. Solomon has been a self-employed investor since 1990. Mr. Solomon was a director and Vice Chairman of the Board of Directors of Great Dane Holdings, Inc., which is engaged in the manufacture of transportation equipment, automobile stamping, the leasing of taxis and insurance, from 1985 to 1996, Managing Partner of Value Equity Associates I, L.P., an investment partnership, from 1988 to 1990, and was an investment analyst and portfolio manager of Steinhardt Partners, an investment partnership, from 1985 to 1987. Mr. Solomon has been a director of XTRA Corporation since 1990, a director of Telephone and Data Systems, Inc. since 1997, a director of MFN Corp. since 1999, and a director of eMagin Corporation since 2000. Mr. Solomon is also a director of various privately-held corporations and civic organizations. 17 Listed below are the executive officers and other senior management of Hexcel as of March 23, 2001, the positions held by them and a brief description of their business experience. For additional information concerning Messrs. Lee and Kinne, see above.
EXECUTIVE OFFICER NAME AGE SINCE POSITION(S) WITH HEXCEL ------------------------------------------------------------------------------------------------------------------- John J. Lee..................64 1993 Chairman of the Board; Chief Executive Officer; Director Harold E. Kinne............ 61 1998 President; Chief Operating Officer; Director Stephen C. Forsyth......... 45 1994 Executive Vice President; Chief Financial Officer Ira J. Krakower............ 60 1996 Senior Vice President; General Counsel; Secretary Kirk Forbeck.............. 40 1999 Corporate Controller; Chief Accounting Officer Robert F. Matthews........ 54 2000 Vice President Human Resources Joseph H. Shaulson........ 35 1996 Vice President of Corporate Planning and Chief Information Officer Justin P.S. Taylor......... 47 1996 Vice President, Manufacturing and Environmental, Health and Safety James N. Burns............ 61 1996 President of the Fibers business unit William Hunt.............. 58 1996 President of the Composites Materials business unit David R. Tanonis......... 44 1999 President of Structures and Interiors business unit Steven T. Warshaw..... 52 2000 President of the Hexcel Schwebel business unit
STEPHEN C. FORSYTH, age 45, has served as Executive Vice President of Hexcel since June 1998, Chief Financial Officer since November 1996, and Senior Vice President of Finance and Administration between February 1996 and June 1998. Mr. Forsyth also serves as a director of Interglas Technologies AG. Mr. Forsyth served as Vice President of International Operations of Hexcel from October 1994 to February 1996 and has held other general management positions with Hexcel from 1980 to 1994. Mr. Forsyth joined Hexcel in 1980. IRA J. KRAKOWER, age 60, has served as Senior Vice President, General Counsel and Secretary of Hexcel since September 1996. Prior to joining Hexcel, Mr. Krakower served as Vice President and General Counsel to Uniroyal Chemical Corporation from 1986 to August 1996 and served on the Board of Directors of and as Secretary of Uniroyal Chemical Company, Inc. from 1989 to 1996. KIRK G. FORBECK, age 40, has served as the Corporate Controller and Chief Accounting Officer since September, 1999, Director of Financial Planning and Analysis from 1997 to 1999, Assistant Corporate Controller from 1993 to 1997, and Senior Financial analyst from 1991 to 1992. Prior to joining Hexcel in 1991, Mr. Forbeck worked at Coopers and Lybrand, where he was employed for six years. ROBERT F. MATTHEWS, age 54, has served as Vice President of Human Resources since July 1, 2000, and, from January 10, 2000, served as a consultant to Hexcel in human resources. From 1999 to June, 2000, Mr. Matthews engaged in consulting in human resources matters. From 1994 to 1999, he served as Senior Vice President of Human Resources for Phillips Electronics, North America Region. From 1974 to 1994 he served in various human resources roles with General Electric Co. 18 JOSEPH H. SHAULSON, age 35, has served as Vice President of Corporate Planning and Chief Information Officer since September, 2000. Mr. Shaulson served as Vice President of Planning and Integration of Hexcel from November 1998 to September, 2000 and Vice President of Corporate Development of Hexcel from April 1996 to October 1998. In addition, Mr. Shaulson served as Acting General Counsel and Acting Secretary of Hexcel from April 1996 to September 1996. Prior to joining Hexcel, Mr. Shaulson was an associate in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP, where he was employed from 1991 to 1996. JUSTIN P. S. TAYLOR, age 47, has served as Vice President of Manufacturing and Environmental, Health and Safety since June 1999. From April 1996 to June 1999, Mr. Taylor served as President of Hexcel's Structures and Interiors business unit, and from July 1995 to April 1996 as a member of Ciba's strategic planning unit. Prior to July 1995, Mr. Taylor held various management positions in the Heath Tecna Division of CGC. JAMES N. BURNS, age 61, has served as President of Hexcel's Fibers business unit since July 1996. Prior to his employment with Hexcel, Mr. Burns served in a number of management positions with the Composite Products Division of Hercules Incorporated, including Business Director from March 1995 to June 1996, Business Unit Director of Advanced Composite Materials from June 1992 to March 1995 and Vice President of Marketing from June 1986 to June 1992. WILLIAM HUNT, age 58, has served as President of Hexcel's Composites Materials business unit since November 1998 and as President of the former Hexcel EuroMaterials business unit from February 1996 to October 1998. Mr. Hunt served as President of the EuroMaterials unit of the Ciba Composites Business from 1991 to February 1996 and as Managing Director of Ciba-Geigy Plastics ("CGP") from 1990 to 1991. Prior to joining CGP in 1990, Mr. Hunt held various other technical and managerial positions, including the position of Managing Director of Illford Limited (Photographic) Co. DAVID R. TANONIS, age 44, has served as President of Hexcel's Structures and Interiors business unit since June 1999. Mr. Tanonis served as Vice President of Hexcel's Structures and Interiors business unit, responsible for the interiors business, from February 1996 to June 1999 and as the Vice President of Interiors in the Heath Tecna Division of CGC prior to February 1996. Mr. Tanonis held various technical and managerial positions with Heath Tecna since 1987. Mr. Tanonis held various management positions with Polymer Engineering, Inc. from 1978 to 1987. STEVEN T. WARSHAW, age 52, has served as President of the Hexcel Schwebel business unit since April 2000. Prior to joining Hexcel, he was Senior Vice President, Worldwide Sales and Marketing of Photronics, Inc., a materials supplier to the semiconductor industry, from 1999 to 2000. From 1974 to 1999, he served in a variety of general management positions at Olin Corp., including, from 1996 to 1999, as President of Olin Microelectronic Materials, a company supplying advanced chemicals, products and services to semiconductor manufacturers. Mr. Warshaw is a director of NN Inc., a producer of steel balls and rollers supplied to bearing manufacturers. There are no family relationships among any of Hexcel's directors or executive officers. ITEM 11. EXECUTIVE COMPENSATION The information required in Item 11 will be contained in Hexcel's definitive Proxy Statement for the 2001 Annual Meeting of Stockholders. Such information is incorporated herein by reference. 19 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required in Item 12 will be contained in Hexcel's definitive Proxy Statement for the 2001 Annual Meeting of Stockholders. Such information is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required in Item 13 will be contained in Hexcel's definitive Proxy Statement for the 2001 Annual Meeting of Stockholders. Such information is incorporated herein by reference. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K A. FINANCIAL STATEMENTS The consolidated financial statements of Hexcel, the notes thereto, and the report of independent accountants are listed on page 55 of this Annual Report on Form 10-K and are incorporated herein by reference. B. FINANCIAL STATEMENT SCHEDULES Financial statement schedules have not been included inasmuch as the information required has been adequately disclosed in the underlying consolidated financial statements. C. REPORTS ON FORM 8-K Current Report on Form 8-K dated January 19, 2001, relating to a press release issued by the Company reporting on fourth-quarter and year-end results. Current Report on Form 8-K dated December 22, 2000, relating to a press release issued by the Company announcing that an investor group controlled by subsidiaries of The Goldman Sachs Group, Inc. completed the purchase of approximately 14.5 million shares of Hexcel common stock owned by subsidiaries of Ciba Specialty Chemicals Holding, Inc. Current Report on Form 8-K dated November 3, 2000, relating to 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 controlled by subsidiaries of The Goldman Sachs Group, Inc. had entered into an agreement to purchase approximately 14.5 million shares of Hexcel common stock owned by subsidiaries of Ciba Specialty Chemicals Holding, Inc. 20 D. EXHIBITS EXHIBIT NO. DESCRIPTION 2.1 Strategic Alliance Agreement dated as of September 29, 1995 among Hexcel, Ciba-Geigy Limited and Ciba-Geigy Corporation (incorporated herein by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K dated as of October 13, 1995). 2.1(a) Amendment dated as of December 12, 1995 to the Strategic Alliance Agreement among Hexcel, Ciba-Geigy Limited and Ciba-Geigy Corporation (incorporated herein by reference to Exhibit 2.1(a) to the Company's Current Report on Form 8-K dated as of March 15, 1996). 2.1(b) Letter Agreement dated as of February 28, 1996 among Hexcel, Ciba-Geigy Limited and Ciba-Geigy Corporation (incorporated herein by reference to Exhibit 2.1(b) to the Company's Current Report on Form 8-K dated as of March 15, 1996). 2.1(c) Consent Letter dated February 21, 1997, between Hexcel and Ciba Specialty Chemicals Holding Inc. (incorporated herein by reference to Exhibit 2.1(d) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997). 2.2 Sale and Purchase Agreement dated as of April 15, 1996 among Hexcel Corporation, Hercules Incorporated, Hercules Nederland BV and HISPAN Corporation (incorporated herein by reference to Exhibit 2.2 to the Company's Quarterly Report on Form 10-Q for the Quarter ended March 31, 1996). 2.2(a) Amendment Number One dated as of June 27, 1996 to the Sale and Purchase Agreement among Hexcel Corporation, Hercules Incorporated, Hercules Nederland BV and HISPAN Corporation (incorporated herein by reference to Exhibit 2.2 to Hexcel's Current Report on Form 8-K dated July 12, 1996). 2.2(b) Letter Agreement dated as of June 27, 1996 among Hexcel Corporation, Hercules Incorporated, Hercules Nederland BV and HISPAN Corporation (incorporated herein by reference to Exhibit 2.3 to Hexcel's Current Report on Form 8-K dated July 12, 1996). 2.3 Asset Purchase Agreement by and among Stamford FHI Acquisition Corp., Fiberite, Inc. and Hexcel Corporation, dated as of April 21, 1997 (incorporated herein by reference to Exhibit 10.1 to Hexcel's Quarterly Report on Form 10-Q for the Quarter ended June 30, 1997). 2.3(a) Amended and Restated Asset Purchase Agreement by and among Stamford FHI Acquisition Corp., Fiberite, Inc. and Hexcel Corporation, dated as of August 25, 1997 (incorporated herein by reference to Exhibit 10.11 to Hexcel's Quarterly Report on Form 10-Q for the Quarter ended September 30, 1997). 2.4 License of Intellectual Property agreement, by and among Hexcel Corporation and Fiberite, Inc., dated as of August 29, 1997 (incorporated herein by reference to Exhibit 10.12 to Hexcel's Quarterly Report on Form 10-Q for the Quarter ended September 30, 1997). 2.5 Asset Purchase Agreement by and among the Company, Stamford CS Acquisition Corp., Clark-Schwebel Holdings, Inc. and Clark-Schwebel Inc., dated July 25, 1998 (incorporated herein by reference to Exhibit 2.1 of the Company's Current Report on Form 8-K, filed on July 30, 1998). 2.5(a) Amendment No. 1 to Asset Purchase Agreement by and among the Company, Stamford CS Acquisition Corp., Clark-Schwebel Holdings, Inc. and Clark-Schwebel Inc., dated as of September 15, 1998 (incorporated by reference to Exhibit 2.1 of the Company's Current Report on Form 8-K, filed on September 24, 1998). 21 2.5(a) Amendment No. 1 to Asset Purchase Agreement by and among the Company, Stamford CS Acquisition Corp., Clark-Schwebel Holdings, Inc., dated as of September 15, 1998 (incorporated herein by reference to Exhibit 2.1 of the Company's Current Report on Form 8-K, filed on September 24, 1998). 2.5(b) Amendment No. 2 to Asset Purchase Agreement by and among the Company and EQCSI Holding Corp., formerly known as Clark-Schwebel, Inc., dated as of December 23, 1998 (incorporated herein by reference to Exhibit 2.5(b) to the Company's Registration Statement on Form S-4 (No. 333-71601), filed on February 2, 1999). 2.6 Asset Purchase Agreement dated March 31, 2000 between Hexcel Corporation and Britax Cabin Interiors, Inc. (incorporated herein by reference to Exhibit 2.1 to Hexcel's Current Report on Form 8-K dated May 10, 2000). 3.1 Restated Certificate of Incorporation of Hexcel Corporation (incorporated herein by reference to Exhibit 1 to Hexcel's Registration Statement on Form 8-A dated July 9, 1996, Registration No. 1-08472). 3.2 Amended and Restated Bylaws of Hexcel Corporation (incorporated herein by reference to Exhibit 3.1 to Hexcel's Current Report on Form 8-K dated December 22, 2000). 4.1 Indenture dated as of January 21, 1999 between Hexcel Corporation and The Bank of New York, as trustee, relating to the issuance of the 93/4% Senior Subordinated Notes due 2009 (incorporated herein by reference to Exhibit 4.1 to the Company's Registration Statement on Form S-4 (No. 333-71601), filed on February 2, 1999). 4.2 Indenture dated as of July 24, 1996 between Hexcel Corporation and First Trust of California, National Association, as trustee, relating to the 7% Convertible Subordinated Notes due 2003 of the Company (incorporated herein by reference to Exhibit 4 to Hexcel's Quarterly Report on Form 10-Q for the quarter ended June 30, 1996). 4.3 Indenture dated as of February 29, 1996 between Hexcel and First Trust of California, National Association, as trustee, relating to the Increasing Rate Senior Subordinated Notes due 2003 of the Company (incorporated herein by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K dated as of March 15, 1996). 4.3(a) First Supplemental Indenture dated as of June 27, 1996 between Hexcel and First Trust of California, N.A., as trustee, to the Indenture dated as of February 29, 1996 between Hexcel and First Trust of California, N.A., as trustee (incorporated herein by reference to Exhibit 4.2(a) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997). 4.3(b) Second Supplemental Indenture dated as of March 5, 1998 between Hexcel and First Trust of California, N.A., as trustee, to the Indenture dated as of February 29, 1996 between Hexcel and First Trust of California, N.A., as trustee (incorporated by reference to Exhibit 4.2(b) to Hexcel's Annual Report on Form 10-K for the fiscal year ended December 31, 1997). 4.3(c) Third Supplemental Indenture dated as of September 15, 1998 between Hexcel and U.S. Bank Trust National Association (formerly known as First Trust of California, National Association), as trustee (incorporated herein by reference to Exhibit 4.5(c) to the Company's Registration Statement on Form S-4 (No. 333-71601), filed on March 12, 1999). 22 4.3(d) Fourth Supplemental Indenture dated as of January 21, 1999 between Hexcel and U.S. Bank Trust National Association (formerly known as First Trust of California, National Association), as trustee (incorporated herein by reference to Exhibit 4.5(d) to the Company's Registration Statement on Form S-4 (No. 333-71601), filed on March 12, 1999). 4.3(e) Fifth Supplemental Indenture dated as of December 19, 2000 between Hexcel and U.S. Bank Trust National Association (formerly known as First Trust of California, National Association), as trustee (incorporated herein by reference to Exhibit 10.3 to the Company's Current Report on Form 8-K, dated December 22, 2000). 4.4 Indenture dated as of August 1, 1986 between Hexcel and the Bank of California, N.A., as trustee, relating to the 7% Convertible Subordinated Notes due 2011 of the Company (incorporated herein by reference to Exhibit 4.3 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997). 4.4(a) Instrument of Resignation, Appointment and Acceptance, dated as of October 1, 1993 (incorporated herein by reference to Exhibit 4.10 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1993). 10.1 Second Amended and Restated Credit Agreement, dated as of September 15, 1998, by and among Hexcel and certain of its subsidiaries as borrowers, the lenders from time to time parties thereto, Citibank, N.A. as documentation agent, and Credit Suisse First Boston as lead arranger and as administrative agent for the lenders (incorporated herein by reference to Exhibit 10.1 of the Company's Quarterly Report on Form 10-Q for the Quarter ended September 30, 1998). 10.1(a) First Amendment dated as of December 31, 1998 to the Second Amended and Restated Credit Agreement by and among Hexcel Corporation and the Foreign Borrowers from time to time party thereto, the banks and other financial institutions from time to time parties thereto, Citibank, N.A., as Documentation Agent, and Credit Suisse First Boston, as Administrative Agent (incorporated herein by reference to Exhibit 10.1(g) to the Company's Registration Statement on Form S-4 (No. 333-71601), filed on March 12, 1999). 10.1(b) Consent Letter dated as of January 15, 1999 relating to the First Amendment dated December 31, 1998 to the Second Amended and Restated Credit Agreement dated September 15, 1998 (incorporated herein by reference to Exhibit 10.1(h) to the Company's Registration Statement on Form S-4 (No. 333-71601), filed on March 12, 1999). 10.1(c) Second Amendment dated August 13, 1999 to the Second Amended and Restated Credit Agreement by and among Hexcel Corporation and the Foreign Borrowers from time to time parties thereto, the banks and other financial institutions from time to time parties thereto, Citibank, N.A., as Documentation Agent, and Credit Suisse First Boston, as Administrative Agent (incorporated herein by reference to Exhibit 10.3 of the Company's Quarterly Report on Form 10-Q for the Quarter ended June 30, 1999). 10.1(d) Third Amendment dated March 7, 2000 to the Second Amended and Restated Credit Agreement by and among Hexcel Corporation and the Foreign Borrowers from time to time parties thereto, the banks and other financial institutions from time to time parties thereto, Citibank, N.A., as Documentation Agent, and Credit Suisse First Boston, as Administrative Agent (incorporated by reference to Exhibit 10.1(j) of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1999). 23 10.1(e) Consent Letter dated March 30, 2000 relating to the Third Amendment dated March 7, 2000 to the Second Amended and Restated Credit Agreement dated September 15, 1998 (incorporated herein by reference to Exhibit 2.1 of the Company's Quarterly Report on Form 10-Q for the Quarter ended March 30, 2000). 10.1(f) Fourth Amendment and Consent, dated as of October 26, 2000, to the Second and Amended and Restated Credit Agreement, dated as of September 15, 1998, among Hexcel Corporation and the Foreign Borrowers from time to time party thereto, the banks and other financial institutions from time to time party thereto, Citibank, N.A., as Documentation Agent, and Credit Suisse First Boston, as Administrative Agent (incorporated herein by reference to Exhibit 10.3 of the Company's Quarterly Report on Form 10-Q for the Quarter ended September 30, 2000). 10.1(g) Amended and Restated Collateral Agreement dated March 7, 2000 to the Second Amended and Restated Credit Agreement by and among Hexcel Corporation and the Foreign Borrowers from time to time parties thereto, the banks and other financial institutions from time to time parties thereto, Citibank, N.A., as Documentation Agent, and Credit Suisse First Boston, as Administrative Agent (incorporated by reference to Exhibit 10.1(k) of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1999). 10.2 Schedule to the ISDA Master Agreement between Credit Lyonnais (New York Branch) and Hexcel Corporation, dated as of September 15, 1998 (incorporated by reference to Exhibit 10.2 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1999). 10.2(a) Confirmation dated October 22, 1998 relating to transaction entered into pursuant to ISDA Master Agreement between Credit Lyonnais (New York Branch) and Hexcel Corporation, dated as of September 15, 1998 (incorporated by reference to Exhibit 10.2(a) of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1999). 10.3* Hexcel Corporation Incentive Stock Plan as amended and restated January 30, 1997 (incorporated herein by reference to Exhibit 4.3 to the Company's Registration Statement on Form S-8, Registration No. 333-36163). 10.3(a)* Hexcel Corporation Incentive Stock Plan as amended and restated January 30, 1997 and further amended December 10, 1997 (incorporated herein by reference to Exhibit 10.5(a) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997). 10.3(b)* Hexcel Corporation Incentive Stock Plan, as amended and restated on January 30, 1997, and further amended on December 10, 1997 and March 25, 1999 (incorporated herein by reference to Exhibit 4.3 of the Company's Registration Statement on Form S-8 filed on July 26, 1999). 10.3(c)* Hexcel Corporation Incentive Stock Plan, as amended and restated on January 30, 1997, and further amended on December 10, 1997, March 25, 1999 and December 2, 1999 (incorporated by reference to Exhibit 10.3(c) of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1999). 10.3(d)* Hexcel Corporation Incentive Stock Plan, as amended and restated on February 3, 2000 (incorporated herein by reference to Annex A of the Company's Proxy Statement dated March 31, 2000). 24 10.3(e)* Hexcel Corporation Incentive Stock Plan, as amended and restated on December 19, 2000. 10.4* Hexcel Corporation 1998 Broad Based Incentive Stock Plan (incorporated herein by reference to Exhibit 4.3 of the Company's Form S-8 filed on June 19, 1998, Registration No. 333-57223). 10.4(a)* Hexcel Corporation 1998 Broad Based Incentive Stock Plan, as amended on February 3, 2000 (incorporated by reference to Exhibit 10.1 to Hexcel's Quarterly Report on Form 10-Q for the Quarter ended June 30, 2000). 10.4(b)* Hexcel Corporation 1998 Broad Based Incentive Stock Plan, as amended on February 3, 2000, and further amended on February 1, 2001. 10.5* Hexcel Corporation Management Stock Purchase Plan (incorporated herein by reference to Exhibit 10.9 to Hexcel's Quarterly Report on Form 10-Q for the Quarter ended June 30, 1997). 10.5(a)* Hexcel Corporation Management Stock Purchase Plan, as amended on March 25, 1999 (incorporated herein by reference to Exhibit 4.3 of the Company's Registration Statement on Form S-8 filed on July 26, 1999). 10.5(b)* Hexcel Corporation Management Stock Purchase Plan, as amended on March 25, 1999 and December 2, 1999 (incorporated by reference to Exhibit 10.5(b) of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1999). 10.5(c)* Hexcel Corporation Management Stock Purchase Plan, as amended and restated on February 3, 2000 (incorporated herein by reference to Annex B of the Company's Proxy Statement dated March 31, 2000). 10.5(d)* Hexcel Corporation Management Stock Purchase Plan, as amended and restated on December 19, 2000. 10.6* Hexcel Corporation Management Incentive Compensation Plan, as amended and restated on December 19, 2000. 10.7* Form of Employee Option Agreement(2000). 10.8* Form of Employee Option Agreement Special Executive Grant (2000) dated December 20, 2000. 10.9* Form of Employee Option Agreement Special Executive Grant (1999) dated December 2, 1999 (incorporated by reference to Exhibit 10.7 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1999). 10.10* Form of Employee Option Agreement (1999) dated December 2, 1999 (incorporated by reference to Exhibit 10.8 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1999). 10.11* Form of Employee Option Agreement (1999) (incorporated herein by reference to Exhibit 10.1 of the Company's Quarterly Report on Form 10-Q for the Quarter ended March 31, 1999). 10.12* Form of Employee Option Agreement (1998) (incorporated herein by reference to Exhibit 10.4 of the Company's Quarterly Report on Form 10-Q for the Quarter ended September 30, 1998). 25 10.13* Form of Employee Option Agreement (1997) (incorporated herein by reference to Exhibit 10.4 to Hexcel's Quarterly Report on Form 10-Q for the Quarter ended June 30, 1997). 10.14* Form of Employee Option Agreement (1996) (incorporated herein by reference to Exhibit 10.5 to Hexcel's Quarterly Report on Form 10-Q for the Quarter ended March 31, 1996). 10.15* Form of Employee Option Agreement (1995) (incorporated herein by reference to Exhibit 10.6 to Hexcel's Quarterly Report on Form 10-Q for the Quarter ended March 31, 1996). 10.16* Form of Retainer Fee Option Agreement for Non-Employee Directors (2000). 10.17* Form of Retainer Fee Option Agreement for Non-Employee Directors (1999) (incorporated herein by reference to Exhibit 10.14 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1999). 10.18* Form of Retainer Fee Option Agreement for Non-Employee Directors (1998) (incorporated herein by reference to Exhibit 10.11 to Hexcel's Annual Report on Form 10-K for the fiscal year ended December 31, 1998). 10.19* Form of Retainer Fee Option Agreement for Non-Employee Directors (1997) (incorporated herein by reference to Exhibit 10.8 to Hexcel's Annual Report on Form 10-K for the fiscal year ended December 31, 1997). 10.20* Form of Option Agreement (Directors) (incorporated herein by reference to Exhibit 10.13 to Hexcel's Annual Report on Form 10-K for the fiscal year ended December 31, 1995). 10.21* Form of Short-Term Option Agreement (incorporated herein by reference to Exhibit 10.8 to Hexcel's Quarterly Report on Form 10-Q for the Quarter ended March 31, 1996). 10.22* Form of Performance Accelerated Restricted Stock Unit Agreement (December 20, 2000). 10.23* Form of Performance Accelerated Restricted Stock Unit Agreement (Special Executive Grant December 2, 1999) (incorporated herein by reference to Exhibit 10.19 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1999). 10.24* Form of Performance Accelerated Restricted Stock Unit Agreement (December 2, 1999) (incorporated herein by reference to Exhibit 10.20 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1999). 10.25* Form of Performance Accelerated Restricted Stock Unit Agreement (1999) (incorporated herein by reference to Exhibit 10.2 to Hexcel's Quarterly Report on Form 10-Q for the Quarter ended March 31, 1999). 10.26* Form of Performance Accelerated Restricted Stock Unit Agreement (1998) (incorporated herein by reference to Exhibit 10.2 to Hexcel's Quarterly Report on Form 10-Q for the Quarter ended March 31, 1998). 26 10.27* Form of Performance Accelerated Restricted Stock Unit Agreement (1997) (incorporated herein by reference to Exhibit 10.5 to Hexcel's Quarterly Report on Form 10-Q for the Quarter ended June 30, 1997). 10.28* Form of Performance Accelerated Restricted Stock Unit Agreement (1996) (incorporated herein by reference to Exhibit 10.9 to Hexcel's Quarterly Report on Form 10-Q for the Quarter ended March 31, 1996). 10.29* Form of Reload Option Agreement (1997) (incorporated herein by reference to Exhibit 10.8 of Hexcel's Quarterly Report on Form 10-Q for the Quarter ended June 30, 1997). 10.30* Form of Reload Option Agreement (1996) (incorporated herein by reference to Exhibit 10.10 to Hexcel's Quarterly Report on Form 10-Q for the Quarter ended March 31, 1996). 10.31* Form of Exchange Performance Accelerated Stock Option Agreement (incorporated herein by reference to Exhibit 10.3 to Hexcel's Quarterly Report on Form 10-Q for the Quarter ended September 30, 1998). 10.32* Form of Performance Accelerated Stock Option Agreement (Director) (incorporated herein by reference to Exhibit 10.6 to Hexcel's Quarterly Report on Form 10-Q for the Quarter ended June 30, 1997). 10.33* Form of Performance Accelerated Stock Option (Employee) (incorporated herein by reference to Exhibit 10.7 to Hexcel's Quarterly Report on Form 10-Q for the Quarter ended June 30, 1997). 10.34* Form of Grant of Restricted Stock Unit Agreement (incorporated herein by reference to Exhibit 10.3 to Hexcel's Quarterly Report on Form 10-Q for the Quarter ended March 31, 1999). 10.35* Form of Grant of Restricted Stock Unit Agreement (incorporated herein by reference to Exhibit 10.10 to Hexcel's Quarterly Report on Form 10-Q for the Quarter ended June 30, 1997). 10.36* Hexcel Corporation 1997 Employee Stock Purchase Plan (incorporated herein by reference to Exhibit 10.2 to Hexcel's Quarterly Report on Form 10-Q for the Quarter ended June 30, 1997). 10.37* Amended and Restated Employment Agreement dated October 11, 2000 between Hexcel and John J. Lee (incorporated herein by reference to Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2000). 10.37(a)* Amendment to Amended and Restated Employment Agreement dated October 11, 2000 between Hexcel and John J. Lee. 10.37(b)* Employee Option Agreement dated as of February 29, 1996 between Hexcel and John J. Lee (incorporated herein by reference to Exhibit 10.14(a) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995). 10.37(c)* Bankruptcy Court Option Agreement dated as of February 29, 1996 between Hexcel and John J. Lee (incorporated herein by reference to Exhibit 10.14(b) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995). 27 10.37(d)* Performance Accelerated Restricted Stock Unit Agreement dated as of February 29, 1996 between Hexcel and John J. Lee (incorporated herein by reference to Exhibit 10.14(c) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995). 10.37(e)* Short-Term Option Agreement dated as of February 29, 1996 between Hexcel and John J. Lee (incorporated herein by reference to Exhibit 10.14(d) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995). 10.37(f)* Form of Reload Option Agreement dated as of February 29, 1996 between Hexcel and John J. Lee (incorporated herein by reference to Exhibit 10.14(e) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995). 10.37(g)* Supplemental Executive Retirement Agreement dated as of May 20, 1998 between Hexcel and John J. Lee (incorporated herein by reference to Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for the Quarter ended June 30, 1998). 10.37(h)* Amendment to Supplemental Executive Retirement Agreement dated January 21, 1999, between Hexcel Corporation and John J. Lee. 10.37(i)* Second Amendment to Supplemental Executive Retirement Agreement dated October 11, 2000, between Hexcel Corporation and John J. Lee (incorporated herein by reference to Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for the Quarter ended September 30, 2000). 10.37(j)* Split Dollar Agreement dated as of January 21, 1999 among Hexcel, John J. Lee and certain Trustees (incorporated herein by reference to Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q for the Quarter ended March 31, 1999). 10.37(k)* Executive Severance Agreement between Hexcel and John J. Lee dated as of February 3, 1999 (incorporated herein by reference to Exhibit 10.5 to the Company's Quarterly Report on Form 10-Q for the Quarter ended March 31, 1999). 10.37(l)* Letter dated December 2, 1999 from Hexcel Corporation to John J. Lee, regarding the Company's Management Incentive Compensation Plan for 1999 (incorporated by reference to Exhibit 10.33(i) of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1999). 10.37(m)* Employee Option Agreement dated as of December 20, 2000 between Hexcel and John J. Lee. 10.38* Summary of Terms of Employment (effective as of July 15, 1998) between Hexcel and Harold E. Kinne, President and Chief Operating Officer of Hexcel (incorporated herein by reference to Exhibit 10.5 of the Company's Quarterly Report on Form 10-Q for the Quarter ended September 30, 1998). 10.38(a)* Letter dated December 2, 1999 from Hexcel Corporation to Harold E. Kinne, regarding the Company's Management Incentive Compensation Plan for 1999 (incorporated by reference to Exhibit 10.34(a) of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1999). 10.38(b)* Supplemental Executive Retirement Agreement dated as of May 10, 2000 between Hexcel and Harold E. Kinne (incorporated herein by reference to Exhibit 10.4 of the Company's Quarterly Report on Form 10-Q for the Quarter ended June 30, 2000). 28 10.38(c)* Amendment to Agreements, dated as of October 11, 2000 by and between Hexcel Corporation and Harold E. Kinne (incorporated herein by reference to Exhibit 10.6 of the Company's Quarterly Report on Form 10-Q for the Quarter ended September 30, 2000). 10.38(d)* Amendment to Amendments to Agreements, dated as of November 21, 2000, by and between Hexcel Corporation and Harold E. Kinne. 10.39* Letter dated December 2, 1999 from Hexcel Corporation to Stephen C. Forsyth, regarding the Company's Management Incentive Compensation Plan for 1999 (incorporated by reference to Exhibit 10.35 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1999). 10.39(a)* Supplemental Executive Retirement Agreement dated as of May 10, 2000 between Hexcel and Stephen C. Forsyth (incorporated herein by reference to Exhibit 10.5 of the Company's Quarterly Report on Form 10-Q for the Quarter ended June 30, 2000). 10.39(b)* Amendment to Agreements, dated as of October 11, 2000 by and between Hexcel Corporation and Stephen C. Forsyth (incorporated herein by reference to Exhibit 10.8 of the Company's Quarterly Report on Form 10-Q for the Quarter ended September 30, 2000). 10.39(c)* Amendment to Amendments to Agreements, dated as of November 21, 2000, by and between Hexcel Corporation and Stephen C. Forsyth. 10.40* Letter dated December 2, 1999 from Hexcel Corporation to Ira J. Krakower, regarding the Company's Management Incentive Compensation Plan for 1999. 10.40(a)* Supplemental Executive Retirement Agreement dated as of May 10, 2000 between Hexcel and Ira J. Krakower (incorporated herein by reference to Exhibit 10.6 of the Company's Quarterly Report on Form 10-Q for the Quarter ended June 30, 2000). 10.40(b)* Amendment to Agreements, dated as of October 11, 2000 by and between Hexcel Corporation and Ira J. Krakower (incorporated herein by reference to Exhibit 10.3 of the Company's Quarterly Report on Form 10-Q for the Quarter ended September 30, 2000). 10.41* Form of Executive Severance Agreement between Hexcel and certain executive officers dated as of February 3, 1999 (incorporated herein by reference to Exhibit 10.6 to the Company's Quarterly Report on Form 10-Q for the Quarter ended March 31, 1999). 10.42* Form of Executive Severance Agreement between Hexcel and certain executive officers dated as of February 3, 1999 (incorporated herein by reference to Exhibit 10.7 to the Company's Quarterly Report on Form 10-Q for the Quarter ended March 31, 1999). 10.43* Executive Severance Agreement between Hexcel and Robert F. Matthews dated as of July 1, 2000 (incorporated herein by reference to Exhibit 10.2 to Hexcel's Quarterly Report on Form 10-Q for the Quarter ended June 30, 2000). 10.43(a)* Amendment to Agreements, dated as of October 11, 2000 by and between Hexcel Corporation and Robert F. Matthews (incorporated herein by reference to Exhibit 10.11 of the Company's Quarterly Report on Form 10-Q for the Quarter ended September 30, 2000). 10.43(b)* Amendment to Amendments to Agreements, dated as of November 21, 2000, by and between Hexcel Corporation and Robert F. Matthews. 29 10.44* Executive Severance Agreement between Hexcel and Steven T. Warshaw dated as of July 1, 2000 (incorporated herein by reference to Exhibit 10.3 to Hexcel's Quarterly Report on Form 10-Q for the Quarter ended June 30, 2000). 10.44(a)* Amendment to Agreements, dated as of October 11, 2000 by and between Hexcel Corporation and Steven Warshaw (incorporated herein by reference to Exhibit 10.10 of the Company's Quarterly Report on Form 10-Q for the Quarter ended September 30, 2000). 10.44(b)* Amendment to Amendments to Agreements, dated as of November 21, 2000, by and between Hexcel Corporation and Steven Warshaw. 10.45* Amendment to Agreements, dated as of October 11, 2000 by and between Hexcel Corporation and William Hunt (incorporated herein by reference to Exhibit 10.14 of the Company's Quarterly Report on Form 10-Q for the Quarter ended September 30, 2000). 10.45(a)* Amendment to Amendments to Agreements, dated as of November 21, 2000, by and between Hexcel Corporation and William Hunt. 10.46* Amendment to Agreements, dated as of October 11, 2000 by and between Hexcel Corporation and David Tanonis (incorporated herein by reference to Exhibit 10.12 of the Company's Quarterly Report on Form 10-Q for the Quarter ended September 30, 2000). 10.47* Amendment to Agreements, dated as of October 11, 2000 by and between Hexcel Corporation and Justin Taylor (incorporated herein by reference to Exhibit 10.13 of the Company's Quarterly Report on Form 10-Q for the Quarter ended September 30, 2000). 10.47(a)* Amendment to Amendments to Agreements, dated as of November 21, 2000, by and between Hexcel Corporation and Justin Taylor. 10.48* Amendment to Agreements, dated as of October 11, 2000 by and between Hexcel Corporation and Joseph Shaulson (incorporated herein by reference to Exhibit 10.9 of the Company's Quarterly Report on Form 10-Q for the Quarter ended September 30, 2000). 10.48(a)* Amendment to Amendments to Agreements, dated as of November 21, 2000, by and between Hexcel Corporation and Joseph Shaulson. 10.49 Lease Agreement, dated as of September 15, 1998, by and among Clark-Schwebel Corporation (a wholly-owned subsidiary of Hexcel) as lessee, CSI Leasing Trust as lessor, and William J. Wade as co-trustee for CSI Leasing Trust (incorporated herein by reference to Exhibit 10.2 of the Company's Quarterly Report on Form 10-Q for the Quarter ended September 30, 1998). 10.50 Governance Agreement, dated as of December 19, 2000, among LXH L.L.C., LXH II, L.L.C., Hexcel Corporation and the other parties listed on the signature pages thereto (incorporated herein by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K dated December 22, 2000). 10.51 Registration Rights Agreement, dated as of December 19, 2000, by and among Hexcel Corporation, LXH, L.L.C. and LXH II, L.L.C. (incorporated herein by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K dated December 22, 2000). 10.52 Agreement, dated 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). 30 10.53 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). 12.1 Statement regarding the computation of ratio of earnings to fixed charges for the Company. 21.1 Subsidiaries of the Company. 23 Consent of Independent Accountants - PricewaterhouseCoopers LLP. - -------------------------------------------- * Indicates a management contract or compensatory plan or arrangement 31 SIGNATURES PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF STAMFORD, STATE OF CONNECTICUT.
HEXCEL CORPORATION MARCH 23, 2001 By: /S/ JOHN J. LEE -------------------------------------------- John J. Lee, Chief Executive Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE /S/ JOHN J. LEE Chairman of the March 23, 2001 - -------------------------------------------- (John J. Lee) Board of Directors and Chief Executive Officer (PRINCIPAL EXECUTIVE OFFICER) /S/ HAROLD E. KINNE President, Chief Operating Officer March 23, 2001 - -------------------------------------------- (Harold E. Kinne) and Director /S/ STEPHEN C. FORSYTH Executive Vice President and March 23, 2001 - -------------------------------------------- (Stephen C. Forsyth) Chief Financial Officer (PRINCIPAL FINANCIAL OFFICER) /S/ KIRK G. FORBECK Corporate Controller March 23, 2001 - -------------------------------------------- (Kirk G. Forbeck) (PRINCIPAL ACCOUNTING OFFICER) /S/ H. ARTHUR BELLOWS, JR. Director March 20, 2001 - -------------------------------------------- (H. Arthur Bellows, Jr.) /S/ ROBERT S. EVANS Director March 20, 2001 - -------------------------------------------- (Robert S. Evans) /S/ JAMES J. GAFFNEY Director March 23, 2001 - -------------------------------------------- (James J. Gaffney) /S/ MARSHALL S. GELLER Director March 23, 2001 - -------------------------------------------- (Marshall S. Geller) 32 /S/ SANJEEV K. MEHRA Director March 23, 2001 - -------------------------------------------- (Sanjeev K. Mehra) /S/ LEWIS RUBIN Director March 23, 2001 - -------------------------------------------- (Lewis Rubin) /S/ PETER M. SACERDOTE Director March 15, 2001 - -------------------------------------------- (Peter M. Sacerdote) /S/ MARTIN L. SOLOMON Director March 23, 2001 - -------------------------------------------- (Martin L. Solomon)
33 SELECTED FINANCIAL DATA (IN MILLIONS, EXCEPT PER SHARE DATA) The following table summarizes selected financial data as of and for the five years ended December 31:
- ----------------------------------------------------------------------------------------------------------------------- 2000 1999 1998 1997 1996 - ----------------------------------------------------------------------------------------------------------------------- STATEMENT OF OPERATIONS DATA: Net sales $ 1,055.7 $ 1,151.5 $ 1,089.0 $ 936.9 $ 695.2 Cost of sales 824.3 909.0 817.7 714.3 553.9 ------------------------------------------------------------------------- Gross margin 231.4 242.5 271.3 222.6 141.3 Selling, general and administrative expenses 123.9 128.7 117.9 102.4 79.4 Research and technology expenses 21.2 24.8 23.7 18.4 16.7 Business consolidation expenses 10.9 20.1 12.7 25.3 42.4 ------------------------------------------------------------------------- Operating income 75.4 68.9 117.0 76.5 2.8 Gain on sale of Bellingham aircraft interiors business 68.3 - - - - Other income, net - - - - 3.0 Interest expense 68.7 73.9 38.7 25.8 21.6 ------------------------------------------------------------------------- Income (loss) from continuing operations before income taxes 75.0 (5.0) 78.3 50.7 (15.8) Provision for (recovery of) income taxes 26.3 (1.7) 28.4 (22.9) 3.4 Equity in earnings and write-down in investments in affiliated companies 5.5 (20.0) 0.5 - - ------------------------------------------------------------------------- Net income (loss) $ 54.2 $ (23.3) $ 50.4 $ 73.6 $ (19.2) ========================================================================= Net income (loss) per share: Basic $ 1.47 $ (0.64) $ 1.38 $ 2.00 $ (0.58) Diluted $ 1.32 $ (0.64) $ 1.24 $ 1.74 $ (0.58) ========================================================================= - ----------------------------------------------------------------------------------------------------------------------- BALANCE SHEET DATA: Current assets $ 326.0 $ 327.8 $ 439.0 $ 387.1 $ 316.9 Non-current assets 885.4 934.1 965.2 424.5 384.8 ------------------------------------------------------------------------- Total assets $ 1,211.4 $ 1,261.9 $ 1,404.2 $ 811.6 $ 701.7 ========================================================================= Current liabilities $ 197.9 $ 210.5 $ 219.4 $ 186.4 $ 188.8 Long-term liabilities 697.8 781.3 882.4 375.3 333.6 Stockholders' equity 315.7 270.1 302.4 249.9 179.3 ------------------------------------------------------------------------- Total liabilities and stockholders' equity $ 1,211.4 $ 1,261.9 $ 1,404.2 $ 811.6 $ 701.7 ========================================================================= - ----------------------------------------------------------------------------------------------------------------------- OTHER DATA: Shares outstanding at year-end, less treasury stock 37.1 36.6 36.4 36.9 36.6 - -----------------------------------------------------------------------------------------------------------------------
A DISCUSSION OF THE IMPACT OF BUSINESS ACQUISITIONS AND DIVESTITURES ON SELECTED FINANCIAL DATA IS CONTAINED IN NOTES 1, 2 AND 3 TO THE ACCOMPANYING CONSOLIDATED FINANCIAL STATEMENTS. 34
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS BUSINESS OVERVIEW ---------------------------------------------------------------------------------------------------------------- YEAR ENDED DECEMBER 31, --------------------------------------------- (IN MILLIONS, EXCEPT PER SHARE DATA) 2000 1999 1998 ---------------------------------------------------------------------------------------------------------------- PRO FORMA (a): Sales $ 1,036.8 $ 1,081.5 $ 1,200.5 Adjusted EBITDA (b) $ 144.0 $ 141.3 $ 203.1 Adjusted net income (c) $ 18.8 $ 9.7 $ 56.3 Adjusted diluted net income per share (c) $ 0.50 $ 0.27 $ 1.37 ---------------------------------------------------------------------------------------------------------------- AS REPORTED: Sales $ 1,055.7 $ 1,151.5 $ 1,089.0 Gross margin % 21.9% 21.1% 24.9% Adjusted operating income % (c) 8.2% 7.7% 11.9% Adjusted EBITDA (b) $ 144.9 $ 150.4 $ 177.2 Net income (loss) $ 54.2 $ (23.3) $ 50.4 Adjusted net income (c) $ 17.2 $ 9.6 $ 59.2 Diluted net income (loss) per share $ 1.32 $ (0.64) $ 1.24 Adjusted diluted net income per share (c) $ 0.46 $ 0.26 $ 1.43 ----------------------------------------------------------------------------------------------------------------
(a) Pro forma results for 2000, 1999 and 1998 give effect to the sale of the Bellingham aircraft interiors business in April 2000, as if it had occurred at the beginning of the respective years presented. Pro forma results for 1998 also give effect to the acquisition of the industrial fabrics business of Clark-Schwebel in September 1998, as if it had occurred at the beginning of 1998. (b) Adjusted EBITDA is earnings before business consolidation expenses, interest, taxes, depreciation, amortization, and equity in earnings of and a write-down of an investment in affiliated companies. See "Financial Condition and Liquidity" for a reconciliation of net income (loss) to EBITDA and Adjusted EBITDA. (c) Amounts exclude business consolidation and other acquisition related costs, the gain on the disposal of the Bellingham business in 2000, and a write-down of an investment in an affiliated company in 1999. Hexcel's 2000 operating results reflect several important developments during the year: o 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. The sale of this business, which is discussed more fully below under "Significant Transactions," generated a pre-tax gain of $68.3 million, which is equivalent to an after-tax gain of approximately $44 million or $0.97 per diluted share. Net proceeds from the sale were used to repay $111.6 million of outstanding term debt under the Company's senior credit facility, improving the Company's financial leverage and reducing annual interest costs. o Commercial aircraft markets stabilized, following a significant reduction in aircraft production rates by The Boeing Company ("Boeing") commencing in the second half of 1999. Boeing and Airbus Industrie ("Airbus") delivered a total of 800 airplanes in 2000, and have each announced plans to moderately increase aircraft deliveries in 2001. As a result, the decline in sales of composite materials to commercial aerospace markets experienced by Hexcel in the second half of 1999 and the first half of 2000 appears to have halted. o Hexcel's Engineered Products business suffered from declining sales and reduced productivity, attributable to the timing of customer programs and to the impact of Boeing's 1999 aircraft build rate reductions. This business unit has initiated a series of actions intended to align its cost structure with its revenue base and to improve manufacturing productivity. These actions are being undertaken in anticipation of transferring the manufacture of certain Boeing aircraft structures to the Company's joint venture affiliates in Malaysia and China. 35 o Sales of lightweight reinforcement fabrics used in multi-layer printed wiring boards grew throughout the year, driven by strong worldwide demand for increasingly sophisticated electronic devices. In order to satisfy customer demand for materials used in high-performance applications, Hexcel has switched existing manufacturing capacity from heavyweight glass fabrics to lightweight glass fabrics, and also undertaken an expansion of its lightweight glass fabric manufacturing capacity. Nevertheless, the Company ended the year capacity constrained. In addition, the Company raised prices on certain fiberglass fabrics, although these price increases were accompanied by increases in the price of fiberglass yarns used as raw materials. o The use of Hexcel's composite materials in wind energy and automotive applications continued to grow, resulting in double-digit revenue growth from these industrial markets. Furthermore, the Company benefited from increased sales of reinforcement fabrics for use in soft body armor and architectural applications. o Changes in currency exchange rates had the effect of reducing the reported value of revenues generated by Hexcel's European facilities. If the average exchange rates between the U.S. dollar, the British pound and the Euro had been the same in 2000 as they were in 1999, the Company's net sales for 2000 would have been approximately $45 million higher than reported. On a pro forma basis, giving effect to the sale of the Bellingham aircraft interiors business as it if had occurred at the beginning of the year, such currency-adjusted sales would have been approximately $1,082 million for 2000, about the same level as 1999. o Hexcel's business consolidation and lean enterprise activities progressed, contributing to improvements in gross margin and adjusted operating income as a percentage of net sales. Business consolidation expenses were $10.9 million in 2000, and cash expenditures on business consolidation activities totaled $11.8 million. These amounts were in line with management's expectations. o In light of further opportunities to consolidate manufacturing facilities, Hexcel decided in the fourth quarter of 2000 to close the two smaller of its four U.S. prepreg manufacturing facilities - one in Lancaster, Ohio and another in Gilbert, Arizona. The manufacturing output from these two plants will now be produced by the two remaining U.S. prepreg facilities in Livermore, California and Salt Lake City, Utah. The closing of these two facilities, which will be completed early in 2002, is expected to generate additional cost savings of more than $4 million per year. Business consolidation activities are discussed more fully below under "Business Consolidation Programs." o Hexcel made certain changes to its U.S. retirement benefit plans that are intended to improve the flexibility and visibility of future retirement benefits for employees. These changes include 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. Results for 2000 include $5.1 million of non-cash pre-tax income (equivalent to $3.3 million of after-tax income) attributable to the curtailment of this defined benefit retirement plan. o In December 2000, an investor group controlled by subsidiaries of The Goldman Sachs Group, Inc. purchased approximately 14.5 million shares of Hexcel common stock from subsidiaries of Ciba Specialty Chemicals Holding, Inc. The Company incurred $2.2 million of pre-tax expenses (equivalent to $1.4 million of after-tax expenses) in connection with this transaction, which is described more fully below under "Significant Transactions - Purchase of Approximately 14.5 Million Shares of Hexcel Common Stock by an Investor Group." o Equity in earnings of affiliated companies totaled $5.5 million for 2000, reflecting the strong performance of Hexcel's electronic fabrics joint venture in Asia. Looking forward to 2001, Hexcel anticipates modest growth in commercial aerospace revenues, based on the most recent aircraft delivery projections from Airbus and Boeing. In space and defense markets, demand from satellite and launch vehicle applications remains weak. Production of a number of military aircraft and helicopter programs is projected to increase over the next few years, however actual demand will depend upon which programs are funded and the amount of such funding. 36 While many of Hexcel's customers expect continued long-term growth in their requirements for lightweight electronic fabrics, the year has started with many manufacturers of finished telecommunication, computer and consumer electronic products issuing warnings about the outlook for their sales revenues in 2001. As the first quarter has progressed, the Company has seen reductions in customer orders in the U.S. for electronic fabrics compared to demand in the fourth quarter, 2000. A number of customers have indicated that they now expect to reduce purchases of electronic fabrics below recent levels until demand from the manufacturers of finished electronic products improves. However, to date demand from European customers has remained strong. While the net impact on total Company performance for the first two months of 2001 has been relatively small, electronic product revenues for the first half look likely to be lower than for the second half of 2000. In these circumstances, it is possible that electronic product revenues will soften further during 2001, so the Company will continue to closely monitor market developments and tightly manage manufacturing capacity. Absent a significant deterioration in the general macroeconomic environment, the Company anticipates that sales to wind energy and automotive markets should also continue to grow, reflecting increased demand for economical and environmentally attractive sources of power, and the increased use of composite materials in certain automotive applications. While the automotive industry is sensitive to changes in the overall economic environment, the rate of growth in sales to this market segment should be driven more by new product applications for new car models being launched by customers in 2001 than sales to existing models that currently use Hexcel's products. Other industrial markets such as soft body armor, recreation, railways and marine vessels are likely to provide nominal revenue growth, provided general economic conditions remain stable. In 2001, equity in earnings from affiliated companies are expected to be about half the amount reported in 2000, reflecting start-up losses at the Company's engineered products ventures in Malaysia and China, as these operations ramp up their manufacturing activities. RESULTS OF OPERATIONS 2000 COMPARED TO 1999 NET SALES: Net sales for 2000 were $1,055.7 million, a decrease of $95.8 million or 8% from 1999 net sales of $1,151.5 million. Approximately $51 million or 4% of the decrease is attributable to the sale of the Bellingham aircraft interiors business on April 26, 2000. An additional $45 million of the decrease, representing another 4% of the total, is due to changes in currency exchange rates - primarily the decline of the British pound and the Euro relative to the U.S. dollar. On a pro forma basis, giving effect to the sale of the Bellingham business as if it had occurred at the beginning of 1999, pro forma net sales for 2000 were $1,036.8 million, compared with pro forma net sales for 1999 of $1,081.5 million. Had the same U.S. dollar, British pound and Euro exchange rates applied in 2000 as in 1999, pro forma revenues for 2000 would have been approximately $1,082 million. 37 The following table summarizes actual and pro forma net sales to third-party customers by product group and market segment for 2000 and 1999:
- ------------------------------------ --------------- ----------------- --------------- -------------- ---------------- COMMERCIAL SPACE & (IN MILLIONS) AEROSPACE DEFENSE ELECTRONICS INDUSTRIAL TOTAL - ------------------------------------ --------------- ----------------- --------------- -------------- ---------------- 2000 NET SALES Reinforcement products $ 60.6 $ 13.6 $ 181.2 $ 103.8 $ 359.2 Composite materials 347.9 95.4 - 123.7 567.0 Engineered products (a) 120.3 9.2 - - 129.5 - ------------------------------------ --- ----------- ---- ------------ --- ----------- -- ----------- ----- ---------- - ------------------------------------ --- ----------- ---- ------------ --- ----------- -- ----------- ----- ---------- Total (a) $ 528.8 $ 118.2 $ 181.2 $ 227.5 $ 1,055.7 50 % 11 % 17 % 22 % 100 % - ------------------------------------ --- ----------- ---- ------------ --- ----------- -- ----------- ----- ---------- - ------------------------------------ --- ----------- ---- ------------ --- ----------- -- ----------- ----- ---------- PRO FORMA 2000 NET SALES Total (b) $ 509.9 $ 118.2 $ 181.2 $ 227.5 $ 1,036.8 49% 11% 18% 22% 100% - ------------------------------------ --- ----------- ---- ------------ --- ----------- -- ----------- ----- ---------- 1999 NET SALES Reinforcement products $ 52.0 $ 18.2 $ 166.4 $ 94.3 $ 330.9 Composite materials 387.9 101.0 - 117.0 605.9 Engineered products (a) 201.7 13.0 - - 214.7 - ------------------------------------ --- ----------- ---- ------------ --- ----------- -- ----------- ----- ---------- - ------------------------------------ --- ----------- ---- ------------ --- ----------- -- ----------- ----- ---------- Total (a) $ 641.6 $ 132.2 $ 166.4 $ 211.3 $ 1,151.5 57% 11% 14% 18% 100% - ------------------------------------ --- ----------- ---- ------------ --- ----------- -- ----------- ----- ---------- - ------------------------------------ --- ----------- ---- ------------ --- ----------- -- ----------- ----- ---------- PRO FORMA 1999 NET SALES Total (b) $ 571.6 $ 132.2 $ 166.4 $ 211.3 $ 1,081.5 53% 12% 15% 20% 100% - ------------------------------------ --- ----------- ---- ------------ --- ----------- -- ----------- ----- ----------
(a) Net sales for 2000 include $18.9 million of commercial aerospace net sales by the Bellingham business, which was a component of the Company's engineered products segment until this business was sold on April 26, 2000. Net sales for 1999 include $70.0 million of commercial aerospace net sales by the Bellingham business. (b) Pro forma net sales for 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 the respective years presented. Net sales to commercial aerospace customers for 2000 were $528.8 million, compared with $641.6 million for 1999. The decrease of $112.8 million or 18% is primarily attributable to: o The sale of the Bellingham aircraft interiors business on April 26, 2000. This business generated $70.0 million of commercial aerospace revenue for Hexcel during 1999, and $18.9 million during the first four months of 2000. o Boeing's reduction in aircraft production rates during the second half of 1999 and the first half of 2000, together with some product substitutions and price reductions on certain products. Boeing delivered 489 aircraft to its customers in 2000, compared with 620 aircraft in 1999. The impact of this reduction was most pronounced on the Company's Engineered Products business, which delivers its products to Boeing just prior to the aircraft being completed and delivered to the ultimate customer. o The impact of changes in currency exchange rates. Boeing has announced that it expects to deliver approximately 530 aircraft to its customers in 2001 and another 530 aircraft in 2002, while Airbus is expected to increase its aircraft deliveries from 311 in 2000 to 331 in 2001 and more than 350 in 2002. As a result of these trends, as well as projections for continued strength in the demand for regional and business aircraft produced by such Hexcel customers as Bombardier Aerospace and Embraer-Empresa Brasileira de Aeronautica, the Company expects modest growth in commercial aerospace revenues in 2001. However, the benefit that the Company obtains from any increase in aircraft build rates during 2001 and 2002 will depend upon the mix of aircraft that are produced, the continuing impact on the aerospace supply chain of the pressure to reduce the cost of commercial aircraft, and the results of productivity improvements from the Company's Lean Enterprise initiatives. 38 Approximately 13% and 10% of 2000 and 1999 net sales, respectively, were identified as sales to Airbus and its related subcontractors. Approximately 20% of 2000 net sales and 28% of 1999 net sales were identified as sales to Boeing and its related subcontractors. Of the 2000 net sales attributable to Boeing and its related subcontractors, approximately 17% and 3% related to commercial aerospace and space and defense market applications, respectively. For 1999, the comparable percentages were 25% and 3%. Net sales to space and defense markets totaled $118.2 million for 2000, a decline of $14.0 million or 11% from 1999 net sales of $132.2 million. This decline reflects the conclusion of one military contract, as well as reduced demand for carbon fiber and pre-impregnated composites for use in satellites and satellite launch vehicles. The satellite market continues to suffer from the impact of a number of launch failures over the past two years, and from concerns about the financial viability of certain commercial satellite ventures. Looking forward, Hexcel is currently qualified to supply materials to a broad range of military aircraft and helicopter programs anticipated either to enter full-scale production in the near future or to significantly increase existing production rates. These programs include the F/A-18E/F Hornet, the F-22 Raptor, and the Eurofighter/Typhoon, as well as the C-17, the V-22 Osprey tiltrotor aircraft, and the RAH-66 Comanche and NH90 helicopters. The benefits the Company obtains from these programs will depend upon which ones are funded and the extent of such funding. Electronics net sales grew to $181.2 million for 2000, an increase of $14.8 million or 9% over 1999 net sales of $166.4 million. This sales growth reflects increased demand for lightweight fiberglass fabrics used in electronics applications, driven by improved economic conditions in Asia and Europe and by growing worldwide demand for increasingly sophisticated electronic devices. During 2000, Hexcel switched some of its heavyweight fabric production capacity to meet lightweight fabric demand, and also began to install additional lightweight fabric looms to meet the expected continuing growth in demand in this market. In addition, the Company was able to raise prices on certain fiberglass fabrics. However, the Company is monitoring conditions in the electronics market very closely, so that it may adjust its capacity utilization and expansion plans to reflect actual customer demand patterns in 2001, particularly in the U.S. Net sales to industrial markets rose to $227.5 million for 2000, up from $211.3 million for 1999. This increase of $16.2 million or 8% is largely due to the following: o Increased sales of aramid fabrics used in the manufacture of bullet-proof and puncture resistant vests, driven by military and civilian demand for lighter, tougher vests. o Increased sales of newly developed glass fabrics used in certain window screen and architectural applications, such as screens designed to reduce glare for computer users in commercial offices. o Increased sales of prepreg composites products to European customers for use in producing components for wind energy turbines. o Increased sales of honeycomb core and machined honeycomb parts used in certain automotive applications, such as inserts for automobile headliners to better protect vehicle occupants in collisions. Aggregate sales to other industrial market segments, such as surface transportation and recreation markets, were relatively unchanged from 1999 to 2000, after adjusting for changes in currency exchange rates. Absent a significant deterioration in the general macroeconomic environment, Hexcel expects sales to wind energy and automotive customers to grow again in 2001, driven by growing demand for low-cost, renewable energy supplies and improved automobile safety, and by the Company's success in developing products for specific customer applications. However, the actual rate of growth will depend on economic conditions in the U.S. and Europe. Aggregate sales to other industrial market segments are projected to rise more modestly at nominal rates. 39 GROSS MARGIN: Gross margin for 2000 was $231.4 million or 21.9% of net sales, compared with $242.5 million or 21.1% of net sales for 1999. The improvement in gross margin as a percentage of sales during 2000 primarily reflects the impact of productivity improvements and cost reductions. Price increases for certain fiberglass fabrics were offset by price decreases for other select products, with the result that net price changes had minimal impact on gross margin performance. SELLING, GENERAL AND ADMINISTRATIVE ("SG&A") EXPENSES: SG&A expenses were $123.9 million for 2000, or 11.7% of net sales. This compares to $128.7 million or 11.2% of net sales for 1999. The net decline in SG&A expenses is attributable in part to the recognition of a $5.1 non-cash benefit resulting from the curtailment of a U.S. defined benefit retirement plan, partially offset by $2.2 million of expenses resulting from the purchase of Hexcel common stock by the Goldman Sachs investor group. The remainder of the net decline primarily reflects the impact of the sale of the Bellingham business and changes in currency exchange rates. RESEARCH AND TECHNOLOGY ("R&T") EXPENSES: R&T expenses were $21.2 million for 2000, or 2.0% of net sales. This compares to $24.8 million or 2.2% of net sales for 1999. The aggregate dollar decrease primarily reflects the completion of specific R&T projects, as well as changes in currency exchange rates. OPERATING INCOME: Operating income was $75.4 million or 7.1% of net sales for 2000, of which $0.6 million was contributed by the Bellingham business. This compares with operating income of $68.9 million or 6.0% of net sales for 1999, of which $8.0 million was contributed by the Bellingham business. Excluding business consolidation expenses, operating income was $86.3 million or 8.2% of net sales for the 2000 period, and $89.0 million or 7.7% of net sales for the 1999 period. Business consolidation expenses, which totaled $10.9 million and $20.1 million for 2000 and 1999, respectively, are discussed further under "Business Consolidation Programs" below. The divestiture of the Bellingham business in April reduced 2000 operating income before business consolidation expenses by $7.7 million, compared with 1999. This decline was partially offset by reductions in SG&A and R&T expenses during 2000. The improvement in operating income before business consolidation expenses as a percentage of net sales primarily reflects the aggregate improvement in gross margin performance noted above. INTEREST EXPENSE: Interest expense was $68.7 million for 2000, versus $73.9 million for 1999. The decrease in interest expense primarily reflects the reduction in outstanding term debt under Hexcel's senior credit facility that resulted from the sale of the Bellingham business, partially offset by higher interest rates on variable-rate debt. PROVISION FOR (RECOVERY OF) INCOME TAXES: In 2000, the provision for income taxes was $26.3 million, compared to a recovery of income taxes of $1.7 million for 1999. Hexcel's effective income tax rate was approximately 35% in both years. EQUITY IN EARNINGS AND WRITE-DOWN OF AN INVESTMENT IN AFFILIATED COMPANIES: Equity in earnings of affiliated companies for 2000 was $5.5 million. The primary source of these earnings was Hexcel's electronic fabrics joint venture in Asia, which has benefited from the increase in worldwide demand for electronic devices. The earnings contributed by this venture were partially offset by the Company's share of the initial start-up losses of its engineered products ventures in China and Malaysia. In 1999, Hexcel wrote down its investment in one of its joint ventures, Interglas Technologies AG, formerly CS-Interglas AG ("Interglas"), by $20.0 million to its estimated fair market value. The write-down was the result of management's decision to allow its fixed-price options to increase its equity investment in Interglas, from 43.6% to 84%, to expire unexercised, and an assessment that an other-than-temporary decline in the investment occurred due to its deteriorating financial condition. The amount of the write-down was determined based on available market information and appropriate valuation methodologies. The Company did not record a deferred tax benefit on the write-down because of limitations imposed by foreign tax laws on the Company's ability to realize a tax benefit. 40
NET INCOME (LOSS) AND NET INCOME (LOSS) PER SHARE: ----------------------------------------------------------------------------------------------------------------- (IN MILLIONS, EXCEPT PER SHARE DATA) 2000 1999 ----------------------------------------------------------------------------------------------------------------- Net income (loss) $ 54.2 $ (23.3) Diluted net income (loss) per share $ 1.32 $ (0.64) Diluted net income (loss) per share, excluding goodwill amortization $ 1.51 $ (0.40) Adjusted diluted net income per share, excluding business consolidation expenses, the 2000 gain on the sale of the Bellingham aircraft interiors business, and a 1999 write-down of an investment in an affiliated company $ 0.46 $ 0.26 Diluted weighted average shares outstanding 45.7 36.4 -----------------------------------------------------------------------------------------------------------------
Hexcel's convertible subordinated notes, due 2003, its convertible subordinated debentures, due 2011, and its stock options were excluded from the 1999 computation of net loss per diluted share, as they were antidilutive. Refer to Note 14 to the accompanying consolidated financial statements for the calculation and the number of shares used for diluted net income (loss) per share. 1999 COMPARED TO 1998 NET SALES: Net sales for 1999 were $1,151.5 million, an increase of $62.5 million or 6% compared with 1998 net sales of $1,089.0 million. The 1998 total includes the net sales of the industrial fabrics business acquired from Clark-Schwebel for the period from September 15, 1998, the date of acquisition, to December 31, 1998. Net sales for 1999 were approximately $145 million higher than net sales for 1998 because of the acquisition of the Clark-Schwebel business. However, this increase was partially offset by sales reductions attributable to declining aircraft production rates by Boeing, inventory adjustments in excess of build rate changes by aerospace customers, price reductions in early 1999 for certain aerospace products and electronic fabrics, and a decrease in carbon fiber sales due to the impact of excess installed industry capacity. Changes in currency exchange rates did not have a material impact on revenue trends from 1998 to 1999. The following table summarizes actual and pro forma net sales to third-party customers by product group and market segment for 1999 and 1998:
- ------------------------------------ --------------- ----------------- --------------- -------------- ---------------- COMMERCIAL SPACE & (IN MILLIONS) AEROSPACE DEFENSE ELECTRONICS INDUSTRIAL TOTAL - ------------------------------------ --------------- ----------------- --------------- -------------- ---------------- 1999 NET SALES Reinforcement products $ 52.0 $ 18.2 $ 166.4 $ 94.3 $ 330.9 Composite materials 387.9 101.0 - 117.0 605.9 Engineered products (a) 201.7 13.0 - - 214.7 - ------------------------------------ --- ----------- ---- ------------ --- ----------- -- ----------- ----- ---------- - ------------------------------------ --- ----------- ---- ------------ --- ----------- -- ----------- ----- ---------- Total (a) $ 641.6 $ 132.2 $ 166.4 $ 211.3 $ 1,151.5 57% 11% 14% 18% 100% - ------------------------------------ --- ----------- ---- ------------ --- ----------- -- ----------- ----- ---------- - ------------------------------------ --- ----------- ---- ------------ --- ----------- -- ----------- ----- ---------- PRO FORMA 1999 NET SALES Total (b) $ 571.6 $ 132.2 $ 166.4 $ 211.3 $ 1,081.5 53% 12% 15% 20% 100% - ------------------------------------ --- ----------- ---- ------------ --- ----------- -- ----------- ----- ---------- 1998 NET SALES Reinforcement products $ 24.5 $ 26.4 $ 85.2 $ 88.7 $ 224.8 Composite materials 450.6 104.0 - 103.4 658.0 Engineered products (a) 195.0 11.2 - - 206.2 - ------------------------------------ --- ----------- ---- ------------ --- ----------- -- ----------- ----- ---------- - ------------------------------------ --- ----------- ---- ------------ --- ----------- -- ----------- ----- ---------- Total (a) $ 670.1 $ 141.6 $ 85.2 $ 192.1 $ 1,089.0 62% 13% 8% 17% 100% - ------------------------------------ --- ----------- ---- ------------ --- ----------- -- ----------- ----- ---------- - ------------------------------------ --- ----------- ---- ------------ --- ----------- -- ----------- ----- ---------- PRO FORMA 1998 NET SALES Total (b) $ 672.9 $ 141.6 $ 179.3 $ 206.7 $ 1,200.5 56% 12% 15% 17% 100% - ------------------------------------ --- ----------- ---- ------------ --- ----------- -- ----------- ----- ----------
(a) Net sales for 1999 include $70.0 million of commercial aerospace net sales by the Bellingham business, which was a component of the Company's engineered products segment until this business was sold on April 26, 2000. Net sales for 1998 include $34.3 million of commercial aerospace net sales by the Bellingham business. 41 (b) Pro forma net sales for 1999 and 1998 give effect to the sale of the Bellingham business that occurred on April 26, 2000, as if it had occurred at the beginning of the respective years presented. Pro forma net sales for 1998 also give effect to the acquisition of the Clark-Schwebel business that occurred on September 15, 1998, as if it had occurred at the beginning of 1998. Commercial aerospace net sales for 1999 were $641.6 million, compared with $670.1 million for 1998. The decrease of $28.5 million or 4% is largely attributable to: o Declining aircraft production rates by Boeing during the second half of 1999, in anticipation of lower aircraft deliveries in 2000. o Inventory adjustments in excess of build rate changes by aerospace customers in the U.S., Europe and certain export markets, in connection with their efforts to improve working capital and reduce manufacturing cycle times. o Price reductions in early 1999 for certain aerospace products, in response to market conditions. Partially mitigating these sales reductions was an increase in sales of woven fabrics attributable to the acquisition of the Clark-Schwebel business in September 1998. Approximately 10% of 1999 net sales and 11% of 1998 net sales were identified as sales to Airbus and its related subcontractors. Approximately 28% of 1999 net sales and 35% of 1998 net sales were identified as sales to Boeing and its related subcontractors. Of the 1999 net sales attributable to Boeing and its related subcontractors, approximately 25% and 3% related to commercial aerospace and space and defense market applications, respectively. For 1998, the comparable percentages were 32% and 3%. Net sales to space and defense markets for 1999 were $132.2 million, a decline of $9.4 million or 7% from 1998 net sales of $141.6 million. This decrease is attributable to the conclusion of specific contracts to provide reinforcement fabrics and composite materials to certain military and space programs, and to the declining demand for satellites and satellite launch vehicles in response to launch failures and concerns about the financial viability of certain satellite ventures. Furthermore, Hexcel's carbon fiber manufacturing capacity utilization was only 50% to 60% in 1999, compared to 90% or higher for much of 1998. Initially, this reduction was due to inventory corrections by space and defense customers, who purchased or ordered more carbon fiber than they needed in response to significant carbon fiber supply shortages in 1997. However, 1999 net sales were also impacted by the changes in the commercial aerospace market as well as by the overhang of new global production capacity added by Japanese producers. With the high level of fixed costs in this business, reduced production output significantly impacts the profitability of the business. Electronics net sales rose to $166.4 million for 1999, an increase of $81.2 million or 95% over net sales for 1998 of $85.2 million. The acquisition of the Clark-Schwebel business in September 1998, which is discussed further below under "Significant Transactions - Acquisition of the Clark-Schwebel Industrial Fabrics Business," added about $94 million of electronics revenues in 1999, relative to 1998. This addition to Hexcel's revenue base was somewhat offset, however, by the impact of sales volume and price reductions in the first half of 1999, which resulted from inventory adjustments in the electronics industry supply chain and intense competition from manufacturers of fiberglass fabrics in Asia and Europe. These pressures began to ease in the second half of 1999, due to increased worldwide demand for electronic devices and improved manufacturing capacity utilization throughout the fiberglass fabrics industry. 42 Industrial net sales for 1999 were $211.3 million, an increase of $19.2 million or 10% over the 1998 total of $192.1 million. This increase reflects the following: o The acquisition of the Clark-Schwebel business in September 1998, which added more than $14 million of industrial revenues in 1999, compared with 1998. o Increased sales of aramid and specialty fabrics for ballistics applications, in response to increased demand for lightweight protective vests by police forces and the U.S. military. o Growth in sales of composite materials for wind energy applications, which nearly doubled from 1998 to 1999. o Increased sales of composite materials to the automotive industry, reflecting Hexcel's development of new product applications for automotive customers. These positive factors were partially offset by reduced sales of carbon fiber for industrial applications, due to the impact of excess industry capacity, as well as lower sales for certain recreation applications. GROSS MARGIN: Gross margin for 1999 was $242.5 million, or 21.1% of net sales, compared with $271.3 million, or 24.9% of net sales, for 1998. The decline in 1999 gross margin relative to 1998 is the result of lower sales volumes to commercial aerospace and space and defense markets, and the associated reduction in the absorption of fixed factory costs, as well as price reductions on certain products. These factors were partially mitigated by reductions in labor and overhead costs, as well as negotiated reductions in the prices of certain raw materials. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES: SG&A expenses were $128.7 million in 1999, or 11.2% of net sales. This compares with SG&A expense of $117.9 million or 10.8% of net sales for 1998. The aggregate dollar increase in SG&A expenses is primarily attributable to the acquisition of the Clark-Schwebel business. RESEARCH AND TECHNOLOGY EXPENSES: R&T expenses were $24.8 million in 1999, or 2.2% of net sales, compared with $23.7 million for 1998, or 2.2% of net sales. The aggregate dollar increase in R&T expenses is primarily attributable to the acquisition of the Clark-Schwebel business. OPERATING INCOME: Operating income was $68.9 million or 6.0% of net sales for 1999. This compares with operating income of $117.0 million or 10.7% of net sales for 1998. Excluding business consolidation expenses, 1999 operating income was $89.0 million or 7.7% of net sales, while 1998 operating income was $129.7 million or 11.9% of net sales. The decrease in operating income during 1999 was primarily due to the reductions in sales volumes and prices noted above, and the related gross margin impact. INTEREST EXPENSE: Interest expense was $73.9 million for 1999, versus $38.7 million for 1998. The increase in interest expense primarily reflects the increase in outstanding debt relating to the acquisition of the Clark-Schwebel business. PROVISION FOR (RECOVERY OF) INCOME TAXES: In 1999, the recovery of income taxes was $1.7 million, reflecting an effective income tax rate of approximately 35%. In 1998, the provision for income taxes of $28.4 million equated to an effective income tax rate of approximately 36%. EQUITY IN INCOME AND WRITE-DOWN IN INVESTMENTS IN AFFILIATED COMPANIES: Economic conditions in the electronics market during the latter part of 1998 and much of 1999 impacted the performance of Hexcel's joint ventures during those years. As a result, the Company recognized a nominal amount of equity in income of affiliated companies in 1999 and 1998. As previously discussed above, in the third quarter of 1999, the Company wrote down its investment in one of these joint ventures, Interglas, by $20.0 million to its estimated fair market value. 43
NET INCOME (LOSS) AND NET INCOME (LOSS) PER SHARE: ----------------------------------------------------------------------------------------------------------------- (IN MILLIONS, EXCEPT PER SHARE DATA) 1999 1998 ----------------------------------------------------------------------------------------------------------------- Net income (loss) $ (23.3) $ 50.4 Diluted net income (loss) per share $ (0.64) $ 1.24 Diluted net income (loss) per share, excluding goodwill amortization $ (0.40) $ 1.34 Adjusted diluted net income per share, excluding business consolidation expenses and a 1999 write-down of an investment in an affiliated company $ 0.26 $ 1.43 Diluted weighted average shares outstanding 36.4 45.7 -----------------------------------------------------------------------------------------------------------------
The decrease in the number of diluted weighted average shares outstanding in 1999, relative to 1998, is attributable to the exclusion of 9.0 million potential common shares relating to the convertible subordinated notes, due 2003, the convertible subordinated debentures, due 2011, and stock options that were antidilutive in the 1999 period. Refer to Note 14 to the accompanying consolidated financial statements for the calculation and the number of shares used for diluted net income (loss) per share. SIGNIFICANT TRANSACTIONS PURCHASE OF APPROXIMATELY 14.5 MILLION SHARES OF HEXCEL COMMON STOCK BY AN INVESTOR GROUP On December 19, 2000, an investor group controlled by subsidiaries of The Goldman Sachs Group, Inc. (the "Investor Group") completed a previously announced purchase of approximately 14.5 million of the approximately 18 million shares of Hexcel common stock owned by subsidiaries of Ciba Specialty Chemicals Holding, Inc. (together with its subsidiaries, "Ciba"). The shares acquired by the Investor Group represent approximately 39% of the Company's outstanding common stock. In addition, the Company and the Investor Group have entered into a governance agreement that became effective on December 19, 2000. Under this governance agreement, the Investor Group has the right to, among other things, designate three directors to sit on the Company's ten-member board of directors. As a result of this transaction, Ciba's ownership of Hexcel common stock was reduced to approximately 3.5 million shares. In addition, the governance agreement between Ciba and Hexcel, which gave Ciba the right to designate four directors to sit on the Company's board, terminated. Ciba has stated that its investment in Hexcel is non-strategic and that it will explore options for the future disposition of its remaining interest in the Company. Hexcel incurred $2.2 million of costs in connection with this transaction, all of which were expensed to "selling, general, and administrative expenses" during the fourth quarter of 2000. These costs and expenses included legal, consulting, and regulatory compliance expenses, as well as a non-cash charge attributable to the accelerated vesting of certain stock-based compensation and to certain amendments to an executive retirement plan. Under the terms of the Company's various stock option and management incentive plans, the transaction constituted a "change in control" event, resulting in all outstanding stock options becoming vested and exercisable. The Chief Executive Officer 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 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, vested and became exercisable on December 19, 2000. 44 In addition, due to the change in control event, shares of Hexcel's common stock underlying a total of approximately 0.8 million restricted stock units and performance accelerated restricted stock units (collectively, "stock units") were distributed. However, the Chief Executive Officer waived the vesting of his stock units, and nine of the most senior executive officers other than the Chief Executive Officer 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. SALE OF THE BELLINGHAM AIRCRAFT INTERIORS BUSINESS On April 26, 2000, Hexcel sold 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. The sale of this business generated a pre-tax gain of $68.3 million, which is equivalent to an after-tax gain of approximately $44 million or $0.97 per diluted share. Net proceeds from the sale were used to repay $111.6 million of outstanding term debt under the Company's senior credit facility. The Bellingham business generated net sales of $18.9 million for the period from January 1 through April 26, 2000, and contributed $0.6 million of operating income. The Bellingham business generated net sales of $70.0 million and $34.3 million, and operating income of $8.0 million and $3.9 million, for 1999 and 1998, respectively. The operating results of the Bellingham business are reflected as a component of Hexcel's Engineered Products business segment up to the date of disposal. ACQUISITION OF THE CLARK-SCHWEBEL INDUSTRIAL FABRICS BUSINESS Hexcel acquired the industrial fabrics business of Clark-Schwebel on September 15, 1998. The business acquired from Clark-Schwebel is engaged in the manufacture and sale of high-quality fiberglass fabrics, which are used to make printed wiring boards for electronic equipment such as computers, cellular telephones, televisions and automobiles. This business also produces high-performance specialty products for use in insulation, filtration, wall and facade claddings, soft body armor and reinforcements for composite materials. At the date of acquisition, Clark-Schwebel operated four manufacturing facilities in the southeastern U.S. and had approximately 1,300 full-time employees. As part of this acquisition, Hexcel also acquired Clark-Schwebel's equity ownership interests in the following three joint ventures: o a 43.6% share in Interglas, headquartered in Germany, together with fixed-price options to increase this equity interest to 84%. Hexcel's acquisition of the Interglas equity interest and related options was completed on December 23, 1998. o a 43.3% share in Asahi-Schwebel Co., Ltd. ("Asahi-Schwebel"), headquartered in Japan, which in turn owns interests in two joint ventures in Taiwan -- a 50% interest in Nittobo Asahi Glass and a 51% interest in Asahi-Schwebel Taiwan. o a 50.0% share in Clark-Schwebel Tech-Fab Company ("CS Tech-Fab"), headquartered in the United States. Interglas and Asahi-Schwebel are fiberglass fabric producers serving the European and Asian electronics and telecommunications industries. CS Tech-Fab manufactures non-woven materials for roofing, construction and other specialty applications. The exercise price of the options to increase the Company's equity interest in Interglas was significantly higher than their fair market value, and as a result, Hexcel allowed the options to expire unexercised on December 31, 1999. The acquisition of the Clark-Schwebel business was an important strategic transaction for Hexcel. The acquisition established Hexcel as a leading global materials supplier to the electronics and telecommunications industries, which 45 the Company believes have attractive long-term growth potential. Furthermore, the acquisition added to Hexcel's revenue base and has further diversified the Company's business beyond the historically cyclical commercial aerospace market. The acquisition of Clark-Schwebel's industrial fabrics business was completed pursuant to an asset purchase agreement dated July 25, 1998, as amended by and among Hexcel, Stamford CS Acquisition Corp., and Clark-Schwebel (the "Asset Purchase Agreement"). Under the Asset Purchase Agreement, Hexcel acquired the net assets of the business, other than certain excluded assets and liabilities, in exchange for $472.8 million in cash. Hexcel also agreed to lease $50.0 million of property, plant and equipment used in the acquired business from an affiliate of Clark-Schwebel, pursuant to a long-term lease with purchase options. Refer to "Financial Condition and Liquidity -- Financial Resources" for a discussion of acquisition financing. The above acquisition was accounted for under the purchase method of accounting. Accordingly, the consolidated balance sheets, statements of operations, stockholders' equity and comprehensive income, and cash flows include the financial position, results of operations and cash flows of the business acquired as of such date and for such period that this business was owned by Hexcel. Further discussion and analysis of the Company's business acquisitions is contained in Notes 1 and 3 to the accompanying consolidated financial statements. FINANCIAL CONDITION AND LIQUIDITY FINANCIAL RESOURCES In connection with the acquisition of the industrial fabrics business of Clark-Schwebel on September 15, 1998, Hexcel obtained a new global credit facility (the "Senior Credit Facility") to: (a) fund the purchase of the Clark-Schwebel business; (b) refinance the Company's existing revolving credit facility; and (c) provide for ongoing working capital and other financing requirements of the Company. The Senior Credit Facility was subsequently amended in January 1999, August 1999, March 2000 and October 2000, to accommodate, among other things: (a) the planned sale of assets; (b) planned investments in additional manufacturing capacity for selected products; (c) the impact of the decline in the Company's operating results in the second half of 1999 on certain financial covenants; (d) the sale by Ciba of approximately 14.5 million of the approximately 18 million shares of Hexcel common stock held by them to the Investor Group; and (e) a restructuring of the ownership and capital structure of certain of the Company's European subsidiaries. The Senior Credit Facility, as amended, provides Hexcel with approximately $358 million of borrowing capacity, subject to certain limitations. 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. As of December 31, 2000, the Company was in compliance with the financial covenants and other terms of the Senior Credit Facility, and expects to remain in compliance for the foreseeable future. However, given its financial leverage, the Company's continued compliance with the financial covenants and other terms of the Senior Credit Facility could be adversely affected if its performance were to deteriorate as a result of a significant decline in the general macroeconomic environment or in key markets served by the Company, or by other unforeseen events. Hexcel completed the sale of its Bellingham aircraft interiors business on April 26, 2000, and used $111.6 million of net proceeds from the sale to repay outstanding term debt under the Senior Credit Facility. As of December 31, 2000, unused borrowing capacity under the Senior Credit Facility was approximately $135 million. 46 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 8 to the accompanying consolidated financial statements OTHER FINANCIAL COMMITMENTS In 1999, Hexcel, Boeing and Aviation Industries of China formed a joint venture, BHA Aero Composite Parts Co., Ltd., to manufacture composite parts for secondary structures and interior applications for commercial aircraft. Hexcel has a 33% equity ownership interest in this joint venture, which is located in Tianjin, China. Also in 1999, Hexcel formed another joint venture, Asian Composites Manufacturing Sdn. Bhd., with Boeing, Sime Link Sdn. Bhd., and Malaysia Helicopter Services Bhd. (now known as Naluri Berhadto), to manufacture composite parts for secondary structures for commercial aircraft. Hexcel has a 25% equity ownership interest in this joint venture, which is located in Alor Setar, Malaysia. It is anticipated that the first parts will be delivered to customers in 2001. As of December 31, 2000, Hexcel has made cash investments in these two joint ventures totaling $13.0 million, and has commitments to invest another $2.5 million and to provide additional loan guarantees of up to $13.7 million. These commitments are expected to be fulfilled in increments through 2002. As discussed below under "Market Risks - Currency Exchange Risks," in January 2001, Hexcel entered into a number of foreign currency forward exchange contracts to exchange U.S. dollars for Euros at fixed rates on specified dates through March 2005. The aggregate notional amount of these contracts is $96.7 million. The purpose of these contracts is to hedge an equivalent amount of projected U.S. dollar receipts by two of the Company's European facilities, under long-term sales contracts with certain customers. These contracts are expected to provide the Company with a more balanced matching of future cash receipts and expenditures by currency, thereby reducing the Company's exposure to fluctuations in currency exchange rates. Mandatory redemption of Hexcel's 7.0% convertible subordinated debentures, due 2011, is scheduled to begin in 2002 through annual sinking fund requirements of $1.1 million in 2002 and $1.8 million in each year thereafter. In 1998, Hexcel entered into a $50.0 million capital lease for property, plant and equipment used in the acquired Clark-Schwebel business. The lease expires in September 2006 and includes various purchase options. CAPITAL EXPENDITURES Capital expenditures were $39.6 million in 2000, compared with $35.6 million in 1999 and $66.5 million in 1998. The decrease in capital expenditures from 1998 to 1999 reflects reduced spending due to changing market conditions, the benefits from Hexcel's Lean Enterprise program, and a commitment by the Company to reduce its debt. During 1999 and 2000, the majority of the Company's capital expenditures have been directed toward: (a) process improvements intended to increase productivity and reduce costs; (b) manufacturing capacity additions for high-growth product applications, such as electronics, automotive and wind energy; and (c) environmental, safety and maintenance initiatives. The Company's capital expenditures are planned at a level of approximately $50 million in 2001, but actual spending will be carefully controlled against the outlook for the Company's markets. ADJUSTED EBITDA, CASH FLOWS AND THE RATIO OF EARNINGS TO FIXED CHARGES 2000: Earnings before business consolidation expenses, interest, taxes, depreciation and amortization, equity in earnings of and write-down of an investment in affiliated companies, and the gain from the sale of the Bellingham aircraft interiors business ("Adjusted EBITDA"), was $144.9 million for 2000. 47 Pro forma Adjusted EBITDA, giving effect to the sale of the Bellingham aircraft interiors business as if it had occurred at the beginning of 2000, was $144.0 million. Net cash provided by operating activities was $33.0 million, with the major sources of cash provided by net income, excluding the after-tax gain from the sale of the Bellingham business, of $10.2 million and non-cash depreciation and amortization of $58.7 million. However, these sources of operating cash flow were offset by $5.5 million of income from affiliated companies was non-cash, as was $5.1 million of income from the curtailment of a U.S. defined benefit retirement plan. In addition, increases in accounts receivable and inventories used a total of $24.7 million of cash. Net cash provided by investing activities was $68.8 million, reflecting net cash proceeds from the sale of the Bellingham business of $113.3 million, partially offset by $39.6 million of capital expenditures and $8.3 million of investments in joint venture affiliates in China and Malaysia. Net cash used for financing activities was $95.0 million, primarily because the net cash proceeds from the sale of the Bellingham business were used to reduce outstanding indebtedness under Hexcel's Senior Credit Facility. 1999: Adjusted EBITDA for 1999 was $150.4 million. Pro forma Adjusted EBITDA, giving effect to the sale of the Bellingham business as if it had occurred at the beginning of 1999, was $141.3 million. Net cash provided by operating activities was $133.7 million, as $61.3 million of non-cash depreciation and amortization, a $20.0 million non-cash write-down of an investment in an affiliated company, $80.9 million of working capital reductions and $20.1 million of business consolidation expenses more than offset $23.3 million of net loss, $15.8 million of non-cash deferred income taxes, and cash used by all other operating activities. The decrease in working capital reflects lower levels of receivables and inventory due to aggressive working capital management, Hexcel's Lean Enterprise program and lower sales volumes. Net cash used for investing activities was $40.3 million, reflecting Hexcel's capital expenditures and investments in affiliated companies. Net cash used for financing activities was $99.5 million, reflecting net debt reduction and $11.0 million of debt issuance costs primarily pertaining to the issuance of the senior subordinated notes, due 2009. 1998: Adjusted EBITDA for 1998 was $177.2 million. Pro forma Adjusted EBITDA, giving effect to the acquisition of the Clark-Schwebel business and the sale of the Bellingham business as if both these transactions had occurred at the beginning of 1998, was $203.1 million. Net cash provided by operating activities was $93.8 million, as $50.4 million of net income and $54.4 million of non-cash depreciation, amortization and deferred income taxes were partially offset by increased working capital of $14.5 million. Net cash used for investing activities was $539.2 million, primarily reflecting $472.8 million of net cash paid for the Clark-Schwebel business, and $66.5 million of capital expenditures. Net cash provided by financing activities was $440.7 million, primarily reflecting $459.7 million of net funds borrowed under the Senior Credit Facility, including the financing of the acquisition of the Clark-Schwebel business, offset in part by the repurchase of $10.0 million of treasury stock and $10.3 million of debt issuance costs primarily incurred to obtain the Senior Credit Facility. 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. 48 A reconciliation of net income (loss) to EBITDA and Adjusted EBITDA for 2000, 1999 and 1998, as well as the ratio of earnings to fixed charges, is as follows:
- -------------------------------------------------------------------------------------------------------------------- (IN MILLIONS) 2000 1999 1998 - -------------------------------------------------------------------------------------------------------------------- Net income (loss) $ 54.2 $ (23.3) $ 50.4 Provision for (recovery of) income taxes 26.3 (1.7) 28.4 Interest expense 68.7 73.9 38.7 Depreciation and amortization 58.7 61.3 47.5 Equity in earnings of and write-down of an investment in an affiliated company (5.5) 20.0 (0.5) Other (0.1) 0.1 - - -------------------------------------------------------------------------------------------------------------------- EBITDA 202.3 130.3 164.5 Business consolidation expenses 10.9 20.1 12.7 Gain on sale of Bellingham aircraft interiors business (68.3) - - - -------------------------------------------------------------------------------------------------------------------- Adjusted EBITDA $ 144.9 $ 150.4 $ 177.2 - -------------------------------------------------------------------------------------------------------------------- Ratio of earnings to fixed charges 2.1x 0.7x 2.9x - --------------------------------------------------------------------------------------------------------------------
The increase in the ratio of earnings to fixed charges from 1999 to 2000 primarily reflects the gain from the sale of the Bellingham business. The decrease in the ratio of earnings to fixed charges from 1998 to 1999 reflects Hexcel's lower operating income, higher interest costs and business consolidation expenses. The ratio of earnings to fixed charges is equal to net income (loss), excluding income taxes and interest expense, divided by interest expense. Interest expense includes approximately one-third of the Company's rental expense. BUSINESS CONSOLIDATION PROGRAMS As a result of four substantial business acquisitions from 1996 through 1998, and the need to respond to significant changes in commercial aerospace and space and defense markets, Hexcel initiated three business consolidation programs in May 1996, December 1998 and September 1999. The primary purpose of these programs has been to integrate acquired assets and operations into the Company, and to close or restructure insufficiently profitable facilities and activities. Due to aerospace industry requirements to "qualify" specific equipment and manufacturing processes for the manufacture of certain products, some business consolidation actions have taken up to three years to complete. These qualification requirements increase the complexity, cost and time of moving equipment and rationalizing manufacturing activities. Key initiatives under the three business consolidation programs have been: o Rationalizing manufacturing activities and eliminating excess capacity by moving and requalifying certain production processes, closing manufacturing plants and vacating some leased facilities. o Consolidating manufacturing, research, and marketing and administrative functions into single global business units, in order to create centers of technical excellence, improve customer service and eliminate redundant functions. o Disposing of non-core assets. As of December 31, 2000, Hexcel has closed three manufacturing facilities, vacated approximately 560 thousand square feet of manufacturing space, and eliminated more than 700 manufacturing, marketing and administrative positions in connection with these business consolidation programs. All of the business consolidation activities initiated in 1996 and 1998 had been completed as of December 31, 2000, although cash expenditures relating to accrued severance will continue to be paid through 2001. A portion of the business consolidation activities initiated in September 1999 have been 49 completed, including the consolidation of certain production processes, the vacating of certain leased facilities, and the consolidation into one location of the U.S. marketing, research and administrative functions of Hexcel's composite materials business. However, the reorganization of certain manufacturing activities will not be completed until 2001 or early in 2002, in accordance with the Company's business consolidation plans. In the fourth quarter of 2000, Hexcel added two further actions to the September 1999 business consolidation program. The Company decided to close the two smaller of its four U.S. prepreg manufacturing facilities - one in Lancaster, Ohio and another in Gilbert, Arizona. The manufacturing output from these two plants will now be produced by the two remaining U.S. prepreg facilities in Livermore, California and Salt Lake City, Utah. These actions, which are expected to be completed in early 2002, will result in the elimination of an additional 79 thousand square feet of manufacturing space and 60 manufacturing positions. As of December 31, 2000, future expenses to be recognized and cash expenditures to be made for all remaining business consolidation activities are estimated at $3.6 million and $5.6 million, respectively. Business consolidation activities for the three years ending December 31, 2000, consisted of the following:
- ------------------------------------------------- --------------- ---------------- ------------ -------------- EMPLOYEE FACILITY & SEVERANCE & EQUIPMENT (IN MILLIONS) RELOCATION RELOCATION OTHER TOTAL - ------------------------------------------------- --------------- ---------------- ------------ -------------- BALANCE AS OF JANUARY 1, 1998 $ 9.7 $ 2.0 $ 0.5 $ 12.2 Business consolidation expenses: Current period expenses 3.3 9.6 6.3 19.2 Reversal of 1997 expenses (6.5) - - (6.5) - ------------------------------------------------- --- --------- ---- ---------- ---- ---------- --- ---------- Net business consolidation expenses (3.2) 9.6 6.3 12.7 Cash expenditures (1.2) (6.3) (1.2) (8.7) Non-cash usage, including asset write-downs 0.5 (2.9) (5.6) (8.0) - ------------------------------------------------- --- --------- ---- ---------- ---- ---------- --- ---------- BALANCE AS OF DECEMBER 31, 1998 5.8 2.4 - 8.2 Business consolidation expenses 5.1 15.0 - 20.1 Cash expenditures (6.7) (2.8) - (9.5) Non-cash usage, including asset write-downs (0.7) (14.0) - (14.7) - ------------------------------------------------- --- --------- ---- ---------- ---- ---------- --- ---------- BALANCE AS OF DECEMBER 31, 1999 3.5 0.6 - 4.1 Business consolidation expenses: Current period expenses 3.7 10.6 - 14.3 Reversal of 1999 expenses (0.3) (3.1) - (3.4) - ------------------------------------------------- --- --------- ---- ---------- ---- ---------- --- ---------- - ------------------------------------------------- --- --------- ---- ---------- ---- ---------- --- ---------- Net business consolidation expenses 3.4 7.5 - 10.9 Cash expenditures (3.9) (7.9) - (11.8) Non-cash items: Reversal of 1999 business consolidation expenses - 3.1 - 3.1 Other non-cash usage, including asset write-downs (0.6) (3.0) - (3.6) - ----------------------------------------------------- --------- ---- ---------- ---- ---------- --- ---------- - ------------------------------------------------- --- --------- ---- ---------- ---- ---------- --- ---------- Total non-cash items (0.6) 0.1 - (0.5) - ------------------------------------------------- --- --------- ---- ---------- ---- ---------- --- ---------- BALANCE AS OF DECEMBER 31, 2000 $ 2.4 $ 0.3 $ - $ 2.7 - ------------------------------------------------- --- --------- ---- ---------- ---- ---------- --- ----------
In 1998, Hexcel reversed $6.5 million of accrued business consolidation expenses relating to employee severance. From 1996 through 1998, during the implementation of certain business consolidation initiatives, Hexcel experienced significant increased business volume in its commercial aerospace market, which enabled Hexcel to reassign employees who would have otherwise been terminated. As a result, the actual number of employees terminated were fewer than anticipated, and Hexcel no longer required the full amount of its business consolidation employee severance accrual. As part of a business consolidation program, Hexcel disposed of its operations in Brindisi, Italy (the "Italian Operations") in 1999. In accordance 50 with Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," Hexcel recorded a charge of $5.6 million in 1998 for an asset impairment related to its Italian Operations, which was included in business consolidation expenses. The estimate of fair value used in determining the impairment charge was based on offers received from interested buyers. The Italian Operations was disposed of for net proceeds that approximated amounts accrued and was accounted for under the Company's Engineered Products business segment. Financial operating results for this business were not material to the Company's consolidated financial statements. In the second quarter of 2000, Hexcel amended its September 1999 business consolidation program in response to the manufacturing constraints caused by a stronger than expected increase in sales and production for its electronic woven glass fabrics and its ballistics protection products. Based on these improved market conditions, which were expected to continue beyond 2000, and a manufacturing capacity review, the Company concluded to expand its capacity by purchasing additional looms and revising the previous decision to consolidate a number of weaving activities at two of the Company's facilities. As a result of the decision to not proceed to consolidate production, the Company reversed a total of $3.4 million of business consolidation expenses that were previously recognized in 1999, including $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. MARKET RISKS As a result of its global operating and financing activities, Hexcel is exposed to various market risks that may affect its results of operations and financial position. These market risks include fluctuations in interest rates, which impact the amount of interest the Company must pay on certain variable-rate debt, and fluctuations in currency exchange rates, which impact the U.S. dollar value of transactions, assets and liabilities denominated in foreign currencies. The Company's primary currency exposures are in Europe, where the Company has significant business activities. To a lesser extent, the Company is also exposed to fluctuations in the prices of certain commodities, such as electricity, natural gas, aluminum and certain chemicals. Hexcel attempts to net individual exposures on a consolidated basis, when feasible, to take advantage of natural offsets. In addition, the Company employs an interest rate cap agreement and foreign currency forward exchange contracts for the purpose of hedging certain specifically identified interest rate and net currency exposures. The use of these financial instruments is intended to mitigate some of the risks associated with fluctuations in interest rates and currency exchange rates, but does not eliminate such risks. The Company does not use financial instruments for trading purposes. INTEREST RATE RISKS Hexcel's long-term debt bears interest at both fixed and variable rates. As a result, the Company's results of operations are affected by interest rate changes on its variable rate debt. Assuming a 10% favorable and a 10% unfavorable change in the underlying weighted average interest rates of the Company's variable rate debt, net income for 2000 of $54.2 million would have been $56.8 million and $52.5 million, respectively. In order to partially mitigate interest rate risks, in 1998 Hexcel entered into a five-year interest rate cap agreement. This agreement provides for a maximum fixed interest rate of 5.5% on the applicable London interbank rate used to determine the interest on $50.0 million of variable rate debt under the Senior Credit Facility. In addition, on January 21, 1999, the Company issued $240.0 million of 9.75% senior subordinated notes, due 2009. Net proceeds of approximately $231 million from this offering were used to redeem variable rate amounts owed under the Senior Credit Facility. As of December 31, 2000, the fair value of the interest rate cap agreement was not material to the Company's consolidated financial position, and management does not expect that gains or losses under this agreement will be material to the Company's consolidated results of operations or cash flows. 51 CURRENCY EXCHANGE RISKS Hexcel has significant business activities in Europe. The Company operates seven manufacturing facilities in Europe which generated approximately 38% of 2000 net sales. The Company's European business activities primarily involve three major currencies - the U.S. dollar, the British pound, and the Euro. The Company also conducts business or has joint venture investments in Japan, China, Malaysia, Australia and Brazil, and sells products to customers throughout the world. The majority of the Company's transactions with customers and joint venture affiliates outside of Europe are denominated in U.S. dollars, thereby limiting the Company's exposure to short-term currency fluctuations involving these countries. However, the value of the Company's investments in these countries could be impacted by changes in currency exchange rates over time, as could the Company's ability to profitably compete in international markets. Hexcel attempts to net individual currency positions at its various European operations on a consolidated basis, to take advantage of natural offsets and reduce the need to employ foreign currency forward exchange contracts. The Company also enters into short-term foreign currency forward exchange contracts, usually with a term of ninety days or less, to hedge net currency exposures resulting from specifically identified transactions. Consistent with the nature of the economic hedge provided by such contracts, any unrealized gain or loss would be offset by corresponding decreases or increases, respectively, of the underlying transaction being hedged. As of December 31, 2000, the aggregate fair value of outstanding foreign currency forward exchange contracts was not material to the Company's consolidated financial position, and management does not expect that gains or losses on these contracts will be material to the Company's consolidated results of operations or cash flows. In January 2001, Hexcel entered into a number of foreign currency forward exchange contracts to exchange U.S. dollars for Euros at fixed rates on specified dates through March 2005. The aggregate notional amount of these contracts is $96.7 million. The purpose of these contracts is to hedge an equivalent amount of projected U.S. dollar receipts by two of the Company's European facilities, under long-term sales contracts with certain customers. These contracts are expected to provide the Company with a more balanced matching of future cash receipts and expenditures by currency, thereby reducing the Company's exposure to fluctuations in currency exchange rates. Assuming a 10% increase in the value of the Euro relative to the U.S. dollar, the aggregate fair value of these contracts would constitute a $9.7 million asset of the Company. Alternatively, assuming a 10% decrease in the value of the Euro relative to the U.S. dollar, the aggregate fair value of these contracts would represent a $9.7 million liability of the Company. COMMODITY PRICE RISKS Certain raw materials and operating supplies used by Hexcel are subject to price fluctuations caused by the volatility of underlying commodity prices. The commodities most likely to have an impact on the Company's results of operations in the event of significant price changes are electricity, natural gas, aluminum and certain chemicals. The Company attempts to minimize the impact of commodity price risk, when feasible, by entering into supply agreements that specify raw material prices or limit price increases for a reasonable period of time. The Company generally does not employ forward contracts or other financial instruments to hedge commodity price risk. OTHER RISKS As of December 31, 2000, the aggregate fair values of the Company's senior subordinated notes, due 2009, convertible subordinated notes, due 2003, and the convertible subordinated debentures, due 2011, were $211.2 million, $99.5 million and $17.9 million, respectively. The convertible debt securities are convertible into Hexcel common stock at a price of $15.81 and $30.72 per share, respectively. Fair values were estimated on the basis of quoted market prices, 52 although trading in these debt securities is limited and may not reflect fair value. Due to the conversion feature in these debt securities, fair values are subject to fluctuations based on the value of the Company's stock and the Company's credit rating, as well as changes in interest rates for debt securities with similar terms. Assuming that all other factors remain constant, the fair values of Hexcel's convertible subordinated notes, due 2003, and the convertible subordinated debentures, due 2011, would be approximately $109.5 million and $19.7 million, respectively, assuming a 10% favorable change in the market price of the Company's stock, and $89.6 million and $16.1 million, respectively, assuming a 10% unfavorable change in market price. RECENTLY ISSUED ACCOUNTING STANDARDS In December 1999, the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition," which provides guidance on the recognition, presentation, and disclosure of revenue in financial statements filed with the SEC. SAB 101 outlines the basic criteria that must be met in order to recognize revenue, and provides guidance for disclosures related to revenue recognition policies. Based on a review of Hexcel's revenue recognition policies and practices and a review of the provisions of SAB 101, management concluded that SAB 101 did not have a material effect on the Company's previously reported financial results. In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"). SFAS 133, as amended, establishes accounting and reporting standards for derivative instruments and hedging activities. It requires an entity to recognize all derivatives as either assets or liabilities on the balance sheet and measure those instruments at fair value. Gains or losses resulting from changes in the fair values of those derivatives would be accounted for depending on the use of the derivative and whether it qualifies for hedge accounting. Hexcel adopted SFAS 133 effective January 1, 2001. The adoption of this accounting standard did not have a material effect on the Company's consolidated financial position or results of operations as of the date of adoption. The foreign currency forward exchange contracts entered into in January 2001, for an aggregate notional amount of $96.7 million, which are described above, will be measured at fair value and reported as assets or liabilities in subsequent financial statements of the Company. FORWARD-LOOKING STATEMENTS AND RISK FACTORS This annual report includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements relate to analyses and other information that are based on forecasts of future results and estimates of amounts not yet determinable. These statements also relate to future prospects, developments and business strategies. These forward-looking statements are identified by their use of terms and phrases such as "anticipate," "believe," "could," "estimate," "expect," "intend," "may," "plan," "predict," "project," "should," "will," and similar terms and phrases, including references to assumptions. Such statements are based on current expectations, are inherently uncertain, and are subject to changing assumptions. Such forward-looking statements include, but are not limited to: (a) estimates of commercial aerospace production and delivery rates, including those of Airbus and Boeing; (b) expectations regarding growth in sales to regional and business aircraft manufacturers, and to the aircraft aftermarket; (c) expectations regarding the growth in the production of military aircraft, helicopters and launch vehicle programs in 2001 and beyond; (d) expectations regarding the demand for electronics fabrics used in multi-layer printed wiring boards, as well as future industry capacity utilization and pricing trends in the electronics fabrics industry; (e) expectations regarding the demand for soft body armor made of aramid and specialty fabrics; (f) expectations regarding growth in sales of composite materials for wind energy, automotive and other industrial applications; (g) estimates of changes in net sales by market compared to 2000; (h) expectations regarding manufacturing productivity, operating margins and Adjusted EBITDA, including the estimated cost reductions and other benefits of the Company's business consolidation programs and Lean 53 Enterprise initiatives; (i) estimates of the timing, expenses and cash expenditures required to complete the September 1999 business consolidation program; (j) expectations regarding the Company's equity in the earnings of joint ventures, as well as joint venture investments and loan guarantees; (k) expectations regarding working capital trends and capital expenditures; (l) the availability and sufficiency of the Senior Credit Facility and other financial resources to fund the Company's worldwide operations in 2001; and (m) the impact of various market risks, including fluctuations in the interest rates underlying the Company's variable-rate debt, fluctuations in currency exchange rates, fluctuations in commodity prices, and fluctuations in the market price of the Company's common stock. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results to be materially different. Such factors include, but are not limited to, the following: changes in general economic and business conditions; changes in current pricing and cost levels; changes in political, social and economic conditions and local regulations, particularly in Asia and Europe; foreign currency fluctuations; changes in aerospace delivery rates; reductions in sales to any significant customers, particularly Airbus or Boeing; changes in sales mix; changes in government defense procurement budgets; changes in military aerospace programs technology; industry capacity; competition; disruptions of established supply channels; manufacturing capacity constraints; and the availability, terms and deployment of capital. If one or more of these risks or uncertainties materialize, or if underlying assumptions prove incorrect, actual results may vary materially from those expected, estimated or projected. In addition to other factors that affect Hexcel's operating results and financial position, neither past financial performance nor the Company's expectations should be considered reliable indicators of future performance. Investors should not use historical trends to anticipate results or trends in future periods. Further, the Company's stock price is subject to volatility. Any of the factors discussed above could have an adverse impact on the Company's stock price. In addition, failure of sales or income in any quarter to meet the investment community's expectations, as well as broader market trends, can have an adverse impact on the Company's stock price. The Company does not undertake an obligation to update its forward-looking statements or risk factors to reflect future events or circumstances. 54
CONSOLIDATED FINANCIAL STATEMENTS Description Page - ------------------------------------------------------------------------------------------------------------ --------- Management Responsibility for Consolidated Financial Statements 56 Report of Independent Accountants 57 Consolidated Financial Statements: Consolidated Balance Sheets as of December 31, 2000 and 1999 58 Consolidated Statements of Operations for each of the three years ended December 31, 2000 59 Consolidated Statements of Stockholders' Equity and Comprehensive Income for each of the three years ended December 31, 2000 60 Consolidated Statements of Cash Flows for each of the three years ended December 31, 2000 61 Notes to the Consolidated Financial Statements 62 - 84
55 MANAGEMENT RESPONSIBILITY FOR CONSOLIDATED FINANCIAL STATEMENTS Hexcel management has prepared and is responsible for the consolidated financial statements and the related financial data contained in this report. These financial statements, which include estimates, were prepared in accordance with generally accepted accounting principles. Management uses its best judgment to ensure that such statements reflect fairly the consolidated financial position, results of operations and cash flows of the Company. Hexcel maintains accounting and other control systems which management believes provide reasonable assurance that financial records are reliable for purposes of preparing financial statements, and that assets are safeguarded and accounted for properly. Underlying this concept of reasonable assurance is the premise that the cost of control should not exceed benefits derived from control. The Audit Committee of the Board of Directors reviews and monitors the financial reports and accounting practices of Hexcel. These reports and practices are reviewed regularly by management and by the Company's independent accountants, PricewaterhouseCoopers LLP, in connection with the audit of the Company's financial statements. The Audit Committee, composed solely of outside directors, meets periodically, separately and jointly, with management and the independent accountants. /S/ JOHN J. LEE John J. Lee CHIEF EXECUTIVE OFFICER /S/ STEPHEN C. FORSYTH Stephen C. Forsyth CHIEF FINANCIAL OFFICER /S/ KIRK G. FORBECK Kirk G. Forbeck CHIEF ACCOUNTING OFFICER 56 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of Hexcel Corporation: In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, of stockholders' equity and comprehensive income and of cash flows present fairly, in all material respects, the financial position of Hexcel Corporation and its subsidiaries at December 3l, 2000 and 1999, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2000 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. /S/ PRICEWATERHOUSECOOPERS LLP PricewaterhouseCoopers LLP San Jose, California January 18, 2001 57
HEXCEL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETs AS OF DECEMBER 31, - -------------------------------------------------------------------------------------------------------------------- (IN MILLIONS, EXCEPT PER SHARE DATA) 2000 1999 - -------------------------------------------------------------------------------------------------------------------- ASSETS Current assets: Cash and cash equivalents $ 5.1 $ 0.2 Accounts receivable 150.3 158.6 Inventories 155.4 153.7 Prepaid expenses and other assets 5.5 5.1 Deferred tax asset 9.7 10.2 - -------------------------------------------------------------------------------------------------------------------- Total current assets 326.0 327.8 Net property, plant and equipment 359.7 392.1 Goodwill and other purchased intangibles, net of accumulated amortization of $36.1 in 2000 and $24.9 in 1999 391.7 411.2 Investments in affiliated companies and other assets 134.0 130.8 - -------------------------------------------------------------------------------------------------------------------- Total assets $ 1,211.4 $ 1,261.9 - -------------------------------------------------------------------------------------------------------------------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Notes payable and current maturities of capital lease obligations $ 22.1 $ 34.3 Accounts payable 69.4 80.3 Accrued compensation and benefits 47.4 38.4 Accrued interest 17.6 19.1 Other accrued liabilities 41.4 38.4 - -------------------------------------------------------------------------------------------------------------------- Total current liabilities 197.9 210.5 Long-term notes payable and capital lease obligations 627.1 712.5 Indebtedness to a related party 24.4 24.1 Other non-current liabilities 46.3 44.7 - -------------------------------------------------------------------------------------------------------------------- Total liabilities 895.7 991.8 - -------------------------------------------------------------------------------------------------------------------- Commitments and contingent liabilities (see accompanying notes) Stockholders' equity: Preferred stock, no par value, 20.0 shares of stock authorized, no stock issued or outstanding in 2000 and 1999 - - Common stock, $0.01 par value, 100.0 shares of stock authorized, shares of stock issued and outstanding of 38.0 in 2000 and 37.4 in 1999 0.4 0.4 Additional paid-in capital 280.7 273.6 Retained earnings 65.8 11.6 Accumulated other comprehensive loss (20.0) (4.8) - -------------------------------------------------------------------------------------------------------------------- 326.9 280.8 Less- Treasury stock, at cost, 0.9 shares in 2000 and 0.8 in 1999 (11.2) (10.7) - -------------------------------------------------------------------------------------------------------------------- Total stockholders' equity 315.7 270.1 - -------------------------------------------------------------------------------------------------------------------- Total liabilities and stockholders' equity $ 1,211.4 $ 1,261.9 - --------------------------------------------------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS. 58
HEXCEL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, - --------------------------------------------------------------------------------------------------------------------- (IN MILLIONS, EXCEPT PER SHARE DATA) 2000 1999 1998 - --------------------------------------------------------------------------------------------------------------------- Net sales $ 1,055.7 $ 1,151.5 $ 1,089.0 Cost of sales 824.3 909.0 817.7 - --------------------------------------------------------------------------------------------------------------------- Gross margin 231.4 242.5 271.3 Selling, general and administrative expenses 123.9 128.7 117.9 Research and technology expenses 21.2 24.8 23.7 Business consolidation expenses 10.9 20.1 12.7 - --------------------------------------------------------------------------------------------------------------------- Operating income 75.4 68.9 117.0 Gain on sale of Bellingham aircraft interiors business 68.3 - - Interest expense 68.7 73.9 38.7 - --------------------------------------------------------------------------------------------------------------------- Income (loss) before income taxes 75.0 (5.0) 78.3 Provision for (recovery of) income taxes 26.3 (1.7) 28.4 - --------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------- Income (loss) before equity in earnings 48.7 (3.3) 49.9 Equity in earnings of and write-down of an investment in affiliated companies 5.5 (20.0) 0.5 - --------------------------------------------------------------------------------------------------------------------- Net income (loss) $ 54.2 $ (23.3) $ 50.4 - --------------------------------------------------------------------------------------------------------------------- Net income (loss) per share: Basic $ 1.47 $ (0.64) $ 1.38 Diluted $ 1.32 $ (0.64) $ 1.24 Weighted average shares: Basic 36.8 36.4 36.7 Diluted 45.7 36.4 45.7 - ---------------------------------------------------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS. 59
HEXCEL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 - ----------------------------------------------------------------------------------------------------------- -------------- COMMON STOCK --------------------- RETAINED ACCUMULATED ADDITIONAL EARNINGS OTHER TOTAL PAID-IN (ACCUMULATED COMPREHENSIVE TREASURY STOCKHOLDERS' COMPREHENSIVE (IN MILLIONS) PAR CAPITAL DEFICIT) INCOME (LOSS) SHARES EQUITY INCOME (LOSS) - -------------------------------------------------------------------------------------------------------------------------- BALANCE, JANUARY 1, 1998 $ 0.4 $ 266.8 $ (15.5) $ (1.1) $ (0.7) $ 249.9 Net income 50.4 50.4 $ 50.4 Currency translation adjustment 7.4 7.4 7.4 -------------- Comprehensive income 57.8 -------------- Activity under stock plans 4.6 4.6 Conversion of senior subordinated notes 0.1 0.1 Treasury stock purchased (10.0) (10.0) - ---------------------------------------------------------------------------------------------------------------------------- BALANCE, DECEMBER 31, 1998 0.4 271.5 34.9 6.3 (10.7) 302.4 Net loss (23.3) (23.3) 23.3) Currency translation adjustment (11.1) (11.1) (11.1) -------------- Comprehensive loss (34.4) -------------- Activity under stock plans 2.1 2.1 - ---------------------------------------------------------------------------------------------------------------------------- BALANCE, DECEMBER 31, 1999 0.4 273.6 11.6 (4.8) (10.7) $ 270.1 Net income 54.2 54.2 54.2 Currency translation adjustment (10.2) (10.2) (10.2) Minimum pension obligation (5.0) (5.0) (5.0) -------------- Comprehensive income $ 39.0 -------------- Activity under stock plans 7.1 7.1 Treasury stock purchased (0.5) (0.5) - ---------------------------------------------------------------------------------------------------------------------------- BALANCE, DECEMBER 31, 2000 $ 0.4 $ 280.7 $ 65.8 $ (20.0) $(11.2) $ 315.7 - ----------------------------------------------------------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS. 60
HEXCEL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, - -------------------------------------------------------------------------------------------------------------------------- (IN MILLIONS) 2000 1999 1998 - -------------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) $ 54.2 $ (23.3) $ 50.4 Reconciliation to net cash provided by operations: Depreciation 45.6 47.9 37.4 Amortization 13.1 13.4 10.1 Deferred income taxes 8.6 (15.8) 6.9 Gain on sale of Bellingham aircraft interiors business (68.3) - - Business consolidation expenses 10.9 20.1 12.7 Business consolidation payments (11.8) (9.5) (8.7) Equity in earnings and write-down of an investment in affiliated companies (5.5) 20.0 (0.5) Gain on curtailment of pension plan (5.1) - - Changes in assets and liabilities, net of effects of acquisitions: Decrease (increase) in accounts receivable (7.7) 16.1 18.2 Decrease (increase) in inventories (17.0) 49.0 (9.3) Decrease (increase) in prepaid expenses and other assets (0.4) 1.5 (2.9) Increase (decrease) in accounts payable and accrued 10.7 11.9 (17.1) liabilities Changes in other non-current assets and long-term liabilities 5.7 2.4 (3.4) - ----------------------------------------------------------------------------------------------------------------------- Net cash provided by operating activities 33.0 133.7 93.8 - ----------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures (39.6) (35.6) (66.5) Proceeds from sale of Bellingham aircraft interiors business 113.3 - - Proceeds from sale of other assets 3.4 - - Cash paid for business acquisitions - - (472.8) Investments in affiliated companies (8.3) (4.7) (1.3) Dividends received from affiliated companies - - 1.4 - ----------------------------------------------------------------------------------------------------------------------- Net cash provided by (used for) investing activities 68.8 (40.3) (539.2) - ----------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from credit facilities 96.2 37.7 726.0 Repayments of credit facilities (66.7) (349.6) (266.3) Proceeds from issuance of long-term debt - 240.0 0.3 Repayments of long-term debt (126.0) (18.0) (1.8) Debt issuance costs (0.9) (11.0) (10.3) Purchase of treasury stock (0.5) - (10.0) Activity under stock plans 2.9 1.4 2.8 - ----------------------------------------------------------------------------------------------------------------------- Net cash provided by (used for) financing activities (95.0) (99.5) 440.7 - ----------------------------------------------------------------------------------------------------------------------- Effect of exchange rate changes on cash and cash equivalents (1.9) (1.2) 3.2 - ----------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in cash and cash equivalents 4.9 (7.3) (1.5) Cash and cash equivalents at beginning of year 0.2 7.5 9.0 - ----------------------------------------------------------------------------------------------------------------------- Cash and cash equivalents at end of year $ 5.1 $ 0.2 $ 7.5 - -----------------------------------------------------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS. 61 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA) NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES NATURE OF OPERATIONS AND BASIS OF ACCOUNTING The accompanying consolidated financial statements include the accounts of Hexcel Corporation and subsidiaries ("Hexcel" or the "Company"), after elimination of intercompany transactions and accounts. Investments in companies over which the Company exerts significant influence, but does not control the financial and operating decisions, are accounted for using the equity method. Hexcel is a leading international producer of advanced structural materials. The Company develops, manufactures and markets lightweight, high-performance reinforcement products, composite materials and engineered products for use in commercial aerospace, space and defense, electronics, and industrial markets. The Company serves international markets through manufacturing facilities and sales offices located in the United States and Europe, and through sales offices located in Asia, Australia and South America. The Company is also a member of six joint ventures, four of which manufacture and market reinforcement products and composite materials in Europe, Asia and the United States, and two of which will manufacture composite structures and interiors in Asia. As discussed in Notes 2 and 3, Hexcel sold its Bellingham aircraft interiors business on April 26, 2000, and it acquired the industrial fabrics business of Clark-Schwebel, Inc. and its subsidiaries ("Clark-Schwebel") on September 15, 1998. The Clark-Schwebel acquisition was accounted for under the purchase method of accounting. As a result of these transactions, the accompanying consolidated balance sheets, statements of operations, stockholders' equity and comprehensive income, and cash flows include the financial position, results of operations and cash flows of these businesses as of such dates and for such periods that these businesses were owned by Hexcel. USE OF ESTIMATES The preparation of the accompanying consolidated financial statements in conformity with generally accepted accounting principles required management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities, as well as the reported amounts of revenues and expenses. Actual results could differ from those estimates. CASH AND CASH EQUIVALENTS Hexcel invests excess cash in investments with original maturities of less than three months. The investments consist primarily of Eurodollar time deposits and are stated at cost, which approximates fair value. The Company considers such investments to be cash equivalents for purposes of the consolidated statements of cash flows. INVENTORIES Inventories are valued at the lower of cost or market, with cost determined using the first-in, first-out and average cost methods. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are recorded at cost. Repairs and maintenance are charged to expense as incurred; replacements and betterments are capitalized. Property, plant and equipment are depreciated over estimated useful lives, using accelerated and straight-line methods. The estimated useful lives range from 10 to 40 years for buildings and improvements and from 3 to 20 years for machinery and equipment. 62 GOODWILL AND OTHER PURCHASED INTANGIBLES Goodwill, representing the excess of purchase price and acquisition costs over the fair value of the net assets of the businesses acquired, and other purchased intangibles are amortized on a straight-line basis over estimated economic lives, which are as follows: Goodwill from the acquisition of the Clark-Schwebel business 40 years Other goodwill 20 years Other purchased intangibles 15 years The realizability of goodwill, intangibles and other long-term assets is evaluated periodically when events or circumstances indicate that the carrying amount of an asset might not be recoverable. Management determines whether there has been an impairment by comparing the anticipated undiscounted future net cash flows to the related asset's carrying value. If an asset is considered impaired, the asset is written down to fair value, which is determined based either on discounted cash flows or appraised values, depending on the nature of the asset. DEBT FINANCING COSTS Debt financing costs are deferred and amortized over the life of the related debt, which ranges from 7 to 10 years. STOCK-BASED COMPENSATION Stock-based compensation is accounted for in accordance with Accounting Principles Board Opinion ("APB") No. 25, "Accounting for Stock Issued to Employees." Accordingly, compensation expense is not recognized when options are granted at the fair market value at the date of grant. Hexcel also provides additional pro forma disclosures as required under Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation." CURRENCY TRANSLATION The assets and liabilities of international subsidiaries are translated into U.S. dollars at year-end exchange rates, and revenues and expenses are translated at average exchange rates during the year. Cumulative currency translation adjustments are included in "stockholders' equity." Realized gains and losses from currency exchange transactions are recorded in "selling, general and administrative expenses" in the accompanying consolidated statements of operations and were not material to Hexcel's consolidated results of operations in 2000, 1999 or 1998. REVENUE RECOGNITION Product sales are recognized when all significant contractual obligations have been satisfied and collection of the resulting receivable is reasonably assured, which is generally on the date of shipment. Revenues derived from design, installation and support services are recognized when the service is provided, or alternatively, when the product to which the service relates is delivered to the customer. The Company accrues for warranty costs and other sales allowances based on its experience. CONCENTRATION OF CREDIT RISK Financial instruments that potentially subject Hexcel to significant concentrations of credit risk consist primarily of trade accounts receivable. The Company's sales to two customers and their related subcontractors accounted for approximately 33% and 38% of the Company's 2000 and 1999 net sales, respectively. The Company performs ongoing credit evaluations of its customers' financial condition but generally does not require collateral or other security to support customer receivables. The Company establishes an allowance for doubtful accounts based on factors surrounding the credit risk of specific customers, historical trends and other financial information. As of December 31, 2000 and 1999, the allowance for doubtful accounts was $7.1 and $6.0, respectively. Bad debt expense was $0.6, $0.7 and $0.8 in 2000, 1999 and 1998, respectively. 63 DERIVATIVE FINANCIAL INSTRUMENTS Hexcel employs an interest rate cap agreement and foreign currency forward exchange contracts in the management of its interest rate and currency exchange exposures. The Company has designated its interest rate cap agreement against a specific debt instrument and recognizes interest differentials as adjustments to interest expense as the differentials occur. Realized and unrealized gains and losses arising from foreign currency forward exchange contracts are recognized in income (loss) as offsets to gains and losses resulting from the underlying hedged transaction. The Company does not use financial instruments for trading purposes. Hexcel adopted Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"), as amended, effective January 1, 2001. SFAS 133 requires an entity to recognize all derivatives as either assets or liabilities on the balance sheet and measure those instruments at fair value. Gains or losses resulting from changes in the fair values of those derivatives are accounted for depending on the use of the derivative and whether it qualifies for hedge accounting. SFAS 133 did not have a material effect on the Company's consolidated financial position or results of operations as of the date of adoption. RECLASSIFICATIONS Certain prior year amounts in the accompanying consolidated financial statements and related notes have been reclassified to conform to the 2000 presentation. NOTE 2 - GAIN ON SALE OF BELLINGHAM AIRCRAFT INTERIORS BUSINESS On April 26, 2000, Hexcel sold its Bellingham aircraft interiors business to Britax Cabin Interiors, Inc., a wholly owned subsidiary of Britax International plc, for cash proceeds of $113.3. The sale resulted in a pre-tax gain of $68.3 or an after-tax gain of approximately $44 ($0.97 per diluted share.) Net proceeds from the sale were used to repay $111.6 of outstanding term debt under the Company's senior credit facility. The 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. Net sales and operating income for the Bellingham business were as follows:
- ---------------------------------------------------------------- ----------------- ---------------- ----------------- 2000 1999 1998 - ---------------------------------------------------------------- ----------------- ---------------- ----------------- - ---------------------------------------------------------------- --- ------------- --- ------------ ---- ------------ Net sales $ 18.9 $ 70.0 $ 34.3 Operating income 0.6 8.0 3.9 - ---------------------------------------------------------------- --- ------------- --- ------------ ---- ------------
NOTE 3 - BUSINESS ACQUISITION On September 15, 1998, Hexcel acquired certain assets and assumed certain operating liabilities from Clark-Schwebel. The business acquired from Clark-Schwebel is engaged in the manufacture and sale of high-quality fiberglass fabrics, which are used to make printed circuit boards for electronic equipment such as computers, cellular telephones, televisions and automobiles. This business also produces high-performance specialty products for use in insulation, filtration, wall and facade claddings, soft body armor and reinforcements for composite materials. At the date of acquisition, Clark-Schwebel operated four manufacturing facilities in the southeastern U.S. and had approximately 1,300 full-time employees. As part of this acquisition, Hexcel also acquired Clark-Schwebel's equity ownership interests in the following three joint ventures: o a 43.6% share in Interglas Technologies AG, formerly CS-Interglas AG ("Interglas"), headquartered in Germany, together with fixed price options to increase this equity interest to 84%. Hexcel's acquisition of this investment was completed on December 23, 1998; 64 o a 43.3% share in Asahi-Schwebel Co., Ltd. ("Asahi-Schwebel"), headquartered in Japan, which in turn owns interests in two joint ventures in Taiwan -- a 50% interest in Nittobo Asahi Glass and a 51% interest in Asahi-Schwebel Taiwan; and o a 50.0% share in Clark-Schwebel Tech-Fab Company ("CS Tech-Fab"), headquartered in the United States. Interglas and Asahi-Schwebel are fiberglass fabric producers serving the European and Asian electronics and telecommunications industries. CS Tech-Fab manufactures non-woven materials for roofing, construction and other specialty applications. The exercise price of the options to increase the equity interest in Interglas was significantly higher than their fair market value, and as a result, Hexcel allowed the options to expire unexercised on December 31, 1999. The acquisition of Clark-Schwebel's industrial fabrics business was completed pursuant to an asset purchase agreement dated July 25, 1998, as amended by and among Hexcel, Stamford CS Acquisition Corp., and Clark-Schwebel (the "Asset Purchase Agreement"). Under the Asset Purchase Agreement, Hexcel acquired the net assets of the business, other than certain excluded assets and liabilities, in exchange for $472.8 in cash. The assets acquired and the liabilities assumed or incurred were:
Estimated fair value of assets acquired: Cash $ 5.0 Accounts receivable 20.2 Inventories 35.5 Net property, plant and equipment 70.0 Investment in joint ventures, intangibles and other assets 68.4 Goodwill 365.3 - ------------------------------------------------------------------------- ------------------------------------------ Total assets acquired 564.4 - ------------------------------------------------------------------------- ------------------------------------------ Estimated fair value of liabilities assumed or incurred: Accounts payable and accrued liabilities 32.5 Capital lease obligations 50.0 Other non-current liabilities 4.1 - ------------------------------------------------------------------------- ------------------------------------------ Total liabilities assumed or incurred 86.6 - ------------------------------------------------------------------------- ------------------------------------------ Estimated fair value of net assets acquired $ 477.8 - ------------------------------------------------------------------------- ------------------------------------------ Less cash acquired (5.0) - ------------------------------------------------------------------------- ------------------------------------------ Net cash paid $ 472.8 - ------------------------------------------------------------------------- ------------------------------------------
The allocations of the purchase price to the assets acquired and liabilities assumed or incurred in connection with the Clark-Schwebel business were based on estimates of fair values. As part of the acquisition, Hexcel entered into a $50.0 lease for property, plant and equipment used in the acquired business from an affiliate of Clark-Schwebel, pursuant to a long-term lease that includes purchase options. PRO FORMA FINANCIAL INFORMATION (UNAUDITED) The pro forma net sales, net income and diluted net income per share of Hexcel for the year ended December 31, 1998, giving effect to the acquisition of the Clark-Schwebel business as if it had occurred at the beginning of 1998, were $1,234.8, $49.5 and $1.22, respectively. 65 NOTE 4 - BUSINESS CONSOLIDATION PROGRAMS As a result of four substantial business acquisitions from 1996 through 1998, and the need to respond to significant changes in commercial aerospace and space and defense markets, Hexcel initiated three business consolidation programs in May 1996, December 1998 and September 1999. The primary purpose of these programs has been to integrate acquired assets and operations into the Company, and to close or restructure insufficiently profitable facilities and activities. Due to aerospace industry requirements to "qualify" specific equipment and manufacturing processes for the manufacture of certain products, some business consolidation actions have taken up to three years to complete. These qualification requirements increase the complexity, cost and time of moving equipment and rationalizing manufacturing activities. Key initiatives under the three business consolidation programs have been: o Rationalizing manufacturing activities and eliminating excess capacity by moving and requalifying certain production processes, closing manufacturing plants and vacating some leased facilities. o Consolidating manufacturing, research, and marketing and administrative functions into single global business units, in order to create centers of technical excellence, improve customer service and eliminate redundant functions. o Disposing of non-core assets. As of December 31, 2000, Hexcel has closed three manufacturing facilities, vacated approximately 560 thousand square feet of manufacturing space, and eliminated more than 700 manufacturing, marketing and administrative positions in connection with these business consolidation programs. All of the business consolidation activities initiated in 1996 and 1998 had been completed as of December 31, 2000, although cash expenditures relating to accrued severance will continue to be paid through 2001. A portion of the business consolidation activities initiated in September 1999 have been completed, including the consolidation of certain production processes, the vacating of certain leased facilities, and the consolidation into one location of the U.S. marketing, research and administrative functions of Hexcel's composite materials business. However, the reorganization of certain manufacturing activities will not be completed until 2001 or early in 2002, in accordance with the Company's business consolidation plans. In the fourth quarter of 2000, Hexcel added two further actions to the September 1999 business consolidation program. The Company decided to close the two smaller of its four U.S. prepreg manufacturing facilities - one in Lancaster, Ohio and another in Gilbert, Arizona. The manufacturing output from these two plants will now be produced by the two remaining U.S. prepreg facilities in Livermore, California and Salt Lake City, Utah. These actions, which are expected to be completed in early 2002, will result in the elimination of an additional 79 thousand square feet of manufacturing space and 60 manufacturing positions. 66 Business consolidation activities for the three years ending December 31, 2000, consisted of the following:
- ------------------------------------------------- --------------- ---------------- -------------- -------------- EMPLOYEE FACILITY & SEVERANCE & EQUIPMENT RELOCATION RELOCATION OTHER TOTAL - ------------------------------------------------- --------------- ---------------- -------------- -------------- BALANCE AS OF JANUARY 1, 1998 $ 9.7 $ 2.0 $ 0.5 $ 12.2 Business consolidation expenses: Current period expenses 3.3 9.6 6.3 19.2 Reversal of 1997 expenses (6.5) - - (6.5) - ------------------------------------------------- --- --------- ---- ---------- ---- ---------- --- ---------- Net business consolidation expenses (3.2) 9.6 6.3 12.7 Cash expenditures (1.2) (6.3) (1.2) (8.7) Non-cash usage, including asset write-downs 0.5 (2.9) (5.6) (8.0) - ------------------------------------------------- --- --------- ---- ---------- ---- ---------- --- ---------- BALANCE AS OF DECEMBER 31, 1998 5.8 2.4 - 8.2 Business consolidation expenses 5.1 15.0 - 20.1 Cash expenditures (6.7) (2.8) - (9.5) Non-cash usage, including asset write-downs (0.7) (14.0) - (14.7) - ------------------------------------------------- --- --------- ---- ---------- ---- ---------- --- ---------- BALANCE AS OF DECEMBER 31, 1999 3.5 0.6 - 4.1 Business consolidation expenses: Current period expenses 3.7 10.6 - 14.3 Reversal of 1999 expenses (0.3) (3.1) - (3.4) - ------------------------------------------------- --- --------- ---- ---------- ---- ---------- --- ---------- Net business consolidation expenses 3.4 7.5 - 10.9 Cash expenditures (3.9) (7.9) - (11.8) Non-cash items: Reversal of 1999 business consolidation expenses - 3.1 - 3.1 Other non-cash usage, including asset write-downs (0.6) (3.0) - (3.6) - ------------------------------------------------- --- --------- ---- ---------- ---- ---------- --- ---------- Total non-cash items (0.6) 0.1 - (0.5) - ------------------------------------------------- --- --------- ---- ---------- ---- ---------- --- ---------- BALANCE AS OF DECEMBER 31, 2000 $ 2.4 $ 0.3 $ - $ 2.7 - ------------------------------------------------- --- --------- ---- ---------- ---- ---------- --- ----------
In 1998, Hexcel reversed $6.5 of accrued business consolidation expenses relating to employee severance. From 1996 through 1998, during the implementation of certain business consolidation initiatives, Hexcel experienced significant increased business volume in its commercial aerospace market, which enabled Hexcel to reassign employees who would have otherwise been terminated. As a result, the actual number of employees terminated were fewer than anticipated, and Hexcel no longer required the full amount of its business consolidation employee severance accrual. As part of a business consolidation program, Hexcel disposed of its operations in Brindisi, Italy (the "Italian Operations") in 1999. In accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," Hexcel recorded a charge of $5.6 in 1998 for an asset impairment related to its Italian Operations, which was included in business consolidation expenses. The estimate of fair value used in determining the impairment charge was based on offers received from interested buyers. The Italian Operations was disposed of for net proceeds that approximated amounts accrued and was accounted for under the Company's Engineered Products business segment. Financial operating results for this business were not material to Hexcel's consolidated financial statements. In the second quarter of 2000, Hexcel amended its September 1999 business consolidation program in response to the manufacturing constraints caused by a stronger than expected increase in sales and production for its electronic woven glass fabrics and its ballistic protection products. Based on these improved market conditions, which were expected to continue beyond 2000, and a manufacturing capacity review, the Company concluded to expand its capacity by purchasing additional looms and revising the previous decision to consolidate a number of weaving activities at two of the Company's facilities. As a result of the decision to not proceed to consolidate production, 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. 67
NOTE 5 - INVENTORIES - --------------------------------------------------------------------------------------------------------------------- 2000 1999 - --------------------------------------------------------------------------------------------------------------------- Raw materials $ 74.5 $ 55.5 Work in progress 45.2 47.8 Finished goods 35.7 50.4 - --------------------------------------------------------------------------------------------------------------------- Inventories $ 155.4 $ 153.7 - --------------------------------------------------------------------------------------------------------------------- NOTE 6 - NET PROPERTY, PLANT AND EQUIPMENT - --------------------------------------------------------------------------------------------------------------------- 2000 1999 - --------------------------------------------------------------------------------------------------------------------- Land $ 23.9 $ 21.8 Buildings 135.1 152.7 Equipment 456.3 440.0 - --------------------------------------------------------------------------------------------------------------------- Property, plant and equipment 615.3 614.5 Less accumulated depreciation (255.6) (222.4) - --------------------------------------------------------------------------------------------------------------------- Net property, plant and equipment $ 359.7 $ 392.1 - --------------------------------------------------------------------------------------------------------------------- NOTE 7 - INVESTMENTS IN AFFILIATED COMPANIES AND OTHER ASSETS - --------------------------------------------------------------------------------------------------------------------- 2000 1999 - --------------------------------------------------------------------------------------------------------------------- Investments in affiliated companies $ 72.1 $ 58.7 Deferred tax asset 29.5 37.2 Deferred debt financing costs, net of accumulated amortization of $8.7 and $5.0 as of December 31, 2000 and 1999, respectively 16.7 19.2 Other assets 15.7 15.7 - --------------------------------------------------------------------------------------------------------------------- Investments in affiliated companies and other assets $ 134.0 $ 130.8 - ---------------------------------------------------------------------------------------------------------------------
INVESTMENTS IN AFFILIATED COMPANIES In 1999, Hexcel, Boeing and Aviation Industries of China formed a joint venture, BHA Aero Composite Parts Co., Ltd., to manufacture composite parts for secondary structures and interior applications for commercial aircraft. Hexcel has a 33% equity ownership interest in this joint venture, which is located in Tianjin, China. Also in 1999, Hexcel formed another joint venture, Asian Composites Manufacturing Sdn. Bhd., with Boeing, Sime Link Sdn. Bhd., and Malaysia Helicopter Services Bhd. (now known as Naluri Berhadto), to manufacture composite parts for secondary structures for commercial aircraft. Hexcel has a 25% equity ownership interest in this joint venture, which is located in Alor Setar, Malaysia. It is anticipated that the first parts will be delivered to customers in 2001. For the years ended December 31, 2000 and 1999, Hexcel made cash equity investments totaling $8.3 and $4.7, respectively, in these two joint ventures. As of December 31, 2000, Hexcel has aggregate commitments to these joint ventures to invest another $2.5 and to provide additional loan guarantees of up to $13.7. These commitments are expected to be fulfilled in increments through 2002. As discussed in Note 3, the Company owns equity interests in three joint ventures: a 43.6% share in Interglas; a 43.3% share in Asahi-Schwebel; and a 50.0% share in CS Tech-Fab. These joint ventures produce and sell fiberglass fabric and other non-woven materials. In the third quarter of 1999, the Company wrote down its investment in Interglas by $20.0 to its estimated fair market value. The write-down was the result of management's decision to allow its fixed-price options to increase its equity investment in Interglas, from 43.6% 68 to 84%, to expire unexercised, and an assessment that an other-than-temporary decline in the investment had occurred due to its deteriorating financial condition. The amount of the write-down was determined based on available market information and appropriate valuation methodologies. The Company did not record a deferred tax benefit on the write-down because of limitations imposed by foreign tax laws on the Company's ability to realize the tax benefit. Lastly, Hexcel owns a 45% equity interest in DIC-Hexcel Limited ("DHL"), a joint venture with Dainippon Ink and Chemicals, Inc. ("DIC"). This joint venture is located in Komatsu, Japan, and produces and sells prepregs, honeycomb and decorative laminates using technology licensed from Hexcel and DIC. Hexcel is contingently liable to pay DIC up to $4.5 with respect to DHL's bank debt.
NOTE 8 - NOTES PAYABLE - --------------------------------------------------------------------------------------------------------------------- 2000 1999 - --------------------------------------------------------------------------------------------------------------------- Senior Credit Facility $ 211.9 $ 303.0 European credit and overdraft facilities 13.7 14.8 Senior subordinated notes, due 2009 240.0 240.0 Convertible subordinated notes, due 2003 114.4 114.4 Convertible subordinated debentures, due 2011 25.6 25.6 Various notes payable 0.3 0.4 - --------------------------------------------------------------------------------------------------------------------- Total notes payable 605.9 698.2 Capital lease obligations 43.3 48.6 Senior subordinated notes payable to a related party, net of unamortized discount of $0.6 and $0.9 as of December 31, 2000 and 1999, respectively 24.4 24.1 - --------------------------------------------------------------------------------------------------------------------- Total notes payable, capital lease obligations and indebtedness to a related party $ 673.6 $ 770.9 - --------------------------------------------------------------------------------------------------------------------- Notes payable and current maturities of long-term liabilities $ 22.1 $ 34.3 Long-term notes payable and capital lease obligations, less current maturities 627.1 712.5 Indebtedness to a related party 24.4 24.1 - --------------------------------------------------------------------------------------------------------------------- Total notes payable, capital lease obligations and indebtedness to a related party $ 673.6 $ 770.9 - ---------------------------------------------------------------------------------------------------------------------
SENIOR CREDIT FACILITY In connection with the acquisition of the Clark-Schwebel business on September 15, 1998, Hexcel obtained a new global credit facility (the "Senior Credit Facility") to: (a) fund the purchase of the Clark-Schwebel business; (b) refinance the Company's existing revolving credit facility; and (c) provide for ongoing working capital and other financing requirements of the Company. The Senior Credit Facility was subsequently amended in January 1999, August 1999, March 2000 and October 2000, to accommodate, among other things: (a) the planned sale of assets; (b) planned investments in additional manufacturing capacity for selected products; (c) the impact of the decline in the Company's operating results in the second half of 1999 on certain financial covenants; (d) the purchase by an investor group of approximately 14.5 million shares of Hexcel common stock held by a significant shareholder of the Company; and (e) a restructuring of the ownership and capital structure of certain of the Company's European subsidiaries. The Senior Credit Facility, as amended, provides Hexcel with approximately $358 of borrowing capacity, subject to certain limitations. 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 $135 on December 31, 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. 69 Since March 2000, interest on outstanding borrowings under the Senior Credit Facility has ranged 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. From January 1998 through March 2000, the upper limits of these interest ranges averaged 2.50% and 1.50%, respectively. In addition, the Senior Credit Facility is subject to a commitment fee ranging from approximately 0.20% to 0.50% per annum of the total facility. As of December 31, 2000 and 1999, Hexcel had an interest rate cap agreement outstanding which covered a notional amount of $50.0 of the Senior Credit Facility, providing a maximum fixed rate of 5.5% on the applicable London interbank rate. EUROPEAN CREDIT AND OVERDRAFT FACILITIES In addition to the Senior Credit Facility, certain of Hexcel's European subsidiaries have access to limited credit and overdraft facilities provided by various local lenders. These credit and overdraft facilities are primarily uncommitted facilities that are terminable at the discretion of the lenders. The interest rates on these credit and overdraft facilities for the years ended December 31, 2000, 1999 and 1998 ranged from 3.0% to 6.6% per annum. SENIOR SUBORDINATED NOTES, DUE 2009 On January 21, 1999, the Company issued $240.0 of 9.75% senior subordinated notes, due 2009. The senior subordinated notes are general unsecured obligations of Hexcel. Net proceeds from the issuance of these notes were used to repay amounts owed under the Senior Credit Facility. CONVERTIBLE SUBORDINATED NOTES, DUE 2003 The convertible subordinated notes carry an annual interest rate of 7.0%, are due in 2003 and are convertible into Hexcel common stock at a conversion price of $15.81 per share, subject to adjustment under certain conditions. The convertible subordinated notes are redeemable, in whole or in part, at the option of Hexcel at a price equal to 100.0% of the outstanding principal amount. CONVERTIBLE SUBORDINATED DEBENTURES, DUE 2011 The 7.0% convertible subordinated debentures, due 2011, are redeemable by Hexcel prior to maturity. Mandatory redemption is scheduled to begin in 2002 through annual sinking fund requirements. The debentures are convertible prior to maturity into common shares of the Company at $30.72 per share. SENIOR SUBORDINATED NOTES PAYABLE TO A RELATED PARTY The senior subordinated notes payable to a related party are general unsecured obligations payable to certain subsidiaries of Ciba Specialty Chemicals Holding, Inc. (collectively, "Ciba"). Prior to February 1999, these notes bore interest at a rate of 7.5% per annum. Effective February 1999, interest on these notes was increased to a rate of 10.5% per annum, a rate which increases by 0.5% per annum each February thereafter until the notes mature in 2003. The average interest rate on these notes was 11.0% in 2000, 10.25% in 1999, and 7.75% in 1998. AGGREGATE MATURITIES OF NOTES PAYABLE AND INDEBTEDNESS TO A RELATED PARTY The table below reflects aggregate maturities of notes payable and indebtedness to a related party:
Payable during years ending December 31: - ------------------------------------------------------------------------------- ----------------- 2001 $ 16.7 2002 9.7 2003 149.5 2004 135.9 2005 59.5 2006 and thereafter 259.0 - ------------------------------------------------------------------------------- ---- ------------ Total notes payable and indebtedness to a related party $ 630.3 - ------------------------------------------------------------------------------- ---- ------------
70 ESTIMATED FAIR VALUES OF NOTES PAYABLE The Senior Credit Facility and the various European credit facilities outstanding as of December 31, 2000 and 1999 are variable-rate debt obligations. Accordingly, the estimated fair values of each of these debt obligations approximate their respective book values. The aggregate fair values of the Company's other notes payable are as follows:
- --------------------------------------------------------------------------------------------------------------------- 2000 1999 - --------------------------------------------------------------------------------------------------------------------- Senior subordinated notes, due 2009 $ 211.2 $ 205.2 Convertible subordinated notes, due 2003 99.5 80.1 Convertible subordinated debentures, due 2011 17.9 18.5 - ---------------------------------------------------------------------------------------------------------------------
The aggregate fair values of the above notes payable were estimated on the basis of quoted market prices; however, trading in these securities is limited and may not reflect fair value. NOTE 9 - LEASING ARRANGEMENTS Assets, accumulated depreciation, and related liability balances under capital leasing arrangements, as of December 31, 2000 and 1999, were:
- --------------------------------------------------------------------------------------------------------------------- 2000 1999 - --------------------------------------------------------------------------------------------------------------------- Property, plant and equipment $ 62.0 $ 63.0 Less accumulated depreciation (22.2) (15.0) - --------------------------------------------------------------------------------------------------------------------- Net property, plant and equipment $ 39.8 $ 48.0 - --------------------------------------------------------------------------------------------------------------------- Capital lease obligations $ 43.3 $ 48.6 Less current maturities (5.3) (5.1) - --------------------------------------------------------------------------------------------------------------------- Long-term capital lease obligations, net $ 38.0 $ 43.5 - ---------------------------------------------------------------------------------------------------------------------
Certain sales and administrative offices, data processing equipment and manufacturing facilities are leased under operating leases. Rental expense under operating leases was $7.0 in 2000, $9.4 in 1999 and $8.2 in 1998. Future minimum lease payments as of December 31, 2000 were:
- ------------------------------------------------------------------------------------------------------------------------------------ TYPE OF LEASE ---------------- ----------------- Payable during years ending December 31: CAPITAL OPERATING - ----------------------------------------------- --- ------------ ---- ------------ 2001 $ 8.5 $ 4.8 2002 8.5 3.9 2003 8.2 2.8 2004 8.4 2.1 2005 8.3 1.9 2006 and thereafter 6.9 4.0 - ---------------------------------------------------------------------------------- --- ------------ ---- ------------ Total minimum lease payments $ 48.8 $ 19.5 - ---------------------------------------------------------------------------------- --- ------------ ---- ------------
Total minimum capital lease payments include $5.5 of imputed interest. 71 NOTE 10 - RELATED PARTIES CHANGE IN CONTROL On December 19, 2000, an investor group controlled by subsidiaries of The Goldman Sachs Group, Inc. (the "Investor Group") completed a previously announced purchase of approximately 14.5 of the approximately 18 shares of Hexcel common stock owned by Ciba. The shares acquired by the Investor Group represent approximately 39% of the Company's outstanding common stock. In addition, the Company and the Investor Group entered into a governance agreement that became effective on December 19, 2000. Under this governance agreement, the Investor Group has the right to, among other things, designate three directors to sit on the Company's ten-member board of directors. As a result of this transaction, Ciba's ownership of Hexcel common stock was reduced to approximately 3.5 shares. In addition, the governance agreement between Ciba and Hexcel, which gave Ciba the right to designate four directors to sit on the Company's board, terminated. Ciba has stated that its investment in Hexcel is non-strategic and that it will explore options for the future disposition of its remaining interest in the Company. Hexcel incurred $2.2 of costs in connection with this transaction, all of which were expensed to "selling, general, and administrative expenses" during the fourth quarter of 2000. These costs and expenses included legal, consulting, and regulatory compliance expenses, as well as a non-cash charge attributable to the accelerated vesting of certain stock-based compensation and to certain amendments to an executive retirement plan. Under the terms of the Company's various stock option and management incentive plans, the transaction constituted a "change in control" event, resulting in all outstanding stock options becoming vested and exercisable. The Chief Executive Officer 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 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, vested and became exercisable on December 19, 2000. In addition, due to the change in control event, 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") were distributed. However, the Chief Executive Officer waived the vesting of his stock units, and nine of the most senior executive officers other than the Chief Executive Officer 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. TRANSACTIONS AND BALANCES In addition to the senior subordinated notes payable to Ciba, transactions and balances with Ciba, as of and for the years ended December 31, 2000, 1999 and 1998, were as follows:
- ---------------------------------------------------------------- ----------------- ---------------- ----------------- 2000 1999 1998 - ---------------------------------------------------------------- ----------------- ---------------- ----------------- Raw material purchases $ 24.4 $ 32.6 $ 37.7 Interest expense 2.7 2.7 2.8 Net sales - - - - ---------------------------------------------------------------- --- ------------- --- ------------ ---- ------------ Accounts payable $ - $ 3.1 $ 3.3 Accrued interest payable 1.1 1.1 0.9 - ---------------------------------------------------------------- --- ------------- --- ------------ ---- ------------
72 NOTE 11 - RETIREMENT AND OTHER POSTRETIREMENT BENEFIT PLANS Hexcel maintains qualified and nonqualified defined benefit retirement plans covering certain U.S. and European employees, as well as retirement savings plans covering eligible U.S. employees. The defined benefit retirement plans are generally based on years of service and employee compensation under either a career average or final pay benefits method, except as described below. Hexcel's funding policy is to contribute the minimum amount required by applicable regulations. The Company also participates in a union sponsored multi-employer pension plan covering certain U.S. employees with union affiliations. Under the retirement savings plans, eligible U.S. employees can contribute up to 16% of their compensation to an individual retirement savings account. Hexcel makes matching contributions equal to 50% of employee contributions, not to exceed 3% of employee compensation. The Company also makes profit sharing contributions when it meets or exceeds certain performance targets which are set annually. Effective December 31, 2000, Hexcel made certain changes to its U.S. retirement benefit plans that are intended to improve the flexibility and visibility of future retirement benefits for employees. The primary changes are: o Beginning January 1, 2001, the Company will contribute an additional 2% to 3% of each eligible employee's salary to an individual 401(k) retirement savings account, depending on the employee's age. This increases the maximum contribution to individual employee savings accounts to between 5% and 6% per year, before any profit sharing contributions. o Offsetting the estimated incremental cost of this additional benefit, participants in the Company's U.S. qualified defined benefit retirement plan will no longer accrue benefits under this plan after December 31, 2000. However, employees will retain all benefits earned under this plan as of that date. Hexcel recognized a non-cash curtailment gain of $5.1 in 2000 as a result of this amendment to its U.S. defined benefit retirement plan. The net pension expense for all of these defined benefit and retirement savings plans, for the three years ended December 31, 2000, were:
- ------------------------------------------------------------------------- ------------- ---------------- ------------- 2000 1999 1998 - ------------------------------------------------------------------------- ------------- ---------------- ------------- Defined benefit retirement plans $ (1.2) $ 6.3 $ 5.2 Multi-employer pension plan 0.3 0.4 0.3 Retirement savings plans- matching contributions 2.9 3.4 3.0 Retirement savings plans- profit sharing and incentive contributions 5.0 5.4 5.3 - ------------------------------------------------------------------------- --- --------- ---- ----------- --- --------- Net pension expense $ 6.6 $ 15.5 $ 13.8 - ------------------------------------------------------------------------- --- --------- ---- ----------- --- ---------
In addition to defined benefit and retirement savings plan benefits, Hexcel also provides certain postretirement health care and life insurance benefits to eligible U.S. retirees. Depending upon the plan, benefits are available to eligible employees who retire on or after age 58 or 65 after rendering a minimum of 15 years or 25 years of service to Hexcel. 73 The net periodic cost of Hexcel's defined benefit retirement and U.S. postretirement plans for the three years ended December 31, 2000, were:
----------------------------------------------------------------------------------------------------------------------- U.S. PLANS EUROPEAN PLANS ------------------------------------------------------------------------------- DEFINED BENEFIT RETIREMENT PLANS 2000 1999 1998 2000 1999 1998 ----------------------------------------------------------------------------------------------------------------------- Service cost - benefits earned during the year $ 3.0 $ 3.6 $ 3.3 $ 2.4 $ 2.7 $ 2.1 Interest cost on projected benefit obligation 1.8 1.5 1.2 2.5 2.4 2.3 Expected return on plan assets (1.3) (1.0) (0.8) 1.6 (14.4) (4.4) Net amortization and deferral 0.4 0.7 0.6 (6.3) 10.8 0.9 ----------------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------------- Sub-total 3.9 4.8 4.3 0.2 1.5 0.9 Curtailment and settlement gains (5.3) - - - - - ----------------------------------------------------------------------------------------------------------------------- Net periodic pension cost $ (1.4) $ 4.8 $ 4.3 $ 0.2 $ 1.5 $ 0.9 ----------------------------------------------------------------------------------------------------------------------- POSTRETIREMENT PLANS- U.S. PLANS 2000 1999 1998 ----------------------------------------------------------------------------------------------------------------------- Service cost - benefits earned during the year $ 0.2 $ 0.2 $ 0.1 Interest cost on projected benefit obligation 1.0 0.9 0.7 Net amortization and deferral (0.4) (0.3) (0.3) ----------------------------------------------------------------------------------------------------------------------- Net periodic postretirement benefit cost $ 0.8 $ 0.8 $ 0.5 ----------------------------------------------------------------------------------------------------------------------- The benefit obligation, fair value of plan assets, funded status, and amounts recognized in the consolidated financial statements for Hexcel's defined benefit retirement plans and U.S. postretirement plans, as of and for the years ended December 31, 2000 and 1999, were: ----------------------------------------------------------------------------------------------------------------------- DEFINED BENEFIT RETIREMENT PLANS --------------------------------------------------------------------------------- U.S. PLANS EUROPEAN PLANS POSTRETIREMENT PLANS --------------------------------------------------------------------------------- 2000 1999 2000 1999 2000 1999 ----------------------------------------------------------------------------------------------------------------------- Change in benefit obligation: Benefit obligation- beginning of year $ 21.4 $ 21.5 $ 45.0 $ 47.1 $ 13.0 $ 13.4 Service cost 3.0 3.6 2.4 2.7 0.2 0.2 Interest cost 1.8 1.5 2.5 2.4 1.0 0.9 Plan participants' contributions - - 0.5 0.5 0.1 0.1 Actuarial loss (gain) 4.3 (4.1) 4.0 (6.2) 1.0 (0.8) Benefits paid (2.0) (1.0) (0.8) (0.4) (1.1) (0.9) Curtailment and settlement gains (5.3) - - - - - Foreign exchange translation - - (3.3) (1.3) - - Other 0.9 (0.1) (0.5) 0.2 - 0.1 ----------------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------------- Benefit obligation- end of year 24.1 21.4 49.8 45.0 14.2 13.0 ----------------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------------- Change in plan assets: Fair value of plan assets- beginning of year 13.6 11.5 66.2 51.7 - - Actual return on plan assets (0.6) 1.8 (1.7) 14.4 - - Employer contributions 3.8 1.2 1.3 1.2 1.0 0.8 Plan participants' contributions - - 0.5 0.5 0.1 0.1 Benefits paid (2.0) (1.0) (0.8) (0.4) (1.1) (0.9) Foreign exchange translation - - (4.9) (1.3) - - Other (0.1) 0.1 (0.2) 0.1 - - ----------------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------------- Fair value of plan assets- end of year 14.7 13.6 60.4 66.2 - - ----------------------------------------------------------------------------------------------------------------------- Funded status: Plan assets in excess of (less than) benefit obligation (9.4) (7.8) 10.6 21.2 (14.2) (13.0) Unrecognized actuarial loss (gain) 3.5 0.1 (1.6) (12.1) 0.6 (0.7) Unrecognized net liability - 0.2 - - - - Unrecognized prior service cost 0.8 (2.7) - - (5.0) (5.1) -------------------------------------------------------------------------- --------------------------------------------- Prepaid (accrued) benefit cost $ (5.1) $ (10.2) $ 9.0 $ 9.1 $ (18.6) $ (18.8) -----------------------------------------------------------------------------------------------------------------------
74 The accumulated benefit obligation for pension plans with accumulated benefit obligations in excess of plan assets were $22.9 and $18.6 as of December 31, 2000 and 1999, respectively. In 1998, the Company updated certain assumptions with respect to its European plans, resulting in an actuarial loss. Amortization of this loss and other prior service costs is calculated on a straight-line basis over the expected future years of service of the plans' active participants. Assets for the defined benefit pension plans generally consist of publicly traded securities, bonds and cash investments. As of December 31, 2000 and 1999, the prepaid benefit cost was included in "investments in affiliated companies and other assets" in the accompanying consolidated balance sheets. For the same periods, the accrued benefit cost was included in "accrued compensation and benefits" and "other non-current liabilities" in the accompanying consolidated balance sheets. Assumptions used to estimate the actuarial present value of benefit obligations were as follows:
- --------------------------------------------------------------- ------------------ ---------------- ----------------- 2000 1999 1998 - --------------------------------------------------------------- ------------------ ---------------- ----------------- U.S. defined benefit retirement plans: Discount rates 7.5% 8.0% 7.0% Rate of increase in compensation 4.5% 4.5% 4.5% Expected long-term rate of return on plan assets 9.0% 9.0% 9.0% European defined benefit retirement plans: Discount rates 5.8% - 6.0% 5.8% - 6.0% 5.5% - 5.8% Rates of increase in compensation 2.5% - 4.0% 2.0% - 4.0% 1.5% - 4.0% Expected long-term rates of return on plan assets 6.5% - 7.0% 6.5% - 7.0% 6.5% - 7.0% Postretirement benefit plans: Discount rates 7.0% - 7.5% 7.0% - 8.0% 6.8% - 7.0% - --------------------------------------------------------------- ------------------ ---------------- -----------------
For measurement purposes, the annual rate of increase in the per capita cost of covered health care benefits were assumed at approximately 8.0% for medical, and 5.0% for dental and vision for 2000. The medical rates were assumed to decrease gradually to approximately 6.0% by 2004, whereas dental and vision rates were assumed to remain at 5.0% through 2004. The table below presents the impact of a one-percentage-point increase and a one-percentage-point decrease in the assumed health care cost trend on the total of service and interest cost components, and on the postretirement benefit obligation.
- ---------------------------------------------------------------------------------- ---------------- ------------------ 2000 1999 - ---------------------------------------------------------------------------------- ---------------- ------------------ One-percentage-point increase: Effect on total service and interest cost components $ 0.1 $ 0.1 Effect on postretirement benefit obligation 0.9 0.8 One-percentage-point decrease: Effect on total service and interest cost components (0.1) (0.1) Effect on postretirement benefit obligation (0.8) (0.7) - ---------------------------------------------------------------------------------- ----- ---------- ------- ----------
75 NOTE 12 - INCOME TAXES Income (loss) before income taxes and the provision for (recovery of) income taxes, for the years ended December 31, 2000, 1999 and 1998, were:
- --------------------------------------------------------------- ----------------- ---------------- ----------------- 2000 1999 1998 - --------------------------------------------------------------- ----------------- ---------------- ----------------- Income (loss) before income taxes: U.S. $ 22.4 $ (47.5) $ 30.6 International 52.6 42.5 47.7 - --------------------------------------------------------------- --- ------------- ---- ----------- --- ------------- Total income (loss) before income taxes $ 75.0 $ (5.0) $ 78.3 - --------------------------------------------------------------- --- ------------- ---- ----------- --- ------------- Provision for (recovery of) income taxes: Current: U.S. $ - $ (0.8) $ 6.3 International 17.7 14.9 15.2 - --------------------------------------------------------------- --- ------------- ---- ----------- --- ------------- Current provision for income taxes 17.7 14.1 21.5 - --------------------------------------------------------------- --- ------------- ---- ----------- --- ------------- Deferred: U.S. 9.0 (17.1) 4.7 International (0.4) 1.3 2.2 - --------------------------------------------------------------- --- ------------- ---- ----------- --- ------------- Deferred provision for (recovery of) income taxes 8.6 (15.8) 6.9 - --------------------------------------------------------------- --- ------------- ---- ----------- --- ------------- Total provision for (recovery of) income taxes $ 26.3 $ (1.7) $ 28.4 - --------------------------------------------------------------- --- ------------- ---- ----------- --- ------------- A reconciliation of the provision for (recovery of) income taxes at the U.S. federal statutory income tax rate of 35% to the effective income tax rate, for the years ended December 31, 2000, 1999 and 1998, is as follows: - ---------------------------------------------------------------- --------------- ----------------- ----------------- 2000 1999 1998 - ---------------------------------------------------------------- --------------- ----------------- ----------------- Provision (recovery) at U.S. federal statutory rate $ 26.3 $ (1.8) $ 27.4 U.S. state taxes, less federal tax benefit 0.3 (1.1) 0.8 Impact of different international tax rates, permanent differences and other (0.2) 1.5 1.4 Valuation allowance (0.1) (0.3) (1.2) - ---------------------------------------------------------------- -- ------------ ----- ----------- --- ------------- Total provision for (recovery of) income taxes $ 26.3 $ (1.7) $ 28.4 - ---------------------------------------------------------------- -- ------------ ----- ----------- --- -------------
The Company has made no U.S. income tax provision for approximately $105.7 of undistributed earnings of international subsidiaries as of December 31, 2000. Such earnings are considered to be permanently reinvested. The additional U.S. income tax on these earnings, if repatriated, would be offset in part by foreign tax credits. DEFERRED INCOME TAXES Deferred income taxes result from temporary differences between the recognition of items for income tax purposes and financial reporting purposes. Principal temporary differences as of December 31, 2000 and 1999, were:
- ---------------------------------------------------------------------------------- ----------------- ---------------- 2000 1999 - ---------------------------------------------------------------------------------- --- ------------- ---------------- Net operating loss carryforwards $ 43.0 $ 36.3 Reserves and other, net 30.5 29.3 Accelerated depreciation and amortization (35.2) (18.5) Valuation allowance (6.2) (6.4) - ---------------------------------------------------------------------------------- --- ------------- --- ------------ Net deferred tax asset $ 32.1 $ 40.7 - ---------------------------------------------------------------------------------- --- ------------- --- ------------
76 NET OPERATING LOSS CARRYFORWARDS As of December 31, 2000, Hexcel had net operating loss ("NOL") carryforwards for U.S. federal and Belgium income tax purposes of approximately $110.4 and $4.9, respectively. The U.S. NOL carryforwards, which are available to offset future taxable income, expire at various dates through the year 2019. As a result of a change in ownership that occurred in connection with the purchase of a business in 1996, the Company has a limitation on the utilization of $37.0 of U.S. NOL carryforwards of approximately $12.0 per year. NOTE 13 - STOCKHOLDERS' EQUITY
COMMON STOCK OUTSTANDING - ------------------------------------------------------------ ----------------------- -------------- ---------------- (NUMBER OF SHARES) 2000 1999 1998 - ------------------------------------------------------------ ----------------------- -------------- ---------------- Common stock: Balance, beginning of year 37.4 37.2 36.9 Activity under stock plans 0.6 0.2 0.3 - ------------------------------------------------------------ ----------------------- -------------- ---------------- Balance, end of year 38.0 37.4 37.2 - ------------------------------------------------------------ ----------------------- -------------- ---------------- Treasury stock: Balance, beginning of year 0.8 0.8 - Repurchased 0.1 - 0.8 - ------------------------------------------------------------ ----------------------- -------------- ---------------- Balance, end of year 0.9 0.8 0.8 - ------------------------------------------------------------ ----------------------- -------------- ---------------- Common stock outstanding 37.1 36.6 36.4 - ------------------------------------------------------------ ----------------------- -------------- ----------------
In 1998, Hexcel's Board of Directors approved plans to repurchase up to $20.0 of the Company's common stock. In 1998, the Company repurchased 0.8 shares of its common stock at an average cost of $12.32 per share, for a total of $10.0. The Board of Directors may also approve additional stock buybacks from time to time, subject to market conditions and the terms of the Company's credit agreements and indentures. STOCK-BASED INCENTIVE PLANS Hexcel has various stock option and management incentive plans for eligible employees, officers, directors and consultants. These plans provide for awards in the form of stock options, stock appreciation rights, restricted stock, restricted stock units and other stock-based awards. Options to purchase common stock are generally granted at the fair market value on the date of grant. Substantially all of these options have a ten-year term and generally vest over a three-year period, except for certain circumstances which may accelerate the vesting period. In 1998, Hexcel's stockholders approved various amendments to the Company's stock-based incentive plans, which increased the aggregate number of shares of stock issuable under these plans by 4.5 to 7.4. In 2000, the aggregate number of shares of stock issuable under these plans was further increased to 9.1. As of December 31, 2000, 1999 and 1998, Hexcel had outstanding a total of 0.8, 0.9 and 0.5 of performance accelerated restricted stock units ("PARS"), respectively. PARS are convertible to an equal number of shares of Hexcel common stock and generally vest in increments over a seven-year period, subject to certain terms of employment and other circumstances that may accelerate the vesting period. In 2000, 1999 and 1998, 0.7, 0.1 and 0.3 PARS vested, respectively, and 0.2, 0.3, and 0 PARS were converted into shares of Hexcel common stock, respectively. Approximately $4.5, $0.5 and $1.7 of compensation expense was recognized in 2000, 1999 and 1998, respectively, with respect to the PARS. In 2000, $2.4 of PARS compensation expense was recognized due to accelerated vesting as a result of the attainment of certain financial and other performance targets as well as the change in control transaction. 77 Stock option data for the three years ended December 31, 2000, 1999 and 1998, were:
- --------------------------------------------------------------------------------- --------------- ------------------- WEIGHTED AVERAGE NUMBER OF EXERCISE OPTIONS PRICE - ---------------------------------------------------------------------------------- -------------- ----- ------------- Options outstanding as of January 1, 1998 4.9 $ 15.39 Options granted 3.2 $ 12.23 Options exercised (0.2) $ 8.53 Options expired or canceled (2.8) $ 18.52 - ---------------------------------------------------------------------------------- -------------- ----- ------------- Options outstanding as of December 31, 1998 5.1 $ 12.05 Options granted 1.0 $ 6.57 Options expired or canceled (0.2) $ 11.81 - ---------------------------------------------------------------------------------- -------------- ----- ------------- Options outstanding as of December 31, 1999 5.9 $ 11.18 Options granted 1.6 $ 9.23 Options exercised (0.3) $ 6.52 Options expired or canceled (0.5) $ 11.85 - ---------------------------------------------------------------------------------- -------------- ----- ------------- Options outstanding as of December 31, 2000 6.7 $ 10.56 - ---------------------------------------------------------------------------------- -------------- ----- -------------
As previously discussed in Note 10, approximately 1.3 of stock options, with exercise prices ranging from $2.41 to $29.63 per share, and having a weighted average exercise price of $8.99 per share, became vested as a result of the change in control event. The number of options exercisable as of December 31, 2000, 1999 and 1998 were 3.9, 2.1 and 1.5, respectively, at a weighted average exercise price per share of $10.80, $12.02 and $11.54, respectively. The following table summarizes information about stock options outstanding as of December 31, 2000:
- ---------------------------- ------------------------------------------------------ ---------------------------------- OPTIONS OUTSTANDING OPTIONS EXERCISABLE - ---------------------------- ------------------------------------------------------ ---------------------------------- WEIGHTED WEIGHTED WEIGHTED NUMBER OF AVERAGE AVERAGE NUMBER OF AVERAGE RANGE OF OPTIONS REMAINING EXERCISE OPTIONS EXERCISE EXERCISE PRICES OUTSTANDING LIFE (IN YEARS) PRICE EXERCISABLE PRICE - ---------------------------- ---------------- ------------------ ------------------ ---------------- ----------------- $ 2.41 - 4.53 0.2 5.6 $ 3.52 0.1 $ 3.18 $ 4.54 - 9.94 2.6 8.7 $ 7.37 1.5 $ 7.00 $ 9.95 - 14.99 3.4 7.4 $ 11.93 1.7 $ 12.25 $ 15.00 - 18.50 0.4 6.1 $ 16.54 0.5 $ 16.56 $ 18.51 - 29.63 0.1 6.9 $ 24.26 0.1 $ 24.34 - ----- ---------------------- ---------------- ------------------ ----- ------------ ---------------- ---- ------------ $ 2.41 - 29.63 6.7 7.8 $ 10.56 3.9 $ 10.80 - ----- ---------------------- ---------------- ------------------ ----- ------------ ---------------- ---- ------------
EMPLOYEE STOCK PURCHASE PLAN ("ESPP") Hexcel maintains an ESPP, under which eligible employees may contribute up to 10% of their base earnings toward the quarterly purchase of the Company's common stock at a purchase price equal to 85% of the fair market value of the common stock on the purchase date. The maximum number of shares of common stock reserved for issuance under the ESPP is 0.2. During 2000, 1999 and 1998, an aggregate total of 0.2 shares of common stock were issued under the ESPP. 78 PRO FORMA DISCLOSURES The Company has elected to continue to follow APB Opinion No. 25 for accounting for its stock-based incentive plans. Had compensation expense for the Company's stock option plans been determined as prescribed by SFAS 123, pro forma net income (loss) and related per share amounts would have been as follows:
- ----------------------------------------------------------------- ---------------- --------------- ---------------- 2000 1999 1998 - ----------------------------------------------------------------- ---- ----------- --- ----------- --- ------------ Net income (loss): As reported $ 54.2 $ (23.3) $ 50.4 Pro forma 48.9 (25.8) 48.2 Basic net income (loss) per share: As reported $ 1.47 $ (0.64) $ 1.38 Pro forma 1.33 (0.71) 1.31 Diluted net income (loss) per share: As reported $ 1.32 $ (0.64) $ 1.24 Pro forma 1.21 (0.71) 1.19 - ----------------------------------------------------------------- ---- ----------- --- ----------- --- ------------
The weighted average fair value of options granted, as determined by the Black-Scholes pricing model, during 2000, 1999 and 1998 was $4.48, $6.57 and $12.23, respectively. The following ranges of assumptions were used in the Black-Scholes pricing models for options granted in 2000, 1999 and 1998: risk-free interest of 4.6% to 6.5%; estimated volatility of 40% to 50%; dividend yield of 0.0%; and an expected life of 4 to 5 years. NOTE 14 - NET INCOME (LOSS) PER SHARE Computations of basic and diluted net income (loss) per share for the years ended December 31, 2000, 1999 and 1998, are as follows:
- ---------------------------------------------------------------- ----------------- ---------------- ----------------- 2000 1999 1998 - ---------------------------------------------------------------- ---- ------------ ---- ----------- ----- ----------- Basic net income (loss) per share: Net income (loss) $ 54.2 $ (23.3) $ 50.4 - ---------------------------------------------------------------- ---- ------------ ---- ----------- ----- ----------- Weighted average common shares outstanding 36.8 36.4 36.7 - ---------------------------------------------------------------- ---- ------------ ---- ----------- ----- ----------- Basic net income (loss) per share $ 1.47 $ (0.64) $ 1.38 - ---------------------------------------------------------------- ---- ------------ ---- ----------- ----- ----------- Diluted net income (loss) per share: Net income (loss) $ 54.2 $ (23.3) $ 50.4 Effect of dilutive securities: Convertible subordinated notes, due 2003 5.1 - 5.1 Convertible subordinated debentures, due 2011 1.1 - 1.1 - ---------------------------------------------------------------- ---- ------------ ---- ----------- ----- ----------- Adjusted net income (loss) $ 60.4 $ (23.3) $ 56.6 - ---------------------------------------------------------------- ---- ------------ ---- ----------- ----- ----------- Weighted average common shares outstanding 36.8 36.4 36.7 Effect of dilutive securities: Stock options 0.8 - 0.9 Convertible subordinated notes, due 2003 7.2 - 7.2 Convertible subordinated debentures, due 2011 0.9 - 0.9 - ---------------------------------------------------------------- ---- ------------ ---- ----------- ----- ----------- Diluted weighted average common shares outstanding 45.7 36.4 45.7 - ---------------------------------------------------------------- ---- ------------ ---- ----------- ----- ----------- Diluted net income (loss) per share $ 1.32 $ (0.64) $ 1.24 - ---------------------------------------------------------------- ---- ------------ ---- ----------- ----- -----------
The convertible subordinated notes, due 2003, the convertible subordinated debentures, due 2011, and the stock options were excluded from the 1999 computation of diluted net loss per share, as they were antidilutive. 79 Approximately 4.5 stock options were excluded from the 2000 calculation of diluted net income per share. The exercise price for these stock options ranged from approximately $9.19 to $29.63 per share, with the weighted average price being approximately $12.55 per share. Substantially all of the Company's stock options were included in the calculation of the diluted net income per share for the year ended December 31, 1998. NOTE 15 - DERIVATIVE FINANCIAL INSTRUMENTS As of December 31, 2000 and 1999, the Company had an interest rate cap agreement outstanding which provided a maximum fixed rate of 5.5% on the applicable London interbank rate on a notional amount of $50.0 of the Senior Credit Facility. The cost of the interest rate cap was being amortized to interest expense over the term of the contract. As of December 31, 2000 and 1999, the fair value and carrying amount of this contract was not material to Hexcel's consolidated financial statements. FOREIGN CURRENCY FORWARD EXCHANGE CONTRACTS (UNAUDITED) In January 2001, Hexcel entered into a number of foreign currency forward exchange contracts to exchange U.S. dollars for Euros at fixed rates on specified dates through March 2005. The aggregate notional amount of these contracts is $96.7. The purpose of these contracts is to hedge an equivalent amount of projected U.S. dollar receipts by two of the Company's European subsidiaries, under long-term sales contracts with certain customers. These contracts are expected to provide the Company with a more balanced matching of future cash receipts and expenditures by currency, thereby reducing the Company's exposure to fluctuations in currency exchange rates. NOTE 16 - CONTINGENCIES Hexcel is involved in litigation, investigations and claims arising out of the conduct of its business, including those relating to commercial transactions, as well as to environmental, health and safety matters. The Company estimates and accrues its liabilities resulting from such matters based on a variety of factors, including outstanding legal claims and proposed settlements; assessments by internal and external counsel of pending or threatened litigation; and assessments by environmental engineers and consultants of potential environmental liabilities and remediation costs. Such estimates exclude counterclaims against other third parties. Such estimates are not discounted to reflect the time value of money due to the uncertainty in estimating the timing of the expenditures, which may extend over several years. Although it is impossible to determine the level of future expenditures for legal, environmental and related matters with any degree of certainty, it is the Company's opinion, based on available information, that it is unlikely that these matters, individually or in the aggregate, will have a material adverse effect on the consolidated financial position, results of operations or cash flows of the Company. LEGAL AND ENVIRONMENTAL CLAIMS AND PROCEEDINGS Hexcel has been named as a potentially responsible party with respect to several hazardous waste disposal sites that it does not own or possess, which are included on the Superfund National Priority List of the U.S. Environmental Protection Agency or on equivalent lists of various state governments. The Company believes that it has limited or no liability for cleanup costs at these sites, and intends to vigorously defend itself in these matters. Pursuant to the New Jersey Environmental Responsibility and Clean-Up Act, Hexcel signed an administrative consent order to pay for the environmental remediation of a manufacturing facility it owns and formerly operated in Lodi, New Jersey. The Company's estimate of the remaining cost to satisfy this consent order is accrued in the accompanying consolidated balance sheets. The ultimate cost of remediating the Lodi site will depend on developing circumstances. Hexcel was party to a cost-sharing agreement regarding the operation of certain environmental remediation systems necessary to satisfy a post-closure 80 care permit issued to a previous owner of the Company's Kent, Washington, site by the U.S. Environmental Protection Agency. Under the terms of the cost-sharing agreement, the Company was obligated to reimburse the previous owner for a portion of the cost of the required remediation activities. Management has determined that the cost-sharing agreement terminated on December 22, 1998; however, the other party disputes this determination. The Company's estimate of the remaining costs associated with the cleanup of this site is accrued in the accompanying consolidated balance sheets. OTHER PROCEEDINGS Hexcel is aware of a grand jury investigation being conducted by the Antitrust Division of the United States Department of Justice with respect to the carbon fiber and carbon fiber prepreg industries. The Department of Justice appears to be reviewing the pricing of all manufacturers of carbon fiber and carbon fiber prepreg since 1993. The Company, along with other manufacturers of these products, has received a grand jury subpoena requiring production of documents to the Department of Justice. The Company is not in a position to predict the direction or outcome of the investigation; however, it is cooperating with the Department of Justice. In 1999, Hexcel was joined in a purported class action lawsuit alleging antitrust violations in the sale of carbon fiber, carbon fiber industrial fabrics and carbon fiber prepreg. The Company was one of many manufacturers joined in the lawsuit, which was spawned from the Department of Justice investigation. The lawsuit is in its preliminary stages and the Company is not in a position to predict the outcome, but believes that the lawsuit is without merit as to the Company. NOTE 17 - SUPPLEMENTAL CASH FLOW INFORMATION Supplemental cash flow information, including non-cash financing and investing activities, for the years ended December 31, 2000, 1999 and 1998, consist of the following:
- ---------------------------------------------------------------- ----------------- ---------------- ----------------- 2000 1999 1998 - ---------------------------------------------------------------- ----------------- ---------------- ----------------- Cash paid for: Interest $ 63.3 $ 59.1 $ 28.8 Taxes 11.5 17.7 26.4 - ---------------------------------------------------------------- ----- ----------- ---- ----------- ----- ----------- Non-cash items: Common stock issued under incentive plans 4.2 0.7 1.9 Conversion of senior subordinated notes, due 2003 - - 0.1 Capital lease obligation in connection with the acquisition of the Clark-Schwebel business - - 50.0 - ---------------------------------------------------------------- ----- ----------- ---- ----------- ----- -----------
NOTE 18 - SEGMENT INFORMATION Hexcel's business segments and related products are as follows: REINFORCEMENT PRODUCTS: This segment manufactures and sells carbon fibers and carbon, glass and aramid fiber fabrics. These reinforcement products comprise the foundation of most composite materials, parts and structures. The segment weaves electronic fiberglass fabrics that are a substrate for printed circuit boards. All of the Company's electronics sales come from reinforcement fabric sales. This segment also sells products for industrial applications such as decorative blinds and soft body armor. In addition, this segment sells to the Company's Composite Materials business segment, and to other third-party customers in the commercial aerospace and space and defense markets. Sales from the acquired Clark-Schwebel business are included in this business segment. COMPOSITE MATERIALS: This segment manufactures and sells composite materials, including prepregs, honeycomb, structural adhesives, sandwich panels 81 and specially machined honeycomb parts, primarily to the commercial aerospace and space and defense markets, as well as to industrial markets. This segment also sells to the Company's Engineered Products business segment. ENGINEERED PRODUCTS: This segment manufactures and sells a range of lightweight, high-strength composite structures primarily to the commercial aerospace and space and defense markets. As discussed in Note 2, the Engineered Products business segment includes the results of the Bellingham aircraft interiors businesses, up to the date of its disposal on April 26, 2000. This business manufactured and sold composite interiors to the aircraft refurbishment market. The financial results for Hexcel's business segments have been prepared using a management approach, which is consistent with the basis and manner in which Hexcel management internally segregates financial information for the purposes of assisting in making internal operating decisions. Hexcel evaluates performance based on adjusted income before business consolidation expenses, interest and taxes ("Adjusted EBIT"), and generally accounts for intersegment sales based on arm's-length prices. Corporate and other expenses are not allocated to the business segments, except to the extent that the expenses can be directly attributable to the business segments. The following table presents financial information on the Company's business segments as of December 31, 2000, 1999 and 1998, and for the years then ended:
- ------- ---------- ----------------- ----------------- --------------- ---------------- --------------- -------------- REINFORCEMENT COMPOSITE ENGINEERED CORPORATE/ PRODUCTS MATERIALS PRODUCTS ELIMINATIONS TOTAL - ------- ---------- ----------------- ----------------- --------------- ---------------- --------------- -------------- Third-Party Sales 2000 $ 359.2 $ 567.0 $ 129.5 $ - $ 1,055.7 1999 330.9 605.9 214.7 - 1,151.5 1998 224.8 658.0 206.2 - 1,089.0 - ------- ---------- ----------------- -- -------------- ----- ---------- --- ----------- ---- ----------- --- ---------- Intersegment sales 2000 97.5 7.1 - (104.6) - 1999 111.0 9.0 - (120.0) - 1998 130.3 11.8 0.1 (142.2) - - ------- ---------- ----------------- -- -------------- ----- ---------- --- ----------- ---- ----------- --- ---------- Adjusted EBIT 2000 46.2 68.5 6.0 (34.4) 86.3 1999 33.7 68.0 22.4 (35.1) 89.0 1998 57.4 82.7 20.5 (30.9) 129.7 - ------- ---------- ----------------- -- -------------- ----- ---------- --- ----------- ---- ----------- --- ---------- Depreciation & amortization 2000 34.1 18.5 3.3 2.8 58.7 1999 34.4 20.3 3.5 3.1 61.3 1998 23.6 17.4 3.3 3.2 47.5 - ------- ---------- ----------------- -- -------------- ----- ---------- --- ----------- ---- ----------- --- ---------- Equity in earnings and writedown of investments in affiliated companies 2000 5.9 - (0.4) - 5.5 1999 (20.0) - - - (20.0) 1998 0.5 - - - 0.5 - ------- ---------- ----------------- -- -------------- ----- ---------- --- ----------- ---- ----------- --- ---------- Business consolidation expenses 2000 (1.4) 10.9 1.4 - 10.9 1999 6.7 9.7 1.6 2.1 20.1 1998 1.6 3.2 5.5 2.4 12.7 - ------- ---------- ------------------ -- ------------- ---- ---------- ---- ----------- --- ----------- --- ---------- Business consolidation payments 2000 2.2 7.2 1.9 0.5 11.8 1999 2.7 3.0 0.3 3.5 9.5 1998 0.6 7.1 - 1.0 8.7 - ------- ---------- ------------------ -- ------------- ---- ---------- ---- ----------- --- ----------- --- ---------- Segment assets 2000 704.6 377.7 84.2 44.9 1,211.4 1999 712.5 359.3 115.4 74.7 1,261.9 1998 788.4 428.2 140.5 47.1 1,404.2 - ------- ---------- ------------------ -- ------------- ---- ---------- ---- ----------- --- ----------- --- ---------- 82 - ------- ----------- ---------------- ----------------- ---------------- ---------------- ---------------- -------------- REINFORCEMENT COMPOSITE ENGINEERED CORPORATE/ PRODUCTS MATERIALS PRODUCTS ELIMINATIONS TOTAL - ------- ----------- ---------------- ----------------- ---------------- ---------------- ---------------- -------------- Investments in affiliated companies 2000 $ 59.6 $ - $ 12.5 $ - $ 72.1 1999 54.0 - 4.7 - 58.7 1998 70.3 - - - 70.3 - ------- ---------- ------------------ -- ------------- ---- ---------- ---- ----------- --- ----------- --- ---------- Capital expenditures 2000 15.6 21.2 1.1 1.7 39.6 1999 14.0 16.1 5.0 0.5 35.6 1998 21.1 33.3 9.2 2.9 66.5 - ------- ---------- ------------------ -- ------------- ---- ---------- ---- ----------- --- ----------- --- ----------
A reconciliation of the totals reported for Adjusted EBIT to consolidated income (loss) before income taxes is as follows:
- ----------------------------------------------------------------- ---------------- ----------------- ----------------- 2000 1999 1998 - ----------------------------------------------------------------- ---------------- ----------------- ----------------- Total Adjusted EBIT for reportable segments & corporate $ 86.3 $ 89.0 $ 129.7 Total consolidated business consolidation expenses (10.9) (20.1) (12.7) Interest expense (68.7) (73.9) (38.7) Gain on sale of Bellingham aircraft interiors business 68.3 - - - ----------------------------------------------------------------- -- ------------- --- ------------- ---- ------------ Consolidated income (loss) before income taxes 75.0 (5.0) 78.3 - ----------------------------------------------------------------- -- ------------- --- ------------- ---- ------------ GEOGRAPHIC DATA Sales and long-lived assets, by geographic area, consisted of the following for the three years ended December 31, 2000, 1999 and 1998: - ---------------------------------------------------------------- ----------------- ----------------- ----------------- 2000 1999 1998 - ---------------------------------------------------------------- ----------------- ----------------- ----------------- Net sales to external customers: United States $ 650.7 $ 744.1 $ 687.6 International France 164.6 168.1 178.8 United Kingdom 75.0 76.4 66.0 Other 165.4 162.9 156.6 - ---------------------------------------------------------------- --- ------------- --- ------------- ---- ------------ Total international 405.0 407.4 401.4 - ---------------------------------------------------------------- --- ------------- --- ------------- ---- ------------ Total consolidated net sales 1,055.7 1,151.5 1,089.0 - ---------------------------------------------------------------- --- ------------- --- ------------- ---- ------------ Long-lived assets: United States 746.6 793.5 831.4 International France 35.1 36.6 42.2 United Kingdom 46.0 44.0 46.4 Other 28.1 22.8 31.7 - ---------------------------------------------------------------- --- ------------- --- ------------- ---- ------------ Total international 109.2 103.4 120.3 - ---------------------------------------------------------------- --- ------------- --- ------------- ---- ------------ Total consolidated long-lived assets $ 855.8 $ 896.9 $ 951.7 - ---------------------------------------------------------------- --- ------------- --- ------------- ---- ------------
Net sales are attributed to geographic areas based on the location in which the sale originated. U.S. net sales include U.S. exports to non-affiliates of $47.7, $91.4 and $100.0, for the years ended December 31, 2000, 1999 and 1998, respectively, of which $12.1, $32.7, and $20.9, respectively, were sales attributable to the Bellingham aircraft interiors business. Long-lived assets primarily consist of property, plant and equipment, intangibles, investments in affiliated companies and other assets, less long-term deferred tax assets. 83 SIGNIFICANT CUSTOMERS To the extent that the end application of net sales can be identified, The Boeing Company and its subcontractors accounted for approximately 20%, 28% and 35% of 2000, 1999 and 1998 net sales, respectively. Similarly, the Airbus Industrie consortium and its subcontractors accounted for approximately 13%, 10% and 11% of 2000, 1999 and 1998 net sales, respectively. NOTE 19 - QUARTERLY FINANCIAL DATA (UNAUDITED) Quarterly financial data for the years ended December 31, 2000 and 1999, were:
- ----------------------------------------------- ---------------- ----------------- ---------------- ----------------- FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER - ----------------------------------------------- -- ------------- --- ------------- -- ------------- --- ------------- 2000 - ----------------------------------------------- -- ------------- --- ------------- -- ------------- --- ------------- Net sales $ 279.8 $ 271.6 $ 247.4 $ 256.9 Gross margin 62.2 60.5 51.7 57.0 Business consolidation expenses 1.2 - 3.3 6.4 Operating income 21.8 24.1 13.4 16.1 Net income 2.6 50.4 0.2 1.0 - ----------------------------------------------- -- ------------- --- ------------- -- ------------- --- ------------- Net income per share: Basic $ 0.07 $ 1.38 $ 0.00 $ 0.03 Diluted 0.07 1.14 0.00 0.03 Dividends per share - - - - - ----------------------------------------------- -- ------------- --- ------------- -- ------------- --- ------------- Market price: High $ 6.25 $ 9.94 $ 15.44 $ 13.56 Low 4.75 5.00 9.38 8.56 - ----------------------------------------------- -- ------------- --- ------------- -- ------------- --- ------------- 1999 - ----------------------------------------------- -- ------------- --- ------------- -- ------------- --- ------------- Net sales $ 316.2 $ 292.6 $ 274.1 $ 268.6 Gross margin 70.7 66.3 51.5 54.0 Business consolidation expenses 2.8 1.4 13.6 2.3 Operating income 27.2 24.8 2.7 14.2 Net income (loss) 5.2 4.3 (30.1) (2.7) - ----------------------------------------------- -- ------------- --- ------------- -- ------------- --- ------------- Net income (loss) per share: Basic $ 0.14 $ 0.12 $ (0.82) $ (0.07) Diluted 0.14 0.12 (0.82) (0.07) Dividends per share - - - - - ----------------------------------------------- -- ------------- --- ------------- -- ------------- --- ------------- Market price: High $ 9.60 $ 11.38 $ 9.06 $ 6.06 Low 6.50 6.94 5.81 5.00 - ----------------------------------------------- -- ------------- --- ------------- -- ------------- --- -------------
As discussed in Note 2, the Bellingham aircraft interiors business was sold on April 26, 2000, resulting in an after-tax gain of approximately $44, or $0.97 per diluted share. 84 EX-10 2 0002.txt EXHIBIT 10.16 Exhibit 10.16 RETAINER FEE OPTION AGREEMENT for Non-Employee Directors OPTION AGREEMENT, dated as of the Grant Date, by and between the Optionee and Hexcel Corporation (the "Corporation"). W I T N E S S E T H: - - - - - - - - - - WHEREAS, the Corporation has adopted the Hexcel Corporation Incentive Stock Plan (the "Plan"); and WHEREAS, the Board of Directors of the Corporation (the "Board") has determined that it is desirable and in the best interests of the Corporation to grant to the Optionee a stock option as an incentive for the Optionee to advance the interests of the Corporation; NOW, THEREFORE, the parties agree as follows: 1. NOTICE OF GRANT; INCORPORATION OF PLAN. A Notice of Grant is attached hereto as Annex A and incorporated by reference herein. Unless otherwise provided herein, capitalized terms used herein and set forth in such Notice of Grant shall have the meanings ascribed to them in the Notice of Grant and capitalized terms used herein and set forth in the Plan shall have the meanings ascribed to them in the Plan. The Plan is incorporated by reference and made a part of this Option Agreement, and this Option Agreement shall be subject to the terms of the Plan, as the Plan may be amended from time to time, provided that any such amendment of the Plan must be made in accordance with Section X of the Plan. The Option granted herein constitutes an Award within the meaning of the Plan. 2. GRANT OF OPTION. Pursuant to the Plan and subject to the terms and conditions set forth herein and therein, the Corporation hereby grants to the Optionee the right and option (the "Option") to purchase all or any part of the Option Shares of the Corporation's common stock, $.01 par value per share (the "Common Stock"), which Option is not intended to qualify as an incentive stock option, as defined in Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"). 3. PURCHASE PRICE. The purchase price per share of the Option Shares shall be the Purchase Price. 4. TERMS OF OPTION. (a) EXPIRATION DATE; TERM. Subject to Section 4(d) below, the Option shall expire on, and shall no longer be exercisable following, the tenth anniversary of the Grant Date. The ten-year period from the Grant Date to its tenth anniversary shall constitute the "Term" of the Option. (b) VESTING PERIOD; EXERCISABILITY. Subject to Section 4(c) and 4(d) below, the Option shall vest in proportion to the time elapsed between the Grant Date and the first anniversary of the Grant Date. (c) CHANGE OF CONTROL. In the event of a Change in Control (as defined in the last Section hereof), the Option shall immediately become fully vested and exercisable. (d) TERMINATION OF SERVICE AS DIRECTOR. (i) Except as provided in Section 4(d)(ii) hereof, if the Optionee's service as a member of the Board is terminated for any reason (other than death or disability), the Option (to the extent vested on the date of termination) may be exercised at any time within one year after such termination (but not beyond the Term of the Option). The Option, to the extent not then vested, shall immediately expire upon such termination. (ii) In the event the Optionee's service as a member of the Board is terminated because of death or disability, the Option (to the extent vested on the date of termination) may be exercised at any time within three years after the Optionee's death or disability (but not beyond the Term of the Option). The Option, to the extent not vested, shall immediately expire upon such termination. 5. ADJUSTMENT UPON CHANGES IN CAPITALIZATION. (a) The aggregate number of Option Shares and the Purchase Price shall be appropriately adjusted by the Compensation Committee (the "Committee") of the Board for any increase or decrease in the number of issued shares of Common Stock resulting from a subdivision or consolidation of shares or other capital adjustment, or the payment of a stock dividend or other increase or decrease in such shares, effected without receipt of consideration by the Corporation, or other change in corporate or capital structure. The Committee shall also make the foregoing changes and any other changes, including changes in the classes of securities available, to the extent reasonably necessary or desirable to preserve the intended benefits under this Option Agreement in the event of any other reorganization, recapitalization, merger, consolidation, spin-off, extraordinary dividend or other distribution or similar transaction involving the Corporation. (b) Any adjustment under this Section 5 in the number of Option Shares and the Purchase Price shall apply to only the unexercised portion of the Option. If fractions of a share would result from any such adjustment, the adjustment shall be rounded down to the nearest whole number of shares. 6. METHOD OF EXERCISING OPTION AND WITHHOLDING. -2- (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 CONTINUED SERVICE AS DIRECTOR. Nothing contained herein shall be deemed to confer upon the Optionee any right to continue to serve as a member of the Board. 10. GOVERNING LAW/JURISDICTION. This Option Agreement shall be governed by and construed in accordance with the laws of the State of Delaware without reference to principles of conflict of laws. 11. RESOLUTION OF DISPUTES. Any disputes arising under or in connection with this Option Agreement shall be resolved by binding arbitration before a single arbitrator, to be held in New York in accordance with the commercial rules and procedures of the American Arbitration Association. Judgment upon the award rendered by the arbitrator shall be final and subject to appeal only to the extent permitted by law. Each party shall bear such party's own expenses incurred in connection with any arbitration; PROVIDED, HOWEVER, that the cost of the arbitration, including without limitation, -3- reasonable attorneys' fees of the Optionee, shall be borne by the Corporation in the event the Optionee is the prevailing party in the arbitration. Anything to the contrary notwithstanding, each party hereto has the right to proceed with a court action for injunctive relief or relief from violations of law not within the jurisdiction of an arbitrator. 12. NOTICES. Any notice required or permitted under this Option Agreement shall be deemed given when delivered personally, or when deposited in a United States Post Office, postage prepaid, addressed, as appropriate, to the Optionee at the last address specified in Optionee's records with the Corporation, or such other address as the Optionee may designate in writing to the Corporation, or to the Corporation, Attention: Corporate Secretary, or such other address as the Corporation may designate in writing to the Optionee. 13. FAILURE TO ENFORCE NOT A WAIVER. The failure of either party hereto to enforce at any time any provision of this Option Agreement shall in no way be construed to be a waiver of such provision or of any other provision hereof. 14. COUNTERPARTS. This Option Agreement may be executed in two or more counterparts, each of which shall be an original but all of which together shall represent one and the same agreement. 15. MISCELLANEOUS. This Option Agreement cannot be changed or terminated orally. This Option Agreement and the Plan contain the entire agreement between the parties relating to the subject matter hereof. The section headings herein are intended for reference only and shall not affect the interpretation hereof. 16. DEFINITIONS. For purposes of this Option Agreement: (I) the term "Beneficial Owner" (and variants thereof) shall have the meaning given in Rule 13d-3 promulgated under the Exchange Act; (II) the term "Change in Control" shall mean any of the following events: (1) any Person is or becomes the Beneficial Owner, directly or indirectly, of 40% or more of either (a) the then outstanding Common Stock of the Corporation (the "Outstanding Common Stock") or (b) the combined voting power of the then outstanding securities entitled to vote generally in the election of directors of the Corporation (the "Total Voting Power"); excluding, however, the following: (i) any acquisition by the Corporation or any of its Controlled Affiliates, (ii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Corporation or any of its Controlled Affiliates and (iii) 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, as of the effective date of this Employee Option Agreement, constitute the Board (such individuals shall be hereinafter referred to as the "Incumbent Directors") cease for any reason to constitute at least a majority of the Board; PROVIDED, HOWEVER, for purposes of -4- this definition, that any individual who becomes a director subsequent to such effective date, whose election, or nomination for election by the Corporation's stockholders, was made or approved pursuant to the Governance Agreement 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 Corporation or any direct or indirect Subsidiary of the Corporation or a sale or other disposition of all or substantially all of the assets of the Corporation ("Corporate Transaction"); excluding, however, such a Corporate Transaction (a) pursuant to which all or substantially all of the individuals and entities who are the Beneficial Owners, respectively, of the Outstanding Common Stock and Total Voting Power immediately prior to such Corporate Transaction will Beneficially Own, directly or indirectly, more than 50%, respectively, of the outstanding common stock and the combined voting power of the then outstanding 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 company which as a result of such transaction owns the Corporation or all or substantially all of the Corporation's assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership immediately prior to such Corporate Transaction of the Outstanding Common Stock and Total Voting Power, as the case may be, and (b) 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 company which as a result of such transaction owns the Corporation or all or substantially all of the Corporation's assets either directly or through one or more subsidiaries); or (4) the approval by the stockholders of the Corporation of a complete liquidation or dissolution of the Corporation; (III) the term "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended from time to time; (IV) the term "Governance Agreement" shall mean the Governance Agreement, dated December 19, 2000, among LXH, L.L.C., LXH II, L.L.C., Hexcel Corporation and the other parties listed on the signature pages thereto; and (V) 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. -5- ANNEX A NOTICE OF GRANT STOCK OPTION HEXCEL CORPORATION INCENTIVE STOCK PLAN The following member of the Board of Directors of Hexcel Corporation, a Delaware corporation ("Hexcel"), has been granted an option to purchase shares of the Common Stock of Hexcel, $.01 par value per share, in accordance with the terms of this Notice of Grant and the Retainer Fee Option Agreement to which this Notice of Grant is attached. The following is a summary of the principal terms of the option which has been granted. The terms below shall have the meanings ascribed to them below when used in the Option Agreement. --------------------------------------------------------------------------- Optionee --------------------------------------------------------------------------- Address of Optionee --------------------------------------------------------------------------- Grant Date --------------------------------------------------------------------------- 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 Retainer Fee Option Agreement to which this Notice of Grant is attached and execute this Notice of Grant and Option Agreement as of the Grant Date. - ------------------------------------------------------------------------------- ____________________________ HEXCEL CORPORATION - ------------------------------------------------------------------------------- Optionee - ------------------------------------------------------------------------------- By: _____________________________ - ------------------------------------------------------------------------------- Ira J. Krakower - ------------------------------------------------------------------------------- Senior Vice President - ------------------------------------------------------------------------------- EX-10 3 0003.txt EXHIBIT 10.22 Exhibit 10.22 PERFORMANCE ACCELERATED RESTRICTED STOCK UNIT AGREEMENT under the Hexcel Corporation Incentive Stock Plan This Performance Accelerated Restricted Stock Unit Agreement (the "Agreement"), is entered into as of the Grant Date, by and between Hexcel Corporation, a Delaware corporation (the "Company"), and the Grantee. Pursuant to the Hexcel Corporation Incentive Stock Plan (the "Plan"), the Compensation Committee (the "Committee") of the Board of Directors of the Company (the "Board") has determined that the Grantee shall be granted Performance Accelerated Restricted Stock Units ("PARS") upon the terms and subject to the conditions hereinafter contained. Capitalized terms used but not defined herein shall have the meanings assigned to them in the Plan. 1. NOTICE OF GRANT; INCORPORATION OF PLAN. A Notice of Grant is attached hereto as Annex A and incorporated by reference herein. Unless otherwise provided herein, capitalized terms used in this Agreement and set forth in the Notice of Grant shall have the meanings ascribed to them in the Notice of Grant and capitalized terms used in this Agreement and set forth in the Plan shall have the meanings ascribed to them in the Plan. The Plan is incorporated by reference and made a part of this Agreement, and this Agreement shall be subject to the terms of the Plan, as the Plan may be amended from time to time, provided that any such amendment of the Plan must be made in accordance with Section X of the Plan. The PARS granted herein constitute an Award within the meaning of the Plan. 2. TERMS OF RESTRICTED STOCK. The grant of PARS provided in Section 1 hereof shall be subject to the following terms, conditions and restrictions: (a) The Grantee shall not possess any incidents of ownership (including, without limitation, dividend and voting rights) in shares of the Company's common stock, $.01 par value per share (the "Common Stock") in respect of the PARS until such PARS have vested and been distributed to the Grantee in the form of shares of Common Stock. (b) Except as provided in this Section 2 (b), the PARS and any interest therein may not be sold, assigned, transferred, pledged, hypothecated or otherwise disposed of, except by will or the laws of descent and distribution, prior to the distribution of the Common Stock in respect of such PARS and subject to the conditions set forth in the Plan and this Agreement. Any attempt to transfer PARS in contravention of this Section is void AB INITIO. PARS shall not be subject to execution, attachment or other process. Notwithstanding the foregoing, the Grantee shall be permitted to transfer PARS to members of his or her immediate family (I.E., children, grandchildren or spouse), trusts for the benefit of such family members, and partnerships whose only partners are such family members; provided, however, that no consideration can be paid for the transfer of the PARS and the transferee of the PARS shall be subject to all conditions applicable to the PARS (including all of the terms and conditions of this Agreement) prior to transfer. 3. VESTING AND CONVERSION OF PARS. The PARS shall vest on (a) January 1, 2008, or (b) on an earlier date when the closing price of a share of Common Stock as reported on the New York Stock Exchange Consolidated Transactions Tape shall equal or exceed $20 for any ten days out of thirty consecutive trading days. Upon the later to occur of (i) January 1, 2004 or (ii) the vesting of the PARS, such vested PARS shall be converted into an equivalent number of shares of Common Stock that will be immediately distributed to the Grantee; PROVIDED, HOWEVER, that, to the extent that (and only to the extent that) the Company would be precluded from deducting the associated compensation expense because of Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code"), such PARS shall be converted and distributed to the Grantee on the first business day of the first year (or years, if the first deferred distribution shall not include all of such PARS) in which the Company will not be so precluded; and PROVIDED FURTHER, that no PARS shall be converted and distributed to the Grantee unless the Grantee is an employee of the Company (or a Subsidiary) on December 31, 2003. On each dividend payment date with respect to the Common Stock subsequent to any PARS becoming fully vested but not yet converted and distributed by virtue of the immediately preceding proviso, the Company shall credit the Grantee with an additional number of fully vested whole and partial PARS (assuming each such PARS unit was a share of Common Stock) equal in value to the amount of dividends which the Grantee would have received on such dividend payment date if all such vested PARS (including PARS previously credited to the Grantee pursuant to this section) which had not yet been converted into shares had been so converted prior to the record date of such dividend. Such dividends will be credited as vested PARS as of the payment date of such dividends and such vested PARS shall thereafter be treated in the same manner as other PARS under this Agreement (the foregoing method of dividend crediting being referred to herein as being credited with the "Dividend Equivalent"). Upon the distribution of the shares of Common Stock in respect of the PARS, the Company shall issue to the Grantee or the Grantee's personal representative a stock certificate representing such shares of Common Stock, free of any restrictions. 4. TERMINATION OF EMPLOYMENT; CHANGE OF CONTROL. (a) For purposes of the grant hereunder, any transfer of employment by the Grantee among the Company and its Subsidiaries shall not be considered a termination of employment. Notwithstanding any other provision contained herein or in the Plan, (i) if the Grantee dies or terminates employment due to Disability (as defined in the last Section hereof), all PARS shall vest, be converted into shares of Common Stock and be immediately distributed to the Grantee, (ii) if the Grantee's employment with the Company is involuntarily terminated other than for Cause (as defined in the last Section hereof), all PARS shall vest, be converted into shares of Common Stock and be immediately distributed to the Grantee, (iii) if the Grantee voluntarily terminates employment with the Company, all vested PARS shall be converted into shares of Common Stock and be immediately distributed to the Grantee, provided that the Grantee is an employee of the Company (or a Subsidiary) on December 31, 2003, and (iv) if the Grantee's employment with the Company terminates due to the Grantee's Retirement (as defined in the last Section hereof), all PARS shall -2- vest, be converted in shares of Common Stock and be immediately distributed to the Grantee; PROVIDED, HOWEVER, that in each case an appropriate number of such PARS shall not be converted and distributed to the Grantee until the first business day of the first year in which the Company is not precluded from deducting the associated compensation expense under Section 162(m) of the Code, but only to the extent such number of PARS would not be deductible until such time; FURTHER, PROVIDED, that the Grantee shall, if applicable, be credited with the Dividend Equivalent with respect to such PARS. If the Grantee's employment with the Company is involuntarily terminated for Cause or the Grantee voluntarily terminates his employment with the Company, the Grantee shall forfeit all PARS which have not yet become vested as of the date of termination of employment. (b) In the event of a Change in Control (as defined in the last Section hereof), all PARS shall vest, be converted into shares of Common Stock and be immediately distributed to the Grantee. 5. EQUITABLE ADJUSTMENT. The aggregate number of shares of Common Stock subject to the PARS, and the $20 per share price set forth in clause 3(b) hereof, shall be proportionately adjusted for any increase or decrease in the number of issued shares of Common Stock resulting from a subdivision or consolidation of shares or other capital adjustment, or the payment of a stock dividend or other increase or decrease in such shares, effected without the receipt of consideration by the Company, or other change in corporate or capital structure. The Committee shall also make the foregoing changes and any other changes, including changes in the classes of securities available, to the extent reasonably necessary or desirable to preserve the intended benefits under this Agreement in the event of any other reorganization, recapitalization, merger, consolidation, spin-off, extraordinary dividend or other distribution or similar transaction involving the Company. 6. TAXES. The Grantee shall pay to the Company promptly upon request any taxes the Company reasonably determines it is required to withhold under applicable tax laws with respect to the PARS. Such payment shall be made as provided in Section IX(f) of the Plan. 7. NO GUARANTEE OF EMPLOYMENT. Nothing set forth herein or in the Plan shall confer upon the Grantee any right of continued employment for any period by the Company, or shall interfere in any way with the right of the Company to terminate such employment. 8. NOTICES. Any notice required or permitted under this Agreement shall be deemed given when delivered personally, or when deposited in a United States Post Office, postage prepaid, addressed, as appropriate, to the Grantee at the last address specified in Grantee's employment records, or such other address as the Grantee may designate in writing to the Company, or to the Company, Attention: Corporate Secretary, or such other address as the Company may designate in writing to the Grantee. -3- 9. FAILURE TO ENFORCE NOT A WAIVER. The failure of either party hereto to enforce at any time any provision of this Agreement shall in no way be construed to be a waiver of such provision or of any other provision hereof. 10. GOVERNING LAW. This Agreement shall be governed by and construed according to the laws of the State of Delaware, without regard to the conflicts of laws provisions thereof. 11. INCORPORATION OF PLAN. The Plan is hereby incorporated by reference and made a part of this Agreement, and this Agreement shall be subject to the terms of the Plan, as the Plan may be amended from time to time, provided that any such amendment of the Plan must be made in accordance with Section X of the Plan. The PARS granted herein constitute Awards within the meaning of the Plan. 12. COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which shall be an original but all of which together shall represent one and the same agreement. 13. MISCELLANEOUS. This Agreement cannot be changed or terminated orally. This Agreement and the Plan contain the entire agreement between the parties relating to the subject matter hereof. The section headings herein are intended for reference only and shall not affect the interpretation hereof. 14. DEFINITIONS. For purposes of this Agreement: (a) the term "Beneficial Owner" (and variants thereof) shall have the meaning given in Rule 13d-3 promulgated under the Exchange Act; (b) the term "Cause" shall mean (i) the willful and continued failure by the Grantee to substantially perform the Grantee's duties with the Company (other than any such failure resulting from the Grantee's incapacity due to physical or mental illness) after a written demand for substantial performance is delivered to the Grantee by the Company, which demand specifically identifies the manner in which the Company believes that the Grantee has not substantially performed the Grantee's duties, or (ii) the willful engaging by the Grantee in conduct which is demonstrably and materially injurious to the Company or its subsidiaries, monetarily or otherwise. For purposes of clauses (i) and (ii) of this definition, no act, or failure to act, on the Grantee's part shall be deemed "willful" unless done, or omitted to be done, by the Grantee not in good faith and without the reasonable belief that the Grantee's act, or failure to act, was in the best interest of the Company; (c) the term "Change in Control" shall mean any of the following events: (i) any Person is or becomes the Beneficial Owner, directly or indirectly, of 40% or more of either (A) the then outstanding Common Stock of the Company (the "Outstanding Common Stock") or (B) the combined voting power of the then outstanding securities entitled to vote generally in the election of directors of the Company (the "Total Voting Power"); excluding, however, the following: (I) any acquisition by the Company or any of its Controlled Affiliates, (II) any acquisition by -4- any employee benefit plan (or related trust) sponsored or maintained by the Company or any of its Controlled Affiliates and (III) any Person who becomes such a Beneficial Owner in connection with a transaction described in the exclusion within paragraph (iii) below; or (ii) a change in the composition of the Board such that the individuals who, as of the effective date of this Agreement, constitute the Board (such individuals shall be hereinafter referred to as the "Incumbent Directors") cease for any reason to constitute at least a majority of the Board; PROVIDED, HOWEVER, for purposes of this definition, that any individual who becomes a director subsequent to such effective date, whose election, or nomination for election by the Company's stockholders, was made or approved pursuant to the Governance Agreement or by a vote of at least a majority of the Incumbent Directors (or directors whose election or nomination for election was previously so approved) shall be considered a member of the Incumbent Board; but, PROVIDED, FURTHER, that any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest (as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a person or legal entity other than the Board shall not be 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 (A) pursuant to which all or substantially all of the individuals and entities who are the Beneficial Owners, respectively, of the Outstanding Common Stock and Total Voting Power immediately prior to such Corporate Transaction will Beneficially Own, directly or indirectly, more than 50%, respectively, of the outstanding common stock and the combined voting power of the then outstanding 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 company 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 (B) 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 company 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. -5- (d) the term "Disability" shall mean that, as a result of the Grantee's incapacity due to physical or mental illness or injury, the Grantee shall not have performed all or substantially all of the Grantee's usual duties as an employee of the Company for a period of more than one-hundred-fifty (150) days in any period of one-hundred-eighty (180) consecutive days; (e) the term "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended from time to time; (f) the term "Governance Agreement" shall mean the Governance Agreement, dated December 19, 2000, among LXH, L.L.C., LXH II, L.L.C., Hexcel Corporation and the other parties listed on the signature pages thereto; (g) 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 (h) the term "Retirement" shall mean termination of the Grantee's employment, other than by reason of death or Cause, either (A) at or after age 65 or (B) at or after age 55 after five (5) years of employment by the Company (or a Subsidiary thereof). -6- ANNEX A NOTICE OF GRANT PERFORMANCE ACCELERATED RESTRICTED STOCK UNITS HEXCEL CORPORATION INCENTIVE STOCK PLAN The following employee of Hexcel Corporation, a Delaware corporation, or a Subsidiary, has been granted performance accelerated restricted stock units in accordance with the terms of this Notice of Grant and the Agreement to which this Notice of Grant is attached. The terms below shall have the meanings ascribed to them below when used in the Agreement. ---------------------------------------------------------------------- Grantee ---------------------------------------------------------------------- Address of Grantee ---------------------------------------------------------------------- Employee Number ---------------------------------------------------------------------- Employee ID Number ---------------------------------------------------------------------- Foreign Sub Plan, if applicable ---------------------------------------------------------------------- Grant Date ---------------------------------------------------------------------- Aggregate Number of PARS Granted ---------------------------------------------------------------------- IN WITNESS WHEREOF, the parties hereby agree to the terms of this Notice of Grant and the Agreement to which this Notice of Grant is attached and execute this Notice of Grant and the Agreement as of the Grant Date. - ------------------------------------------------------------------------------- ____________________________ HEXCEL CORPORATION - ------------------------------------------------------------------------------- Grantee - ------------------------------------------------------------------------------- By: _____________________________ - ------------------------------------------------------------------------------- Ira J. Krakower - ------------------------------------------------------------------------------- Senior Vice President - ------------------------------------------------------------------------------- -7- EX-10 4 0004.txt EXHIBIT 10.37 (A) Exhibit 10.37(a) AMENDMENT TO AMENDED AND RESTATED EMPLOYMENT AGREEMENT AMENDMENT, dated November 21, 2000 (this "Amendment"), to Amended and Restated Employment Agreement (the "Amended and Restated Employment Agreement") dated as of October 11, 2000 by and between Hexcel Corporation (the "Company") and John J. Lee (the "Executive"). WHEREAS, the Company and the Executive desire to amend a provision of the Amended and Restated Employment Agreement. NOW, THEREFORE, the Company and the Executive hereby agree as follows: 1. The number "400,000" appearing in the first sentence of Section 5(c)(i) of the Amended and Restated Employment Agreement shall be deleted and the number "364,000" shall be inserted in lieu thereof. 2. Except as expressly modified herein, all terms and provisions of the Amended and Restated Employment Agreement shall remain in full force and effect and are hereby in all respects ratified and confirmed. 3. No change, modification or waiver of any provision of this Amendment shall be valid unless the same be in writing and signed by the parties hereto. 4. This Amendment shall be governed by, and construed in accordance with, the laws of the State of New York, without regard to its conflict of law rules. 5. This Amendment 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. IN WITNESS WHEREOF, the parties hereto have caused this Amendment 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/ John J. Lee ------------------------------------ John J. Lee EX-10 5 0005.txt EXHIBIT 10.37 (H) Exhibit 10.37(h) AMENDMENT TO SUPPLEMENTAL EXECUTIVE RETIREMENT AGREEMENT AMENDMENT made as of this 21st day of January 1999, 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 (the "Agreement"), and WHEREAS, the Company, the Executive and the trustees of the John J. Lee 1998 Irrevocable Insurance Trust have entered into a certain Split-Dollar Agreement of even date herewith; and WHEREAS, in consideration of the Company entering into the Split-Dollar Agreement, the Executive is willing to enter into this Amendment with the Company. NOW, THEREFORE, the parties mutually agree as follows: 1. Section 2.2.1 of the Agreement shall be amended by deleting the period at the end of the third sentence thereof, and inserting the following: " and less (C) $5,000." 2. Section 2.2.6 of the Agreement shall be amended by deleting the period at the end of the first sentence thereof, and inserting the following: "and less (iii) $5,000." 3. Section 3.2 of the Agreement shall be amended by deleting the period at the end of the second sentence thereof, and inserting the following: "and less (iii) $5,000." 4. Except as otherwise expressly amended by this Amendment, the Agreement shall remain in full force and effect as originally written. HEXCEL CORPORATION By: /s/ Ira J. Krakower -------------------------- Name: Ira J. Krakower Title: Senior Vice President /s/ John J. Lee ------------------------------------ John J. Lee EX-10 6 0006.txt EXHIBIT 10.37 (M) Exhibit 10.37(m) EMPLOYEE OPTION AGREEMENT under the Hexcel Corporation Incentive Stock Plan 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 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 its Subsidiaries shall not be considered a termination of employment. If the Optionee's employment with the Corporation is terminated for Cause (as defined in that certain Amended and Restated Employment Agreement, dated as of October 11, 2000, between the Corporation and the Optionee (the "Employment Agreement")), or the Optionee voluntarily terminates his employment with the Corporation other than for Good Reason (as defined in the Employment Agreement), the Optionee shall forfeit the portion of the Option to the extent not yet vested as of the Date of Termination (as defined in the Employment Agreement). The Option, to the extent then vested, in the case of the voluntary termination by the Optionee of his employment with the Company other than for Good Reason shall be exercisable until the third anniversary of the Date of Termination, and in the case of termination of the Optionee's employment for Cause shall be exercisable for a period of ninety (90) days following the Date of Termination. Notwithstanding any other provision contained herein, if the Optionee's employment with the Corporation is involuntarily terminated other than for Cause, the Optionee terminates employment for Good Reason or the Optionee dies or terminates employment due to disability (within the meaning of Section 7(b) of the Employment Agreement), the Option shall become fully and immediately vested and exercisable and shall remain exercisable for the lesser of (A) three years following the Date of Termination, or, if applicable, for three years following the Optionee's death or disability and (B) the remainder of the Term of the Option. (ii) In the event of a Change in Control (as defined in the last Section hereof), the Option shall immediately become fully vested and exercisable and the post-termination periods of exercisability set forth in Section 4(c)(i) hereof shall apply. 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 -2- 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. -3- 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: -4- (I) the term "Beneficial Owner" (and variants thereof) shall have the meaning given in Rule 13d-3 promulgated under the Exchange Act; (II) the term "Change in Control" shall mean any of the following events: (1) any Person is or becomes the Beneficial Owner, directly or indirectly, of 40% or more of either (a) the then outstanding Common Stock of the Corporation (the "Outstanding Common Stock") or (b) the combined voting power of the then outstanding securities entitled to vote generally in the election of directors of the Corporation (the "Total Voting Power"); excluding, however, the following: (i) any acquisition by the Corporation or any of its Controlled Affiliates, (ii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Corporation or any of its Controlled Affiliates and (iii) 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, as of the effective date of this Employee Option Agreement, constitute the Board (such individuals shall be hereinafter referred to as the "Incumbent Directors") cease for any reason to constitute at least a majority of the Board; PROVIDED, HOWEVER, for purposes of this definition, that any individual who becomes a director subsequent to such effective date, whose election, or nomination for election by the Corporation's stockholders, was made or approved pursuant to the Governance Agreement 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 Corporation or any direct or indirect Subsidiary of the Corporation or a sale or other disposition of all or substantially all of the assets of the Corporation ("Corporate Transaction"); excluding, however, such a Corporate Transaction (a) pursuant to which all or substantially all of the individuals and entities who are the Beneficial Owners, respectively, of the Outstanding Common Stock and Total Voting Power immediately prior to such Corporate Transaction will Beneficially Own, directly or indirectly, more than 50%, respectively, of the outstanding common stock and the combined voting power of the then -5- 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 company which as a result of such transaction owns the Corporation or all or substantially all of the Corporation's assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership immediately prior to such Corporate Transaction of the Outstanding Common Stock and Total Voting Power, as the case may be, and (b) 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 company which as a result of such transaction owns the Corporation or all or substantially all of the Corporation's assets either directly or through one or more subsidiaries); or (4) the approval by the stockholders of the Corporation of a complete liquidation or dissolution of the Corporation; (III) the term "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended from time to time; (IV) the term "Governance Agreement" shall mean the Governance Agreement dated December 19, 2000, among LXH, L.L.C., LXH II, L.L.C., Hexcel Corporation and the other parties listed on the signature pages thereto; and (V) 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. -6- ANNEX A NOTICE OF GRANT EMPLOYEE STOCK OPTION HEXCEL CORPORATION INCENTIVE STOCK PLAN The following employee of Hexcel Corporation, a Delaware corporation 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 John Lee - -------------------------------------------------------------------- Address of Optionee 18 Walnut Avenue Larchmont, NY 10538 - -------------------------------------------------------------------- Employee Number 1923 - -------------------------------------------------------------------- Employee ID Number ###-##-#### - -------------------------------------------------------------------- Foreign Sub Plan, if applicable - -------------------------------------------------------------------- Grant Date December 20, 2000 - -------------------------------------------------------------------- Purchase Price $11.00 - -------------------------------------------------------------------- Aggregate Number of Shares 364,000 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. /s/ John J. Lee HEXCEL CORPORATION - ------------------------------ Optionee By: /s/ Ira J. Krakower -------------------------- Ira J. Krakower Senior Vice President -7- EX-10 7 0007.txt EXHIBIT 10.38 (D) Exhibit 10.38(d) AMENDMENT TO AMENDMENT TO AGREEMENTS AMENDMENT, dated November 21, 2000 (this "Amendment"), to Amendment to Agreements (the "Original Amendment") dated as of October 11, 2000 by and between Hexcel Corporation (the "Company") and Harold E. Kinne (the "Executive"). WHEREAS, the Company and the Executive desire to amend a provision of the Original Amendment. NOW, THEREFORE, the Company and the Executive hereby agree as follows: 1. The number "76,935" appearing in the first sentence of Section 8 of the Original Amendment shall be deleted and the number "50,394" shall be inserted in lieu thereof. 2. Except as expressly modified herein, all terms and provisions of the Original Amendment shall remain in full force and effect and are hereby in all respects ratified and confirmed. 3. No change, modification or waiver of any provision of this Amendment shall be valid unless the same be in writing and signed by the parties hereto. 4. This Amendment shall be governed by, and construed in accordance with, the laws of the State of Delaware, without regard to its conflict of law rules. 5. This Amendment 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. IN WITNESS WHEREOF, the parties hereto have caused this Amendment 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/ Harold E. Kinne ------------------------------ Harold E. Kinne EX-10 8 0008.txt EXHIBIT 10.39 (C) Exhibit 10.39(c) AMENDMENT TO AMENDMENT TO AGREEMENTS AMENDMENT, dated November 21, 2000 (this "Amendment"), to Amendment to Agreements (the "Original Amendment") dated as of October 11, 2000 by and between Hexcel Corporation (the "Company") and Stephen C. Forsyth (the "Executive"). WHEREAS, the Company and the Executive desire to amend a provision of the Original Amendment. NOW, THEREFORE, the Company and the Executive hereby agree as follows: 1. The number "59,459" appearing in the first sentence of Section 8 of the Original Amendment shall be deleted and the number "50,000" shall be inserted in lieu thereof. 2. Except as expressly modified herein, all terms and provisions of the Original Amendment shall remain in full force and effect and are hereby in all respects ratified and confirmed. 3. No change, modification or waiver of any provision of this Amendment shall be valid unless the same be in writing and signed by the parties hereto. 4. This Amendment shall be governed by, and construed in accordance with, the laws of the State of Delaware, without regard to its conflict of law rules. 5. This Amendment 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. IN WITNESS WHEREOF, the parties hereto have caused this Amendment 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/ Stephen C. Forsyth ------------------------------ Stephen C. Forsyth EX-10 9 0009.txt EXHIBIT 10.3 (E) Exhibit 10.3(e) HEXCEL CORPORATION INCENTIVE STOCK PLAN AS AMENDED AND RESTATED DECEMBER 19, 2000 I. PURPOSE This Hexcel Corporation Incentive Stock Plan, as approved by the stockholders of the Corporation on May 11, 2000, is hereby amended and restated as of December 19, 2000 as authorized by the Board on October 10, 2000 (as so amended and restated, the "Plan"). The Plan is intended to attract, retain and provide incentives to Employees, officers, Directors and consultants of the Corporation, and to thereby increase overall stockholders' value. The Plan generally provides for the granting of stock, stock options, stock appreciation rights, restricted shares, other stock-based awards or any combination of the foregoing to the eligible participants. II. DEFINITIONS (a) "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 December 19, 2000. (b) "Award" includes, without limitation, stock options (including Director Options and incentive stock options within the meaning of Section 422(b) of the Code) with or without stock appreciation rights, dividend equivalent rights, stock awards, restricted share awards, or other awards that are valued in whole or in part by reference to, or are otherwise based on, the Common Stock ("other Common Stock-based Awards"), all on a stand-alone, combination or tandem basis, as described in or granted under this Plan. (c) "Award Agreement" means a written agreement setting forth the terms and conditions of each Award made under this Plan. (d) "Beneficial Owner" (and variants thereof) shall have the meaning given in Rule 13d-3 promulgated under the Exchange Act. (e) "Board" means the Board of Directors of the Corporation. (f) "Code" means the Internal Revenue Code of 1986, as amended from time to time. (g) "Committee" means the Compensation Committee of the Board or such other committee of the Board as may be designated by the Board from time to time to administer this Plan. (h) "Common Stock" means the $.01 par value common stock of the Corporation. (i) "Corporation" means Hexcel Corporation, a Delaware corporation. (j) "Director" means a member of the Board. (k) "Director Option" means a stock option granted pursuant to Section VII hereof to a Director. (l) "Director Optionee" means a recipient of an Award of a Director Option. (m) "Employee" means an employee of the Corporation or a Subsidiary. (n) "Exchange Act" means the Securities Exchange Act of 1934, as amended from time to time. (o) "Fair Market Value" means the closing price for the Common Stock as reported in publications of general circulation from the New York Stock Exchange Consolidated Transactions Tape on such date, or, if there were no sales on the valuation date, on the next preceding date on which such closing price was recorded; provided, however, that the Committee may specify some other definition of Fair Market Value in good faith with respect to any particular Award. (p) "Governance Agreement" shall mean the Governance Agreement dated as of December 19, 2000, by and between LXH, L.L.C., LXH II, L.L.C., Hexcel Corporation and the other parties listed on the signature pages thereto. (q) "Participant" means an Employee, officer, Director or consultant who has been granted an Award under the Plan. (r) "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. (s) "Plan Year" means a calendar year. (t) "Subsidiary" means any corporation or other entity, whether domestic or foreign, in which the Corporation has or obtains, directly or indirectly, a proprietary interest of more than 50% by reason of stock ownership or otherwise. III. ELIGIBILITY Any Employee, officer, Director or consultant of the Corporation or Subsidiary selected by the Committee is eligible to receive an Award pursuant to Section VI hereof. Additionally, Directors described in Section VII(a) hereof are eligible to receive Awards of Director Options pursuant to Section VII. IV. PLAN ADMINISTRATION (a) Except as otherwise determined by the Board, the Plan shall be administered by the Committee. The Board, or the Committee to the extent determined by the Board, shall periodically make determinations with respect to the participation of Employees, officers, Directors and consultants in the Plan and, except as otherwise required by law or this Plan, the grant terms of Awards, including vesting schedules, price, restriction or option period, dividend rights, post-retirement and termination rights, payment alternatives such as cash, stock, contingent awards or other means of payment consistent with the purposes of this Plan, and such other terms and conditions as the Board or the Committee deems appropriate which shall be contained in an Award Agreement with respect to a Participant. (b) The Committee shall have authority to interpret and construe the provisions of the Plan and any Award Agreement and make determinations pursuant to any Plan provision or Award Agreement which shall be final and binding on all persons. No member of the Committee shall be liable for any action or determination made in good faith, and the members shall be entitled to indemnification and reimbursement in the manner provided in the Corporation's Certificate of Incorporation, as it may be amended from time to time. The Committee shall have the authority at the time of the grant of any Award to provide for the conditions and circumstances under which such Award shall be forfeited. The Committee shall have the authority to accelerate the vesting of any Award and the time at which any Award becomes exercisable. The Committee shall have the authority to cancel an Award (with the consent of the Participant holding such Award) on such terms and conditions as the Committee shall determine. V. CAPITAL STOCK SUBJECT TO THE PROVISIONS OF THIS PLAN (a) The capital stock subject to the provisions of this Plan shall be shares of authorized but unissued Common Stock and shares of Common Stock held as treasury stock. Subject to adjustment in accordance with the provisions of Section XI, and subject to Section V(c) below, the maximum number of shares of Common Stock that shall be available for grants of Awards under this Plan shall be 7,991,251. (b) The grant of a restricted share Award shall be deemed to be equal to the maximum number of shares which may be issued under the Award. Awards payable only in cash will not reduce the number of shares available for Awards granted under the Plan. (c) There shall be carried forward and be available for Awards under the Plan, in addition to shares available for grant under paragraph (a) of this Section V, all of the following: (i) shares represented by Awards which are cancelled, forfeited, surrendered, terminated, paid in cash or expire unexercised; and (ii) the excess amount of variable Awards which become fixed at less than their maximum limitations. 3 VI. DISCRETIONARY AWARDS UNDER THIS PLAN As the Board or Committee may determine, the following types of Awards and other Common Stock-based Awards may be granted under this Plan on a stand-alone, combination or tandem basis: (a) STOCK OPTION. A right to buy a specified number of shares of Common Stock at a fixed exercise price during a specified time, all as the Committee may determine. (b) INCENTIVE STOCK OPTION. An Award which may be granted only to Employees in the form of a stock option which shall comply with the requirements of Code Section 422 or any successor section as it may be amended from time to time. The exercise price of any incentive stock option shall not be less than 100% of the Fair Market Value of the Common Stock on the date of grant of the incentive stock option Award. Subject to adjustment in accordance with the provisions of Section XI, the aggregate number of shares which may be subject to incentive stock option Awards under this Plan shall not exceed the maximum number of shares provided in paragraph (a) of Section V above. To the extent that the aggregate Fair Market Value of Common Stock with respect to which options intended to be incentive stock options are exercisable for the first time by any individual during any calendar year exceeds $100,000, such options shall be treated as options which are not incentive stock options. (c) STOCK OPTION IN LIEU OF COMPENSATION ELECTION. A right given with respect to a year to a Director, officer or key Employee to elect to exchange annual retainers, fees or compensation for stock options. (d) STOCK APPRECIATION RIGHT. A right which may or may not be contained in the grant of a stock option or incentive stock option to receive the excess of the Fair Market Value of a share of Common Stock on the date the option is surrendered over the option exercise price or other specified amount contained in the Award Agreement. (e) RESTRICTED SHARES. A transfer of Common Stock to a Participant subject to forfeiture until such restrictions, terms and conditions as the Committee may determine are fulfilled. (f) DIVIDEND OR EQUIVALENT. A right to receive dividends or their equivalent in value in Common Stock, cash or in a combination of both with respect to any new or previously existing Award. (g) STOCK AWARD. An unrestricted transfer of ownership of Common Stock. (h) OTHER STOCK-BASED AWARDS. Other Common Stock-based Awards which are related to or serve a similar function to those Awards set forth in this Section VI. VII. FORMULA AWARDS UNDER THIS PLAN 4 In addition to discretionary Awards (including, without limitation, options) that may be granted to Directors pursuant to Section VI hereof, Director Options shall be granted as provided below: (a) GRANTS OF DIRECTOR OPTIONS. (i) With respect to any individual who becomes a Director and who is not also a full-time employee of the Corporation or any Subsidiary (provided such individual has not previously received a grant pursuant to this Section VII(a)(i)), such individual shall be granted, as of the date of election or appointment as a Director, a Director Option to acquire 10,000 shares of Common Stock upon the terms and subject to the conditions set forth in the Plan and this Section VII. (ii) Immediately after each annual meeting of stockholders of the Corporation each Director who is not on such date also a full-time employee of the Corporation or any Subsidiary shall be granted a Director Option to acquire 2,000 shares of Common Stock upon the terms and subject to the conditions set forth in the Plan and this Section VII. (iii) If on any date when Options are to be granted pursuant to Section VII(a)(i) or (ii) the total number of shares of Common Stock as to which Director Options are to be granted exceeds the number of shares of Common Stock remaining available under the Plan, there shall be a PRO RATA reduction in the number of shares of Common Stock as to which each Director Option is granted on such day. (b) TERMS OF DIRECTOR OPTIONS. The terms of each Director Option granted under this Section VII shall be determined by the Board consistent with the provisions of the Plan, including the following: (i) The purchase price of the shares of Common Stock subject to each Director Option shall be equal to the Fair Market Value of such shares on the date such option is granted. (ii) Each Director Option shall be exercisable as to one-third of the shares subject thereto immediately upon the grant of the option and as to an additional one-third of such shares on the first and second anniversaries of the date of such grant. (iii) Each Director Option shall expire ten years after the granting thereof. Each Director Option shall be subject to earlier expiration as expressly provided in Section VII(c) hereof. (C) DISABILITY, DEATH OR TERMINATION OF DIRECTOR STATUS; CHANGE IN CONTROL. (i) If a Director Optionee ceases to be a Director for any reason other than his disability or death, each Director Option held by him to the extent exercisable on the effective 5 date of his ceasing to be a Director shall remain exercisable until the earlier to occur of (i) the first anniversary of such effective date and (ii) the expiration of the stated term of the Director Option; PROVIDED, HOWEVER, that if the Director Optionee is removed, withdraws or otherwise ceases to be a Director due to his fraud, dishonesty or intentional misrepresentation in connection with his duties as a Director or his embezzlement, misappropriation or conversion of assets or opportunities of the Corporation or any Subsidiary, all unexercised Director Options held by the Director Optionee shall expire forthwith. Each Director Option held by the Director Optionee to the extent not exercisable on the effective date of his ceasing to be a Director for any reason other than his disability or death shall expire forthwith. (ii) If a Director Optionee ceases to be a Director as a result of his disability or death, each Director Option held by him to the extent that the Director Option is exercisable on the effective date of his ceasing to be a Director shall remain exercisable by the Director Optionee or the Director Optionee's executor, administrator, legal representative or beneficiary, as the case may be, until the earlier to occur of (x) the third anniversary of such effective date and (y) the expiration of the stated term of the Director Option. Each Director Option held by the Director Optionee to the extent not exercisable on the effective date of his ceasing to be a Director as a result of his disability or death shall expire forthwith. (iii) In the event of a Change in Control (as hereinafter defined) while a Director Optionee is a Director, each Director Option held by the Director Optionee to the extent not then exercisable shall thereupon become exercisable. If a Change in Control occurs on or before the effective date of a Director Optionee's ceasing to be a Director, the provisions of this subsection (iii) shall govern with respect to the exercisability of the Director Options held by him as of the date on which the Director Optionee ceases to be a Director and the provisions of subsection (i) or (ii) of this Section VII(c) shall govern with respect to the period of time during which such Director Options shall remain exercisable. For purposes of this subsection (iii), "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 (A) the then outstanding Common Stock of the Corporation (the "Outstanding Common Stock") or (B) the combined voting power of the then outstanding securities entitled to vote generally in the election of directors of the Corporation (the "Total Voting Power"); excluding, however, the following: (I) any acquisition by the Corporation or any of its Controlled Affiliates, (II) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Corporation or any of its Controlled Affiliates and (III) 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, as of December 20, 2000, 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 Corporation's stockholders, was made or approved pursuant to the Governance Agreement or by a vote of at 6 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 Corporation or any direct or indirect subsidiary of the Corporation or a sale or other disposition of all or substantially all of the assets of the Corporation ("Corporate Transaction"); excluding, however, such a Corporate Transaction (A) pursuant to which all or substantially all of the individuals and entities who are the Beneficial Owners, respectively, of the Outstanding Common Stock and Total Voting Power immediately prior to such Corporate Transaction will Beneficially Own, directly or indirectly, more than 50%, respectively, of the outstanding common stock and the combined voting power of the then outstanding 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 company which as a result of such transaction owns the Corporation or all or substantially all of the Corporation's assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership immediately prior to such Corporate Transaction of the Outstanding Common Stock and Total Voting Power, as the case may be, and (B) 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 company which as a result of such transaction owns the Corporation or all or substantially all of the Corporation's assets either directly or through one or more subsidiaries); or (4) the approval by the stockholders of the Corporation of a complete liquidation or dissolution of the Corporation. VIII. AWARD AGREEMENTS Each Award under the Plan shall be evidenced by an Award Agreement setting forth the terms and conditions of the Award and executed by the Corporation and Participant. IX. OTHER TERMS AND CONDITIONS (a) ASSIGNABILITY. Unless provided to the contrary in any Award, no Award shall be assignable or transferable except by will, by the laws of descent and distribution and during the lifetime of a Participant, the Award shall be exercisable only by such Participant. No Award granted under the Plan shall be subject to execution, attachment or process. (b) TERMINATION OF EMPLOYMENT OR OTHER RELATIONSHIP. The Committee shall determine the disposition of the grant of each Award in the event of the retirement, disability, 7 death or other termination of a Participant's employment or other relationship with the Corporation or a Subsidiary. (c) RIGHTS AS A STOCKHOLDER. A Participant shall have no rights as a stockholder with respect to shares covered by an Award until the date the Participant is the holder of record. No adjustment will be made for dividends or other rights for which the record date is prior to such date. (d) NO OBLIGATION TO EXERCISE. The grant of an Award shall impose no obligation upon the Participant to exercise the Award. (e) PAYMENTS BY PARTICIPANTS. The Committee may determine that Awards for which a payment is due from a Participant may be payable: (i) in U.S. dollars by personal check, bank draft or money order payable to the order of the Corporation, by money transfers or direct account debits; (ii) through the delivery or deemed delivery based on attestation to the ownership of shares of Common Stock with a Fair Market Value equal to the total payment due from the Participant; (iii) pursuant to a "cashless exercise" program if established by the Corporation; (iv) by a combination of the methods described in (i) through (iii) above; or (v) by such other methods as the Committee may deem appropriate. (f) WITHHOLDING. Except as otherwise provided by the Committee, (i) the deduction of withholding and any other taxes required by law will be made from all amounts paid in cash and (ii) in the case of payments of Awards in shares of Common Stock, the Participant shall be required to pay the amount of any taxes required to be withheld prior to receipt of such stock, or alternatively, a number of shares the Fair Market Value of which equals the amount required to be withheld may be deducted from the payment. (g) MAXIMUM AWARDS. The maximum number of shares of Common Stock that may be issued to any single Participant pursuant to options under this Plan is equal to the maximum number of shares provided for in paragraph (a) of Section V. X. TERMINATION, MODIFICATION AND AMENDMENTS (a) The Committee may at any time terminate the Plan or from time to time make such modifications or amendments of the Plan as it may deem advisable; provided, however, that no amendments to the Plan which require stockholder approval under applicable law, rule or regulation shall become effective unless the same shall be approved by the requisite vote of the Corporation's stockholders. (b) No termination, modification or amendment of the Plan may adversely affect the rights conferred by an Award without the consent of the recipient thereof. 8 XI. RECAPITALIZATION The aggregate number of shares of Common Stock as to which Awards may be granted to Participants, the number of shares thereof covered by each outstanding Award, and the per share price thereof set forth in each outstanding Award, shall all be proportionately adjusted for any increase or decrease in the number of issued shares of Common Stock resulting from a subdivision or consolidation of shares or other capital adjustment, or the payment of a stock dividend or other increase or decrease in such shares, effected without receipt of consideration by the Corporation, or other change in corporate or capital structure; provided, however, that any fractional shares resulting from any such adjustment shall be eliminated. The Committee shall also make the foregoing changes and any other changes, including changes in the classes of securities available, to the extent it is deemed necessary or desirable to preserve the intended benefits of the Plan for the Corporation and the Participants in the event of any other reorganization, recapitalization, merger, consolidation, spin-off, extraordinary dividend or other distribution or similar transaction. XII. NO RIGHT TO EMPLOYMENT Except as provided in Section VII with respect to Director Options, no person shall have any claim or right to be granted an Award, and the grant of an Award shall not be construed as giving a Participant the right to be retained in the employ of, or in any other relationship with, the Corporation or a Subsidiary. Further, the Corporation and each Subsidiary expressly reserve the right at any time to dismiss a Participant free from any liability, or any claim under the Plan, except as provided herein or in any Award Agreement issued hereunder or in any other agreement applicable between a Participant and the Corporation or a Subsidiary. XIII. GOVERNING LAW To the extent that federal laws do not otherwise control, the Plan shall be construed in accordance with and governed by the laws of the State of Delaware. XIV. SAVINGS CLAUSE This Plan is intended to comply in all aspects with applicable laws and regulations. In case any one more of the provisions of this Plan shall be held invalid, illegal or unenforceable in any respect under applicable law and regulation, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby and the invalid, illegal or unenforceable provision shall be deemed null and void; however, to the extent permissible by law, any provision which could be deemed null and void shall first be construed, interpreted or revised retroactively to permit this Plan to be construed in compliance with all applicable laws so as to foster the intent of this Plan. 9 XV. EFFECTIVE DATE AND TERM The Plan is hereby amended and restated as of December 19, 2000. The Plan shall replace the Incentive Stock Plan in effect immediately prior thereto (the "Prior Plan"), but all Awards granted under the Prior Plan shall remain outstanding pursuant to the terms thereof. THE PLAN SHALL TERMINATE ON FEBRUARY 2, 2010. NO AWARDS SHALL BE GRANTED AFTER THE TERMINATION OF THE PLAN. 10 EX-10 10 0010.txt EXHIBIT 10.40 Exhibit 10.40 December 2, 1999 Mr. Ira J. Krakower 21 Walworth Avenue Scarsdale, NY 10583 Re: 1999 MICP Award Dear Mr. Krakower: As you are aware, the Executive Compensation Committee has awarded you a special grant of nonqualified stock options in lieu of a cash bonus award under the Company's Management Incentive Compensation Plan for 1999. The Committee recognizes that its decision to make your 1999 award in a form other than cash could have the unintended effect of reducing certain payments or benefits to which you may be entitled under the Executive Severance Agreement dated February 3, 1999 and the Executive Deferred Compensation and Consulting Agreement dated September 3, 1998 between you and the Company (the "Agreements"). As a result, the Committee has determined that, notwithstanding anything in the Agreements to the contrary, the calculation of any payments or benefits to you, your beneficiaries or legal representatives under the Agreements shall be made as though your 1999 bonus award had been paid to you in cash in the amount of $94,325. The Company hereby declares this undertaking to be irrevocable and made for the benefit of you, your beneficiaries and legal representatives. Hexcel Corporation By: /s/ John J. Lee -------------------------------- John J. Lee Chief Executive Officer Acknowledged /s/ Ira J. Krakower - ------------------------ Executive EX-10 11 0011.txt EXHIBIT 10.43 (B) Exhibit 10.43(b) AMENDMENT TO AMENDMENT TO AGREEMENTS AMENDMENT, dated November 21, 2000 (this "Amendment"), to Amendment to Agreements (the "Original Amendment") dated as of October 11, 2000 by and between Hexcel Corporation (the "Company") and Robert F. Matthews (the "Executive"). WHEREAS, the Company and the Executive desire to amend a provision of the Original Amendment. NOW, THEREFORE, the Company and the Executive hereby agree as follows: 1. The number "2,765" appearing in the first sentence of Section 6 of the Original Amendment shall be deleted and the number "20,953" shall be inserted in lieu thereof. 2. Except as expressly modified herein, all terms and provisions of the Original Amendment shall remain in full force and effect and are hereby in all respects ratified and confirmed. 3. No change, modification or waiver of any provision of this Amendment shall be valid unless the same be in writing and signed by the parties hereto. 4. This Amendment shall be governed by, and construed in accordance with, the laws of the State of Delaware, without regard to its conflict of law rules. 5. This Amendment 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. IN WITNESS WHEREOF, the parties hereto have caused this Amendment 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/ Robert F. Matthews ------------------------------ Robert F. Matthews EX-10 12 0012.txt EXHIBIT 10.44 (B) Exhibit 10.44(b) AMENDMENT TO AMENDMENT TO AGREEMENTS AMENDMENT, dated November 21, 2000 (this "Amendment"), to Amendment to Agreements (the "Original Amendment") dated as of October 11, 2000 by and between Hexcel Corporation (the "Company") and Steven T. Warshaw (the "Executive"). WHEREAS, the Company and the Executive desire to amend a provision of the Original Amendment. NOW, THEREFORE, the Company and the Executive hereby agree as follows: 1. The number "6,610" appearing in the first sentence of Section 6 of the Original Amendment shall be deleted and the number "40,610" shall be inserted in lieu thereof. 2. Except as expressly modified herein, all terms and provisions of the Original Amendment shall remain in full force and effect and are hereby in all respects ratified and confirmed. 3. No change, modification or waiver of any provision of this Amendment shall be valid unless the same be in writing and signed by the parties hereto. 4. This Amendment shall be governed by, and construed in accordance with, the laws of the State of Delaware, without regard to its conflict of law rules. 5. This Amendment 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. IN WITNESS WHEREOF, the parties hereto have caused this Amendment 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 T. Warshaw ------------------------------ Steven T. Warshaw EX-10 13 0013.txt EXHIBIT 10.45 (A) Exhibit 10.45(a) AMENDMENT TO AMENDMENT TO AGREEMENTS AMENDMENT, dated November 21, 2000 (this "Amendment"), to Amendment to Agreements (the "Original Amendment") dated as of October 11, 2000 by and between Hexcel Corporation (the "Company") and William Hunt (the "Executive"). WHEREAS, the Company and the Executive desire to amend a provision of the Original Amendment. NOW, THEREFORE, the Company and the Executive hereby agree as follows: 1. The number "23,626" appearing in the first sentence of Section 7 of the Original Amendment shall be deleted and the number "50,626" shall be inserted in lieu thereof. 2. Except as expressly modified herein, all terms and provisions of the Original Amendment shall remain in full force and effect and are hereby in all respects ratified and confirmed. 3. No change, modification or waiver of any provision of this Amendment shall be valid unless the same be in writing and signed by the parties hereto. 4. This Amendment shall be governed by, and construed in accordance with, the laws of the State of Delaware, without regard to its conflict of law rules. 5. This Amendment 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. IN WITNESS WHEREOF, the parties hereto have caused this Amendment 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 EX-10 14 0014.txt EXHIBIT 10.47 (A) Exhibit 10.47(a) AMENDMENT TO AMENDMENT TO AGREEMENTS AMENDMENT, dated November 21, 2000 (this "Amendment"), to Amendment to Agreements (the "Original Amendment") dated as of October 11, 2000 by and between Hexcel Corporation (the "Company") and Justin P.S. Taylor (the "Executive"). WHEREAS, the Company and the Executive desire to amend a provision of the Original Amendment. NOW, THEREFORE, the Company and the Executive hereby agree as follows: 1. The number "21,078" appearing in the first sentence of Section 7 of the Original Amendment shall be deleted and the number "29,078" shall be inserted in lieu thereof. 2. Except as expressly modified herein, all terms and provisions of the Original Amendment shall remain in full force and effect and are hereby in all respects ratified and confirmed. 3. No change, modification or waiver of any provision of this Amendment shall be valid unless the same be in writing and signed by the parties hereto. 4. This Amendment shall be governed by, and construed in accordance with, the laws of the State of Delaware, without regard to its conflict of law rules. 5. This Amendment 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. IN WITNESS WHEREOF, the parties hereto have caused this Amendment 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 P.S. Taylor ------------------------------------ Justin P.S. Taylor EX-10 15 0015.txt EXHIBIT 10.48 (A) Exhibit 10.48(a) AMENDMENT TO AMENDMENT TO AGREEMENTS AMENDMENT, dated November 21, 2000 (this "Amendment"), to Amendment to Agreements (the "Original Amendment") dated as of October 11, 2000 by and between Hexcel Corporation (the "Company") and Joseph H. Shaulson (the "Executive"). WHEREAS, the Company and the Executive desire to amend a provision of the Original Amendment. NOW, THEREFORE, the Company and the Executive hereby agree as follows: 1. The number "27,186" appearing in the first sentence of Section 8 of the Original Amendment shall be deleted and the number "30,186" shall be inserted in lieu thereof. 2. Except as expressly modified herein, all terms and provisions of the Original Amendment shall remain in full force and effect and are hereby in all respects ratified and confirmed. 3. No change, modification or waiver of any provision of this Amendment shall be valid unless the same be in writing and signed by the parties hereto. 4. This Amendment shall be governed by, and construed in accordance with, the laws of the State of Delaware, without regard to its conflict of law rules. 5. This Amendment 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. IN WITNESS WHEREOF, the parties hereto have caused this Amendment 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 H. Shaulson ------------------------------ Joseph H. Shaulson EX-10 16 0016.txt EXHIBIT 10.4 (B) Exhibit 10.4(b) HEXCEL CORPORATION 1998 BROAD BASED INCENTIVE STOCK PLAN AS AMENDED FEBRUARY 3, 2000 AND FURTHER AMENDED FEBRUARY 1, 2001 I. PURPOSE This is the Hexcel Corporation 1998 Broad Based Incentive Stock Plan (the "Plan"). The Plan is intended to attract, retain and provide incentives to a broad base of employees and consultants of the Corporation, and to thereby increase overall stockholders' value. Directors, officers and affiliates of the Corporation are not eligible to participate in the Plan. The Plan generally provides for the granting of stock, stock options, stock appreciation rights, restricted shares, other stock-based awards or any combination of the foregoing to the eligible participants. II. DEFINITIONS (a) "Award" includes, without limitation, stock options with or without stock appreciation rights, dividend equivalent rights, stock awards, restricted share awards, or other awards that are valued in whole or in part by reference to, or are otherwise based on, the Common Stock ("other Common Stock-based Awards"), all on a stand-alone, combination or tandem basis, as described in or granted under this Plan. (b) "Award Agreement" means a written agreement setting forth the terms and conditions of each Award made under this Plan. (c) "Board" means the Board of Directors of the Corporation. (d) "Committee" means the Compensation Committee of the Board or such other committee of the Board as may be designated by the Board from time to time to administer this Plan. (e) "Common Stock" means the $.01 par value common stock of the Corporation. (f) "Corporation" means Hexcel Corporation, a Delaware corporation. (g) "Employee" means an employee of the Corporation or a Subsidiary. (h) "Fair Market Value" means the closing price for the Common Stock as reported in publications of general circulation from the New York Stock Exchange Consolidated Transactions Tape on such date, or, if there were no sales on the valuation date, on the next preceding date on which such closing price was recorded; provided, however, that the Committee may specify some other definition of Fair Market Value in good faith with respect to any particular Award. (i) "Participant" means an Employee or consultant who has been granted an Award under the Plan. (j) "Subsidiary" means any corporation or other entity, whether domestic or foreign, in which the Corporation has or obtains, directly or indirectly, a proprietary interest of more than 50% by reason of stock ownership or otherwise. III. ELIGIBILITY Any Employee or consultant of the Corporation or Subsidiary selected by the Committee is eligible to receive an Award pursuant to the Plan, but Directors, officers or affiliates of the Corporation are not eligible to participate in the Plan. IV. PLAN ADMINISTRATION (a) Except as otherwise determined by the Board, the Plan shall be administered by the Committee. The Board, or the Committee to the extent determined by the Board, shall periodically make determinations with respect to the participation of eligible Employees and consultants in the Plan and, except as otherwise required by law or this Plan, the grant terms of Awards, including vesting schedules, price, restriction or option period, dividend rights, post-retirement and termination rights, payment alternatives such as cash, stock, contingent awards or other means of payment consistent with the purposes of this Plan, and such other terms and conditions as the Board or the Committee deems appropriate which shall be contained in an Award Agreement with respect to a Participant. (b) The Committee shall have authority to interpret and construe the provisions of the Plan and any Award Agreement and make determinations pursuant to any Plan provision or Award Agreement which shall be final and binding on all persons. No member of the Committee shall be liable for any action or determination made in good faith, and the members shall be entitled to indemnification and reimbursement in the manner provided in the Corporation's Certificate of Incorporation, as it may be amended from time to time. The Committee shall have the authority at the time of the grant of any Award to provide for the conditions and circumstances under which such Award shall be forfeited. The Committee shall have the authority to accelerate the vesting of any Award and the time at which any Award becomes exercisable. The Committee shall have the authority to cancel an Award (with the consent of the Participant holding such Award) on such terms and conditions as the Committee shall determine. V. CAPITAL STOCK SUBJECT TO THE PROVISIONS OF THIS PLAN -2- (a) The capital stock subject to the provisions of this Plan shall be shares of authorized but unissued Common Stock and shares of Common Stock held as treasury stock. Subject to adjustment in accordance with the provisions of Section X, and subject to Section V(c) below, the maximum number of shares of Common Stock that shall be available for grants of Awards under this Plan shall be 1,100,000. (b) The grant of a restricted share Award shall be deemed to be equal to the maximum number of shares which may be issued under the Award. Awards payable only in cash will not reduce the number of shares available for Awards granted under the Plan. (c) There shall be carried forward and be available for Awards under the Plan, in addition to shares available for grant under paragraph (a) of this Section V, all of the following: (i) shares represented by Awards which are cancelled, forfeited, surrendered, terminated, paid in cash or expire unexercised; and (ii) the excess amount of variable Awards which become fixed at less than their maximum limitations. VI. AWARDS UNDER THIS PLAN As the Board or Committee may determine, the following types of Awards and other Common Stock-based Awards may be granted under this Plan on a stand-alone, combination or tandem basis: (a) STOCK OPTION. A right to buy a specified number of shares of Common Stock at a fixed exercise price during a specified time, all as the Committee may determine. (b) STOCK OPTION IN LIEU OF COMPENSATION ELECTION. A right given with respect to a year to a Participant to elect to exchange compensation or fees for stock options. (c) STOCK APPRECIATION RIGHT. A right which may or may not be contained in the grant of a stock option or incentive stock option to receive the excess of the Fair Market Value of a share of Common Stock on the date the option is surrendered over the option exercise price or other specified amount contained in the Award Agreement. (d) RESTRICTED SHARES. A transfer of Common Stock to a Participant subject to forfeiture until such restrictions, terms and conditions as the Committee may determine are fulfilled. (e) DIVIDEND OR EQUIVALENT. A right to receive dividends or their equivalent in value in Common Stock, cash or in a combination of both with respect to any new or previously existing Award. (f) STOCK AWARD. An unrestricted transfer of ownership of Common Stock. -3- (g) OTHER STOCK-BASED AWARDS. Other Common Stock-based Awards which are related to or serve a similar function to those Awards set forth in this Section VI. VII. AWARD AGREEMENTS Each Award under the Plan shall be evidenced by an Award Agreement setting forth the terms and conditions of the Award and executed by the Corporation and Participant. VIII. OTHER TERMS AND CONDITIONS (a) ASSIGNABILITY. Unless provided to the contrary in any Award, no Award shall be assignable or transferable except by will, by the laws of descent and distribution and during the lifetime of a Participant, the Award shall be exercisable only by such Participant. No Award granted under the Plan shall be subject to execution, attachment or process. (b) TERMINATION OF EMPLOYMENT OR OTHER RELATIONSHIP. The Committee shall determine the disposition of the grant of each Award in the event of the retirement, disability, death or other termination of a Participant's employment or other relationship with the Corporation or a Subsidiary. (c) RIGHTS AS A STOCKHOLDER. A Participant shall have no rights as a stockholder with respect to shares covered by an Award until the date the Participant is the holder of record. No adjustment will be made for dividends or other rights for which the record date is prior to such date. (d) NO OBLIGATION TO EXERCISE. The grant of an Award shall impose no obligation upon the Participant to exercise the Award. (e) PAYMENTS BY PARTICIPANTS. The Committee may determine that Awards for which a payment is due from a Participant may be payable: (i) in U.S. dollars by personal check, bank draft or money order payable to the order of the Corporation, by money transfers or direct account debits; (ii) through the delivery or deemed delivery based on attestation to the ownership of shares of Common Stock with a Fair Market Value equal to the total payment due from the Participant; (iii) pursuant to a "cashless exercise" program if established by the Corporation; (iv) by a combination of the methods described in (i) through (iii) above; or (v) by such other methods as the Committee may deem appropriate. (f) WITHHOLDING. Except as otherwise provided by the Committee, (i) the deduction of withholding and any other taxes required by law will be made from all amounts paid in cash and (ii) in the case of payments of Awards in shares of Common Stock, the Participant shall be required to pay the amount of any taxes required to be withheld prior to receipt of such stock, or alternatively, a number of shares the Fair Market Value of which equals the amount required to be withheld may be deducted from the payment. -4- (g) MAXIMUM AWARDS. The maximum number of shares of Common Stock that may be issued to any single Participant pursuant to options under this Plan is equal to the maximum number of shares provided for in paragraph (a) of Section V. IX. TERMINATION, MODIFICATION AND AMENDMENTS (a) The Committee may at any time terminate the Plan or from time to time make such modifications or amendments of the Plan as it may deem advisable; provided, however, that no amendments to the Plan which require stockholder approval under applicable law, rule or regulation shall become effective unless the same shall be approved by the requisite vote of the Corporation's stockholders. (b) No termination, modification or amendment of the Plan may adversely affect the rights conferred by an Award without the consent of the recipient thereof. X. RECAPITALIZATION The aggregate number of shares of Common Stock as to which Awards may be granted to Participants, the number of shares thereof covered by each outstanding Award, and the per share price thereof set forth in each outstanding Award, shall all be proportionately adjusted for any increase or decrease in the number of issued shares of Common Stock resulting from a subdivision or consolidation of shares or other capital adjustment, or the payment of a stock dividend or other increase or decrease in such shares, effected without receipt of consideration by the Corporation, or other change in corporate or capital structure; provided, however, that any fractional shares resulting from any such adjustment shall be eliminated. The Committee shall also make the foregoing changes and any other changes, including changes in the classes of securities available, to the extent it is deemed necessary or desirable to preserve the intended benefits of the Plan for the Corporation and the Participants in the event of any other reorganization, recapitalization, merger, consolidation, spin-off, extraordinary dividend or other distribution or similar transaction. XI. NO RIGHT TO EMPLOYMENT No person shall have any claim or right to be granted an Award, and the grant of an Award shall not be construed as giving a Participant the right to be retained in the employ of, or in the other relationship with, the Corporation or a Subsidiary. Further, the Corporation and each Subsidiary expressly reserve the right at any time to dismiss a Participant free from any liability, or any claim under the Plan, except as provided herein or in any Award Agreement issued hereunder or in any other agreement applicable between a Participant and the Corporation or a subsidiary. -5- XII. GOVERNING LAW To the extent that federal laws do not otherwise control, the Plan shall be construed in accordance with and governed by the laws of the State of Delaware. XIII. SAVINGS CLAUSE This Plan is intended to comply in all aspects with applicable laws and regulations. In case any one or more of the provisions of this Plan shall be held invalid, illegal or unenforceable in any respect under applicable law and regulation, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby and the invalid, illegal or unenforceable provision shall be deemed null and void; however, to the extent permissible by law, any provision which could be deemed null and void shall first be construed, interpreted or revised retroactively to permit this Plan to be construed in compliance with all applicable laws so as to foster the intent of this Plan. XIV. EFFECTIVE DATE AND TERM This 1998 Hexcel Corporation Broad Based Incentive Stock Plan as adopted on February 5, 1998 and amended on February 3, 2000 is hereby further amended as of February 1, 2001. THE PLAN SHALL TERMINATE ON FEBRUARY 4, 2008. NO AWARDS SHALL BE GRANTED AFTER THE TERMINATION OF THE PLAN. -6- EX-10 17 0017.txt EXHIBIT 10.5 (D) Exhibit 10.5(d) HEXCEL CORPORATION MANAGEMENT STOCK PURCHASE PLAN AS AMENDED AND RESTATED DECEMBER 19, 2000 1. PURPOSES This Hexcel Corporation Management Stock Purchase Plan, as approved by the stockholders of the Corporation on May 11, 2000, is hereby amended and restated as of December 19, 2000 as authorized by the Board on October 10, 2000 (as so amended and restated, the "Plan"). The purposes of the Plan are to attract and retain highly-qualified executives, to align executive and stockholder long-term interests by creating a direct link between annual incentive executive compensation and stockholder return and to enable executives to purchase stock by using a portion of their annual incentive compensation so that they can develop and maintain a substantial stock ownership position in Hexcel Corporation (the "Corporation"). 2. DEFINITIONS As used in this Plan, the following words and phrases shall have the meanings indicated: "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 December 19, 2000. "Agreement" shall mean an agreement entered into between the Corporation and a Participant in connection with a grant under the Plan. "Annual Bonus" shall mean the bonus earned by a Participant for any Corporation fiscal year under the Annual Plan. "Annual Plan" shall mean the Hexcel Corporation Management Incentive Compensation Plan or any substitute plan, as amended from time to time. "Beneficial Owner" (and variants thereof) shall have the meaning given in Rule 13d-3 promulgated under the Exchange Act. "Board" shall mean the Board of Directors of the Corporation. "Cause" shall mean (i) the willful and continued failure by the Participant to substantially perform the Participant's duties with the Corporation (other than any such failure resulting from the Participant's incapacity due to physical or mental illness) after a written demand for substantial performance is delivered to the Participant by the Corporation, which demand specifically identifies the manner in which the Corporation believes that the Participant has not substantially performed the Participant's duties, or (ii) the willful engaging by the Participant in conduct which is demonstrably and materially injurious to the Corporation or its subsidiaries, monetarily or otherwise. For purposes of clauses (i) and (ii) of this definition, no act, or failure to act, on the Participant's part shall be deemed "willful" unless done, or omitted to be done, by the Participant not in good faith and without reasonable belief that the Participant's act, or failure to act, was in the best interest of the Corporation. "Change in Control" shall have the meaning given in Article 6 hereof. "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time. "Committee" shall mean the Compensation Committee of the Board or such other committee of the Board as may be designated by the Board. "Corporation" shall mean Hexcel Corporation, a corporation organized under the laws of the State of Delaware, or any successor corporation. "Disability" shall mean that, as a result of the Participant's incapacity due to physical or mental illness or injury, the Participant shall not have performed all or substantially all of the Participant's usual duties as an employee for a period of more than one-hundred-fifty (150) days in any period of one-hundred-eighty (180) consecutive days. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended from time to time. "Fair Market Value" per share of Stock shall be the average of the closing prices on the NYSE Consolidated Transactions Tape for the five trading days immediately preceding the relevant valuation date and "Fair Market Value" of a Restricted Stock Unit on any valuation date shall be deemed to be equal to the Fair Market Value of a share of Stock on such valuation date. "Governance Agreement" shall mean the Governance Agreement dated as of December 19, 2000, by and between LXH, L.L.C., LXH II, L.L.C., Hexcel Corporation and the other parties listed on the signature pages thereto. "Participant" shall mean a person who receives a grant of Restricted Stock Units under the Plan; all such grants are sometimes referred to herein as "purchases". "Person", as used in Article 6 hereof, 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. "Plan" means this Hexcel Corporation Management Stock Purchase Plan, as amended from time to time. 2 "Restricted Period" shall have the meaning given in Sections 5(c) and 5(h) hereof. "Restricted Stock Unit" or "Restricted Stock Units" shall have the meaning given in Section 5 hereof. "Retirement" shall mean the termination of a Participant's employment (other than by reason of death or Cause) which occurs either (i) at or after age 65 or (ii) at or after age 55 after five (5) years of employment by the Corporation (or a Subsidiary thereof). "Stock" shall mean shares of the common stock of the Corporation, par value $.01 per share. "Subsidiary" shall mean any subsidiary of the Corporation (whether or not a subsidiary at the date the Plan is adopted) which is designated by the Committee to participate in the Plan. "Term" shall have the meaning given in Article 14 hereof. 3. STOCK The maximum number of shares of the Stock which shall be reserved for the grant of Restricted Stock Units under the Plan shall be 350,000, which number shall be subject to adjustment as provided in Article 7 hereof. Such shares may be either authorized but unissued shares or shares that shall have been or may be reacquired by the Corporation. If any outstanding grant of Restricted Stock Units under the Plan should, for any reason be cancelled or be forfeited before all its restrictions lapse, the shares of Stock allocable to the cancelled or terminated portion of such grant shall (unless the Plan shall have been terminated) become available for subsequent grants under the Plan. 4. ELIGIBILITY During the Term of the Plan any Participant in the Annual Plan (who has been designated by the Committee as a Participant in this Plan) can elect to receive up to fifty (50%) percent of the Participant's Annual Bonus in Restricted Stock Units granted pursuant to, and subject to the terms and conditions of, this Plan. Except as otherwise provided by the Committee in its discretion with respect to the first fiscal year of the Corporation in which (i) the Plan is in effect or (ii) a Participant participates in the Plan, any such election by a Participant must be made at least six months prior to the day the amount of the Participant's Annual Bonus is finally determined under the Annual Plan. Since the Restricted Stock Units are "purchased" with part or all of the Annual Bonus, all Restricted Stock Unit grants under this Plan are sometimes referred to herein as "purchases." For purposes of the Plan, the date of purchase of a Restricted Stock Unit shall be deemed to be the date the Annual Bonus (from which the purchase funds are derived) is payable. 5. RESTRICTED STOCK UNITS 3 Each grant of Restricted Stock Units under the Plan shall be evidenced by a written agreement between the Corporation and the Participant, in such form as the Committee shall from time to time approve, and shall comply with the following terms and conditions (and with such other terms and conditions not inconsistent with the terms of this Plan as the Committee, in its discretion, shall establish): (a) NUMBER OF RESTRICTED STOCK UNITS. Each agreement shall state the number of Restricted Stock Units to be subject to a grant. (b) PRICE. The price of each Restricted Stock Unit purchased under the Plan shall be eighty (80%) percent of its Fair Market Value on the date of purchase. Notwithstanding any other provision of the Plan, in no event shall the price per Restricted Stock Unit be less than the par value per share of Stock. (c) NORMAL VESTING; NORMAL END OF RESTRICTED PERIOD. Subject to Section 5(d) hereof, one-third (1/3) of Restricted Stock Units purchased on a given date shall vest on each of the first three anniversaries of the date of purchase, but the Restricted Period of all Restricted Stock Units purchased on that date shall end on the third anniversary thereof. (d) ACCELERATION OF VESTING AND END OF RESTRICTED PERIOD. Notwithstanding Section 5(c) hereof, a Participant's Restricted Stock Units shall immediately become completely vested and their respective Restricted Periods shall end upon the first to occur of (x) a Change in Control, (y) the involuntary termination of the Participant's employment without Cause, or (z) the termination of a Participant's employment by reason of Retirement or the Participant's death or Disability. Additionally, the Committee shall have the authority to vest any or all of a Participant's Restricted Stock Units and to end their respective Restricted Periods at such earlier time or times and on such terms and conditions as the Committee shall deem appropriate. (e) PAYMENT AT END OF RESTRICTED PERIOD. Upon the end of the Restricted Period with respect to a Restricted Stock Unit, the Participant (or the Participant's estate, in the event of the Participant's death) will receive payment of all the Participant's Restricted Stock Units in the form of an equal number of unrestricted shares of Stock. (f) TERMINATION DURING THE RESTRICTED PERIOD AND VESTED RESTRICTED STOCK UNITS; PAYMENT. If the termination of the employment of a Participant occurs during the Restricted Period, the Participant (or the Participant's estate, in the event of the Participant's death) will receive unrestricted shares of Stock equal in number to the Participant's vested Restricted Stock Units. (g) TERMINATION DURING RESTRICTED PERIOD AND UNVESTED RESTRICTED STOCK UNITS; PAYMENT. If the termination of the employment of a Participant occurs during the Restricted Period, the Participant will receive a cash payment equal 4 to eighty (80%) percent of the Fair Market Value of the Participant's unvested Restricted Stock Units on the date of their purchase. (h) RESTRICTIONS. Restricted Stock Units (whether or not vested) may not be sold, assigned, transferred, pledged, hypothecated or otherwise disposed of, except by will or the laws of descent and distribution, during the Restricted Period. The Committee may also impose such other restrictions and conditions on the shares as it deems appropriate. 6. CHANGE IN CONTROL OF THE CORPORATION For purposes of the Plan, the term "Change in Control" shall mean any of the following events: any Person is or becomes the Beneficial Owner, directly or indirectly, of 40% or more of either (a) the then outstanding Stock of the Corporation (the "Outstanding Common Stock") or (b) the combined voting power of the then outstanding securities entitled to vote generally in the election of directors of the Corporation (the "Total Voting Power"); excluding, however, the following: (i) any acquisition by the Corporation or any of its Controlled Affiliates, (ii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Corporation or any of its Controlled Affiliates and (iii) any Person who becomes such a Beneficial Owner in connection with a transaction described in the exclusion within paragraph (3) below; or a change in the composition of the Board such that the individuals who, as of December 20, 2000, 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 Corporation'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 Corporation or any direct or indirect subsidiary of the Corporation or a sale or other disposition of all or substantially all of the assets of the Corporation ("Corporate Transaction"); excluding, however, such a Corporate Transaction (a) pursuant to which all or substantially all of the individuals and entities who are the Beneficial Owners, respectively, of the Outstanding Common Stock and Total Voting Power immediately prior to such Corporate Transaction will Beneficially Own, directly or indirectly, more than 50%, respectively, of the outstanding common stock and the combined voting power of the then outstanding common stock and the combined voting power of the then outstanding 5 securities entitled to vote generally in the election of directors of the company resulting from such Corporate Transaction (including, without limitation, a company which as a result of such transaction owns the Corporation or all or substantially all of the Corporation's assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership immediately prior to such Corporate Transaction of the Outstanding Common Stock and Total Voting Power, as the case may be, and (b) 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 company which as a result of such transaction owns the Corporation or all or substantially all of the Corporation's assets either directly or through one or more subsidiaries); or the approval by the stockholders of the Corporation of a complete liquidation or dissolution of the Corporation. 7. RECAPITALIZATION The aggregate number of shares of Stock as to which Restricted Stock Units may be granted to Participants and the number of shares thereof covered by each outstanding Restricted Stock Unit, shall all be proportionately adjusted for any increase or decrease in the number of issued shares of Stock resulting from a subdivision or consolidation of shares or other capital adjustment, or the payment of a stock dividend or other increase or decrease in such shares, effected without receipt of consideration by the Corporation, or other change in corporate or capital structure; provided, however, that any fractional shares resulting from any such adjustment shall be eliminated. The Committee shall also make the foregoing changes and any other changes, including changes in the classes of securities available, to the extent it is deemed necessary or desirable to preserve the intended benefits of the Plan for the Corporation and the Participants in the event of any other reorganization, recapitalization, merger, consolidation, spin-off, extraordinary dividend or other distribution or similar transaction. 8. PAYMENT OF WITHHOLDING TAXES Except as otherwise provided by the Committee, (i) the deduction of withholding and any other taxes required by law will be made from all amounts paid in cash and (ii) in the case of distributions in shares of Stock, the Participant shall be required to pay the amount of any taxes required to be withheld prior to receipt of such Stock, or alternatively, a number of shares the Fair Market Value of which equals the amount required to be withheld may be deducted from the shared distributed. 9. RIGHTS AS A STOCKHOLDER A Participant or a transferee of a grant shall have no rights as a stockholder with respect to any shares of Stock which may become issuable pursuant to the grant until the date of the issuance of a stock certificate to him or her for such shares. No adjustment shall be made for dividends (whether ordinary or extraordinary, and whether in cash, securities or other property) 6 or distribution of other rights for which the record date is prior to the date such stock certificate is issued, except as provided in Article 7 hereof. 10. NO RIGHTS TO EMPLOYMENT No person shall have any claim or right to be a Participant in the Plan, and the grant hereunder shall not be construed as giving a Participant the right to be retained in the employ of, or in the other relationship with, the Corporation or a Subsidiary. Further, the Corporation and each Subsidiary expressly reserve the right at any time to dismiss a Participant free from any liability, or any claim under the Plan, except as provided herein or in any agreement issued hereunder or in any other agreement applicable between a Participant and the Corporation or a Subsidiary. 11. ADMINISTRATION The Plan shall be administered by the Committee. The Committee shall have the authority in its discretion, subject to and not inconsistent with the express provisions of the Plan, to administer the Plan and to exercise all the powers and authorities either specifically granted to it under the Plan or necessary or advisable in the administration of the Plan, including, without limitation, the authority to grant Restricted Stock Units; to determine the persons to whom, and the time or times at which grants shall be granted; to determine the number of Restricted Stock Units to be covered by each grant; to interpret the Plan; to prescribe, amend and rescind rules and regulations relating to the Plan; to determine the terms and provisions of the Agreements (which need not be identical) and to cancel or suspend grants, as necessary; and to make all other determinations deemed necessary or advisable for the administration of the Plan. The Board shall fill all vacancies, however caused, in the Committee. The Board may from time to time appoint additional members to the Committee, and may at any time remove one or more Committee members and substitute others. The Committee may appoint a chairperson and a secretary and make such rules and regulations for the conduct of its business as it shall deem advisable, and shall keep minutes of its meetings. The Committee shall hold its meetings at such times and places (and its telephonic meetings at such times) as it shall deem advisable. The Committee may delegate to one or more of its members or to one or more agents such administrative duties as it may deem advisable, and the Committee or any person to whom it has delegated duties as aforesaid may employ one or more persons to render advice with respect to any responsibility the Committee or such person may have under the Plan. All decisions, determinations and interpretations of the Committee shall be final and binding on all persons, including the Corporation, the Participant (or any person claiming any rights under the Plan from or through any Participant) and any stockholder. No member of the Board or Committee shall be liable for any action taken or determination made in good faith with respect to the Plan or any grant hereunder. 12. AMENDMENT AND TERMINATION OF THE PLAN 7 The Board at any time and from time to time may suspend, terminate, modify or amend the Plan; provided, however, that an amendment for which the Board determines stockholder approval is necessary or appropriate under the circumstances then prevailing shall not be effective unless approved by the requisite vote of stockholders. Except as provided in Article 7 hereof, no suspension, termination, modification or amendment of the Plan may adversely affect any grant previously made to a Participant, unless the written consent of the Participant is obtained. 13. GOVERNING LAW The Plan and all determinations made and actions taken pursuant hereto shall be governed by the laws of the State of Delaware. 14. EFFECTIVE DATE AND TERM The Plan is hereby amended and restated herein as of December 19, 2000. The Plan shall replace the Management Stock Purchase Plan in effect immediately prior thereto (the "Prior Plan"), but all Restricted Stock Units granted under the Prior Plan shall remain outstanding pursuant to the terms thereof. THE PLAN SHALL TERMINATE ON MARCH 31, 2010. NO RESTRICTED STOCK UNITS SHALL BE GRANTED AFTER THE TERMINATION OF THE PLAN. 8 EX-10 18 0018.txt EXHIBIT 10.6 Exhibit 10.6 HEXCEL CORPORATION MANAGEMENT INCENTIVE COMPENSATION PLAN AS AMENDED AND RESTATED DECEMBER 19, 2000 I. PURPOSE The purpose of the Hexcel Corporation Management Incentive Compensation Plan (the "Plan") is to advance the interests of Hexcel Corporation (the "Company") by providing an incentive for those key employees who have a direct, measurable opportunity to advance the Company's goals and promote the growth and long-range interests of the Company. In addition, it is intended that the Plan create linkage between performance and compensation, align management's interests with the interests of stockholders and encourage team management and corporate success. A further purpose of the Plan is to serve as a qualified performance-based compensation program under Section 162 (m) of the Code (as defined below) in order to preserve the Company's tax deduction for compensation paid under the Plan to the Chief Executive Officer of the Company. II. DEFINITIONS (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. The term "Control" shall have the meaning specified in Rule 12b-2 under the Securities Exchange Act of 1934 as in effect on December 19, 2000. (b) "Award" shall mean the amount (if any) payable to a Participant in respect of a Plan Year pursuant to the Plan. (c) "Beneficial Owner" (and variants thereof) shall have the meaning given in Rule 13d-3 promulgated under the Exchange Act. (d) "Board" shall mean the Board of Directors of the Company. (e) "Cause" shall mean (i) the willful and continued failure by the Participant to substantially perform the Participant's duties with the Company (other than any such failure resulting from the Participant's incapacity due to physical or mental illness) after a written demand for substantial performance is delivered to the Participant by the Company, which demand specifically identifies the manner in which the Company believes that the Participant has not substantially performed the Participant's duties, or (ii) the willful engaging by the Participant in conduct which is demonstrably and materially injurious to the Company or its Subsidiaries, monetarily or otherwise. For purposes of clauses (i) and (ii) of this definition, no act, or failure to act, on the Participant's part shall be deemed "willful" unless done, or omitted to be done, by the Participant not in good faith and without reasonable belief that the Participant's act, or failure to act, was in the best interest of the Company. (f) "CEO" shall mean the Chief Executive Officer of the Company. (g) "Change in Control" shall have the meaning given in Article XV hereof. (h) "Code" shall mean the Internal Revenue Code, as amended. (i) "Committee" shall mean the Compensation Committee of the Board or such other committee of the Board as may be designated from time to time to administer the Plan. (j) "Company" shall mean Hexcel Corporation, a Delaware corporation. (k) "Disability" shall mean that, as a result of the Participant's incapacity due to physical or mental illness or injury, the Participant shall not have performed all or substantially all of the Participant's usual duties as an employee for a period of more than one-hundred-fifty (150) days in any period of one-hundred-eighty (180) consecutive days. (l) "EBIT" shall mean the consolidated earnings before interest and taxes of the Company and its Subsidiaries. (m) "EBITDA" shall mean the consolidated earnings before interest, taxes, depreciation and amortization of the Company and its Subsidiaries. (n) "EBT" shall mean the consolidated earnings before taxes of the Company and its Subsidiaries. (o) "EPS (basic)" shall mean the consolidated net earnings of the Company and its Subsidiaries per share of issued and outstanding Stock. (p) "EPS (diluted)" shall mean the consolidated net earnings of the Company and its Subsidiaries per share of Stock on a fully diluted basis. (q) "Eligible Employee" shall mean any officer or employee of the Company or a Subsidiary. (r) "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended from time to time. (s) "Governance Agreement" shall mean the Governance Agreement dated as of December 19, 2000, by and between LXH, L.L.C., LXH II, L.L.C., Hexcel Corporation and the other parties listed on the signature pages thereto. (t) "Management Stock Purchase Plan" shall mean the Hexcel Corporation Management Stock Purchase Plan, as amended from time to time. 2 (u) "Participant" shall mean any Eligible Employee who is approved by the Committee, in its sole discretion, for participation in the Plan in any Plan Year. (v) "Performance Goals" shall mean any one or more criteria and objectives established by the Committee which must be met during the Plan Year as a condition of the Participant's receipt of an Award in respect of such Plan Year. Performance Goals applicable to the CEO shall be based upon the extent of attainment of a level of EBIT, EBITDA, EBT, EPS (basic), EPS (diluted), ROE, Revenue, RONA, Stock Price or SVA relating to the Company, a Subsidiary or business unit. Performance Goals applicable to any Participant other than the CEO may be any performance measurement relating to the Company, a Subsidiary or business unit which the Committee deems appropriate as well as the extent of attainment by a Participant of individual performance objectives. (w) "Person", as used in Article XV hereof, 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. (x) "Plan" shall mean this Hexcel Corporation Management Incentive Compensation Plan, as amended from time to time. (y) "Plan Year" shall mean each calendar year during which the Plan is in effect. (z) "Restricted Stock Units" shall mean the units in which an Award is partially or wholly payable pursuant to Article VI hereof and which are issuable pursuant to the Management Stock Purchase Plan. (aa) "ROE" shall mean return on the equity of the Company and its Subsidiaries on a consolidated basis. (bb) "Revenue" shall mean the consolidated net sales of the Company and its Subsidiaries. (cc) "RONA" shall mean return on the consolidated net assets of the Company and its Subsidiaries. (dd) "Stock" shall mean shares of common stock of the Company, par value $.01 per share. (ee) "Stock Price" shall mean the price of the Company's Stock as reported on the New York Stock Exchange Consolidated Transactions Tape. (ff) "Subsidiary" shall mean any subsidiary corporation of the Company consolidated with the Company for financial reporting purposes. (gg) "SVA" shall mean return on the weighted average cost of capital of the Company. 3 (hh) "Target Incentive Award" shall have the meaning given in Section V(A) hereof. III. ADMINISTRATION Administration of the Plan shall be by the Committee, which shall, in applying and interpreting the provisions of the Plan, have full power and authority to construe, interpret and carry out the provisions of the Plan. All decisions, interpretations and actions of the Committee under the Plan shall be at the Committee's sole and absolute discretion and shall be final, conclusive and binding upon all parties. No member of the Board or the Committee shall be liable for any action taken or determination made in good faith with respect to the Plan or any Award granted hereunder. IV. ELIGIBILITY FOR PARTICIPATION The Committee shall have full and complete discretion in determining which Eligible Employees may be Participants in the Plan in any Plan Year. Participation in the Plan in any Plan Year shall not confer any right on any Participant to participate in any subsequent Plan Year. V. DETERMINATION OF AWARDS A. ESTABLISHMENT OF TARGET INCENTIVE AWARDS AND PERFORMANCE GOALS. No later than ninety (90) days after the beginning of a Plan Year the Committee shall establish for each Participant (i) a Target Incentive Award for such Plan Year and the applicable Performance Goals in respect of such Plan Year and (ii) the amount of Award payable under the Plan as a percentage (which may exceed one hundred (100%) percent) of the Target Incentive Award, derived from the degree of achievement of the applicable Performance Goals. The Performance Goals established by the Committee may be (but need not be) different each Plan Year and different goals may be applicable to different Participants. As soon as practicable after the establishment of the Target Incentive Award and Performance Goals, each Participant shall be notified in writing of such Target Incentive Award and the corresponding Performance Goals. B. AMOUNT OF AWARD PAYABLE NORMALLY. The Committee shall determine the Award payable to each Participant from the degree of achievement of the applicable Performance Goals. The Committee may, in its sole discretion, (a) increase the amount of any Award otherwise payable to any Participant (other than the CEO) or (b) decrease or eliminate the amount payable to a Participant (including the CEO), in each case to reflect such Participant's individual performance or such other factors as the Committee deems relevant, or in recognition of changed or special circumstances. The amount of the Award payable to the CEO for any Plan Year shall not exceed $1,500,000. C. AMOUNT OF AWARD WITH CHANGE OF EMPLOYMENT STATUS. In the event of a change in employment status of a Participant (other than the CEO) during the Plan Year, the Committee may, in its sole discretion, adjust the Award determinants for the Participant based upon the Participant's new status. 4 D. AMOUNT OF AWARD WITH TERMINATION OF EMPLOYMENT OR CHANGE IN CONTROL. Except as otherwise provided in this paragraph, payment of an Award to a Participant for a particular Plan Year shall be made only if the Participant is employed by the Company or one of its Subsidiaries on the last day of the Plan Year. Notwithstanding any other provision of the Plan, in the case of a Participant's voluntary termination of employment with the Company or a Subsidiary or upon termination of employment with the Company or a Subsidiary for Cause during a Plan Year, the Committee may, in its sole discretion, authorize the full or partial payment of an Award for such Plan Year, if the Participant was actively employed for at least six months during the Plan Year. In the case of a Participant's separation from service due to Disability or death or, in the case of a Participant's (other than the CEO) involuntary termination of employment by the Company or a Subsidiary other than for Cause, a Participant shall be entitled to receive an Award, prorated for the period of active employment with the Company or a Subsidiary during the Plan Year, payable in accordance with Article VI below. In the case of a Change in Control of the Company during a Plan Year, a Participant shall be entitled to receive an Award, prorated for the period of active employment with the Company or a Subsidiary during such Plan Year and prior to the Change in Control, computed as if applicable Performance Goals had been attained at the one hundred (100%) percent level and payable in cash no later than the fifth (5th) day following the Change in Control. VI. PAYMENT OF AWARDS A. TIMING OF PAYMENT. Except as provided in the last sentence of Section V(D) hereof, an Award which becomes payable to a Participant pursuant to Article V hereof shall be paid to the Participant (or the Participant's estate in the event of the Participant's death) as soon as practicable after the close of the Plan Year and certification by the Committee of the degree of achievement of the relevant Performance Goals. No Participant shall have the unconditional right to an Award hereunder until the Plan Year has concluded and the exact amount of the Award (if any) has been determined and certified by the Committee. B. PAYMENT IN CASH AND/OR RESTRICTED STOCK UNITS. At the election of each Participant who has been designated by the Committee as a participant in the Management Stock Purchase Plan, up to fifty (50%) percent of the Participant's Award for any Plan Year shall be paid in Restricted Stock Units pursuant to, and subject to the terms and conditions of, the Management Stock Purchase Plan; provided, however, that the Participant's Award for any Plan Year in which a Change in Control occurs shall be paid totally in cash. The Committee, in its discretion, may permit a Participant in the Management Stock Purchase Plan who first becomes employed by the Company or a Subsidiary during a given Plan Year to elect to have up to one-hundred (100%) percent of the Participant's Award for such Plan Year paid in such Restricted Stock Units. The number of Restricted Stock Units to be paid to a Participant shall be calculated in accordance with the Management Stock Purchase Plan. Payment of the balance of the Participant's Award for such Plan Year (or all thereof if no election of Restricted Stock Units is made by the Participant) shall be made in cash. Payments of portions of any Awards made in Restricted Stock Units pursuant to the Management Stock Purchase Plan may be referred to therein as "purchases" of such Restricted Stock Units. 5 VII. DEFERRAL ELECTIONS The Committee may, at its option, establish written procedures pursuant to which Participants are permitted to defer the receipt of Awards payable under the Plan. VIII. ACCOUNTING DETERMINATIONS The Committee reserves sole discretion in adopting and changing, from time to time, the accounting principles and practices reflected in audited financial statements of the Company and, in its sole and absolute judgment, to make such other adjustments in Company financial results and/or Performance Goals as may be deemed reasonable, including, without limitation, changes to reflect acquisitions, divestitures, other corporate capital reorganizations, recapitalization or extraordinary events. IX. AMENDMENT AND TERMINATION OF PLAN The Compensation Committee of the Board reserves the right, at any time including during a Plan Year, to amend, suspend or terminate the Plan, in whole or in part, in any manner, and for any reason, and without the consent of any Participant, or other person; provided, that no such amendment, suspension or termination shall adversely affect the payment of any Award for a Plan Year ending prior to the action amending, suspending or terminating the Plan or the payment of any Award payable pursuant to the last sentence of Section V(D) hereof or the rights of a Participant pursuant to any agreement with the Company or any Subsidiary. X. GOVERNING LAW The provisions of the Plan shall be governed and construed in accordance with the laws of the State of Delaware without giving effect to the choice of law principles thereof. XI. MISCELLANEOUS PROVISIONS Nothing contained in the Plan shall give any employee the right to be retained in the employment of the Company or a Subsidiary or affect the right of the Company or a Subsidiary to dismiss any employee. The Plan shall not constitute a contract between the Company or a Subsidiary and any employee. Unless approved by the Committee in respect of a particular Plan Year, no Participant shall have any right to be granted an Award hereunder. Nothing contained in the Plan shall restrict the Committee's power to grant any employee an award or bonus outside the scope of this Plan. XII. NO ALIENATION OF BENEFITS Except insofar as may otherwise be required by law, no amount payable at any time under the Plan shall be subject in any manner to alienation by anticipation, sale, transfer, assignment, bankruptcy, pledge, attachment, charge or encumbrance of any kind, nor in any manner be subject to the debts or liabilities of a Participant, and any attempt to so alienate or subject any such amount, whether presently or thereafter payable, shall be void. 6 XIII. NO RIGHT, TITLE OR INTEREST IN COMPANY'S ASSETS Nothing contained in the Plan, and no action taken pursuant to its provisions, shall create, or be construed to create, a trust of any kind, or fiduciary relationship between the Company or a Subsidiary and any Participant or any other person. To the extent that any person acquires a right to receive payments from the Company under the Plan, such rights shall be no greater than the right of an unsecured general creditor of the Company. All payments to be made hereunder shall be paid from the general funds of the Company, and no special or separate funds shall be established, and no segregation of assets shall be made, to assure payment thereof. XIV. NO STOCK SUBJECT TO THE PLAN No shares of Stock shall be reserved for, or issued under, the Plan. To the extent that Awards are paid in Restricted Stock Units, each Restricted Stock Unit shall be issued under, and subject to the terms and conditions of, the Management Stock Purchase Plan. XV. CHANGE IN CONTROL For purposes of the Plan, 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 (a) the then outstanding Stock of the Company (the "Outstanding Common Stock") or (b) the combined voting power of the then outstanding securities entitled to vote generally in the election of directors of the Company (the "Total Voting Power"); excluding, however, the following: (i) any acquisition by the Company or any of its Controlled Affiliates, (ii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any of its Controlled Affiliates and (iii) 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, as of December 20, 2000, 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 7 (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 (a) pursuant to which all or substantially all of the individuals and entities who are the Beneficial Owners, respectively, of the Outstanding Common Stock and Total Voting Power immediately prior to such Corporate Transaction will Beneficially Own, directly or indirectly, more than 50%, respectively, of the outstanding common stock and the combined voting power of the then outstanding 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 company 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 (b) 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 company 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. Notwithstanding the foregoing, a Change in Control shall not be deemed to have occurred by virtue of the consummation of the transactions contemplated by the Stock Purchase Agreement dated as of October 11, 2000 by and among LXH, L.L.C., LXH II, L.L.C., Ciba Specialty Chemicals Holding Inc., Ciba Specialty Chemicals Inc. and Ciba Specialty Chemicals Corporation. XVI. INTERPRETATION The Plan is designed and intended to comply with Section 162 (m) of the Code to the extent applicable to the CEO as a "covered person" as defined therein, and the Plan shall be construed in a manner to so comply. XVII. EFFECTIVE DATE AND TERM This Plan, as approved by the stockholders of the Corporation on May 21, 1998, is hereby amended and restated as authorized by the Board on October 10, 2000, effective December 19, 2000 for Awards made in respect of Plan Year 2000 and thereafter. 8 EX-10 19 0019.txt EXHIBIT 10.7 Exhibit 10.7 EMPLOYEE OPTION AGREEMENT under the Hexcel Corporation Incentive Stock Plan 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 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 its Subsidiaries shall not be considered a termination of employment. If the Optionee's employment with the Corporation is terminated for Cause (as defined in the last Section hereof), the Option, whether or not then vested, shall be automatically terminated as of the date of such termination of employment. If the Optionee's employment with the Corporation shall terminate other than by reason of Retirement (as defined in the last Section hereof), Disability (as defined in the last Section hereof), death or Cause, the Option (to the extent then vested) may be exercised at any time within ninety (90) days after such termination (but not beyond the Term of the Option). The Option, to the extent not then vested, shall immediately expire upon such termination. If the Optionee dies or becomes Disabled (A) while employed by the Corporation or (B) within 90 days after the termination of his or her employment other than for Cause or Retirement, the Option (to the extent then vested) may be exercised at any time within one year after the Optionee's death or Disability (but not beyond the Term of the Option). The Option, to the extent not then vested, shall immediately expire upon such death or disability. If the Optionee's employment terminates by reason of Retirement, the Option shall (A) become fully and immediately vested and exercisable and (B) remain exercisable for three years from the date of such Retirement (but not beyond the Term of the Option). (ii) In the event of a Change in Control (as defined in the last Section hereof), the Option shall immediately become fully vested and exercisable and the post-termination periods of exercisability set forth in Section 4(c)(i) hereof shall apply, except that the post-termination period of exercisability shall be extended and the Option shall remain exercisable for a period of three years from the date of such termination of employment, if, within two years after a Change in Control, (A) the Optionee's employment is terminated by the Company other than by reason of Retirement, Cause, Disability or death or (B) the Optionee terminates the Optionee's employment for Good Reason (as defined in the last Section hereof). 5. ADJUSTMENT UPON CHANGES IN CAPITALIZATION. -2- (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 -3- 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. -4- 15. MISCELLANEOUS. This Employee Option Agreement cannot be changed or terminated orally. This Employee Option Agreement and the Plan contain the entire agreement between the parties relating to the subject matter hereof. The section headings herein are intended for reference only and shall not affect the interpretation hereof. 16. DEFINITIONS. For purposes of this Employee Option Agreement: (I) the term "Beneficial Owner" (and variants thereof) shall have the meaning given in Rule 13d-3 promulgated under the Exchange Act; (II) the term "Cause" shall mean (A) the willful and continued failure by the Optionee to substantially perform the Optionee's duties with the Corporation (other than any such failure resulting from the Optionee's incapacity due to physical or mental illness) after a written demand for substantial performance is delivered to the Optionee by the Corporation, which demand specifically identifies the manner in which the Corporation believes that the Optionee has not substantially performed the Optionee's duties, or (B) the willful engaging by the Optionee in conduct which is demonstrably and materially injurious to the Corporation or its Subsidiaries, monetarily or otherwise. For purposes of clauses (A) and (B) of this definition, no act, or failure to act, on the Optionee's part shall be deemed "willful" unless done, or omitted to be done, by the Optionee not in good faith and without the reasonable belief that the Optionee's act, or failure to act, was in the best interest of the Corporation; (III) the term "Change in Control" shall mean any of the following events: (1) any Person is or becomes the Beneficial Owner, directly or indirectly, of 40% or more of either (a) the then outstanding Common Stock of the Corporation (the "Outstanding Common Stock") or (b) the combined voting power of the then outstanding securities entitled to vote generally in the election of directors of the Corporation (the "Total Voting Power"); excluding, however, the following: (i) any acquisition by the Corporation or any of its Controlled Affiliates, (ii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Corporation or any of its Controlled Affiliates and (iii) 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, as of the effective date of this Employee Option Agreement, constitute the Board (such individuals shall be hereinafter referred to as the "Incumbent Directors") cease for any reason to constitute at least a majority of the Board; PROVIDED, HOWEVER, for purposes of this definition, that any individual who becomes a director subsequent to such effective date, whose election, or nomination for election by the Corporation's stockholders, was made or approved pursuant to the Governance Agreement or by a vote of at -5- 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 Corporation or any direct or indirect Subsidiary of the Corporation or a sale or other disposition of all or substantially all of the assets of the Corporation ("Corporate Transaction"); excluding, however, such a Corporate Transaction (a) pursuant to which all or substantially all of the individuals and entities who are the Beneficial Owners, respectively, of the Outstanding Common Stock and Total Voting Power immediately prior to such Corporate Transaction will Beneficially Own, directly or indirectly, more than 50%, respectively, of the outstanding common stock and the combined voting power of the then outstanding 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 company which as a result of such transaction owns the Corporation or all or substantially all of the Corporation's assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership immediately prior to such Corporate Transaction of the Outstanding Common Stock and Total Voting Power, as the case may be, and (b) 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 company which as a result of such transaction owns the Corporation or all or substantially all of the Corporation's assets either directly or through one or more subsidiaries); or (4) the approval by the stockholders of the Corporation of a complete liquidation or dissolution of the Corporation; (iV) 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; (V) the term "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended from time to time; -6- (VI) the term "Good Reason" for termination by the Optionee of the Optionee's employment shall mean the occurrence (without the Optionee's express written consent) of any one of the following acts by the Corporation, or failures by the Corporation to act, unless, in the case of any act or failure to act described in paragraphs (1), (5) or (6) below, such act or failure to act is corrected prior to the date of termination of the Optionee's employment: (1) a significant adverse alteration in the nature or status of the Optionee's responsibilities, position or authority from those in effect immediately prior to the Change in Control; (2) a reduction by the Corporation in the Optionee's annual base salary as in effect on the date hereof or as the same may be increased from time to time; (3) the relocation of the Optionee's principal place of employment to a location more than fifty (50) miles from the Optionee's principal place of employment immediately prior to the Change in Control or the Corporation's requiring the Optionee to work anywhere other than at such principal place of employment (or permitted relocation thereof) except for required travel on the Corporation's business to an extent substantially consistent with the Optionee's present business travel obligations; (4) the failure by the Corporation to pay to the Optionee any portion of the Optionee's current compensation, or to pay to the Optionee any portion of an installment of deferred compensation under any deferred compensation program of the Corporation, within seven (7) days of the date such compensation is due; (5) the failure by the Corporation to continue in effect any compensation plan in which the Optionee participates immediately prior to the Change in Control which is material to the Optionee's total compensation, or any substitute plans adopted prior to the Change in Control, unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan, or the failure by the Corporation to continue the Optionee's participation therein (or in such substitute or alternative plan) on a basis not materially less favorable, both in terms of the amount or timing of payment of benefits provided and the level of the Optionee's participation relative to other participants, as existed immediately prior to the Change in Control; or (6) the failure by the Corporation to continue to provide the Optionee with benefits substantially similar to those enjoyed by the Optionee under any of the Corporation's pension, savings, life insurance, medical, health -7- and accident, or disability plans in which the Optionee was participating immediately prior to the Change in Control (except for across-the-board changes similarly affecting all senior executives of the Corporation and all senior executives of any Person in control of the Corporation), the taking of any other action by the Corporation which would directly or indirectly materially reduce any of such benefits or deprive the Optionee of any material fringe benefit enjoyed by the Optionee at the time of the Change in Control, or the failure by the Corporation to provide the Optionee with the number of paid vacation days to which the Optionee is entitled on the basis of years of service with the Corporation in accordance with the Corporation's normal vacation policy in effect at the time of the Change in Control. The Optionee's right to terminate the Optionee's employment for Good Reason shall not be affected by the Optionee's incapacity due to physical or mental illness. The Optionee's continued employment shall not constitute consent to, or a waiver of rights with respect to, any act or failure to act constituting Good Reason hereunder. For purposes of any determination regarding the existence of Good Reason, any claim by the Optionee that Good Reason exists shall be presumed to be correct unless the Corporation establishes to the Board by clear and convincing evidence that Good Reason does not exist; (VII) the term "Governance Agreement" shall mean the Governance Agreement dated December 19, 2000, among LXH, L.L.C., LXH II, L.L.C., Hexcel Corporation and the other parties listed on the signature pages thereto; (VIII) the term "Person" shall have the meaning given in Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d) of the Exchange Act; and (IX) 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). -8- ANNEX A NOTICE OF GRANT EMPLOYEE STOCK OPTION HEXCEL CORPORATION INCENTIVE STOCK PLAN The following employee of Hexcel Corporation, a Delaware corporation 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 Sr. Vice President -9- EX-10 20 0020.txt EXHIBIT 10.8 Exhibit 10.8 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 2 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. 3 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; 4 (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 5 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; 6 (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. 7 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 December 19, 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; (X) the term "Retirement" shall mean termination of the Optionee's employment, other than by reason of death or Cause, either (A) at or after age 65 or (B) at or after age 55 after five (5) years of employment by the Corporation (or a Subsidiary thereof); and (XI) the term "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. 8 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-12.1 21 0021.txt EXHIBIT 12.1
Exhibit 12.1 - ------------------------------------------------------------ -- ------- -- ------- --- ------- -- ------- --- ------- (Dollars in millions) 2000 1999 1998 1997 1996 - ------------------------------------------------------------ -- ------- -- ------- --- ------- -- ------- --- ------- Income (loss) before income taxes * $ 75.0 $ (5.0) $ 79.7 $ 50.7 $ (15.8) Interest expense, including amortization of debt issuance $ 68.7 $ 73.9 $ 38.7 $ 25.8 $ 21.6 costs Portion of rental expense deemed to represent interest 2.3 3.1 2.7 2.5 1.5 - ------------------------------------------------------------ -- ------- -- ------- --- ------- -- ------- --- ------- Total fixed charges $ 71.0 $ 77.0 $ 41.4 $ 28.3 $ 23.1 Earnings before fixed charges $ 146.0 $ 72.0 $ 121.1 $ 79.0 $ 7.3 Fixed charges $ 71.0 $ 77.0 $ 41.4 $ 28.3 $ 23.1 Ratio of earnings to fixed charges 2.1 0.9x 2.9x 2.8x - Deficiency of earnings to fixed charges - - - - $ 15.8 - ------------------------------------------------------------ -- ------- -- ------- --- ------- -- ------- --- ------- * Excludes equity in income in affiliated companies except to the extent that such income has been received by the Company.
EX-21 22 0022.txt EXHIBIT 21.1 Exhibit 21.1 SUBSIDIARIES OF HEXCEL ACM Holdings Corporation (DE) Clark-Schwebel Corporation (DE) Clark-Schwebel Holding Corp. (DE) CS Tech-Fab Holding, Inc. (DE) Hexcel (UK) Limited Hexcel Beta Corp. (DE) Hexcel Chemical Products Limited (UK) Hexcel China Holdings (Mauritius) Hexcel Composites GmbH (Austria) Hexcel Composites GmbH (Germany) Hexcel Composites Limited (UK) Hexcel Composites S.A. (Belgium) Hexcel Composites S.A. (France) Hexcel Composites, S.A. (Spain) Hexcel Composites S.r.l. (Italy) Hexcel do Brasil Servicos S/C Ltda (Brazil) Hexcel Fabrics S.A. (France) Hexcel Far East (CA) Hexcel Foreign Sales Corporation (Barbados) Hexcel Foundation (CA) Hexcel Holding B.V. (Netherlands) Hexcel Holdings (UK) Limited (UK) Hexcel International (CA) Hexcel Omega Corporation (CA) Hexcel Overseas Ltd. (UK) Hexcel Pacific Rim Corporation (CA) Hexcel Pacific Rim Corporation (DE) Hexcel Pottsville Corporation (DE) Hexcel S.A. (France) Hexcel Structures and Interiors GmbH (Germany) Hexcel Technologies Inc. (DE) EX-23 23 0023.txt EXHIBIT 23 Exhibit 23 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (Nos: 333-46626, 333-46476, 333-46472, 333-83747, 333-83745, 333-57223, 333-36163, 333-36099, 333-31125 and 333-01225) of Hexcel Corporation of our report dated January 18, 2001 relating to the financial statements, which appears in this Form 10-K. /s/ PricewaterhouseCoopers LLP San Jose, California March 23, 2001 -----END PRIVACY-ENHANCED MESSAGE-----