-----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, MVWKAeQsI/9z87KwbuzU7WARNDjkk4HELkFlbKS2zwbT+8JGGd02ZTk2BHCmR9TO Q2dMpAkAwP87CLntvj7k+g== 0000912057-01-526309.txt : 20010804 0000912057-01-526309.hdr.sgml : 20010804 ACCESSION NUMBER: 0000912057-01-526309 CONFORMED SUBMISSION TYPE: S-4 PUBLIC DOCUMENT COUNT: 23 FILED AS OF DATE: 20010802 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HEXCEL CORP /DE/ CENTRAL INDEX KEY: 0000717605 STANDARD INDUSTRIAL CLASSIFICATION: ABRASIVE ASBESTOS & MISC NONMETALLIC MINERAL PRODUCTS [3290] IRS NUMBER: 941109521 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-66582 FILM NUMBER: 1696269 BUSINESS ADDRESS: STREET 1: 11711 DUBLIN RD CITY: DUBLIN STATE: CA ZIP: 94568 BUSINESS PHONE: 925551-4900 MAIL ADDRESS: STREET 1: 281 TRESSER BLVD. STREET 2: TWO STAMFORD PLAZA, 16TH FLOOR CITY: STAMFORD STATE: CT ZIP: 06901-8781 S-4 1 a2055198zs-4.txt S-4 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 2, 2001 REGISTRATION NO. 333- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM S-4 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------ HEXCEL CORPORATION (Exact name of Registrant as specified in its charter) DELAWARE 94-1109521 (State or other jurisdiction 3089 (I.R.S. Employer of (Primary Standard Industrial Identification No.) incorporation or organization) Classification Code Number)
TWO STAMFORD PLAZA 281 TRESSER BOULEVARD STAMFORD, CONNECTICUT 06901-3238 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) IRA J. KRAKOWER, ESQ. HEXCEL CORPORATION TWO STAMFORD PLAZA 281 TRESSER BOULEVARD STAMFORD, CONNECTICUT 06901-3238 (203) 969-0666 (Name, address, including zip code, and telephone number, including area code, of agent for service) -------------------------- COPY TO: JOSEPH A. COCO, ESQ. SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP FOUR TIMES SQUARE NEW YORK, NEW YORK 10036 (212) 735-3000 -------------------------- APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE. -------------------------- If the securities being registered on this Form are to be offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box. / / If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration number of the earlier effective registration statement for the same offering. / / If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / -------------------------- CALCULATION OF REGISTRATION FEE
PROPOSED MAXIMUM TITLE OF EACH CLASS AMOUNT TO BE OFFERING PRICE PROPOSED MAXIMUM AMOUNT OF OF SECURITIES TO BE REGISTERED REGISTERED PER UNIT OFFERING PRICE(1) REGISTRATION FEE 9 3/4% Senior Subordinated Notes Due 2009................................. $100,000,000 98.5% $98,500,000 $24,625
(1) Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(f) under the Securities Act of 1933, as amended. ------------------------------ THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED. SUBJECT TO COMPLETION, DATED AUGUST 2, 2001 PROSPECTUS Offer to Exchange All 9 3/4% Senior Subordinated Notes Due 2009 Issued on June 29, 2001 for 9 3/4% Senior Subordinated Notes Due 2009, Which Have Been Registered Under the Securities Act of 1933, of Hexcel Corporation The exchange offer will expire at 5:00 P.M., New York City time, on , 2001, unless extended. ------------------ Terms of the exchange offer: - We will exchange all original notes that are validly tendered and not withdrawn prior to the expiration of the exchange offer. - You may withdraw tenders of original notes at any time prior to the expiration of the exchange offer. - We believe that the exchange of original notes will not be a taxable event for U.S. federal income tax purposes, but you should see "Certain United States Federal Income Tax Considerations" on page 126 for more information. - We will not receive any proceeds from the exchange offer. - The terms of the exchange notes are substantially identical to the original notes, except that the exchange notes are registered under the Securities Act and the transfer restrictions and registration rights applicable to the original notes do not apply to the exchange notes. --------------------- This investment involves risks. See "Risk Factors" beginning on page 10. ------------------- Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense. ------------------- The date of this prospectus is , 2001. PROSPECTUS SUMMARY The following summary highlights selected information from this prospectus and may not contain all of the information that is important to you. This prospectus includes a description of the specific terms of the notes we are offering, information regarding our business and detailed financial data. We encourage you to read this prospectus in its entirety. The terms "Hexcel," "we," "our" and "us" as used in this prospectus refer to Hexcel Corporation, the issuer of the original notes and the exchange notes to be issued in the exchange offer, and its subsidiaries as a combined entity, except where the context makes it clear that such term means only the parent company. We refer to the 9 3/4% Senior Subordinated Notes Due 2009 issued on June 29, 2001 as the "original notes" and to the 9 3/4% Senior Subordinated Notes Due 2009 offered by this prospectus as the "exchange notes." The original notes, the exchange notes and all other 9 3/4% Senior Subordinated Notes Due 2009 of Hexcel that are presently outstanding and issued pursuant to the indenture dated as of January 21, 1999 are collectively referred to as the "notes." Unless otherwise indicated, the market and market share data contained in this prospectus are derived from publicly available industry sources, which we have not independently verified. You should pay special attention to the "Risk Factors" section beginning on page 10 of this prospectus. For a description of certain industry-related terms, see "Glossary of Terms." SUMMARY OF THE EXCHANGE OFFER On June 29, 2001, we completed the private offering of $100.0 million aggregate principal amount of our 9 3/4% Senior Subordinated Notes Due 2009. The original notes were offered as additional debt securities under an indenture under which we had issued $240.0 million of 9 3/4% Senior Subordinated Notes Due 2009 on January 21, 1999. As part of the offering that closed on June 29, 2001, we entered into a registration rights agreement with the initial purchasers of the original notes in which we agreed, among other things, to deliver this prospectus to you and to complete an exchange offer for the original notes. The following is a summary of the exchange offer. SECURITIES OFFERED........................ We are offering up to $100.0 million aggregate principal amount of our 9 3/4% Senior Subordinated Notes Due 2009 which have been registered under the Securities Act. The form and terms of the exchange notes are identical in all material respects to those of the original notes, except that the exchange notes will not contain transfer restrictions and registration rights applicable to the original notes. THE EXCHANGE OFFER........................ We are offering exchange notes in the principal amount of $1,000 (and any integral multiple of $1,000) in exchange for original notes with a $1,000 principal amount (and any equivalent integral multiple of $1,000). In order to be exchanged, an original note must be properly tendered and accepted. All original notes that are validly tendered and not withdrawn will be exchanged. As of the date of this prospectus, there is $100.0 million aggregate principal amount of original notes outstanding. We will issue exchange notes promptly after the expiration of the exchange offer.
1 RESALES................................... Based on interpretations by the staff of the SEC in a series of no-action letters issued to third parties, we believe that the exchange notes issued in the exchange offer may be offered for resale, resold or otherwise transferred by you without compliance with the registration and prospectus delivery requirements of the Securities Act, provided that: - you are acquiring the exchange notes in the ordinary course of your business; - you are not participating, do not intend to participate and have no arrangement or understanding with any person to participate, in a distribution of the exchange notes; and - you are not an "affiliate" of ours. If you are an affiliate of ours, are engaged in or intend to engage in, or have any arrangement or understanding with any person to participate in the distribution of the exchange notes: - you cannot rely on the applicable interpretations of the staff of the SEC and - you must comply with the registration requirements of the Securities Act in connection with any resale transaction. Each broker or dealer that receives exchange notes for its own account in exchange for original notes that were acquired as a result of market-making or other trading activities must acknowledge that it will deliver this prospectus in connection with any offer to resell, resale, or other transfer of the exchange notes issued in the exchange offer. EXPIRATION DATE........................... 5:00 p.m., New York City time, on , 2001, unless we extend the expiration date. ACCRUED INTEREST ON THE EXCHANGE NOTES AND ORIGINAL NOTES.......................... The exchange notes will bear interest from July 15, 2001. If your original notes are accepted for exchange, then you will receive interest on the exchange notes and not on the original notes. CONDITIONS TO THE EXCHANGE OFFER.......... The exchange offer is subject to customary conditions. We may assert or waive these conditions in our sole discretion. If we materially change the terms of the exchange offer, we will resolicit tenders of the original notes. Please read the section of the prospectus entitled "The Exchange Offer--Conditions to the Exchange Offer" for more information regarding the conditions to the exchange offer.
2 PROCEDURES FOR TENDERING ORIGINAL NOTES... If you wish to tender your original notes, you must complete, sign and date the letter of transmittal, or a facsimile of it, according to its instructions and transmit the letter of transmittal, together with your original notes and any other required documentation, to the exchange agent, The Bank of New York. The exchange agent must receive this documentation at the address set forth in the letter of transmittal by 5:00 p.m., New York City time, on the expiration date. By signing the letter of transmittal, you will represent to us that you are acquiring the exchange notes in the ordinary course of your business, that you are not participating, do not intend to participate and have no arrangement or understanding with any person to participate, in the distribution of exchange notes, and that you are not an "affiliate" of ours. See "The Exchange Offer--Procedures for Tendering." SPECIAL PROCEDURES FOR BENEFICIAL HOLDERS................................. If you are the beneficial holder of original notes that are registered in the name of your broker, dealer, commercial bank, trust company or other nominee, and you wish to tender in the exchange offer, you should contact the person in whose name your original notes are registered and instruct that person to tender on your behalf. See "The Exchange Offer--Procedures for Tendering." GUARANTEED DELIVERY PROCEDURES............ If you wish to tender your original notes and you cannot deliver your original notes, the letter of transmittal or any other required documents to the exchange agent before the expiration date, you may tender your original notes according to the guaranteed delivery procedures set forth in "The Exchange Offer--Guaranteed Delivery Procedures." WITHDRAWAL RIGHTS......................... Tenders may be withdrawn at any time before 5:00 p.m., New York City time, on the expiration date. ACCEPTANCE OF ORIGINAL NOTES AND DELIVERY OF EXCHANGE NOTES....................... Subject to the conditions set forth in the section of this prospectus entitled "The Exchange Offer--Conditions to the Exchange Offer," we will accept for exchange any and all original notes that are properly tendered in the exchange offer before 5:00 p.m., New York City time, on the expiration date. The exchange notes will be delivered promptly after the expiration date. See "The Exchange Offer--Terms of the Exchange Offer."
3 CERTAIN UNITED STATES FEDERAL TAX CONSEQUENCES............................ We believe that your exchange of original notes for exchange notes pursuant to the exchange offer will not result in any gain or loss to you for U.S. federal income tax purposes. See "Certain United States Federal Tax Consequences." EXCHANGE AGENT............................ The Bank of New York is serving as exchange agent in connection with the exchange offer. The address and telephone number of the exchange agent are set forth in the section of this prospectus entitled "The Exchange Offer--Exchange Agent." USE OF PROCEEDS........................... We will not receive any proceeds from the issuance of exchange notes pursuant to the exchange offer. See "Use of Proceeds." We will pay all expenses incident to the exchange offer. No underwriter is being used in connection with the exchange offer. For a description of the use of proceeds of the offering of original notes, see "Our Business--Recent Developments--Issuance of Original Notes."
SUMMARY OF TERMS OF THE EXCHANGE NOTES ISSUER.................................... Hexcel Corporation. AGGREGATE AMOUNT.......................... $100.0 million aggregate principal amount of 9 3/4% Senior Subordinated Notes Due 2009. MATURITY.................................. January 15, 2009. INTEREST RATE............................. 9 3/4% per year. INTEREST PAYMENT DATES.................... January 15 and July 15 of each year, commencing January 15, 2002. RANKING................................... The notes will be unsecured senior subordinated obligations and will rank junior to our existing and future senior indebtedness. The notes will rank equally with our existing and future senior subordinated indebtedness and will rank senior to our subordinated indebtedness. The notes effectively will rank junior to all liabilities of our subsidiaries. The terms "Senior Indebtedness" and "Subordinated Indebtedness" are defined in the "Description of the Notes--Ranking" and "Description of the Notes--Definitions of Terms Used in the Indenture" sections of this prospectus. As of March 31, 2001, after giving effect to the issuance and sale of the original notes and our use of the net proceeds from the issuance, we had outstanding $275.5 million of senior indebtedness and $72.5 million of subordinated indebtedness. OPTIONAL REDEMPTION....................... We cannot redeem the exchange notes until January 15, 2004, except as described below. On and after that date, we can redeem some or all of the exchange notes at the redemption prices listed in the "Description of the Notes--Optional Redemption" section of this prospectus, plus accrued interest.
4 OPTIONAL REDEMPTION AFTER PUBLIC EQUITY OFFERINGS............................... At any time, which may be more than once, before January 15, 2002, we can choose to redeem up to 35% of the original principal amount of the notes, including the original principal amount of any additional notes, with money that we raise in public equity offerings, so long as: - we pay to holders of the notes a redemption price of 109 3/4% of the face amount of the notes we redeem, plus accrued interest; - we redeem the notes within 120 days of completing a public equity offering; and - at least 65% of the original aggregate principal amount of notes issued, including the original principal amount of any additional notes, remains outstanding afterwards. CHANGE OF CONTROL OFFER................... If a change of control of Hexcel occurs, we must give holders of the exchange notes the opportunity to sell to us their notes at a purchase price of 101% of their face amount, plus accrued interest. The term "Change of Control" is defined in the "Description of the Notes--Change of Control" section of this prospectus. Our ability to repurchase the exchange notes following the occurrence of a change of control may be limited by then existing financial resources. We cannot assure you that sufficient funds will be available when necessary to make any required repurchases. See "Risk Factors--We may be unable to purchase your notes upon a change of control." COVENANTS................................. The indenture governing the notes contains covenants that limit our ability and that of our subsidiaries to: - incur additional debt; -pay dividends or distributions on, or redeem or repurchase, our capital stock; - make investments; - issue or sell capital stock of subsidiaries; - engage in transactions with affiliates; - create liens on our assets to secure specified debt; - transfer or sell assets; - guarantee debt; - restrict dividend or other payments to us; -consolidate, merge or transfer all or substantially all of our assets and the assets of our subsidiaries; and - engage in unrelated businesses. These covenants are subject to important exceptions and qualifications, which are described in the "Description of the Notes" section of this prospectus.
5 OUR BUSINESS GENERAL We are the world's leading producer of advanced structural materials. We develop, manufacture and market lightweight, high-performance reinforcement products, composite materials and engineered products for use in commercial aerospace, space and defense, electronics and general industrial applications. Our materials are used in a wide variety of end products, such as commercial and military aircraft, space launch vehicles and satellites, printed wiring boards, computers, cellular telephones, televisions, soft body armor, high-speed trains and ferries, cars and trucks, wind turbine blades, reinforcements for bridges and other structures, window blinds, skis and snowboards, golf clubs, fishing poles, tennis rackets and bicycles. We are a vertically integrated manufacturer of products organized around three strategic business segments, presented in order of manufacturing integration from raw materials to finished products. - REINFORCEMENT PRODUCTS: This segment manufactures carbon fibers and carbon fiber fabrics, fiberglass fabrics which are the substrate for printed wiring boards, woven industrial fabrics, woven fabrics for ballistics protection and carbon, aramid and glass reinforcement materials, all of which comprise the foundation of many composite materials, parts and structures; - COMPOSITE MATERIALS: This segment produces honeycomb and prepregs, as well as structural adhesives and specially machined honeycomb details and composite panels, that are incorporated into military and commercial aircraft; and - ENGINEERED PRODUCTS: This segment engineers and produces composite parts and structures for commercial and military aircraft. With 20 manufacturing facilities located in six countries around the world and joint ventures in Asia, Europe and the United States, we are well positioned to take advantage of opportunities for growth worldwide. For the twelve months ended December 31, 2000, 43% of our sales were made outside the United States. We serve our 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. We believe that we have achieved a degree of vertical integration unmatched by any competitor. This vertical integration enhances our control over the cost, quality and delivery of our products, and enables us to offer a variety of solutions to our customers' structural materials needs. For the year ended December 31, 2000, we generated net sales of approximately $1.1 billion and Adjusted EBITDA of $144.9 million. For the three months ended March 31, 2001, we generated net sales of approximately $276.2 million and Adjusted EBITDA of $38.9 million. See the footnotes to the "Selected Consolidated Financial Information" table on page 23 of this prospectus for definitions of the terms "EBITDA" and "Adjusted EBITDA." COMPETITIVE STRENGTHS We believe that our competitive position is attributable to a number of key strengths, including the following: - Market leader for advanced structural materials - Most vertically integrated manufacturer of advanced structural materials - Market and geographic diversity - Broad range of product qualifications in the aerospace industry - Leader in growing multilayer printed wiring board market - Leader in advanced structural materials technology 6 RECENT DEVELOPMENTS APPOINTMENT OF NEW CHIEF EXECUTIVE OFFICER The Board of Directors appointed Mr. David E. Berges to serve as our Chairman of the Board of Directors and our Chief Executive Officer effective as of July 30, 2001. Mr. Berges succeeds John J. Lee, who passed away in May of 2001. SECOND QUARTER 2001 FINANCIAL RESULTS On July 20, 2001, we reported our financial results for the second quarter of 2001. Net loss for the second quarter of 2001 was $12.6 million, or $0.34 per diluted share. The net loss for the second quarter 2001, before the extraordinary loss of $3.1 million arising from the early retirement of debt, was $9.5 million, or $0.26 per diluted share, compared to net income of $50.4 million, or $1.14 per diluted share, for the second quarter of 2000. The quarter's results include a number of one-time charges, which relate to compensation expenses resulting from the retirement of our former Chief Executive Officer, the early retirement of our Increasing Rate Senior Subordinated Notes Due 2003 and a portion of our 7% Convertible Subordinated Notes Due 2003, both of which were repaid with proceeds from the offering of the original notes, fees and expenses incurred in connection with an amendment to our senior credit facility, and a reduction in our tax benefit for U.S. operating losses. Excluding these items and business consolidation expenses, our pretax income was $1.6 million. Our second quarter 2000 results included a net after-tax gain from the sale of Bellingham aircraft interiors business of approximately $44.0 million, or $0.97 per diluted share. Adjusted EBITDA for the second quarter of 2001 was $33.4 million versus $38.8 million for the second quarter of 2000 and $39.3 million for the second quarter of 2000 on a pro forma basis. Adjusted EBITDA for 2001 year to date was $72.3 million versus $75.9 million for 2000 year to date on a pro forma basis. Pro forma results give effect to the April 26, 2000 sale of the Bellingham aircraft interiors business as if the transaction had occurred on January 1, 2000. ISSUANCE OF ORIGINAL NOTES On June 29, 2001, we issued and sold $100.0 million aggregate principal amount of the original notes, generating net proceeds to Hexcel of approximately $94.2 million. We used the net proceeds of the issuance to redeem $67.5 million aggregate principal amount of our outstanding 7% Convertible Subordinated Notes Due 2003 (plus a $0.8 million premium payment), of which approximately $114.4 million of principal was outstanding, and to prepay the entire principal amount of approximately $25.0 million of the Increasing Rate Senior Subordinated Note Due 2003 held by Ciba Specialty Chemicals Inc. AMENDMENT TO SENIOR CREDIT FACILITY In connection with the issuance of the original notes, we amended our senior credit facility to, among other things, modify financial covenants and permit that offering. As of March 31, 2001, there were approximately $227.9 million of loans outstanding under the senior credit facility, consisting of $29.7 million of term A loans, $92.6 million of term B loans, $25.6 million under the domestic revolving line of credit, $80.0 million under the European revolving line of credit, and no amounts under the European overdraft facility. PURCHASE OF APPROXIMATELY 14.5 MILLION SHARES OF OUR COMMON STOCK BY A GROUP OF INVESTORS On December 19, 2000, a group of investors controlled by subsidiaries of The Goldman Sachs Group, Inc. completed the purchase of approximately 14.5 million of the approximately 18 million shares of our common stock owned by Ciba. The shares acquired by the investors represent 7 approximately 39% of our outstanding common stock. In addition, we entered into a governance agreement with the investors that became effective on December 19, 2000. Under this governance agreement, the investors have the right to designate three directors to serve on our ten-member Board of Directors. As a result of this transaction, Ciba now owns approximately 3.5 million shares of our common stock. In addition, our governance agreement with Ciba, which gave Ciba the right to designate four directors to sit on our Board of Directors, terminated. Ciba has stated that its ownership of our common stock is non-strategic and that it will explore options for its future disposition of our common stock. SALE OF THE BELLINGHAM AIRCRAFT INTERIORS BUSINESS On April 26, 2000, we sold our Bellingham business to Britax Cabin Interiors, Inc., a subsidiary of Britax International plc, for $113.3 million in cash, 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, $70.0 million for 1999 and $34.3 million for 1998. The Bellingham business was engaged in the manufacture and sale of airline interior refurbishment applications and its operating results were reflected as a component of our Engineered Products business segment up to the date of disposal. SUMMARY CONSOLIDATED FINANCIAL INFORMATION The following table presents summary financial and other data with respect to Hexcel and has been derived from (1) the audited consolidated financial statements of Hexcel as of and for the three years ended December 31, 2000, and the unaudited condensed consolidated financial statements of Hexcel as of and for the three months ended March 31, 2000 and 2001 and for the nine months ended December 31, 2000, (2) the unaudited pro forma financial statements and (3) the unaudited supplemental pro forma financial statements. The unaudited pro forma financial statements and the unaudited supplemental pro forma financial statements give effect to the offering of the original notes and the application of the net proceeds from that offering, including the redemption of $67.5 million aggregate principal of the outstanding 7% Convertible Subordinated Notes Due 2003 (plus a $0.8 million premium payment) and the redemption of the entire principal amount of approximately $25.0 million of the Increasing Rate Senior Subordinated Note Due 2003, each as if they had occurred as of the beginning of the periods presented. The unaudited supplemental pro forma financial statements are presented to provide a measure of operating performance without the Bellingham operation and present an alternative presentation that should not be considered in isolation or as a substitute for pro forma financial statements presented in accordance with generally accepted accounting principles. The summary financial and other data for Hexcel have been derived from the unaudited consolidated financial statements of Hexcel as of and for the three months ended March 31, 2000 and 2001 and for the nine months ended December 31, 2000 which, in the opinion of our management, include all adjustments necessary for the fair presentation of such information. Results for interim periods are not necessarily indicative of the results for the full year. The information set forth should be read together with the other information contained under the captions "Capitalization," "Selected Consolidated Financial Information," "Pro Forma Financial Information" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" and with the consolidated financial statements and the related notes thereto, included elsewhere in this prospectus. 8
FOR THE YEAR ENDED DECEMBER 31, --------------------------------------------- SUPPLEMENTAL HISTORICAL PRO FORMA ------------------------------ ------------ 1998 1999 2000 2000 -------- -------- -------- ------------ (DOLLARS IN MILLIONS) STATEMENT OF OPERATIONS DATA: Net sales............. $1,089.0 $1,151.5 $1,055.7 $1,036.8 Gross margin.......... 271.3 242.5 231.4 226.8 Business consolidation expenses (a)........ 12.7 20.1 10.9 10.9 Operating income...... 117.0 68.9 75.4 74.8 Gain on sale of Bellingham aircraft interiors business............ -- -- 68.3 -- Net income (loss)..... 50.4 (23.3) 54.2 6.9 OTHER DATA: EBITDA (b)............ $ 164.5 $ 130.3 $ 202.3 $ 133.1 Adjusted EBITDA (b)... 177.2 150.4 144.9 144.0 Depreciation and amortization........ 47.5 61.3 58.7 58.4 Capital expenditures........ 66.5 35.6 39.6 39.4 Ratio of earnings to fixed charges (c)... 2.9 N/A 2.1 2.1 BALANCE SHEET DATA (AT PERIOD END): Working capital....... $ 219.6 $ 117.3 $ 128.1 Total assets.......... 1,404.2 1,261.9 1,211.4 Total debt............ 864.9 770.9 673.6 Stockholders' equity.............. 302.4 270.1 315.7 FOR THE TWELVE MONTHS ENDED FOR THE THREE MONTHS ENDED MARCH 31, MARCH 31, ----------------------------------------------- -------------- SUPPLEMENTAL SUPPLEMENTAL HISTORICAL PRO FORMA PRO FORMA PRO FORMA ------------------- ------------ ---------- -------------- 2000 2001 2000 2001 2001 -------- -------- ------------ ---------- -------------- (DOLLARS IN MILLIONS) STATEMENT OF OPERATIONS DATA: Net sales............. $ 279.8 $ 276.2 $263.2 $ 276.2 $1,049.8 Gross margin.......... 62.2 60.1 57.7 60.1 229.2 Business consolidation expenses (a)........ 1.2 1.1 1.2 1.1 10.8 Operating income...... 21.8 22.6 20.7 22.6 76.7 Gain on sale of Bellingham aircraft interiors business............ -- -- -- -- -- Net income (loss)..... 2.6 5.5 0.1 2.6 9.4 OTHER DATA: EBITDA (b)............ $ 36.8 $ 37.8 $ 35.4 $ 37.8 $ 135.6 Adjusted EBITDA (b)... 38.0 38.9 36.5 38.9 146.4 Depreciation and amortization........ 15.0 15.2 14.7 15.2 58.9 Capital expenditures........ 4.4 10.6 4.2 10.6 45.8 Ratio of earnings to fixed charges (c)... 1.2 1.4 1.2 1.3 2.1 BALANCE SHEET DATA (AT PERIOD END): Working capital....... $ 149.8 $ 142.0 $ 142.0 Total assets.......... 1,290.0 1,225.5 1,229.8 Total debt............ 788.8 679.9 686.5 Stockholders' equity.............. 270.3 307.2 304.7
- ------------------------------ (a) Business consolidation expenses include amounts previously reported as "Restructuring expenses." (b) "EBITDA" is defined as income from continuing operations before interest, taxes and depreciation and amortization. "Adjusted EBITDA" is defined as EBITDA before business consolidation expenses and other income, net. We believe that EBITDA and Adjusted EBITDA provide useful information regarding Hexcel's ability to service its indebtedness. These measures may not be comparable to similarly titled financial measures of other companies. EBITDA and Adjusted EBITDA do not represent alternative measures of Hexcel'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. (c) Earnings consist of income (loss) from continuing operations before fixed charges and income taxes. Fixed charges consist of interest expense, amortization of fees related to debt financing and that portion of rent expense deemed to be interest. Interest portion of rentals was calculated as one third of rentals, which is a reasonable approximation of the interest factor. For the year ended December 31, 1999, earnings were insufficient to cover fixed charges by approximately $5.0 million. 9 RISK FACTORS YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING FACTORS, AS WELL AS THE OTHER MATTERS DESCRIBED IN THIS PROSPECTUS. YOU MAY HAVE DIFFICULTY SELLING THE ORIGINAL NOTES YOU DO NOT EXCHANGE. If you do not exchange your original notes for the exchange notes offered in this exchange offer, you will continue to be subject to the restrictions on the transfer of your original notes. Those transfer restrictions are described in the indenture governing the notes and in the legend contained on the original notes, and arose because we originally issued the original notes under exemptions from the registration requirements of the Securities Act. In general, you may offer or sell your original notes only if they are registered under the Securities Act and applicable state securities laws, or if they are offered and sold under an exemption from those requirements. We do not intend to register the original notes under the Securities Act. If a large number of original notes are exchanged for new notes issued in the exchange offer, it may be particularly difficult for you to sell your original notes. This is because potential buyers will likely prefer to purchase exchange notes from a different seller if possible. In addition, if you do not exchange your original notes in the exchange offer, you will not be entitled to have those original notes registered under the Securities Act. Please see "The Exchange Offer--Consequences of Failure to Exchange Original Notes" for a discussion of the possible consequences of failing to exchange your original notes. WE HAVE SUBSTANTIAL DEBT THAT COULD LIMIT OUR ABILITY TO MAKE PAYMENTS ON THE NOTES AND REDUCE THE EFFECTIVENESS OF OUR OPERATIONS. We have substantial debt and debt service requirements. We cannot assure you that we will generate sufficient cash flow from operations, or that we will be able to obtain sufficient funding, to satisfy our debt service obligations, including the payment of principal and interest on the notes. As of March 31, 2001, we had $679.9 million of outstanding debt. Our total debt, as a percentage of total capitalization, was 69%. This substantial level of debt will have important consequences, including: - limiting our ability to borrow additional amounts for working capital, capital expenditures, debt service requirements, execution of our growth strategy and research and development costs; - limiting our ability to use operating cash flow in other areas of our business; - increasing our vulnerability to general adverse economic and industry conditions; and - limiting our ability to capitalize on business opportunities and to react to competitive pressures and adverse changes in government regulation. Our ability to pay interest on the notes and to meet our other debt service obligations depends upon, among other things, our future operating performance and ability to refinance debt when necessary. Each of these factors is to a large extent dependent upon economic conditions and financial, business and competitive factors beyond our control. We may be able to incur substantial indebtedness in the future, and any such additional borrowings would further increase our leverage and the associated risks. WE MAY NOT BE ABLE TO FINANCE FUTURE OPERATIONS AND CAPITAL NEEDS BECAUSE OF RESTRICTIONS IN OUR DEBT AGREEMENTS. The operating and financial restrictions and covenants in our existing debt agreements, and in any future financing agreements, may impair our ability to finance future operations or capital needs. In addition, the senior credit facility requires that we maintain compliance with specified financial ratios. 10 A breach of any of these restrictions or covenants could cause a default under the notes and our other debt. A significant portion of our debt may then become immediately due and payable. We may not have, or be able to obtain, sufficient funds to make these accelerated payments, including payments on the notes. WE MAY NOT BE ABLE TO PAY PRINCIPAL AND INTEREST ON YOUR NOTES AFTER PAYMENT OF OUR SENIOR DEBT. We may not be able to make payments on the notes after payment of amounts due on our senior debt. Your notes will be subordinate to the prior payment in full of all senior debt. As of March 31, 2001, we had approximately $275.5 million of senior debt outstanding. Moreover, the indenture permits us to incur additional debt, which may include senior debt. After giving effect to loan covenants under our senior credit facility, the maximum amount of additional debt that we could borrow as of March 31, 2001 was $58.8 million, all of which would be senior debt. Because of the subordination provisions of the notes, in the event of our bankruptcy, our assets would be available to pay obligations under the notes only after all payments had been made on our senior debt. We cannot assure you that sufficient assets will remain after these payments have been made to make any payments on the notes. In addition, the occurrence of specified events of default under our senior debt would prohibit us from making any payments on the notes, including payments of interest when due. YOUR NOTES WILL BE SUBORDINATED TO THE LIABILITIES OF OUR SUBSIDIARIES AND PRIOR PAYMENTS OF THESE LIABILITIES MAY PREVENT US FROM BEING ABLE TO MAKE PAYMENTS ON THE NOTES. As of March 31, 2001, our subsidiaries had approximately $269.3 million of liabilities. Because your notes are structurally subordinated to our subsidiaries' liabilities, we must pay these liabilities prior to making payments on your notes. We cannot assure you that adequate assets will remain after these payments. Moreover, these prior payments will generally include the payment of all liabilities of our subsidiaries, even if the particular liabilities do not constitute senior debt. Thus, for example, your claim on our assets in satisfaction of your rights as a note holder will generally be subordinate to the claims of trade creditors of, or creditors holding guarantees issued by, our subsidiaries. YOUR NOTES ARE NOT SECURED BY ANY OF OUR ASSETS. IF OUR BANK LENDERS FORECLOSE ON OUR ASSETS, THE PROCEEDS FROM OUR REMAINING ASSETS MAY BE INSUFFICIENT TO MAKE PAYMENTS ON THE NOTES. Our bank lenders have a security interest in our assets. Your claims as a note holder are unsecured. Therefore, our secured lenders will have a claim on our assets prior to any claim you have as a note holder. Accordingly, we cannot assure you that the liquidation value of our remaining assets after a foreclosure by our secured lenders would be adequate to make any payments on your notes. DECREASED DEMAND IN THE COMMERCIAL AEROSPACE INDUSTRY COULD SIGNIFICANTLY IMPAIR OUR SALES, PROFIT MARGINS AND FINANCIAL CONDITION. Decreased demand in the commercial aerospace industry could result in reduced net sales for our commercial aerospace products and could reduce our profit margins. Approximately 50% of our net sales for the year ended December 31, 2000 and 52% of our net sales for the three months ended March 31, 2001 were derived from sales to the commercial aerospace industry. Deliveries of commercial aircraft in 2001 are expected to be at historically high levels and could decline in the future. Reductions in demand for commercial aircraft or a delay in deliveries could result from many factors, including a slower than anticipated rate of passenger growth, a rise in the cost of aviation fuel, consolidation of airlines and slower macroeconomic growth. Reduced production of commercial aircraft will reduce our sales and profits. In addition, our customers continue to emphasize the need for improved yield in the use of our products and cost reduction throughout the commercial aerospace supply chain. In response to these pressures, we reduced the price of some commercial aerospace products in recent years and are likely to continue to do so in the future. Where possible, we seek to offset or mitigate the impact of such 11 price and cost reductions by productivity improvements and reductions in the costs of the materials and services we procure. A SIGNIFICANT DECLINE IN BUSINESS WITH BOEING OR AIRBUS COULD MATERIALLY IMPAIR OUR BUSINESS, OPERATING RESULTS, PROSPECTS AND FINANCIAL CONDITION. Approximately 20% and 13% of our sales for the year ended December 31, 2000 and 21% and 14% of our sales for the three months ended March 31, 2001 were made to Boeing and its related subcontractors, and Airbus and its related subcontractors. Accordingly, the loss of, or significant reduction in purchases by, either of these customers could materially impair our operating results and weaken our financial condition. UNTIL THE GLOBAL ELECTRONICS INDUSTRY SLOWDOWN AND INVENTORY CORRECTION ENDS, OUR ELECTRONICS SALES WILL SUFFER. Most end producers of electronic devices have reported either slowing or shrinking demand for their products over the last nine months. A significant element in the weakening of demand for electronic products has been reduced IT equipment spending as the technology boom has waned and lower spending on telecommunications infrastructure as project funding has slowed. The impact of reduced demand has been magnified down the electronics industry supply chain as end-product manufacturers reduce production to accommodate lower demand and to liquidate inventories. We manufacture electronic fiberglass fabrics that are the substrate for the laminate from which printed wiring boards are fabricated. As the electronics industry slowdown became apparent in the first quarter of 2001 with a sharp reduction in sales in the United States in March, we saw our electronics net sales decrease by 20.4% compared to the first quarter of 2000. In the second quarter of 2001, our United States sales remained at much depressed levels and the same trends emerged in Europe and Asia. Our electronics sales for the second quarter of 2001 decreased by 65% compared to the pro forma second quarter of 2000. As a result of our position in the electronics industry supply chain, we have limited visibility as to the timing of when the inventory correction will end or as to the level of demand once the correction has been completed. Further, once demand does start to improve, competition may result in lower prices for our products as all the industry's suppliers seek to recapture sales volume. Lastly, the market for electronic glass fabrics has become more global as producers seek export markets for their products and producers of electronic products seek to locate production in low labor cost countries. With this globalization of the industry, international trade agreements that have historically restricted international imports of competitive products to the United States have started to be phased-out. On January 1, 2002, quota restrictions for electronics glass fabrics between the United States and both Taiwan and the People's Republic of China will fall away. With limited visibility as to the timing of when the inventory correction will end, the level of demand following that correction and the impact of global competition, there is uncertainty as to the future level of our electronic revenues compared to that reported in 1999 or 2000 and as to the future profitability of those revenues. REDUCTIONS IN SPACE AND DEFENSE SPENDING COULD RESULT IN A DECLINE IN OUR NET SALES. We cannot assure you that the U.S. defense budgets and the related demand for defense and related equipment will not decline or that sales of defense and related equipment to foreign governments will continue at expected levels. Approximately 11% of our pro forma net sales for the year ended December 31, 2000 and 13% of our net sales for the three months ended March 31, 2001 were derived from the space and defense industry. The space and defense industry is largely dependent upon government defense budgets, particularly the U.S. defense budget. We cannot assure you that new 12 military aircraft programs will enter full-scale production as expected, or that any of the aircraft will use significant amounts of our advanced structural materials. See "Business--Markets and Customers." A DECREASE IN SUPPLY OR INCREASE IN COST OF OUR RAW MATERIALS COULD RESULT IN A MATERIAL DECLINE IN OUR PROFITABILITY. Because we purchase large volumes of raw materials, such as epoxy and phenolic resins, aluminum foil, carbon fiber, fiberglass yarn and aramid paper and fiber, any decrease in the supply or increase in the cost of our raw materials could significantly reduce our profit margins. We cannot assure you that we will experience no decrease in the supply or increase in price of our raw materials. Our profitability depends largely on the price and continuity of supply of these raw materials, which are supplied by a limited number of sources. In addition, qualification to use raw materials in some of our products limits the extent to which we are able to substitute alternative materials for these products. Our ability to pass on these costs to our customers is, to a large extent, dependent on the terms of our contracts with our customers and market conditions, including the extent to which our customers would switch to alternative materials not produced by us in the event of an increase in the prices of our products. VOLATILITY IN ENERGY PRICES MAY RESULT IN A MATERIAL DECLINE IN OUR PROFITABILITY. Because our manufacturing operations use a significant amount of energy, any increase in energy prices could significantly reduce our profit margins. During the fourth quarter of 2000 and continuing into 2001, there has been unprecedented volatility in the cost and supply of energy and in natural gas prices in the United States, particularly in western states where many of our U.S. manufacturing facilities are located. Continued significant price changes are likely to have an impact on our financial results. The outcome of the U.S. energy situation and its impact on the U.S. economy is unpredictable at this time and may pose unforeseen future risk. Energy costs in the first quarter of 2001 were approximately $2 million higher than in the first quarter of 2000. We may not be able to pass these costs on to our customers. OUR BUSINESS CONSOLIDATION AND PRODUCTIVITY IMPROVEMENT PLANS MAY NOT RESULT IN COST SAVINGS. We cannot assure you that our current business consolidation and productivity plans such as our Lean Enterprise initiative will prove successful. One of our principal strategies is to improve financial results through the consolidation of our operations. The complexity, cost and time of consolidating manufacturing operations is greatly increased because of the qualification requirements of the aerospace and other industries. Accordingly, we may encounter delays or unanticipated problems in our efforts to consolidate our operations and these efforts may not result in the cost savings that we currently anticipate. THE INTERESTS OF OUR SIGNIFICANT SHAREHOLDER MAY BE DIFFERENT THAN YOUR INTERESTS. The Goldman Sachs investor group will have the ability to influence our affairs so long as it maintains ownership of specified percentages of our outstanding common stock, and the interests of the investor group may not in all cases be the same as your interests. The investor group currently owns approximately 39% of our outstanding common stock. Under our governance agreement with the investor group, the investor group is currently entitled to designate three people to serve on our ten-member Board of Directors, and is entitled to designate one director to serve on each committee of our Board of Directors. In addition, the governance agreement provides that our Board of Directors will not authorize specified types of significant transactions without the approval of the directors designated by the investor group. See "Certain Relationships and Related Transactions--Relationship with Goldman Sachs Investor Group." 13 WE MAY BE UNABLE TO PURCHASE YOUR NOTES UPON A CHANGE OF CONTROL. We may not be able to purchase your notes if there is a change of control of Hexcel. Upon a change of control event, each holder of notes may require us to purchase all or a portion of its notes at a premium of 101% of principal plus accrued interest. Our ability to purchase your notes upon a change of control is limited by the terms of our debt agreements. Upon a change of control event, we may be required immediately to repay the outstanding principal, any accrued interest on and any other amounts owed by us under our senior credit facility. We cannot assure you that we would be able to repay amounts outstanding under our senior credit facility or obtain necessary consents under the facility to purchase your notes. The term "Change of Control" is defined in the "Description of the Notes--Change of Control" section of this prospectus. YOU MAY FIND IT DIFFICULT TO SELL YOUR NOTES. You may find it difficult to sell your notes because an active trading market for the notes may not develop. The exchange notes are being offered to the holders of the original notes. The original notes were issued on June 29, 2001 to a small number of institutional investors and overseas investors and are eligible for trading in the Private Offering, Resale and Trading through Automated Linkages (PORTAL) Market, the National Association of Securities Dealers' screenbased, automated market for trading of securities eligible for resale under Rule 144A. After the exchange offer, the trading market for the remaining untendered original notes could be adversely affected. There is no existing trading market for the exchange notes. We do not intend to apply for listing or quotation of the exchange notes on any exchange. Therefore, we do not know the extent to which investor interest will lead to the development of a trading market or how liquid that market might be. Although the initial purchasers of the original notes have informed us that they currently intend to make a market in the exchange notes, they are not obligated to do so, and any market-making may be discontinued at any time without notice. As a result, the market price of the notes could be adversely affected. In addition, the market for non-investment grade debt, such as the notes, has been subject to disruptions that have caused substantial volatility in the prices of these securities. These disruptions may have an adverse effect on holders of the notes. 14 FORWARD-LOOKING STATEMENTS This prospectus includes and incorporates by reference forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements relate to analyses and other information which are based on forecasts of future results and estimates of amounts not yet determinable. These statements also relate to our future prospects, developments and business strategies. These forward-looking statements are identified by their use of terms and phrases such as "anticipate," "believe," "could," "estimate," "expect," "intend," "may," "plan," "predict," "project," "will" and similar terms and phrases, including references to assumptions. These statements are contained in sections entitled "Prospectus Summary," "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Business" and other sections of this prospectus and in the documents incorporated by reference in this prospectus. Such forward-looking statements include, but are not limited to, estimates of, or expectations regarding, as the case may be: - commercial aerospace production and delivery rates, including those of Boeing and Airbus; - growth in the production of military aircraft and launch vehicle programs in 2000 and beyond; - the recovery of the electronics market; - the impact of pricing pressures from Hexcel's customers; - the ability of Hexcel to pass along pricing reductions to its suppliers; - future sales based on current backlog; - sales growth, sales mix, gross margins, manufacturing productivity, capital expenditures and effective tax rates; - Hexcel's financial condition and liquidity, as well as future free cash flows and earnings; - the total cost of our business consolidation program and the amount of cash expenditures to complete the program; and - expectations regarding the costs and benefits of accelerating and expanding our Lean Enterprise and business consolidation programs and implementing a supply chain management program. These 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: - changes in general economic and business conditions; - changes in current pricing levels; - changes in political, social and economic conditions and local regulations, particularly in Asia and Europe; - foreign currency fluctuations; - changes in aerospace delivery rates; - reductions in sales to any significant customers, particularly Boeing or Airbus; - changes in sales mix; - changes in government defense procurement budgets; 15 - 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. Additional information regarding these factors is described in "Risk Factors" and in our annual report on Form 10-K (SEC File No. 1-8472) for the year ended December 31, 2000, and subsequent quarterly report on Form 10-Q, which are incorporated by reference in this prospectus. If one or more of these risks or uncertainties materialize, or if underlying assumptions prove incorrect, our actual results may vary materially from those expected, estimated or projected. We do not undertake to update our forward-looking statements or risk factors to reflect future events or circumstances. USE OF PROCEEDS We will not receive any proceeds from the exchange offer. In consideration for issuing exchange notes, we will receive in exchange original notes of like principal amount, the terms of which are identical in all material respects to the exchange notes. The original notes surrendered in exchange for exchange notes will be retired and canceled and cannot be reissued. Accordingly, issuance of the exchange notes will not result in any increase in our indebtedness. We have agreed to bear the expenses of the exchange offer. No underwriter is being used in connection with the exchange offer. For a description of the use of proceeds of the offering of original notes, see "Prospectus Summary--Our Business--Recent Developments--Issuance of Original Notes." 16 CAPITALIZATION The following table sets forth the capitalization of Hexcel as of March 31, 2001 on an actual basis and as adjusted to give effect to the offering of the original notes and the application of the net proceeds from that offering, including the redemption of approximately $67.5 million aggregate principal amount of our outstanding 7% Convertible Subordinated Notes Due 2003 (plus a $0.8 million premium payment) and the redemption of the entire principal amount of approximately $25.0 million of the Increasing Rate Senior Subordinated Note Due 2003.
AS OF MARCH 31, 2001 ---------------------- ACTUAL AS ADJUSTED -------- ----------- (IN MILLIONS) SENIOR DEBT: Senior credit facility.................................... $227.9 $227.9 European credit and overdraft facilities.................. 5.5 5.5 Capital lease obligations................................. 42.0 42.0 Other..................................................... 0.1 0.1 ------ ------ Total senior debt (a)..................................... 275.5 275.5 ------ ------ OTHER DEBT: Increasing Rate Senior Subordinated Note Due 2003......... 24.4 -- 9 3/4% Senior Subordinated Notes Due 2009................. 240.0 338.5 7% Convertible Subordinated Notes Due 2003................ 114.4 46.9 7% Convertible Subordinated Debentures Due 2011........... 25.6 25.6 ------ ------ Total other debt.......................................... 404.4 411.0 ------ ------ Total debt................................................ 679.9 686.5 ------ ------ STOCKHOLDERS' EQUITY: Common stock, $.01 par value, 100,000,000 shares authorized, 37,216,419 shares issued and outstanding (b)..................................................... 0.4 0.4 Additional paid-in capital (b)............................ 270.7 270.7 Retained earnings......................................... 71.3 68.8(c) Accumulated other comprehensive loss...................... (35.2) (35.2) ------ ------ Total stockholders' equity.............................. 307.2 304.7 ------ ------ Total capitalization.................................... $987.1 $991.2 ====== ======
- ------------------------ (a) Includes $16.7 million of debt due within one year for both actual and as adjusted. (b) Net of 910,318 shares of treasury stock acquired by our company at an aggregate cost of $11.2 million. (c) Reflects $2.5 million related to the write-off of the unamortized discount and capitalized debt issuance costs relating to the redemptions, net of tax. 17 PRO FORMA FINANCIAL INFORMATION The unaudited supplemental pro forma consolidated statements of operations for the year ended December 31, 2000 and the three months ended March 31, 2000 are presented to provide a measure of operating performance without the Bellingham operation which is nonrecurring. This supplemental presentation should not be considered in isolation or as a substitute for pro forma consolidated statements of operations presented in accordance with generally accepted accounting principles. The unaudited pro forma consolidated statement of operations for the three months ended March 31, 2001 and the unaudited supplemental pro forma consolidated statements of operations for the year ended December 31, 2000 and the three months ended March 31, 2000 have been prepared to illustrate the effect of the offering of the original notes and the application of the net proceeds therefrom, including the redemption of approximately $67.5 million aggregate principal amount of our outstanding 7% Convertible Subordinated Notes Due 2003 (plus a $0.8 million premium payment) and the redemption of the entire principal amount of approximately $25.0 million of the Increasing Rate Senior Subordinated Note Due 2003, as if the offering and redemptions had occurred at the beginning of the periods presented. The following unaudited pro forma financial information should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the consolidated financial statements of Hexcel and the notes thereto appearing elsewhere in this prospectus. The unaudited pro forma financial information does not purport to be indicative of the results of operations or financial condition that would have been reported had the events assumed therein occurred on the dates indicated, nor does it purport to be indicative of results of operations that may be achieved in the future. 18 UNAUDITED SUPPLEMENTAL PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 2000 (IN MILLIONS)
HISTORICAL --------------------- BELLINGHAM ADJUSTMENTS PRO FORMA HEXCEL (NOTE 1) (NOTES 1 AND 2) CONSOLIDATED -------- ---------- --------------- ------------ Net sales...................................... $1,055.7 $(18.9) $ -- $1,036.8 Cost of sales.................................. 824.3 (14.3) -- 810.0 -------- ------ ------ -------- Gross margin................................. 231.4 (4.6) -- 226.8 Selling, general and administrative expenses... 123.9 (2.3) -- 121.6 Research and technology expenses............... 21.2 (1.7) -- 19.5 Business consolidation expenses................ 10.9 -- -- 10.9 -------- ------ ------ -------- Operating income............................. 75.4 (0.6) -- 74.8 Gain on sale of Bellingham aircraft interiors business..................................... 68.3 -- (68.3) -- Interest expense............................... 68.7 -- (0.6)(a) 68.1 -------- ------ ------ -------- Income (loss) before income taxes............ 75.0 (0.6) (67.7) 6.7 Provision (benefit) for income taxes........... 26.3 (0.2) (23.7)(b) 2.4 Equity in earnings of affiliated companies..... 5.5 -- -- 5.5 -------- ------ ------ -------- Income before extraordinary item............. 54.2 (0.4) (44.0) 9.8 Extraordinary expense (net of income tax of $1.6)........................................ -- -- 2.9(c) 2.9 -------- ------ ------ -------- Net income (loss)............................ $ 54.2 $ (0.4) $(46.9) $ 6.9 ======== ====== ====== ======== OTHER FINANCIAL DATA: EBITDA (Note 3).............................. $ 202.3 $ (0.9) $(68.3) $ 133.1 Adjusted EBITDA (Note 3)..................... 144.9 (0.9) -- 144.0 Depreciation and amortization................ 58.7 (0.3) -- 58.4 Capital expenditures......................... 39.6 (0.2) -- 39.4
See accompanying notes to Pro Forma Financial Information. 19 UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS THREE MONTHS ENDED MARCH 31, 2001 (IN MILLIONS)
ADJUSTMENTS PRO FORMA HEXCEL (NOTE 2) CONSOLIDATED -------- ----------- ------------ Net sales................................................... $276.2 $ -- $276.2 Cost of sales............................................... 216.1 -- 216.1 ------ ----- ------ Gross margin.............................................. 60.1 -- 60.1 Selling, general and administrative expenses................ 31.7 -- 31.7 Research and technology expenses............................ 4.7 -- 4.7 Business consolidation expenses............................. 1.1 -- 1.1 ------ ----- ------ Operating income.......................................... 22.6 -- 22.6 Interest expense............................................ 16.3 0.6 (a) 16.9 ------ ----- ------ Income (loss) before income taxes......................... 6.3 (0.6) 5.7 Provision (benefit) for income taxes........................ 2.2 (0.2)(b) 2.0 Equity in earnings of affiliated companies.................. 1.4 -- 1.4 ------ ----- ------ Income before extraordinary item.......................... 5.5 (0.4) 5.1 Extraordinary expense (net of income tax of $1.4)........... -- 2.5 (c) 2.5 ------ ----- ------ Net income (loss)......................................... $ 5.5 $(2.9) $ 2.6 ====== ===== ====== OTHER FINANCIAL DATA: EBITDA (Note 3)........................................... $ 37.8 $ -- $ 37.8 Adjusted EBITDA (Note 3).................................. 38.9 -- 38.9 Depreciation and amortization............................. 15.2 -- 15.2 Capital expenditures...................................... 10.6 -- 10.6
See accompanying notes to Pro Forma Financial Information. 20 UNAUDITED SUPPLEMENTAL PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS THREE MONTHS ENDED MARCH 31, 2000 (IN MILLIONS)
HISTORICAL --------------------- BELLINGHAM ADJUSTMENTS PRO FORMA HEXCEL (NOTE 1) (NOTE 2) CONSOLIDATED -------- ---------- ----------- ------------ Net sales.......................................... $279.8 $(16.6) $ -- $263.2 Cost of sales...................................... 217.6 (12.1) -- 205.5 ------ ------ ------- ------ Gross margin..................................... 62.2 (4.5) -- 57.7 Selling, general and administrative expenses....... 32.9 (2.1) -- 30.8 Research and technology expenses................... 6.3 (1.3) -- 5.0 Business consolidation expenses.................... 1.2 -- -- 1.2 ------ ------ ------- ------ Operating income................................. 21.8 (1.1) -- 20.7 Interest expense................................... 18.4 -- (1.7)(a) 16.7 ------ ------ ------- ------ Income (loss) before income taxes................ 3.4 (1.1) 1.7 4.0 Provision (benefit) for income taxes............... 1.2 (0.4) 0.6 (b) 1.4 Equity in earnings of affiliated companies......... 0.4 -- -- 0.4 ------ ------ ------- ------ Income before extraordinary item................. 2.6 (0.7) 1.1 3.0 Extraordinary expense (net of income tax of $1.6)............................................ -- -- 2.9 (c) 2.9 ------ ------ ------- ------ Net income (loss)................................ $ 2.6 $ (0.7) $ (1.8) $ 0.1 ====== ====== ======= ====== OTHER FINANCIAL DATA: EBITDA (Note 3).................................. $ 36.8 $ (1.4) $ -- $ 35.4 Adjusted EBITDA (Note 3)......................... 38.0 (1.4) -- 36.5 Depreciation and amortization.................... 15.0 (0.3) -- 14.7 Capital expenditures............................. 4.4 (0.2) -- 4.2
See accompanying notes to Pro Forma Financial Information. 21 NOTES TO PRO FORMA FINANCIAL INFORMATION NOTE 1--BELLINGHAM. Bellingham amounts represent operations for the period January 1, 2000 up to the sale date of April 26, 2000. The sale resulted in a pre-tax gain of $68.3 million. NOTE 2--ADJUSTMENTS.
FOR THE FOR THE FOR THE THREE MONTHS THREE MONTHS YEAR ENDED ENDED ENDED DECEMBER 31, 2000 MARCH 31, 2001 MARCH 31, 2000 ----------------- -------------- -------------- (a) Adjustment to interest expense representing the effect of the redemption of debt with the proceeds from the sale of Bellingham as if the redemption had occurred at the beginning of the period..................... $ (3.1) $ -- $(2.3) The decrease in interest expense attributable to the redemption of the notes. The interest expense reduction also includes the elimination of amortization of debt issuance costs.............................. (8.1) (2.0) (2.0) The increase in interest expense attributable to notes offered hereby, including amortization of $4.3 million of debt issuance costs and $1.5 million discount upon issuance...................... 10.6 2.6 2.6 ------ ----- ----- Net interest expense adjustment............. $ (0.6) $ 0.6 $(1.7) ====== ===== ===== (b) Adjustment to reflect an effective income tax rate of 35.0%........................... $(23.7) $(0.2) $ 0.6 ====== ===== ===== (c) Extraordinary item due to debt extinguishment.............................. $ 2.9 $ 2.5 $ 2.9 ====== ===== =====
NOTE 3--EBITDA AND ADJUSTED EBITDA. "EBITDA" is defined as income before income taxes, interest expense, depreciation and amortization. "Adjusted EBITDA" is defined as EBITDA before business consolidation expenses and the gain on the Bellingham sale. Hexcel believes that EBITDA and Adjusted EBITDA provide useful information regarding Hexcel's ability to service its indebtedness. These measures may not be comparable to similarly titled financial measures of other companies. EBITDA and Adjusted EBITDA do not represent alternative measures of Hexcel'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. 22 SELECTED CONSOLIDATED FINANCIAL INFORMATION The selected historical financial information of Hexcel set forth below has been derived from the audited consolidated financial statements of Hexcel as of and for the five years ended December 31, 2000. The selected historical financial information as of and for the three months ended March 31, 2001 and 2000 is derived from unaudited financial statements which, in the opinion of Hexcel's management, include all adjustments necessary for the fair presentation of such information. Results for interim periods are not necessarily indicative of results for the full year. The following selected financial information is qualified in its entirety by, and should be read in conjunction with, Hexcel's consolidated financial statements and the related notes thereto, included elsewhere in this prospectus.
FOR THE THREE MONTHS ENDED FOR THE YEAR ENDED DECEMBER 31, MARCH 31, ---------------------------------------------------- ------------------- 1996 1997 1998 1999 2000 2000 2001 -------- -------- -------- -------- -------- -------- -------- (DOLLARS IN MILLIONS) STATEMENT OF OPERATIONS DATA: Net sales........................................ $695.2 $936.9 $1,089.0 $1,151.5 $1,055.7 $ 279.8 $ 276.2 Cost of sales.................................... 553.9 714.3 817.7 909.0 824.3 217.6 216.1 ------ ------ -------- -------- -------- ------- ------- Gross margin..................................... 141.3 222.6 271.3 242.5 231.4 62.2 60.1 Selling, general & administrative expenses....... 79.4 102.4 117.9 128.7 123.9 32.9 31.7 Research and technology expenses................. 16.7 18.4 23.7 24.8 21.2 6.3 4.7 Business consolidation expenses (a).............. 42.4 25.3 12.7 20.1 10.9 1.2 1.1 ------ ------ -------- -------- -------- ------- ------- Operating income................................. 2.8 76.5 117.0 68.9 75.4 21.8 22.6 Gain on sale of Bellingham aircraft interiors business....................................... -- -- -- -- 68.3 -- -- Interest expense................................. 21.6 25.8 38.7 73.9 68.7 18.4 16.3 Other income, net................................ 3.0 -- -- -- -- -- -- ------ ------ -------- -------- -------- ------- ------- Income (loss) from continuing operations before income taxes................................... (15.8) 50.7 78.3 (5.0) 75.0 3.4 6.3 Provision for (recovery of) income taxes......... 3.4 (22.9) 28.4 (1.7) 26.3 1.2 2.2 Equity in earnings and write-down in investments in affiliated companies........................ -- -- 0.5 (20.0) 5.5 0.4 1.4 ------ ------ -------- -------- -------- ------- ------- Net Income (loss)............................ $(19.2) $ 73.6 $ 50.4 $ (23.3) $ 54.2 $ 2.6 $ 5.5 ====== ====== ======== ======== ======== ======= ======= OTHER DATA: EBITDA (b)....................................... $ 32.5 $112.3 $ 164.5 $ 130.3 $ 202.3 $ 36.8 $ 37.8 Adjusted EBITDA (b).............................. 71.9 137.6 177.2 150.4 144.9 38.0 38.9 Depreciation and amortization.................... 26.7 35.8 47.5 61.3 58.7 15.0 15.2 Capital expenditures............................. 43.6 57.4 66.5 35.6 39.6 4.4 10.6 Ratio of earnings to fixed charges (c)........... N/A 2.9 2.9 N/A 2.1 1.2 1.4 BALANCE SHEET DATA (AT PERIOD END): Working capital.................................. $128.1 $200.7 $ 219.6 $ 117.3 $ 128.1 $ 149.8 $ 142.0 Total assets..................................... 701.7 811.6 1,404.2 1,261.9 1,211.4 1,290.0 1,225.5 Total debt....................................... 311.0 353.4 864.9 770.9 673.6 788.8 679.9 Stockholders' equity............................. 179.3 249.9 302.4 270.1 315.7 270.3 307.2
- -------------------------- (a) Business consolidation expenses include amounts previously reported as "Restructuring expenses." (b) "EBITDA" is defined as income from continuing operations before interest, taxes and depreciation and amortization. "Adjusted EBITDA" is defined as EBITDA before business consolidation expenses and other income, net. We believe that EBITDA and Adjusted EBITDA provide useful information regarding Hexcel's ability to service its indebtedness. These measures may not be comparable to similarly titled financial measures of other companies. EBITDA and Adjusted EBITDA do not represent alternative measures of Hexcel'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. (c) Earnings consist of income (loss) from continuing operations before fixed charges and income taxes. Fixed charges consist of interest expense, amortization of fees related to debt financing and that portion of rent expense deemed to be interest. Interest portion of rentals was calculated as one-third of rentals, which is a reasonable approximation of the interest factor. For the years ended December 31, 1996 and 1999, earnings were insufficient to cover fixed charges by approximately $15.8 million and $5.0 million, respectively. 23 THE EXCHANGE OFFER TERMS OF THE EXCHANGE OFFER Upon the terms and subject to the conditions set forth in this prospectus and in the accompanying letter of transmittal, which together constitute the exchange offer, we will accept all original notes which are properly tendered on or before the expiration date and not withdrawn as permitted below. As used in this prospectus, the term "expiration date" means 5:00 p.m., New York City time, on , 2001. However, if we, in our sole discretion, have extended the period of time for which the exchange offer is open, the term "expiration date" means the latest time and date to which we extend the exchange offer. As of the date of this prospectus, $100.0 million aggregate principal amount of the original notes is outstanding. This prospectus, together with the letter of transmittal, is first being sent on or about , 2001, to all holders of original notes known to us. Our obligation to accept original notes for exchange pursuant to the exchange offer is subject to the conditions set forth below under "--Conditions to the Exchange Offer." We reserve the right to extend the period of time during which the exchange offer is open. We would then delay acceptance for exchange of any original notes by giving oral or written notice of an extension to the holders of original notes as described below. During any extension period, all original notes previously tendered will remain subject to the exchange offer and may be accepted for exchange by us. Any original notes not accepted for exchange will be returned to the tendering holder after the expiration or termination of the exchange offer. Original notes tendered in the exchange offer must be in denominations of principal amount of $1,000 and any integral multiple of $1,000. We reserve the right to amend or terminate the exchange offer, and not to accept for exchange any original notes not previously accepted for exchange, upon the occurrence of any of the conditions of the exchange offer specified below under "--Conditions to the Exchange Offer." We will give oral or written notice of any extension, amendment, non-acceptance or termination to the holders of the original notes as promptly as practicable. If we materially change the terms of the exchange offer, we will resolicit tenders of the original notes. We will notify you of any extension by means of a press release or other public announcement no later than 9:00 a.m., New York City time, on the first business day after the previously scheduled expiration date. Our acceptance of the tender of original notes by a tendering holder will form a binding agreement upon the terms and subject to the conditions provided in this prospectus and in the accompanying letter of transmittal. In the case of either an amendment or termination of, or in the case of an extension of, the exchange offer, we will give written or oral (promptly confirmed in writing) notice thereof to the exchange agent. PROCEDURES FOR TENDERING Except as described below, a tendering holder must transmit a properly completed and duly executed letter of transmittal, including all other documents required by the letter of transmittal, to The Bank of New York, the exchange agent, on or before the expiration date. In addition, the exchange agent must receive, on or before the expiration date: - certificates for the original notes; or - a timely confirmation of book-entry transfer of the original notes into the exchange agent's account at The Depository Trust Company (which we refer to as "DTC" in this prospectus), the book-entry transfer facility, in accordance with the procedures for book-entry described below. 24 The method of delivery of original notes, letters of transmittal and all other required documents is at your election and risk. If the delivery is by mail, we recommend that you use registered mail, properly insured, with return receipt requested. In all cases, you should allow sufficient time to assure timely delivery. You should not send letters of transmittal or original notes to us. If you are a beneficial owner whose original notes are registered in the name of a broker, dealer, commercial bank, trust company or other nominee, and wish to tender, you should promptly instruct the registered holder to tender on your behalf. Any registered holder that is a participant in DTC's book-entry transfer facility system may make book-entry delivery of the original notes by causing DTC to transfer the original notes into the exchange agent's account. Signatures on a letter of transmittal or a notice of withdrawal must be guaranteed unless the original notes surrendered for exchange are tendered: - by a registered holder of the original notes who has not completed the box entitled "Special Issuance Instructions" or "Special Delivery Instructions" on the letter of transmittal, or - for the account of an "eligible institution." If signatures on a letter of transmittal or a notice of withdrawal are required to be guaranteed, the guarantees must be by an "eligible institution." An "eligible institution" is a financial institution--including most banks, savings and loan associations and brokerage houses--that is a participant in the Securities Transfer Agents Medallion Program, the New York Stock Exchange Medallion Signature Program or the Stock Exchanges Medallion Program. We will determine in our sole discretion all questions as to the validity, form and eligibility of original notes tendered for exchange. This discretion extends to the determination of all questions concerning the timing of receipts and acceptance of tenders. These determinations will be final and binding. We reserve the right to reject any particular original note not properly tendered or any which acceptance might, in our judgment or our counsel's judgment, be unlawful. We also reserve the right to waive any defects or irregularities or conditions of the exchange offer as to any particular original note either before or after the expiration date, including the right to waive the ineligibility of any tendering holder. Our interpretation of the terms and conditions of the exchange offer as to any particular original note either before or after the expiration date, including the letter of transmittal and the instructions to the letter of transmittal, shall be final and binding on all parties. Unless waived, any defects or irregularities in connection with tenders of original notes must be cured within a reasonable period of time. Neither we, the exchange agent nor any other person will be under any duty to give notification of any defect or irregularity in any tender of original notes. Nor will we, the exchange agent or any other person incur any liability for failing to give notification of any defect or irregularity. If the letter of transmittal is signed by a person other than the registered holder of original notes, the letter of transmittal must be accompanied by a written instrument of transfer or exchange in satisfactory form duly executed by the registered holder with the signature guaranteed by an eligible institution. The original notes must be endorsed or accompanied by appropriate powers of attorney. In either case, the original notes must be signed exactly as the name of any registered holder appears on the original notes. If the letter of transmittal or any original notes or powers of attorney are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, such persons should so indicate when signing. Unless waived by us, proper evidence satisfactory to us of their authority to so act must be submitted. 25 By tendering, each holder will represent to us that, among other things, - the exchange notes are being acquired in the ordinary course of business of the person receiving the exchange notes, whether or not that person is the holder and - neither the holder nor the other person has any arrangement or understanding with any person to participate in the distribution of the exchange notes. In the case of a holder that is not a broker-dealer, that holder, by tendering, will also represent to us that the holder is not engaged in and does not intend to engage in a distribution of the exchange notes. If any holder or other person is an "affiliate" of ours, as defined under Rule 405 of the Securities Act, or is engaged in, or intends to engage in, or has an arrangement or understanding with any person to participate in, a distribution of the exchange notes, that holder or other person can not rely on the applicable interpretations of the staff of the SEC and must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale transaction. Each broker-dealer that receives exchange notes for its own account in exchange for original notes, where the original notes were acquired by it as a result of market-making activities or other trading activities, must acknowledge that it will deliver a prospectus that meets the requirements of the Securities Act in connection with any resale of the exchange notes. The letter of transmittal states that by so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. See "Plan of Distribution." ACCEPTANCE OF ORIGINAL NOTES FOR EXCHANGE; DELIVERY OF EXCHANGE NOTES Upon satisfaction or waiver of all of the conditions to the exchange offer, we will accept, promptly after the expiration date, all original notes properly tendered. We will issue the exchange notes promptly after acceptance of the original notes. See "--Conditions to the Exchange Offer" below. For purposes of the exchange offer, we will be deemed to have accepted properly tendered original notes for exchange when, as and if we have given oral or written notice to the exchange agent, with prompt written confirmation of any oral notice. For each original note accepted for exchange, the holder of the original note will receive an exchange note having a principal amount equal to that of the surrendered original note. The exchange notes will bear interest from July 15, 2001, the most recent date to which interest has been paid on the original notes. Accordingly, registered holders of exchange notes on the relevant record date for the first interest payment date following the completion of the exchange offer will receive interest accruing from July 15, 2001, the most recent date to which interest has been paid. Original notes accepted for exchange will cease to accrue interest from and after the date of completion of the exchange offer. Holders of original notes whose original notes are accepted for exchange will not receive any payment for accrued interest on the original notes otherwise payable on any interest payment date the record date for which occurs on or after completion of the exchange offer and will be deemed to have waived their rights to receive the accrued interest on the original notes. In all cases, issuance of exchange notes for original notes will be made only after timely receipt by the exchange agent of: - certificates for the original notes, or a timely book-entry confirmation of the original notes, into the exchange agent's account at the book-entry transfer facility, - a properly completed and duly executed letter of transmittal and - all other required documents. Unaccepted or non-exchanged original notes will be returned without expense to the tendering holder of the original notes. In the case of original notes tendered by book-entry transfer pursuant to the book-entry procedures described below, the non-exchanged original notes will be credited to an 26 account maintained with the book-entry transfer facility as promptly as practicable after the expiration or termination of the exchange offer. BOOK ENTRY TRANSFER The exchange agent will make a request to establish an account for the original notes at the book-entry transfer facility for purposes of the exchange offer within two business days after the date of this prospectus. Any financial institution that is a participant in the book-entry transfer facility's systems may make book-entry delivery of original notes by causing the book-entry transfer facility to transfer the original notes into the exchange agent's account at the facility. However, although delivery of the original notes may be made through the book-entry transfer facility, the letter of transmittal or a facsimile of the letter of transmittal, with any required signature guarantees and any other required documents, must, in any case, be transmitted to, and received by, the exchange agent on or before the expiration date, unless the holder has strictly complied with the guaranteed delivery procedures described below. GUARANTEED DELIVERY PROCEDURES If a registered holder of original notes desires to tender the original notes, and the original notes are not immediately available, or time will not permit the holder's original notes or other required documents to reach the exchange agent before the expiration date, or the procedure for book-entry transfer described above cannot be completed on a timely basis, a tender may nonetheless be made if: - the tender is made through an eligible institution; - prior to the expiration date, the exchange agent received from an eligible institution a properly completed and duly executed letter of transmittal, or a facsimile of the letter of transmittal, and notice of guaranteed delivery, substantially in the form provided by us, by facsimile transmission, mail or hand delivery: - setting forth the name and address of the holder of original notes and the amount of original notes tendered, - stating that the tender is being made, and - guaranteeing that within three NYSE trading days after the expiration date, the certificates for all physically tendered original notes, in proper form for transfer, or a book-entry confirmation, as the case may be, and any other documents required by the letter of transmittal will be deposited by the eligible institution with the exchange agent; and - the certificates for all physically tendered original notes, in proper form for transfer, or a book-entry confirmation, as the case may be, and all other documents required by the letter of transmittal, are received by the exchange agent within three NYSE trading days after the expiration date. WITHDRAWAL RIGHTS Tenders of original notes may be withdrawn at any time before 5:00 p.m., New York City time, on the expiration date. For a withdrawal to be effective, the exchange agent must receive a written notice of withdrawal at the address or, in the case of eligible institutions, at the facsimile number, set forth below under "--Exchange Agent" before 5:00 p.m., New York City time, on the expiration date. Any notice of withdrawal must: - specify the name of the person, referred to as the depositor, having tendered the original notes to be withdrawn; - identify the notes to be withdrawn, including the certificate number or numbers and principal amount of the original notes; - contain a statement that the holder is withdrawing his election to have the original notes exchanged; 27 - be signed by the holder in the same manner as the original signature on the letter of transmittal by which the original notes were tendered, including any required signature guarantees, or be accompanied by documents of transfer to have the trustee with respect to the original notes register the transfer of the original notes in the name of the person withdrawing the tender; and - specify the name in which the original notes are registered, if different from that of the depositor. If original notes have been tendered pursuant to the procedure for book-entry transfer described above, any notice of withdrawal must specify the name and number of the account at the book-entry transfer facility to be credited with the withdrawn original notes. We will determine all questions as to the validity, form and eligibility, including time of receipt, of notices of withdrawal. Any original notes so withdrawn will be deemed not to have been validly tendered for exchange. No exchange notes will be issued unless the original notes so withdrawn are validly retendered. Any original notes that have been tendered for exchange, but which are not exchanged for any reason, will be returned to the tendering holder without cost to the holder. In the case of original notes tendered by book-entry transfer, the original notes will be credited to an account maintained with the book-entry transfer facility for the original notes. Properly withdrawn original notes may be retendered by following the procedures described under "--Procedures for Tendering" above at any time on or before 5:00 p.m., New York City time, on the expiration date. CONDITIONS TO THE EXCHANGE OFFER Notwithstanding any other provision of the exchange offer, we shall not be required to accept for exchange, or to issue exchange notes in exchange for, any original notes, and may terminate or amend the exchange offer, if at any time before the acceptance of the original notes for exchange or the exchange of the exchange notes for the original notes, any of the following events shall occur: - there shall be threatened, instituted or pending any action or proceeding before, or any injunction, order or decree shall have been issued by, any court or governmental agency or other governmental regulatory or administrative agency or commission: (1) seeking to restrain or prohibit the making or completion of the exchange offer or any other transaction contemplated by the exchange offer, or assessing or seeking any damages as a result of such transaction; or (2) resulting in a material delay in our ability to accept for exchange or exchange some or all of the original notes pursuant to the exchange offer; or any statute, rule, regulation, order or injunction shall be sought, proposed, introduced, enacted, promulgated or deemed applicable to the exchange offer or any of the transactions contemplated by the exchange offer by any governmental authority, domestic or foreign; or (3) any action shall have been taken, proposed or threatened, by any governmental authority, domestic or foreign, that in our sole judgment might directly or indirectly result in any of the consequences referred to in clauses (1) or (2) above or, in our sole judgment, might result in the holders of exchange notes having obligations with respect to resales and transfers of exchange notes which are greater than those described in the interpretation of the SEC referred to above, or would otherwise make it inadvisable to proceed with the exchange offer; or - there shall have occurred: (1) any general suspension of or general limitation on prices for, or trading in, securities on any national securities exchange or in the over-the-counter market; or (2) any limitation by a governmental authority which may adversely affect our ability to complete the transactions contemplated by the exchange offer; or 28 (3) a declaration of a banking moratorium or any suspension of payments in respect of banks in the United States or any limitation by any governmental agency or authority which adversely affects the extension of credit; or (4) a commencement of a war, armed hostilities or other similar international calamity directly or indirectly involving the United States, or, in the case of any of the foregoing existing at the time of the commencement of the exchange offer, a material acceleration or worsening of such calamities; or - any change, or any development involving a prospective change, shall have occurred or be threatened in our business, financial condition, operations or prospects and those of our subsidiaries taken as a whole that is or may be adverse to us, or we shall have become aware of facts that have or may have an adverse impact on the value of the original notes or the exchange notes; which in our sole judgment in any case makes it inadvisable to proceed with the exchange offer and/or with such acceptance for exchange or with such exchange. These conditions to the exchange offer are to our sole benefit and may be asserted by us regardless of the circumstances giving rise to any of these conditions, or may be waived by us in whole or in part in our sole discretion. Our failure at any time to exercise any of the foregoing rights will not be deemed a waiver of any right. In addition, we will not accept for exchange any original notes tendered, and no exchange notes will be issued in exchange for any original notes, if at such time any stop order is threatened or in effect relating to the registration statement of which this prospectus constitutes a part or the qualification of the indenture under the Trust Indenture Act of 1939. EXCHANGE AGENT We have appointed The Bank of New York as the exchange agent for the exchange offer. You should direct all executed letters of transmittal to the exchange agent at the address set forth below. You should direct questions and requests for assistance, requests for additional copies of this prospectus or of the letter of transmittal and requests for notices of guaranteed delivery to the exchange agent addressed as follows: DELIVERY TO: The Bank of New York, EXCHANGE AGENT BY HAND OR OVERNIGHT DELIVERY: BY REGISTERED OR CERTIFIED MAIL: The Bank of New York The Bank of New York Reorganization Department Reorganization Department 101 Barclay Street, 101 Barclay Street, Floor 7E Floor 7E New York, NY 10286 New York, NY 10286 Attention: Duong Nguyen Attention: Duong Nguyen
FOR INFORMATION CALL: (212) 815-3687 BY FACSIMILE TRANSMISSION (FOR ELIGIBLE INSTITUTIONS ONLY): (212) 815-6339 CONFIRM BY TELEPHONE: (212) 815-3687 IF YOU DELIVER THE LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMIT INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE, THEN YOUR DELIVERY OR TRANSMISSION WILL NOT CONSTITUTE A VALID DELIVERY OF THE LETTER OF TRANSMITTAL. 29 FEES AND EXPENSES We will not make any payment to brokers, dealers, or others soliciting acceptances of the exchange offer. The estimated cash expenses to be incurred in connection with the exchange offer will be paid by us. We estimate these expenses in the aggregate to be approximately $300,000. ACCOUNTING TREATMENT We will not recognize any gain or loss for accounting purposes upon the consummation of the exchange offer. We will amortize the expense of the exchange offer over the term of the exchange notes under generally accepted accounting principles. TRANSFER TAXES Holders who tender their original notes for exchange will not be obligated to pay any related transfer taxes, except that holders who instruct us to register exchange notes in the name of, or request that original notes not tendered or not accepted in the exchange offer be returned to, a person other than the registered tendering holder will be responsible for the payment of any applicable transfer taxes. CONSEQUENCES OF EXCHANGING OR FAILING TO EXCHANGE ORIGINAL NOTES Holders of original notes who do not exchange their original notes for exchange notes pursuant to the exchange offer will continue to be subject to the provisions in the indenture regarding transfer and exchange of the original notes and the restrictions on transfer of the original notes as set forth in the legend on the notes as a consequence of the issuance of the original notes pursuant to exemptions from, or in transactions not subject to, the registration requirements of the Securities Act and applicable state securities laws. In general, the original notes may not be offered or sold, unless registered under the Securities Act, except pursuant to an exemption from, or in a transaction not subject to, the Securities Act and applicable state securities laws. As discussed in "Exchange Offer; Registration Rights," we do not currently anticipate that we will register original notes under the Securities Act. Based on interpretations by the staff of the SEC, as set forth in no-action letters issued to third parties, we believe that exchange notes issued pursuant to the exchange offer in exchange for original notes may be offered for resale, resold or otherwise transferred by holders of the original notes, other than any holder which is an "affiliate" of ours within the meaning of Rule 405 under the Securities Act, without compliance with the registration and prospectus delivery provisions of the Securities Act, provided that the exchange notes are acquired in the ordinary course of the holders' business and the holders have no arrangement or understanding with any person to participate in the distribution of the exchange notes. However, the SEC has not considered the exchange offer in the context of a no-action letter. We cannot assure you that the staff of the SEC would make a similar determination with respect to the exchange offer as in the other circumstances. Each holder, other than a broker-dealer, must acknowledge that it is not engaged in, and does not intend to engage in, a distribution of exchange notes and has no arrangement or understanding to participate in a distribution of exchange notes. If any holder is an affiliate of ours, is engaged in or intends to engage in or has any arrangement or understanding with any person to participate in the distribution of the exchange notes to be acquired in the exchange offer, that holder: (1) could not rely on the applicable interpretations of the staff of the SEC, and 30 (2) must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale transaction. Each broker-dealer that receives exchange notes for its own account in exchange for original notes must acknowledge that the original notes were acquired by the broker-dealer as a result of market-making activities or other trading activities and that it will deliver a prospectus in connection with any resale of the exchange notes. See "Plan of Distribution." In addition, to comply with state securities laws, the exchange notes may not be offered or sold in any state unless they have been registered or qualified for sale in such state or an exemption from registration or qualification, with which there has been compliance, is available. The offer and sale of the exchange notes to "qualified institutional buyers," as defined under Rule 144A of the Securities Act, is generally exempt from registration or qualification under the state securities laws. We currently do not intend to register or qualify the sale of exchange notes in any state where an exemption from registration or qualification is required and not available. 31 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THE FOLLOWING DISCUSSION AND ANALYSIS RELATES TO OUR AUDITED RESULTS OF OPERATIONS FOR EACH OF THE YEARS IN THE THREE-YEAR PERIOD ENDED DECEMBER 31, 2000 AND OUR UNAUDITED RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000. THE DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH THE SELECTED CONSOLIDATED FINANCIAL INFORMATION, OUR CONSOLIDATED FINANCIAL STATEMENTS AND THE ACCOMPANYING NOTES APPEARING ELSEWHERE IN THIS PROSPECTUS AND OTHER FINANCIAL INFORMATION INCORPORATED BY REFERENCE. BUSINESS OVERVIEW
QUARTER ENDED YEAR ENDED MARCH 31, DECEMBER 31, ------------------- ------------------------------ 2001 2000 2000 1999 1998 -------- -------- -------- -------- -------- (IN MILLIONS, EXCEPT PER SHARE DATA) PRO FORMA (a): Sales........................................... $276.2 $263.2 $1,036.8 $1,081.5 $1,200.5 Adjusted EBITDA (b)............................. 38.9 36.5 144.0 141.3 203.1 Adjusted net income (c)......................... 6.2 4.2 18.8 9.7 56.3 Adjusted diluted earnings per share (c)......... $ 0.16 $ 0.11 $ 0.50 $ 0.27 $ 1.37 AS REPORTED: Sales........................................... $276.2 $279.8 $1,055.7 $1,151.5 $1,089.0 Gross margin %.................................. 21.8% 22.2% 21.9% 21.1% 24.9% Adjusted operating income % (c)................. 8.6% 8.2% 8.2% 7.7% 11.9% Adjusted EBITDA (b)............................. $ 38.9 $ 38.0 $ 144.9 $ 150.4 $ 177.2 Business consolidation expenses................. 1.1 1.2 10.9 20.1 12.7 Net income (loss)............................... 5.5 2.6 54.2 (23.3) 50.4 Adjusted net income (c)......................... 6.2 3.4 17.2 9.6 59.2 Diluted earnings (loss) per share............... $ 0.15 $ 0.07 $ 1.32 $ (0.64) $ 1.24 Adjusted diluted earnings per share (c)......... $ 0.16 $ 0.09 $ 0.46 $ 0.26 $ 1.43
- ------------------------ (a) Pro forma results for 2000, 1999 and 1998 give effect to the April 26, 2000 sale of the Bellingham aircraft interiors business 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) Excludes the gain on sale of Bellingham aircraft interiors business, business consolidation expenses, interest, taxes, depreciation, amortization, and equity in earnings of and a write-down of an investment in affiliated companies. (c) Excludes 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, net of applicable income taxes. Adjusted EBITDA and pro forma adjusted EBITDA are presented to provide a measure of our 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 our 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. 32 After giving pro forma effect to the sale of the Bellingham business during 2000 as if it had occurred on January 1, 1999, sales revenues (at constant exchange rates) and adjusted EBITDA for the years of 1999 and 2000 were at approximately the same level. However, the conditions in a number of the markets that we serve changed markedly over this two-year period. The first quarter of 1999 represented a peak for commercial aerospace revenues as sales to Boeing were made to support the 620 aircraft deliveries Boeing made that year. However, by the second quarter of 1999, commercial aerospace revenues had started to decline as Boeing reduced its purchases both to reflect its lower planned aircraft deliveries of 489 aircraft in 2000 and its goals to reduce inventory. On a seasonally adjusted basis, the bottom of commercial aerospace revenues was not seen until the summer of 2000. Boeing has indicated that it is planning increased deliveries in 2001 as compared to 2000. In addition, production rates by Airbus and the regional aircraft producers continue to increase. Over the same period, our revenues from sales of products to the space and defense industry decreased primarily due to two factors. First, a munitions program that utilized our materials ended. Second, sales of products to launch vehicle and commercial satellite programs declined as a result of the failure of a number of commercial satellite programs and tighter export controls on the launch of U.S. manufactured commercial satellites. With a number of new military aircraft programs beginning production (e.g., the F18 E/F and the European Fighter Aircraft) and existing programs increasing their production rate (e.g., C-17), revenues in these market sectors are expected to increase despite remaining at their recently depressed levels. In early 1999, our revenues from sales of woven glass fabrics for printed wiring board applications were reduced as a result of the Asian economic crisis. Asian producers with surplus production capacity were seeking to export their products to the Unites States and Europe depressing both our sales prices and quantity of sales. As the Asian economies recovered in 1999 and demand for electronic devices for Internet and telecommunication applications continued to grow, the demand and prices for our company's electronic products increased. In 2000, we saw more rapid growth in demand for our lightweight fabrics used in multilayer printed wiring boards as a result of the continued growth in Internet and telecommunication applications. To meet unprecedented customer requirements, we reduced our production of heavyweight fabrics for rigid printed wiring board applications and invested in additional lightweight fabrics manufacturing capacity. These market conditions continued until January 2001. During this period, we continued to see revenue growth in our industrial markets, particularly from ballistic (soft body armor), wind energy and automotive applications for our products. In constant currency terms, the revenue growth in the electronics market combined with the revenue growth in these industrial markets offset the decline in revenues from commercial aerospace and space and defense markets. Over the last two years, we have focused on reducing our debt. In 1999, we reduced our total debt net of cash from $857.4 million as of December 31, 1998 to $770.7 million as of December 31, 1999 through working capital reduction, particularly reduction in inventories. By December 31, 2000 our total debt net of cash had been reduced by a further $102.2 million to $668.5 million as a result of the proceeds from the sale of the Bellingham business in April 2000. We remain focused on reducing our debt, but the amount by which we can will vary from year to year based upon business conditions. RECENT EVENTS ELECTRONICS INDUSTRY Demand for our woven electrical fabrics declined sharply in the United States at the end of the first quarter of 2001. This reduction in demand was the net result of finished electronic goods 33 producers responding to their excess inventories by cutting back on their purchases, which has impacted the entire supply chain. The excess inventories of end producers seem to be the result of both lower than anticipated growth in certain markets and reduced sales in other markets. In April 2001, the inventory correction became evident in our wholly owned operations in France and at our Asian joint venture. In response to these market conditions, we idled manufacturing capacity and furloughed some production employees, and will continue to monitor the situation closely and make further adjustments if warranted by market developments. Customer orders during the second quarter of 2001 have remained at much reduced levels. Our second quarter 2001 revenues from electronic applications were lower than the first quarter 2001 and with little visibility from our customers and the impact of the summer vacation period it seems unlikely that revenues will recover in the third quarter of 2001. UTILITY PRICE VOLATILITY During the fourth quarter of 2000 and continuing into 2001, there has been significantly increased volatility in the cost and supply of energy and in natural gas prices in the United States, particularly in the western states where many of our U.S. manufacturing facilities are located. Continued significant price changes are likely to have an impact on our financial results. In anticipation of continued volatility, we are exploring options to reduce energy consumption and to better control the price paid for energy sources. However, the outcome of the U.S. energy situation and its impact on the U.S. economy is unpredictable at this time and may pose unforeseen future risk. Energy costs in the first quarter of 2001 were approximately $2 million higher than in the first quarter of 2000. While natural gas prices have fallen during the second quarter, it is too soon to judge whether energy costs will stabilize at current levels. SECOND QUARTER 2001 FINANCIAL RESULTS On July 20, 2001, we reported our financial results for the second quarter of 2001. Net loss for the second quarter of 2001 was $12.6 million, or $0.34 per diluted share. The net loss for the second quarter 2001, before the extraordinary loss of $3.1 million arising from the early retirement of debt, was $9.5 million, or $0.26 per diluted share, compared to net income of $50.4 million, or $1.14 per diluted share, for the second quarter of 2000. The quarter's results include a number of one-time charges, which relate to compensation expenses resulting from the retirement of our former Chief Executive Officer, the early retirement of our Increasing Rate Senior Subordinated Notes Due 2003 and a portion of our 7% Convertible Subordinated Notes Due 2003, both of which were repaid with proceeds from the offering of the original notes, fees and expenses incurred in connection with an amendment to our senior credit facility, and a reduction in our tax benefit for U.S. operating losses. Excluding these items and business consolidation expenses, our pretax income was $1.6 million. Our second quarter 2000 results included a net after-tax gain from the sale of Bellingham aircraft interiors business of approximately $44.0 million, or $0.97 per diluted share. Adjusted EBITDA for the second quarter of 2001 was $33.4 million versus $38.8 million for the second quarter of 2000 and $39.3 million for the second quarter of 2000 on a pro forma basis. Adjusted EBITDA for 2001 year to date was $72.3 million versus $75.9 million for 2000 year to date on a pro forma basis. Pro forma results give effect to the April 26, 2000 sale of the Bellingham aircraft interiors business as if the transaction had occurred on January 1, 2000. ISSUANCE OF ORIGINAL NOTES On June 29, 2001, we issued and sold $100.0 million aggregate principal amount of the original notes, which generated net proceeds to Hexcel of approximately $94.2 million. We used the net proceeds of the issuance to redeem $67.5 million aggregate principal amount of our outstanding 7% 34 Convertible Subordinated Notes Due 2003 (plus a $0.8 million premium payment), of which approximately $114.4 million of principal was outstanding, and to prepay the entire principal amount of approximately $25.0 million of the Increasing Rate Senior Subordinated Note Due 2003 held by Ciba Specialty Chemical Inc. AMENDMENT TO SENIOR CREDIT FACILITY In connection with the closing of the offering of the original notes, we amended our senior credit facility to, among other things, modify financial covenants and to permit that offering. As of March 31, 2001, there was approximately $227.9 million of loans outstanding under the senior credit facility, consisting of $29.7 million of term A loans, $92.6 million of term B loans, $25.6 million under the domestic revolving line of credit, $80.0 million under the European revolving line of credit, and no amounts under the European overdraft facility. EXECUTIVE COMPENSATION In connection with the retirement and passing of our former Chief Executive Officer, John J. Lee, we recorded certain non-recurring compensation expenses of approximately $4.7 million in the second quarter of 2001 as a result of early vesting of deferred compensation and equity, and other compensation due Mr. Lee's estate. SIGNIFICANT TRANSACTIONS PURCHASE OF APPROXIMATELY 14.5 MILLION SHARES OF OUR COMMON STOCK BY GOLDMAN SACHS INVESTOR GROUP On December 19, 2000, an investor group controlled by subsidiaries of The Goldman Sachs Group, Inc. completed a previously announced purchase of approximately 14.5 million of the approximately 18 million shares of our common stock owned by Ciba Specialty Chemicals Holding, Inc. The shares acquired by the Goldman Sachs investor group represent approximately 39% of our outstanding common stock. In addition, we entered into a governance agreement with the Goldman Sachs investor group that became effective on December 19, 2000. Under this governance agreement, the Goldman Sachs investor group has the right to, among other things, designate three directors to sit on our ten-member Board of Directors. As a result of this transaction, Ciba's ownership of our common stock was reduced to approximately 3.5 million shares. In addition, our governance agreement with Ciba, which gave Ciba the right to designate four directors to sit on our board, terminated. Ciba has stated that its investment in our common stock is non-strategic and that it will explore options for the future disposition of its remaining interest in our common stock. SALE OF THE BELLINGHAM AIRCRAFT INTERIORS BUSINESS On April 26, 2000, we sold our 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. The Bellingham business was 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. 35 RECENTLY ISSUED ACCOUNTING STANDARDS On July 20, 2001, the Financial Accounting Standards Board (FASB) issued FASB Statement No. 142 (FAS 142), "Goodwill and Other Intangible Assets." FAS 142 changes the accounting for goodwill from an amortization method to an impairment-only approach. Upon adoption of FAS 142, goodwill will be tested at the reporting unit level annually and whenever events or circumstances occur indicating that goodwill might be impaired. Amortization of goodwill, including goodwill recorded in past business combinations, will cease. The adoption date for Hexcel will be January 1, 2001. Hexcel has not yet determined what the impact of FAS 142 will be on its results of operations and financial position. DEFERRED TAX ASSETS Since 1999, we have generated taxable profits in Europe offset by net operating losses in the United States. Our U.S. operations have generated losses, in part, because most of our interest expense and goodwill amortization is serviced in the United States. We have recorded the benefit of these net operating losses by increasing the deferred tax asset carried on our balance sheet. As of March 31, 2001 the deferred tax asset balance was $42.9 million. The sharp decline in electronics revenues and the recognition of the non-recurring charges in the second quarter of 2001 have significantly increased U.S. net operating losses in 2001 compared to prior estimates. In light of this change in business outlook, in the second quarter of 2001 we have determined to increase our tax provision rate through the establishment of a non-cash valuation allowance attributable to currently generated U.S. net operating losses. Going forward, our financial statements will continue to reflect a tax provision on our European earnings. As a result, our effective tax rate may change from quarter to quarter based on relative U.S. and European profitability. The amount of net deferred tax asset reflected on our balance sheet considered realizable could be reduced if estimates of future U.S. taxable income during the carry-forward period are reduced in light of future operating performance. RESULTS OF OPERATIONS THREE MONTHS ENDED MARCH 31, 2001 COMPARED TO THREE MONTHS ENDED MARCH 31, 2000 The following discussions use comparisons of the March 31, 2001 results to the March 31, 2000 pro forma results, which give effect to the April 26, 2000 sale of the Bellingham aircraft interiors business as if it had occurred on January 1, 2000. NET SALES: Net sales of $276.2 million for the first quarter of 2001 were 5% higher than 2000 first quarter pro forma revenue of $263.2 million. Had the same U.S. dollar, British pound and Euro exchange rates applied in the first quarter of 2001 as in the first quarter of 2000, sales for the 2001 quarter would have been $283.2 million, or 8% higher than the pro forma sales for the 2000 quarter. The revenue increase was attributable to growth in the commercial aerospace market as a result of higher build rates for Airbus, Boeing and several regional aircraft manufacturers and increased production in the space and defense market related to several programs, partially offset by lower sales volumes in the electronics market. 36 The following table summarizes actual and pro forma net sales to third-party customers by product groups and market segments for the quarters ended March 31, 2001 and 2000:
UNAUDITED ----------------------------------------------------------- COMMERCIAL SPACE & AEROSPACE DEFENSE ELECTRONICS INDUSTRIAL TOTAL ---------- -------- ----------- ---------- -------- (IN MILLIONS) FIRST QUARTER 2001 Reinforcement products....................... $ 18.1 $ 5.5 $34.7 $28.1 $ 86.4 Composite materials.......................... 99.3 26.9 -- 34.0 160.2 Engineered products.......................... 26.0 3.6 -- -- 29.6 ------ ----- ----- ----- ------ Total........................................ $143.4 $36.0 $34.7 $62.1 $276.2 ====== ===== ===== ===== ====== 52% 13% 13% 22% 100% ====== ===== ===== ===== ====== PRO FORMA FIRST QUARTER 2000 (a) Reinforcement products....................... $ 15.6 $ 4.1 $43.6 $23.8 $ 87.1 Composite materials (b)...................... 90.8 23.3 -- 32.4 146.5 Engineered products.......................... 27.1 2.5 -- -- 29.6 ------ ----- ----- ----- ------ Total........................................ $133.5 $29.9 $43.6 $56.2 $263.2 ====== ===== ===== ===== ====== 51% 11% 17% 21% 100% ====== ===== ===== ===== ====== FIRST QUARTER 2000 Reinforcement products....................... $ 15.6 $ 4.1 $43.6 $23.8 $ 87.1 Composite materials (b)...................... 90.8 23.3 -- 32.4 146.5 Engineered products.......................... 43.7 2.5 -- -- 46.2 ====== ===== ===== ===== ====== Total........................................ $150.1 $29.9 $43.6 $56.2 $279.8 ====== ===== ===== ===== ====== 54% 11% 15% 20% 100% ====== ===== ===== ===== ======
- ------------------------ (a) Pro forma net sales give effect to the sale of the Bellingham business that occurred on April 26, 2000, as if it had occurred on January 1, 2000. (b) 2000 has been reclassified for comparative purposes. Net sales to commercial aerospace customers increased 7.4% to $143.4 million for the first quarter of 2001, as compared to pro forma net sales of $133.5 million for the first quarter of 2000. This increase in comparable first quarter sales reflects higher build rates at Airbus, Boeing and several regional aircraft manufacturers, partially offset by the impact of the weaker U.S. dollar against the Euro and the British pound sterling. Commercial aerospace net sales for our reinforcement products and composite materials businesses increased due to the higher build rates. The commercial aerospace revenue of the engineered products business is program and contract specific so this business has not yet derived any net revenue growth from build rate changes. Boeing has confirmed that it expects to meet its projections to deliver approximately 530 aircraft in 2001 and an additional 530 aircraft in 2002, an increase over 489 deliveries in 2000; and Airbus has indicated production plans to sustain deliveries in excess of 300 annually through 2003. The benefit that we obtain from any increase in build rates in 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 improvement from our Lean Enterprise initiatives. Net sales to space and defense markets for the first quarter of 2001 increased 20.4% to $36.0 million, from first quarter 2000 pro forma net sales of $29.9 million. This increase is due 37 primarily to our composite material and reinforcement products businesses and is due to increased sales related to several programs, including the F/A-18 and the Eurofighter as well as Boeing's Delta Launchers family. Looking forward, the requirements of both the United States and European armed forces continue to support an outlook of increased procurement of military aircraft and helicopters. The new generation of military aircraft use more of our products. We are currently qualified to supply materials to a broad range of military aircraft and helicopters scheduled to enter either full-scale production in the near future or significantly increase existing production rates. These programs include the F/A-18E/F (Hornet), the F-22 (Raptor), the European Fighter Aircraft (Typhoon) as well as the C-17, the V-22 (Osprey) tiltrotor aircraft, the RAH-66 (Comanche) and the 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 were $34.7 million in the first quarter of 2001, a decrease of 20.4% from pro forma net sales of $43.6 million in the comparable 2000 quarter. This decline reflects the downturn in the U.S. electronics industry and the ensuing adjustments throughout the electronics industry supply chain. Demand for our woven electrical fabrics declined sharply at the end of the first quarter of 2001. This reduction in demand was the net result of finished electronic goods producers responding to their excess inventories by cutting back on their purchases, which has impacted the entire supply chain. The excess inventories of end producers seems to be the result both of lower than anticipated growth in certain markets and reduced sales in other markets. In April 2001, the inventory correction became evident in our wholly owned operations in France and at our Asian joint venture. In response to these market conditions, we idled manufacturing capacity and furloughed some production employees, and will continue to monitor the situation closely and make further adjustments if warranted by market developments. Customer orders for electronics applications to date for the second quarter have remained at the reduced levels seen at the end of March. Our second quarter revenues from electronic applications will be less than the first quarter of this year and as of yet there is no visibility as to whether revenues will increase in the third quarter. Net sales to industrial markets increased 10.4% to $62.1 million for the first quarter of 2001 from $56.2 million pro forma net sales for the same 2000 quarter. The increase reflects sales growth in several segments, especially fabrics (reinforcement segment) used in ballistic and architectural markets and in composite materials for the wind energy market. Absent a significant deterioration in the general macroeconomic environment, we expect sales to wind energy and automotive customers to grow in 2001, driven by growing demand for low-cost sources of renewable energy and improved automobile safety, as well as our success in developing products that satisfy these customer applications. GROSS MARGIN: Gross margin for the first quarter of 2001 was $60.1 million or 21.8% of net sales, compared to gross margin of $57.7 million or 21.9% of net sales on a pro forma basis for the first quarter of 2000. The increase in gross margin reflects the sales increases discussed above offset by the negative impact of increased energy costs, particularly in the western United States, and reduced production at our U.S. electronics fabrics manufacturing plants. Energy costs in the first quarter of 2001 were approximately $2 million higher than in the first quarter of 2000. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES: Selling, general and administrative expenses were $31.7 million or 11.5% of net sales for the first quarter of 2001, compared with $30.8 million or 11.7% of net sales on a pro forma basis for the first quarter of 2000. Research and technology expenses for the first quarter of 2001 were $4.7 million or 1.7% of net sales, compared with $5.0 million or 1.9% of net sales on a pro forma basis for the first quarter of 2000. OPERATING INCOME: Operating income was $22.6 million or 8.2% of net sales in the first quarter of 2001, compared with $20.7 million or 7.9% of net sales on a pro forma basis in the first quarter of 38 2000. Excluding business consolidation expenses, operating income for the first quarter of 2001 was $23.7 million or 8.6% of net sales, versus $21.9 million or 8.3% of net sales on a pro forma basis for the first quarter of 2000. Business consolidation expenses totaled $1.1 million in the first quarter of 2001 and $1.2 million in the comparable quarter in 2000. The aggregate increase in operating income, excluding business consolidation expenses, reflects the increase in gross margin over the pro forma total for the first quarter of 2000 and a slight reduction in research and technology expenses, partially offset by higher selling, general and administrative expenses. The reinforcement products segment increased its operating income by 8.6%, while the composite materials segment increased its operating income by 11.9%, excluding business consolidation expenses, as compared to the first quarter of 2000 on a pro forma basis. The engineered products segment reported a decrease in operating income of $1.5 million, after adjusting for the sale of the Bellingham business on a pro forma basis, reflecting the reduced performance from the business that became evident in the second half of 2000. We are pursuing a series of actions focused on progressively improving the performance of this business segment. INTEREST EXPENSE: Interest expense was $16.3 million for the first quarter of 2001, compared to $18.4 million for the first quarter of 2000. The decrease in interest expense primarily reflects the reduction in term debt outstanding under our senior credit facility that resulted from the use of the proceeds from the sale of the Bellingham business to reduce indebtedness. EQUITY IN EARNINGS OF AFFILIATED COMPANIES: Equity in earnings of affiliated companies for the first quarter of 2001 was $1.4 million compared to $0.4 million for the first quarter of 2000 reflecting the strong performance of our electronics fabrics venture in Asia, partially offset by the initial start-up costs of our engineered products ventures in China and Malaysia. The start-up costs of those joint ventures during 2001 are anticipated to reduce our reported equity in earnings by approximately half compared to 2000. The electronics industry market conditions discussed above have also started to impact Asian customer demand and will reduce the second quarter 2001 equity in earnings reported from our Asian electronic fabrics joint venture. NET INCOME AND NET INCOME PER SHARE
Quarter Ended March 31, ----------------------- PRO FORMA 2001 2000(a) ---------- ---------- (in millions, except per share amounts) Net income.................................................. $ 5.5 $ 3.4 Adjusted net income (b)..................................... $ 6.2 $ 4.2 Diluted net income per share................................ $0.15 $0.09 Diluted net income per share excluding goodwill amortization.............................................. $0.20 $0.17 Adjusted diluted net income per share (b)................... $0.16 $0.11 Diluted weighted average shares outstanding................. 38.1 36.8
- ------------------------ (a) Pro forma results give effect to the April 26, 2000 sale of the Bellingham aircraft interiors business as if the transaction had occurred on January 1, 2000. (b) Excludes business consolidation expenses and related income taxes. 39 Our convertible subordinated notes, due 2003, and our convertible subordinated debentures, due 2011, were excluded from the 2001 and 2000 computations of net income per diluted share, as they were antidilutive. 40 YEAR ENDED DECEMBER 31, 2000 COMPARED TO YEAR ENDED DECEMBER 31, 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 on January 1, 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 $1,082.0 million. 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 & AEROSPACE DEFENSE ELECTRONICS INDUSTRIAL TOTAL ---------- -------- ----------- ---------- -------- (IN MILLIONS) 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 Hexcel'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 on January 1 of the respective years presented. 40 Commercial aerospace net sales 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: - The sale of the Bellingham business on April 26, 2000. This business generated $70.0 million of revenue for the commercial aerospace segment during 1999, and $18.9 million during the first four months of 2000. - 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 our Engineered Products business, which delivers its products to Boeing just prior to the aircraft being completed and delivered to the ultimate customer. - 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 customers as Bombardier Aerospace and Embraer-Empresa Brasileira de Aeronautica, we expect modest growth in commercial aerospace revenues in 2001. However, the benefit that we obtain 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 our Lean Enterprise initiatives. 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, we are 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 we obtain 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, we were able to raise prices on certain fiberglass fabrics. 41 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: - Increased sales of aramid fabrics used in the manufacture of bulletproof and puncture resistant vests, driven by military and civilian demand for lighter, tougher vests. - 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. - Increased sales of prepreg composites products to European customers for use in producing components for wind energy turbines. - 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, we expect 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 our 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. 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 EXPENSES: Selling, general and administrative 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 selling, general and administrative expenses is attributable in part to the recognition of a $5.1 million 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 our 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 EXPENSES: Research and technology 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 research and technology 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 selling, general and administrative and research and technology expenses during 2000. 42 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 our 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. Our 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 our 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 our share of the initial start-up losses of our engineered products ventures in China and Malaysia. In 1999, we wrote down our investment in one of our joint ventures, Interglas Technologies AG, formerly CS-Interglas AG, 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. We did not record a deferred tax benefit on the write-down because of limitations imposed by foreign tax laws on our ability to realize a tax benefit. NET INCOME (LOSS) AND NET INCOME (LOSS) PER SHARE
2000 1999 --------- --------- (IN MILLIONS, EXCEPT PER SHARE DATA) 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
Our convertible subordinated notes, due 2003, our convertible subordinated debentures, due 2011, and our stock options were excluded from the 1999 computation of net loss per diluted share, as they were antidilutive. YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 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, Inc. 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 43 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 & AEROSPACE DEFENSE ELECTRONICS INDUSTRIAL TOTAL ---------- -------- ----------- ---------- -------- (IN MILLIONS) 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 our 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. (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 on January 1 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 January 1, 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: - Declining aircraft production rates by Boeing during the second half of 1999, in anticipation of lower aircraft deliveries in 2000. - Inventory adjustments in excess of build rate changes by aerospace customers in the U.S., Europe and certain export markets, in connection with their efforts to improve working capital and reduce manufacturing cycle times. 44 - 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, our 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 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 added about $94 million of electronics revenues in 1999, relative to 1998. This addition to our revenue 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. Net sales to industrial markets 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: - The acquisition of the Clark-Schwebel business in September 1998, which added more than $14 million of industrial revenues in 1999, compared with 1998. - Increased sales of aramid and specialty fabrics for ballistics applications, in response to increased demand for lightweight protective vests by police forces and the U.S. military. - Growth in sales of composite materials for wind energy applications, which nearly doubled from 1998 to 1999. - 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 45 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: Selling, general and administrative expenses were $128.7 million in 1999, or 11.2% of net sales. This compares with selling, general and administrative expense of $117.9 million or 10.8% of net sales for 1998. The aggregate dollar increase in selling, general and administrative expenses is primarily attributable to the acquisition of the Clark-Schwebel business. RESEARCH AND TECHNOLOGY EXPENSES: Research and technology 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 research and technology 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, we 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, we wrote down our investment in one of these joint ventures, Interglas, by $20.0 million to its estimated fair market value. NET INCOME (LOSS) AND NET INCOME (LOSS) PER SHARE
1999 1998 --------- --------- (IN MILLIONS, EXCEPT PER SHARE DATA) 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. 46 FINANCIAL CONDITION AND LIQUIDITY FINANCIAL RESOURCES In connection with the acquisition of the industrial fabrics business of Clark-Schwebel on September 15, 1998, we obtained a new senior credit facility to: (a) fund the purchase of the Clark-Schwebel business; (b) refinance our existing revolving credit facility; and (c) provide for our ongoing working capital and other financing requirements. The senior credit facility was subsequently amended in January 1999, August 1999, March 2000, October 2000, May 2001 and June 2001, to accommodate, among other things, the planned sale of assets, the planned investments in additional manufacturing capacity for selected products, the impact of the decline in our operating results on certain financial covenants, the sale by Ciba of approximately 14.5 million of the approximately 18 million shares of our common stock held by them to the Goldman Sachs investor group, a restructuring of the ownership and capital structure of certain of our European subsidiaries and the consummation of the offering of the original notes. The senior credit facility is secured by a pledge of shares of certain of our subsidiaries, as well as security interests in certain U.S. accounts receivable, inventories, and real property, plant and equipment. We are 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 March 31, 2001, we were in compliance with the financial covenants and other terms of the senior credit facility. In anticipation of lower sales volume in the electronics market, on May 11, 2001, we obtained an amendment to certain of our financial covenants under the senior credit facility. As a result, we currently anticipate continued compliance with all financial covenants for the remainder of 2001. As of March 31, 2001, the senior credit facility provided us with approximately $357 million of borrowing capacity, subject to certain limitations. Interest on outstanding borrowings under the senior credit facility ranges from 1.00% to 3.25% in excess of the applicable London interbank rate, or at our option, from 0.25% to 2.25% in excess of the base rate of the administrative agent for the lenders. Prior to May 11, 2001, the upper limits of these interest ranges were 3.00% and 2.00%, respectively. In addition, the senior credit facility is subject to a commitment fee varying from approximately 0.20% to 0.50% per annum of the total facility. For the years ended December 31, 2000, 1999 and 1998, interest on outstanding borrowings under the senior credit facility, or previous revolving credit facility, bore interest at approximately 0.75% to 3.0% in excess of the applicable London interbank rate, or at our option, 0.0% to 2.0% in excess of the base rate of the administrative agent for the lenders, and was subject to a commitment fee ranging from approximately 0.20% to 0.50% per annum of the total facility. As of March 31, 2001 and December 31, 2000, 1999 and 1998, we had an interest rate cap agreement outstanding which covered a notional amount of $50.0 million of the senior credit facility, providing a maximum fixed rate of interest of 5.5% on the applicable London interbank rate. We completed the sale of our 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. We expect that the senior credit facility will be sufficient to fund our 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. As of December 31, 2000, we estimate that we had net operating carryforwards of approximately $110 million for U.S. federal income tax purposes. These NOLs, if not utilized to offset taxable income in future periods, will expire at various dates through fiscal year 2019. If we experience an "ownership 47 change" within the meaning of Section 382 of the Internal Revenue Code of 1986, as amended, our ability to utilize for U.S. federal income tax purposes our NOLs arising in periods before the ownership change would be subject to an annual limitation. This annual limitation would be equal to the product of the value of all of our outstanding stock immediately before the ownership change (less certain capital contributions made within the preceding two years) and the relevant "long-term tax-exempt rate," which was 5.01% for ownership changes occurring in August 2001, increased for any "built-in gains" recognized by us during the five year period following the ownership change. We do not believe that we experienced an ownership change as a result of the purchase of approximately 39% our common stock by the Goldman Sachs investor group, although such transaction, combined with other issuances or purchases of our stock, could result in such an ownership change. We cannot currently predict whether such an ownership change would have a material effect on our U.S. federal income tax liability or financial condition. CAPITAL EXPENDITURES Capital expenditures for the quarter ended March 31, 2001 were $10.6 million compared to $4.4 million for the 2000 quarter. The increase of $6.2 million represents our continued efforts toward process improvements, capacity additions for high-growth product applications such as electronics, automotive and wind energy; and environmental, safety and maintenance initiatives. 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 our Lean Enterprise program, and our commitment to reduce our debt. During 1999 and 2000, the majority of our 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. Our capital expenditures are anticipated to be at a level of approximately $50 million in 2001. OTHER FINANCIAL COMMITMENTS In 1999, we formed a joint venture with Boeing and Aviation Industries of China and BHA Aero Composite Parts Co., Ltd. to manufacture composite parts for secondary structures and interior applications for commercial aircraft. We have a 33% equity ownership interest in this joint venture, which is located in Tianjin, China. Also in 1999, we 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. We have 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 May 31, 2001, we have made cash investments in these two joint ventures totaling $13.0 million, and have commitments to invest another $2.5 million. In addition, we have committed to provide additional loan guarantees of up to $13.7 million. The contingent liability under these commitments is expected to increase in increments through 2002. Mandatory redemption of our 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, we 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. 48 ADJUSTED EBITDA AND CASH FLOWS AND THE RATIO OF EARNINGS TO FIXED CHARGES Earnings before business consolidation expenses, other income, interest, taxes, depreciation and amortization and equity in earnings of affiliated companies, or adjusted EBITDA, and pro forma adjusted EBITDA, are presented to provide a measure of our 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 our 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. 2001: Adjusted EBITDA for the first quarter 2001 was $38.9 million, an increase of 6.6% above the 2000 first quarter pro forma adjusted EBITDA, giving effect to the sale of the Bellingham business as if it had occurred at the beginning of 2000, of $36.5 million. Net cash provided by operating activities was $3.4 million in the first quarter of 2001 as compared to net cash used for operating activities of $6.1 million for the 2000 first quarter. This increase is due to higher net income, a decrease in working capital requirements and a slight decrease in deferred income taxes in the first quarter of 2001. The working capital improvement is due to the timing of certain cash expenditures, which more than offset the increased inventory levels resulting primarily from the fall-off in the electronics market demand and the increased accounts receivable resulting from increased sales. As a result, the improvement is anticipated to reverse in the second quarter of 2001. Net cash used for investing activities in the first quarter of 2001 was $10.6 million compared to $7.8 million used in the 2000 first quarter. The increase in capital expenditures of $6.2 million represents our continued efforts toward process improvements, capacity additions for high-growth product applications such as electronics, automotive and wind energy; and environmental, safety and maintenance initiatives. The ratio of earnings to fixed charges for the quarter ended March 31, 2001 was 1.4 compared to 1.3 for the same 2000 quarter on a pro forma basis. The calculation of earnings to fixed charges assumes that one-third of our rental expense is attributable to interest expense. 49 A reconciliation of net income to EBITDA and adjusted EBITDA for the quarters ended March 31, 2001 and 2000 as well as the ratio of earnings to fixed charges, is as follows:
Quarter Ended March 31, -------------------- PRO FORMA 2001 2000(a) -------- --------- (in millions) Net income.................................................. $ 5.5 $ 3.4 Provision for income taxes.................................. 2.2 1.5 Interest expense............................................ 16.3 16.1 Depreciation and amortization expense....................... 15.2 14.7 Equity in earnings of affiliated companies.................. 1.4 0.4 ----- ----- EBITDA...................................................... 37.8 35.3 Business consolidation expenses............................. 1.1 1.2 ----- ----- Adjusted EBITDA (b)......................................... $38.9 $36.5 ===== ===== Ratio of earnings to fixed charges (c)...................... 1.4 1.3 ===== =====
- ------------------------ (a) Pro forma results give effect to the April 26, 2000 sale of the Bellingham aircraft interiors business as if the transaction had occurred on January 1, 2000. (b) Excludes business consolidation expenses, interest, taxes, depreciation, amortization and equity in earnings of affiliated companies. (c) Earnings consist of income (loss) from continuing operations before fixed charges and income taxes. Fixed charges consist of interest expense, amortization of fees related to debt financing and that portion of rent expense deemed to be interest. Interest portion of rentals was calculated as one third of rentals, which is a reasonable approximation of the interest. 2000: Adjusted EBITDA was $144.9 million for 2000. Pro forma adjusted EBITDA, giving effect to the sale of the Bellingham 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 non-cash income from affiliated companies, 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 our 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 50 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, our Lean Enterprise program and lower sales volumes. Net cash used for investing activities was $40.3 million, reflecting our 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. 51 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:
2000 1999 1998 ------------------- ------------------- ------------------- AS PRO As Pro As Pro REPORTED FORMA(a) Reported Forma(a) Reported Forma(a) -------- -------- -------- -------- -------- -------- (in millions) Net income (loss)............................. $ 54.2 $ 55.8 $(23.3) $(23.1) $ 50.4 $ 48.2 Provision for (recovery of) income taxes...... 26.3 27.1 (1.7) (1.7) 28.4 24.7 Interest expense.............................. 68.7 65.6 73.9 65.8 38.7 62.8 Depreciation and amortization................. 58.7 58.4 61.3 60.2 47.5 59.7 Equity in earnings of and write-down of an investment in an affiliated company......... (5.5) (5.5) 20.0 20.0 (0.5) (5.0) Other......................................... (0.1) -- 0.1 -- -- -- ------ ------ ------ ------ ------ ------ EBITDA........................................ 202.3 201.4 130.3 121.2 164.5 190.4 Business consolidation expenses............... 10.9 10.9 20.1 20.1 12.7 12.7 Gain on sale of Bellingham aircraft interiors business.................................... (68.3) (68.3) -- -- -- -- ------ ------ ------ ------ ------ ------ Adjusted EBITDA (b)........................... $144.9 $144.0 $150.4 $141.3 $177.2 $203.1 ====== ====== ====== ====== ====== ====== Ratio of earnings to fixed charges (c)........ 2.1 2.1 N/A N/A 2.9 2.0 ====== ====== ====== ====== ====== ======
- ------------------------ (a) Pro forma results for 2000, 1999 and 1998 give effect to the April 26, 2000 sale of the Bellingham aircraft interiors business as if the transaction had occurred at the beginning of the respective year's presentation. 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. Pro forma net income (loss) and pro forma provisions for (recovery of) income taxes as presented above do not adjust for the gain on the sale of the Bellingham aircraft interiors business in 2000. (b) Excludes the gain on the sale of Bellingham aircraft interiors business, business consolidation expenses, interest, taxes, depreciation, amortization and equity in earnings of affiliated companies. (c) Earnings consist of income (loss) from continuing operations before fixed charges and income taxes. Fixed charges consist of interest expense, amortization of fees related to debt financing and that portion of rent expense deemed to be interest. Interest portion of rentals was calculated as one third of rentals, which is a reasonable approximation of the interest factor. For the year ended December 31, 1999, earnings and pro forma earnings were insufficient to cover fixed charges by approximately $5.0 million and $4.8 million, respectively. 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 our 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 our 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, we initiated three business consolidation programs in May 1996, December 1998 and September 1999. The primary 51 purpose of these programs has been to integrate acquired assets and operations, 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: - rationalizing manufacturing activities and eliminating excess capacity by moving and requalifying certain production processes, closing manufacturing plants and vacating some leased facilities; - 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; and - disposing of non-core assets. As of March 31, 2001, we have 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. As of March 31, 2001, the entire September 1999 program was completed with the exception of the fourth quarter 2000 amendment, discussed in the next paragraph. The completed program includes 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 our composite materials business. However, the reorganization of certain manufacturing activities will not be completed until 2001 or early in 2002, in accordance with our business consolidation plans. In the fourth quarter of 2000, we added two further actions to the September 1999 business consolidation program. We decided to close the two smaller of our 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 March 31, 2001, future expenses to be recognized and cash expenditures to be made for all remaining business consolidation activities are estimated at $2.0 million and $4.2 million, respectively. 52 Business consolidation activities for the three years ended December 31, 2000 and the quarter ended March 31, 2001, consisted of the following:
EMPLOYEE FACILITY & SEVERANCE & EQUIPMENT RELOCATION RELOCATION OTHER TOTAL ----------- ---------- -------- -------- (IN MILLIONS) 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 Business consolidation expenses.......................... 0.1 1.0 -- 1.1 Cash expenditures........................................ (0.5) (0.9) -- (1.4) Asset write-off.......................................... -- (0.2) -- (0.2) ---- ----- ---- ----- BALANCE AS OF MARCH 31, 2001............................. $2.0 $ 0.2 $ -- $ 2.2 ==== ===== ==== =====
In 1998, we 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, we experienced significant increased business volume in our commercial aerospace market, which enabled us to reassign employees who would have otherwise been terminated. As a result, the actual number of employees terminated was fewer than anticipated, and we no longer required the full amount of its business consolidation employee severance accrual. As part of a business consolidation program, we disposed of our operations in Brindisi, Italy in 1999. In accordance 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, we recorded a charge of $5.6 million in 1998 for an asset impairment related to our 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 were disposed of for net proceeds that approximated amounts accrued and were accounted for under our Engineered Products business segment. Financial operating results for this business were not material to our consolidated financial statements. 53 In the second quarter of 2000, we amended our September 1999 business consolidation program in response to the manufacturing constraints caused by a stronger than expected increase in sales and production for our electronic woven glass fabrics and our ballistics protection products. Based on these improved market conditions, which were expected to continue beyond 2000, and a manufacturing capacity review, we concluded to expand its capacity by purchasing additional looms and revising the previous decision to consolidate a number of weaving activities at two of our facilities. As a result of the decision to not proceed to consolidate production, we 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. For the three months ended March 31, 2001, we recognized $1.1 million of business consolidation expenses. Accrued expenses as of March 31, 2001 primarily reflected accrued severance and costs for early termination of certain leases. Our policy is to pay severance over a period of time rather than in a lump-sum amount. MARKET RISKS As a result of our global operating and financing activities, we are exposed to various market risks that may affect our results of operations and financial position. These market risks include fluctuations in interest rates, which impact the amount of interest we 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. Our primary currency exposures are in Europe, where we have significant business activities. To a lesser extent, we are also exposed to fluctuations in the prices of certain commodities, such as electricity, natural gas, aluminum and certain chemicals. We attempt to net individual exposures on a consolidated basis, when feasible, to take advantage of natural offsets. In addition, we employ 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. We do not use financial instruments for trading purposes. DERIVATIVES POLICY We formally document all relationships between hedging instruments and hedged items, as well as our risk management objectives and strategy for undertaking various hedging transactions. The hedging instruments are assessed for effectiveness at the inception of the hedge and throughout the term of the hedge designation. As long as the hedge remains highly effective, changes in the fair value of our cash flow hedges are recorded in other comprehensive income, until earnings are affected by the transaction being hedged. Ineffectiveness is recorded immediately in the income statement. All derivatives are recognized on the balance sheet at their fair value. We discontinue hedge accounting prospectively when we determine that (1) the derivative is no longer effective in offsetting changes in the cash flows of a hedged item (including hedged items such as forecasted transactions); (2) the derivative expires or is sold, terminated, or exercised; (3) it is no longer probable that the forecasted transaction will occur; or (4) designating the derivative as a hedging instrument is no longer appropriate. The market risk associated with interest rate and foreign exchange contracts is managed by us through monitoring of parameters that limit the types and degree of market risk that may be undertaken. Our derivative activities are regulated by written policies and procedures that are managed and monitored for compliance by the Finance Management Committee, which we refer to as the FMC. The FMC is composed of our chief financial officer, chief accounting officer, assistant treasurer, and our other senior managers as may be appointed to the committee from time to time. The FMC 54 periodically reports to the Audit Committee on the scope of our derivative activities. Our policies together with the decisions and guidelines of the FMC: (a) set forth a risk-management philosophy and objectives through a corporate policy, (b) provide guidelines for derivative instrument usage, and (c) establish procedures for control and valuation, counterparty credit approval, and monitoring and reporting of derivative activity. The use of derivative financial instruments to hedge exposures to changes in exchange rates and interest rates exposes us to credit risk. We reduce the credit risk in derivative instruments by (a) entering into transactions with high-quality counterparties whose credit ratings are AA/Aa or higher, (b) limiting the amount of exposure to each counterparty, and (c) monitoring the financial condition of its counterparties. INTEREST RATE RISKS Our long-term debt bears interest at both fixed and variable rates. As a result, our results of operations are affected by interest rate changes on our variable rate debt. Assuming a 10% favorable and a 10% unfavorable change in the underlying weighted average interest rates of our 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 we 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, we issued $240.0 million of 9.75% senior subordinated notes, due 2009. Net proceeds of approximately $231 million from that issuance were used to redeem variable rate amounts owed under the senior credit facility. As of March 31, 2001 and December 31, 2000, the fair value of the interest rate cap agreement was not material and for the quarter ended March 31, 2001, hedge ineffectiveness was not material to our consolidated financial position. We do not expect that gains or losses under this agreement will be material to our consolidated results of operations or cash flows. CURRENCY EXCHANGE RISKS We have significant business activities in Europe. We operate seven manufacturing facilities in Europe which generated approximately 38% of 2000 net sales. Our European business activities primarily involve three major currencies--the U.S. dollar, the British pound, and the Euro. We also conduct business or have joint venture investments in Japan, China, Malaysia, Australia and Brazil, and sell products to customers throughout the world. The majority of our transactions with customers and joint venture affiliates outside of Europe are denominated in U.S. dollars, thereby limiting our exposure to short-term currency fluctuations involving these countries. However, the value of our investments in these countries could be impacted by changes in currency exchange rates over time, as could our ability to profitably compete in international markets. We attempt to net individual currency positions at our various European operations on a consolidated basis, to take advantage of natural offsets and reduce the need to employ foreign currency forward exchange contracts. We also enter 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 March 31, 2001 and December 31, 2000, the aggregate fair value of these outstanding short-term foreign currency forward exchange contracts was not material to our consolidated financial position, and management does not expect that gains or losses on these contracts will be material to our consolidated results of operations or cash flows. 55 In January 2001, we 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 our European facilities, under long-term sales contracts with certain customers. These contracts are expected to provide us with a more balanced matching of future cash receipts and expenditures by currency, thereby reducing our 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 ours. 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 ours. For the quarter ended March 31, 2001, hedge ineffectiveness was immaterial and the fair value of the foreign currency cash flow hedges recognized in other comprehensive income was a loss of $4.9 million. Over the next twelve-month period, a $1.0 million loss is expected to be reclassified into earnings as the hedged sales are recorded. COMMODITY PRICE RISKS Certain raw materials and operating supplies used by us are subject to price fluctuations caused by the volatility of underlying commodity prices. The commodities most likely to have an impact on our results of operations in the event of significant price changes are electricity, natural gas, aluminum and certain chemicals. We attempt 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. We generally do not employ forward contracts or other financial instruments to hedge commodity price risk. UTILITY PRICE RISKS During the fourth quarter of 2000 and continuing into 2001, there has been unprecedented volatility in the cost and supply of energy and in natural gas prices in the United States, particularly in the western states where we have many of our U.S. manufacturing facilities. Continued significant price changes are likely to have an impact on our results of operations. In anticipation of continued volatility, we are exploring options to reduce energy consumption and to better control the price paid for energy sources. However, the outcome of the U.S. energy situation and its impact on the U.S. economy is unpredictable at this time and may pose unforeseen future risk. OTHER RISKS As of December 31, 2000, the aggregate fair values of our 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 our common stock at a price of $15.81 and $30.72 per share, respectively. Fair values were estimated on the basis of quoted market prices, although trading in these debt securities is limited and may not reflect fair value. Due to the conversion feature in these debt securities, fair values are subject to fluctuations based on the value of our stock and our 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 our 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 our stock, and $89.6 million and $16.1 million, respectively, assuming a 10% unfavorable change in market price. 56 BUSINESS GENERAL We are the world's leading producer of advanced structural materials. We develop, manufacture and market lightweight, high-performance reinforcement products, composite materials and engineered products for use in commercial aerospace, space and defense, electronics and general industrial applications. Our materials are used in a wide variety of end products, such as commercial and military aircraft, space launch vehicles and satellites, printed wiring boards, computers, cellular telephones, televisions, soft body armor, high-speed trains and ferries, cars and trucks, wind turbine blades, reinforcements for bridges and other structures, window blinds, skis and snowboards, golf clubs, fishing poles, tennis rackets and bicycles. We are a vertically integrated manufacturer of products organized around three strategic business segments, presented in order of manufacturing integration from raw materials to finished products. - REINFORCEMENT PRODUCTS: This segment manufactures carbon fibers and carbon fiber fabrics, fiberglass fabrics which are the substrate for printed wiring boards, woven industrial fabrics, woven fabrics for ballistics protection and carbon, aramid and glass reinforcement materials, all of which comprise the foundation of many composite materials, parts and structures; - COMPOSITE MATERIALS: This segment produces honeycomb and prepregs, as well as structural adhesives and specially machined honeycomb details and composite panels, that are incorporated into military and commercial aircraft; and - ENGINEERED PRODUCTS: This segment engineers and produces composite parts and structures for commercial and military aircraft. With 20 manufacturing facilities located in six countries around the world and joint ventures in Asia, Europe and the United States, we are well positioned to take advantage of opportunities for growth worldwide. For the twelve months ended December 31, 2000, 43% of our sales were made outside the United States. We serve our 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. We believe that we have achieved a degree of vertical integration unmatched by any competitor. This vertical integration enhances our control over the cost, quality and delivery of our products, and enables us to offer a variety of solutions to our customers' structural materials needs. For the year ended December 31, 2000, we generated net sales of $1.1 billion and adjusted EBITDA of $144.9 million. For the three months ended March 31, 2001, we generated net sales of approximately $276.2 million and Adjusted EBITDA of $38.9 million. See the footnotes to the "Selected Consolidated Financial Information" table on page 23 of this prospectus for a definition of the terms "EBITDA" and "Adjusted EBITDA." COMPETITIVE STRENGTHS We believe that our competitive position is attributable to a number of key strengths, including the following: - MARKET LEADER. We believe that we are the largest integrated producer of advanced structural materials in the world. We are the largest supplier of advanced structural materials to both the commercial and military aerospace industries. We are the global leader in weaving carbon fibers. We are the global leader in weaving glass fibers, with an especially strong position as the leading worldwide supplier of fiberglass fabrics used in the manufacture of printed wiring boards. We are the global leader in weaving aramid fibers. Taken together, our overall size and leading market positions make us a critical supplier to our customers in multiple end use industries. 57 - VERTICAL INTEGRATION. We believe that our acquisitions since 1996 have built us into the most vertically integrated manufacturer of advanced structural materials in the world. Vertical integration provides us with a greater ability to control the cost, quality and delivery of our products. In addition, because we develop, manufacture and sell products from various points in the manufacturing process, we are able to provide the broadest possible range of overall materials solutions to our customers. Currently, we consume internally approximately 50% of our carbon fiber production and 20% of our fabric production, and sell the balance of these products to our customers. - MARKET AND GEOGRAPHIC DIVERSITY. Approximately 49% of our pro forma net sales for the twelve months ended December 31, 2000 were derived from the commercial aerospace industry; 11% from the space and defense industry; 18% from the electronics industry; and 22% from industrial markets. During the same period, we sold 59%, 38% and 3% of our products to customers located in North America, Europe and the Pacific Rim. We believe that this market and geographic diversity provides us with growth platforms in a number of global markets that follow different business cycles. - BROADEST RANGE OF QUALIFICATIONS IN THE AEROSPACE INDUSTRY. We believe that we have the broadest range of product qualifications of any advanced materials manufacturer in the aerospace industry and have qualified products for use in virtually all western commercial and military aircraft programs. Before advanced structural materials may be utilized in aerospace and military applications, they must be qualified. All Airbus and Boeing commercial aircraft use our qualified products, and our carbon fiber is the only qualified carbon fiber in many U.S. military aircraft and rocket programs. We believe that our extensive range of qualifications positions us to remain a leading supplier of advanced structural materials to the aerospace industry. - LEADER IN THE MULTILAYER PRINTED WIRING BOARD MARKET. We are the leading weaver of the fine, lightweight fiberglass fabrics used in the fabrication of multilayer printed wiring boards. This position allows us to capitalize on the continuing trend toward electronics miniaturization, which relies on multilayer printed wiring boards to achieve smaller size with increased functionality. While the electronics industry is currently in the midst of a worldwide inventory correction, multilayer printed wiring boards are anticipated to be the fastest growing segment of the printed wiring board industry once this inventory correction is over. Our fabrics are one of the enabling technologies for these printed wiring boards. The worldwide printed wiring board market is estimated at over $38.0 billion, with multilayer printed wiring boards comprising approximately two-thirds of the total market. As the leading manufacturer of lightweight fabrics for multilayer printed wiring boards, we believe we are well positioned to capture a significant portion of this market growth. - GROWING INDUSTRIAL PRODUCT APPLICATIONS. We have developed a number of industrial applications for our products that offer significant future growth opportunities. In particular, our products have found application in the production of blades by some wind turbine manufacturers. Wind energy is the fastest growing source of renewable energy finding applications worldwide. Our honeycomb products have valuable energy absorption characteristics enabling some automobile manufacturers to meet federally mandated impact protection standards for their vehicles. - MANUFACTURING AND TECHNICAL EXPERTISE. We have been a leader in advanced structural materials technology for over 50 years and a leader in fiberglass fabrics technology for nearly 40 years. We believe that the range of technologies and products that we have developed over these decades gives us a level of manufacturing expertise unsurpassed in our industry. Our technically oriented sales force works with new and existing customers to identify and engineer solutions to meet our customers' needs, particularly by identifying areas where advanced structural materials may beneficially replace traditional materials. 58 BUSINESS STRATEGY Key elements of our strategy include the following: - MAINTAIN LEADERSHIP POSITION IN COMMERCIAL AEROSPACE INDUSTRY. Commercial aerospace remains the largest market for advanced structural materials. We are the leading supplier to this industry, with strong positions at both Boeing and Airbus. We believe that demand for commercial aircraft, and therefore advanced structural materials, will remain at historically high levels for the next several years as a result of the following trends that have been identified in industry reports: - continued growth in air travel over the next ten years; - the existing broad design and qualification baseline for advanced structural materials in modern commercial aircraft; - increased aircraft retirement rates as a result of fuel costs and government noise regulation; - European aviation deregulation; - continuing airline profitability and balance sheet strength; and - expected increases in aircraft fleet size during the next decade. Industry analysts believe combined Boeing and Airbus production will remain at a historically high level for the next few years, although relative market shares may shift. We believe that we are well positioned to capitalize on such trends by continuing to produce a wide variety of advanced structural materials for use in the manufacture of virtually every commercial aircraft in the western world, whether the aircraft is produced by Boeing, Airbus or regional manufacturers. We continue to pursue the increased use of advanced structural materials in each new generation of commercial aircraft. The latest Airbus A340 500/600 models for the first time utilize advanced structural materials to fabricate the keel beam and the rear pressure bulkhead. The A380 will provide further penetration of advanced structural materials as a proportion of total materials used in the fabrication of the airframe and control surfaces with applications as the central wing box being built from composite materials. - REDUCE PRODUCTION COSTS AND IMPROVE MANUFACTURING EFFICIENCIES.We will pursue specific initiatives to reduce production costs and capital expenditures and improve manufacturing efficiencies, including continuing the implementation of our Lean Enterprise program and value chain management initiatives on a global basis. A current initiative is to reduce the number of U.S. prepreg plants from four to two, consolidating the activities of the two smaller plants into the two larger plants. The goals of our current programs are to reduce unit product costs, lower production cycle times, increase throughputs, lower inventories and improve product quality and customer satisfaction. - CAPITALIZE ON GROWING MILITARY AEROSPACE MARKETS. We intend to capitalize on the expected growth of the military market, which uses a higher percentage of advanced structural materials and higher value products than the commercial market. We are already qualified to supply materials to a broad range of military aircraft and helicopters entering into full-scale production. Demand for many of these aircraft is driven in part by the need to replace aging fighter and transport aircraft platforms. These programs include the V-22 (Osprey) tilt rotor aircraft, the F-22 (Raptor), the F/A-18E/F (Hornet), the C-17 transport, the European Fighter Aircraft (Typhoon) and the NH90 helicopters. In the medium term we will see the benefit of additional programs such as the Joint Strike Fighter (JSF), the RAH-66 (Comanche) helicopter and the A400M transport in Europe. While the relative size of each program will be subject to government funding, the requirement to replace existing aircraft is expected to result in military aircraft 59 production this decade being significantly higher than the last decade--and these new generation aircraft use larger quantities of advanced structural materials. - INCREASE UTILIZATION OF CARBON FIBER MANUFACTURING CAPACITY. We plan to increase the utilization of our carbon fiber manufacturing facilities both as a result of the growth in military aircraft production and as the result of qualifying the use of our carbon fiber in a broader range of our products. - EXPAND APPLICATIONS FOR ADVANCED STRUCTURAL MATERIALS. We are committed to expanding the application of our advanced materials both within existing markets and into promising new segments. To date, advanced structural materials have found their greatest use in aerospace and recreation applications, where their performance properties have shown the most demonstrable value. We believe that these materials have significant potential applications in: surface transportation, including high speed and mass transit railways, cars and trucks and high speed ferries and commercial shipping; civil engineering, including repair and reinforcement of buildings and bridges; and energy, including wind turbine blades and fly wheels. In the last two years, we have generated significant growth from wind energy, automotive and ballistic applications. 60 BUSINESSES SEGMENTS We are a vertically integrated manufacturer of products organized around three strategic business segments: reinforcement products, composite materials and engineered products. The following table identifies, by each of these segments, our principal products and examples of the primary end-uses:
BUSINESS SEGMENTS PRODUCTS PRIMARY END-USE REINFORCEMENT PRODUCTS Carbon Fibers - Raw materials for industrial fabrics and prepregs; and - Filament winding for various space, defense and industrial applications Industrial Fabrics - Printed wiring boards - Raw materials for prepregs and honeycomb - Various marine applications - Window blinds - Insulation - Metal and fume filtration systems - Soft body armor - Civil engineering and construction applications COMPOSITE MATERIALS Prepregs - Raw materials for composite structures and interiors - Semi-finished aircraft components - Munitions and defense systems - Skis, snowboards, golf club shafts, fishing rods and tennis rackets Structural - Bonding of structural materials and Adhesives components, including composite panels Honeycomb, - Raw materials for composite structures and Honeycomb Parts & interiors Composite Panels - Semi-finished aircraft components used in: Helicopter blades Aircraft surfaces (flaps, wing tips, elevators and fairings) High-speed ferries, truck and train components Automotive components, Space shuttle doors ENGINEERED PRODUCTS Composite - Aircraft structures and finished aircraft Structures and OEM components, including: aircraft interiors Wing-to-body and flap track fairings Radomes Engine cowls and inlet ducts Wing panels - OEM aircraft interiors, including: Overhead storage compartments Flight deck panels Door liners
61 REINFORCEMENT PRODUCTS Our Reinforcement Products business segment manufactures and markets carbon fibers and industrial fabrics. We expanded this business segment in 1998 with the acquisition of the Clark-Schwebel business. Our Reinforcement Products segment generated third party net sales for the twelve months ended December 31, 2000 and the three months ended March 31, 2001 of $359.2 million and $86.4 million, respectively. CARBON FIBERS. Carbon fibers are manufactured for sale to third-party customers and for use in the manufacture of some of our 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, which we refer to as "prepreg", and used in filament winding and advanced fiber placement to produce other composite materials. Key product applications include structural components for commercial and military aircraft and space launch vehicles, as well as other applications such as golf club shafts and tennis racquets. INDUSTRIAL FABRICS. Industrial fabrics are made from a variety of fibers, including several types of fiberglass as well as carbon, aramid, quartz, ceramic and other specialty reinforcements. These fabrics are sold to third-party customers for use in a wide range of products, including 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 us to manufacture prepregs and other composite materials. 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 Our Composite Materials business segment has worldwide responsibility for manufacturing and marketing prepregs, structural adhesives, honeycomb, specially machined honeycomb parts and composite panels. Composite Materials net sales to external customers for the twelve months ended December 31, 2000 and the three months ended March 31, 2001 were $567.0 million and $160.2 million, respectively. PREPREGS AND STRUCTURAL ADHESIVES. We are a worldwide leader in the production of prepregs and have led the development of applications for prepregs for nearly thirty years. Prepregs are manufactured for sale to third party customers and for use in manufacturing our 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-Registered Trademark- and E-type fiberglass, carbon, aramid, quartz, ceramic, Thorstrand-Registered Trademark-, polyethylene and other specialty reinforcements. Resin matrices include bismaleimide, cyanate ester, epoxy, phenolic, polyester, polyimide and other specialty resins. We design and market a comprehensive range of Redux-Registered Trademark- film adhesives. These structural adhesives, which bond a wide range of composite, metallic and honeycomb surfaces, are used in a variety of product applications. 62 HONEYCOMB, HONEYCOMB PARTS AND COMPOSITE PANELS. Honeycomb is a unique, lightweight, cellular structure composed of hexagonal nested cells. The product is similar in appearance to a cross-sectional slice of a beehive. The hexagonal cell design gives honeycomb a high strength-to-weight ratio and a uniform resistance to crushing. These basic characteristics are combined with the physical properties of the material from which the honeycomb is made to meet various engineering requirements. We produce honeycomb from a number of metallic and non-metallic materials. Most metallic honeycomb is made from aluminum and is available in a selection of alloys, cell sizes and dimensions. Non-metallic honeycomb materials include fiberglass, carbon, thermoplastics, non-flammable aramid papers and several other specialty materials. We sell 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. We also possess advanced processing capabilities that enable us to design and manufacture complex fabricated honeycomb parts and bonded assemblies to meet customer specifications. These parts and assemblies are used as semi-finished components in the manufacture of composite structures. The largest market for honeycomb products is the aerospace market. We also sell honeycomb for non-aerospace applications including high-speed trains and mass transit vehicles, automotive parts, energy absorption products, marine vessel compartments, portable shelters, business machine cabinets and other general industrial uses. In addition, we produce honeycomb for our Engineered Products business segment for use in manufacturing finished parts for airframe OEMs. 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 United Technologies Europe: Europe: Aerospatiale Dagneux, France Alenia Duxford, England British Aerospace Linz, Austria CASA Parla, Spain DaimlerChrylser Aerospace Welkenraedt, Belgium
We are currently consolidating the activities of our Gilbert, Arizona and our Lancaster, Ohio plants into our Livermore, California and Salt Lake City, Utah plants. We anticipate completing these consolidation activities and closing the Gilbert and Lancaster plants by the end of this year. ENGINEERED PRODUCTS Our 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 manufacturing processes such as resin transfer molding, autoclave processing, multi-axis numerically controlled machining, press laminating, heat forming and other composite manufacturing techniques. 63 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. In April 2000, we sold our Bellingham aircraft interiors business. This business was responsible for the design, engineering and manufacture of commercial aircraft interior components and systems for airline refurbishment applications. Net sales for this business segment for the twelve months ended December 31, 2000 as if the Bellingham business had been sold as of the beginning of 2000 and the three months ended March 31, 2001 were $110.6 million and $29.6 million. ENGINEERED PRODUCTS KEY CUSTOMERS MANUFACTURING FACILITIES - --------------------------------------------- --------------------------------------------- Boeing Kent, WA Aviation Partners Boeing Vought Mitsubishi Heavy Industries
JOINT VENTURES In 1999, we formed a joint venture with Boeing and Aviation Industries of China called BHA Aero Composite Parts Co., Ltd., to manufacture composite parts for secondary structures and interior applications for commercial aircraft. We have 33% equity ownership interest in this joint venture, which is located in Tianjin, China. Also in 1999, we formed another joint venture, Asian Composites Manufacturing Sdn. Bhd., with Boeing, Sime Link Sdn. Bhd., and Naluri Berhadto, to manufacture composite parts for secondary structures for commercial aircraft. We have 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 our 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, we acquired equity ownership interests in three joint ventures: a 43.6% share in Interglas Technologies AG, headquartered in Germany; a 43.3% share in Asahi-Schwebel Co., Ltd., headquartered in Japan; and a 50.0% share in Clark-Schwebel Tech-Fab Company, 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. We own a 45% equity interest in DIC-Hexcel Limited, a joint venture with Dainippon Ink and Chemicals, Inc. This joint venture is located in Komatsu, Japan, and produces and sells prepregs, honeycomb and decorative laminates using technology licensed from Hexcel and Dainippon. 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, we 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 our business, and to close or restructure insufficiently profitable facilities and activities. For the year ended December 31, 2000 and the three months ended March 31, 2001, we recorded business consolidation expenses of $10.9 million and $1.1 million. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Business Consolidation Programs." All of the business consolidation activities initiated in 1996 and 1998 have been completed as of December 31, 2000, although cash expenditures relating to accrued severance will continue to be paid through 2001. 64 As of March 31, 2001, the entire September 1999 program was completed with the exception of the fourth quarter 2000 amendment. In the fourth quarter of 2000, we added two further actions to close the two smaller of our 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 will result in the elimination of 60 additional positions (primarily manufacturing positions) and are not expected to be completed until early 2002. As of March 31, 2001, future expenses to be recognized are $2.0 million for 2001 and $4.2 million for 2002. LEAN ENTERPRISE In 1998, we initiated our Lean Enterprise program, which is designed to create a common way of managing our business, with a focus on creating value for our 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 our 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 our operations, we produce several materials used in the manufacture of industrial fabrics, composite materials and engineered products. We also produce the polyacrylonitrile precursor material used in the manufacture of carbon fibers, which is commonly referred to as "PAN." We consumed internally approximately 50% and 20% of our carbon fiber and industrial fabric production in 2000. However, we purchase 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 we do not currently anticipate, could have a material adverse effect on operations. In addition, raw materials and operating supplies we use are subject to price fluctuations caused by the volatility of underlying commodity prices. The commodities most likely to have an impact on our results of operations in the event of significant price changes are electricity, natural gas, aluminum and chemicals. We attempt 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. We generally do not employ forward contracts or other financial instruments to hedge commodity price risk. Our production activities are generally based on a combination of "make-to-order" and "make-to-forecast" production requirements. We coordinate closely with key suppliers in an effort to avoid raw material shortages and excess inventories. RESEARCH AND TECHNOLOGY; PATENTS AND KNOW-HOW Our research and technology departments support our core businesses worldwide. Through R&T activities, we maintain 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 our worldwide business base. Additionally, our R&T function performs a limited amount of 65 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. Our products rely primarily on our expertise in materials science, textiles, process engineering and polymer chemistry. Consistent with market demand, we have been placing more emphasis on cost effective product design and lean manufacturing in recent years. Towards this end, we have entered into formal and informal alliances, as well as licensing and teaming arrangements, with several customers, suppliers, external agencies and laboratories. Management believes that we possess unique capabilities to design, develop and manufacture composite materials and structures. We own and maintain in excess of 100 patents worldwide, have licensed many key technologies, and have granted technology licenses and patent rights to several third parties in connection with joint ventures and joint development programs. It is our policy to actively enforce its proprietary rights. We believe that the patents and know-how rights currently owned or licensed by us are adequate for the conduct of our business. We spent $21.2 million for research and technology in 2000, and $4.7 million in the first quarter of 2001. These expenditures were expensed as incurred. MARKETS AND CUSTOMERS Our materials are sold for a broad range of end uses. The following tables summarize net sales to third-party customers by market and by geography for the year ended December 31, 2000 and the three months ended March 31, 2001.
PRO FORMA YEAR ENDED YEAR ENDED THREE MONTHS DECEMBER 31, DECEMBER 31, ENDED 2000(A) 2000 MARCH 31, 2001 ------------ ------------ -------------- NET SALES BY MARKET Commercial aerospace........................... 49% 50% 52% Space and defense.............................. 11 11 13 Electronics.................................... 18 17 13 Industrial..................................... 22 22 22 --- --- --- Total.......................................... 100% 100% 100% === === === NET SALES BY GEOGRAPHY United States.................................. 56% 57% 50% U.S. exports................................... 5 5 6 International.................................. 39 38 44 --- --- --- Total.......................................... 100% 100% 100% === === ===
- ------------------------ (a) Pro forma results gave effect to the April 26, 2000 sale of the Bellington aircraft business as if the transaction had occurred at the beginning of the period presented. COMMERCIAL AEROSPACE Historically, the commercial aerospace industry has led the development of applications for advanced structural materials and components because it has the strongest need for the performance properties of these materials, and is well positioned to maximize the economic benefits from their use. The demand for advanced structural material products, however, is closely correlated to the demand for commercial aircraft. Commercial 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 66 obsolescence, are determined in part by the regulatory requirements established by various civil aviation authorities as well as public concern regarding aircraft age, safety and noise. These rates may also be affected by the desire of the various airlines for higher payloads and more fuel-efficient aircraft, which in turn is influenced by the price of fuel. Reflecting the demand factors noted above, the number of commercial aircraft delivered by Boeing and Airbus declined by 48% from 1992 to 1995. At the lowest point during this period, Boeing and Airbus reported combined deliveries of 380 aircraft. Beginning in 1996, however, aircraft deliveries by Boeing and Airbus began to rise, growing to a combined 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 our 2000, 1999 and 1998 net sales 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. Approximately 13%, 10% and 11% of our 2000, 1999 and 1998 net sales 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, we deliver products into the Boeing supply chain about six months prior to aircraft delivery. As a result, we 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 would likely have a material adverse effect on our sales and earnings. Depending on the product, orders placed with us 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. We are also expecting continued strength in the demand for regional and business aircraft produced by our 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 some 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. We are 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, the Eurofighter/Typhoon, the C-17, the V-22 Osprey tiltrotor aircraft, the RAH-66 Comanche and the NH90 helicopters. The benefits we obtain 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, we are entitled to recover the reasonable incurred cost plus a provision for profit on the incurred cost. In addition, we are 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. 67 ELECTRONICS The acquisition of the Clark-Schwebel business has provided us with a global platform to supply the electronics industry, which we believe has attractive long-term growth potential. We are 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 our U.S. businesses, we have 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 We have focused our participation in industrial markets in areas where the application of advanced structural material technology offers significant benefits to the end user. As a result, we have chosen 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 we have elected to participate. Within industrial markets, key applications include wind energy, civil engineering, skis, snowboards, golf club shafts, fishing rods, tennis rackets, bicycles, soft body armor and surface transportation. Applications within surface transportation include automobiles, mass transit and high-speed rail and marine applications. Our participation in these markets is a valuable complement to its commercial and military aerospace businesses, and we are committed to pursuing the utilization of advanced structural material technology in our industrial markets. COMPETITION In the production and sale of advanced structural materials, we compete with numerous United States and international companies on a worldwide basis. The broad markets for our products are highly competitive and we have focused on both specific markets and specialty products within markets to obtain market share. In addition to competing directly with companies offering similar products, our materials compete with substitute structural materials such as structural foam, wood, metal and concrete. Depending upon the material and markets, relevant competitive factors include price, delivery, service, quality and product performance. EMPLOYEES As of December 31, 2000, we employed 6,072 full-time employees, which approximates the March 31, 2001 level. This compares with the December 31, 1999 and 1998 employees of 6,328 and 7,139. The decrease in the number of employees from 1998 to the end of 2000 was primarily attributable to our 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. LEGAL PROCEEDINGS We are involved in litigation, investigations and claims arising out of the conduct of our business, including those relating to commercial transactions, as well as to environmental, health and safety matters. We estimate and accrue our 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 68 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 our opinion, based on available information, that it is unlikely that these matters, individually or in the aggregate, will have a material adverse effect on our consolidated financial position, results of operations or cash flows. ENVIRONMENTAL CLAIMS AND PROCEEDINGS We are subject to numerous 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, commonly known as "CERCLA" or "Superfund," the Clean Air Act, the Clean Water Act and the Resource Conservation and Recovery Act, and analogous state laws and regulations. Environmental regulatory standards have tended to become increasingly stringent over time. We have been named as a potentially responsible party with respect to certain hazardous waste disposal sites that we do not own or operate. Because CERCLA provides for joint and several liability, we could be responsible for all remediation costs at such sites, even if we are one of many potentially responsible parties. We believe, based on the amount and the nature of our waste, and the number of other financially viable potentially responsible parties, that our liability in connection with such matters will not be material. We have accrued an estimate of our liability with respect to these matters. Pursuant to the New Jersey Environmental Responsibility and Clean-Up Act, we signed an administrative consent order and later entered into a remediation agreement to pay for the environmental remediation of a manufacturing facility we own and formerly operated in Lodi, New Jersey. Our estimate of the remaining cost to satisfy this consent order is accrued in our consolidated balance sheets. We were 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 our Kent, Washington site by the U.S. Environmental Protection Agency. Under the terms of the cost-sharing agreement, we were obligated to reimburse the previous owner for a portion of the cost of the required remediation activities. We have determined that the cost-sharing agreement terminated in December 1998; however, the other party disputes this determination. Our estimate of the remaining costs associated with the cleanup of this site is accrued in our consolidated balance sheets. At our Livermore, California facility, we have recently received a series of notices of violation of air quality standards from the Bay Area Air Quality Management District. We are investigating the issues and are cooperating with the District. We believe the costs to address this matter, including fines or penalties, will not have a material adverse effect on our consolidated financial position, results of operations or cash flows. OTHER MATTERS We are 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. We, along with other manufacturers of these products, have received a grand jury subpoena requiring production of documents to the Department of Justice. We are not in a position to predict the direction or outcome of the investigation; however, we are cooperating with the Department of Justice. In 1999, we were 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 69 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)). We were 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 we are not in a position to predict the outcome, but believe that the lawsuit is without merit as to us. PROPERTIES We own and lease manufacturing facilities and sales offices located throughout the United States and in other countries as noted below. Our corporate offices and our principal corporate support activities are located in leased facilities in Stamford, Connecticut and Wilton, Connecticut. Our corporate research and technology administration and some composite materials laboratories are located in Dublin, California. The following table lists our manufacturing facilities by geographic location, approximate square footage and principal products manufactured. This table does not include manufacturing facilities owned by entities in which we have a joint venture interest. MANUFACTURING FACILITIES
APPROXIMATE SQUARE FACILITY LOCATION 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............................ PAN Precursor (used to produce Carbon 159,000 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
We lease 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. We also lease portions of the facilities located in Casa Grande, Arizona; Linz, Austria; and Les Avenieres, France. As part of its business consolidation program, we are currently consolidating the activities of our Gilbert, Arizona and our Lancaster, Ohio prepreg manufacturing plants into our Livermore, California and Salt Lake City, Utah prepreg plants. We anticipate completing these consolidation activities and closing the Gilbert and Lancaster plants by the end of this year. 70 MANAGEMENT DIRECTORS Our Board of Directors currently consists of ten directors. Three of our directors, Sanjeev K. Mehra, Peter M. Sacerdote and James J. Gaffney, were designated by the Goldman Sachs investor group. The remaining seven directors include our new Chairman and Chief Executive Officer, David E. Berges, our President and Chief Operating Officer, Harold E. Kinne, and five directors who are independent of both the investors and Hexcel--H. Arthur Bellows, Jr., Robert S. Evans, Marshall S. Geller, Lewis Rubin and Martin L. Solomon. The following table sets forth information regarding the directors of our company as of August 1, 2001. No family relationship exists between any of our directors or executive officers.
DIRECTOR NAME AGE SINCE POSITION(S) WITH HEXCEL - ---- -------- -------- ------------------------------------------- David E. Berges............................ 51 2001 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
DAVID E. BERGES, age 51, has served as Chairman of the Board of Directors and Chief Executive Officer of Hexcel since July 2001. Prior to joining Hexcel, Mr. Berges was President of the Automotive Products Group of Honeywell International Inc. from 1997 to July 2001 and Vice President and General Manager, Engine Systems and Accessories, at AlliedSignal Aerospace from 1994 to 1997. Mr. Berges was President and Chief Operating Officer of Barnes Aerospace, a division of Barnes Group Inc., from 1992 to 1994, and prior to 1992 held various other managerial and technical positions with Barnes Group Inc. and the General Electric Company. 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 from 1996 to June 1998. Mr. Kinne also held the same positions in and was a director of Ciba-Geigy Corporation from 1988 through 1996. Prior to that, Mr. Kinne served as Vice President, Pigments, for the Plastics & Additives Division of Ciba-Geigy Corporation from 1986 to 1988. Mr. Kinne held various other technical and managerial positions with Ciba-Geigy Corporation 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 and Finance Committees of Hexcel. He has served as Chairman of Braeburn Associates, a private merchant banking firm, since 1999, and Chairman of The Finance Network, a private financial services firm, since 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 and Nominating Committees of Hexcel. He is Chairman 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 of Crane Co. since 1984 and a director since 1979, and served as its Chief Executive Officer from 1984 to 71 April 2001. 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 private investment funds affiliated with Goldman Sachs in relation to these 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 Chairman of the Nominating Committee and as a member of the Compensation Committee of Hexcel. Mr. Geller has served as Chairman of the Board, Chief Executive Officer and founding partner at Geller & Friend Capital Partners, Inc., a merchant banking firm, since 1995. Mr. Geller was Senior Managing Director of Golenberg & Geller, Inc., a merchant banking firm, from 1991 to 1995; Vice Chairman of Gruntal & Company, an investment banking firm, from 1988 to 1990; and a Senior Managing Director of Bear, Stearns & Co., Inc., an investment banking firm, from 1967 to 1988. Mr. Geller is currently a director of Ballantyne of Omaha, Inc., 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 Chairman of the Finance Committee and is a member of the Compensation and Nominating Committees of Hexcel. Mr. Mehra served as Co-Chairman of the Board of Directors of Hexcel from May 2001 until July 2001. 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. 72 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 served as Co-Chairman of the Board of Directors of Hexcel from May 2001 until July 2001. 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 its 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. EXECUTIVE OFFICERS Set forth below is information concerning the executive officers of Hexcel and all persons chosen to become executive officers of Hexcel as of August 1, 2001. For additional information concerning Messrs. Berges and Kinne, see "Management--Directors."
EXECUTIVE OFFICER NAME AGE SINCE POSITION(S) WITH HEXCEL - ---- -------- --------- ------------------------------------------ David E. Berges........................... 51 2001 Chairman of the Board; Chief Executive Officer; Director Harold E. Kinne........................... 61 1998 President; Chief Operating Officer; Director Stephen C. Forsyth........................ 46 1994 Executive Vice President; Chief Financial Officer Ira J. Krakower........................... 60 1996 Senior Vice President; General Counsel; Secretary William J. Fazio.......................... 46 2001 Corporate Controller; Chief Accounting Officer Robert F. Matthews........................ 55 2000 Vice President of 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 the Structures and Interiors business unit Steven T. Warshaw......................... 52 2000 President of the Hexcel-Schwebel business unit
STEPHEN C. FORSYTH, age 46, 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. WILLIAM J. FAZIO, age 46, has served as Corporate Controller and Chief Accounting Officer since April, 2001. Mr. Fazio served as Vice President, Controller of Kodak Polychrome Graphics, a distributor and manufacturer of graphic arts products owned by Eastman Kodak Company and Sun 73 Chemical Corporation, from February 1998 to March 2001, and from April 1997 to January 1998 he was Director, Corporate Financial Services, for Ogden Corporation. From 1981 to April 1997, Mr. Fazio held various positions for Coltec Industries Inc., the latest being Director--Operations Analysis from 1994 to March 1997. ROBERT F. MATTHEWS, age 55, 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. 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 from 1990 to 1991. Prior to joining Ciba-Geigy Plastics 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. AGREEMENTS WITH CHIEF EXECUTIVE OFFICER We entered into an employment agreement and a supplemental executive retirement agreement with Mr. Berges on July 30, 2001. These agreements are summarized below, and each agreement is filed as an exhibit to the registration statement of which this prospectus forms a part. 74 EMPLOYMENT AGREEMENT WITH MR. BERGES The employment agreement provides for Mr. Berges to be employed as our Chairman and Chief Executive Officer for four years commencing July 30, 2001. After the end of the initial four-year term, each year the employment agreement will be automatically extended for one additional year unless either Mr. Berges or Hexcel gives at least one year's prior notice to the other that the Employment Agreement shall not be so renewed. Mr. Berges may terminate the Employment Agreement for "good reason," as such term is defined in the employment agreement, or upon 30 days' notice to us. The employment agreement provides for, among other things, - a sign-on award of $200,000, - an annual base salary of not less than $550,000, subject to annual review by the Compensation Committee, - a target annual bonus opportunity of not less than 100% of his annual base salary, and a maximum annual bonus opportunity of not less than 200% of his annual base salary, including a bonus of not less than $229,167 for 2001, and - participation in all other employee benefit plans available to senior executives, except that Mr. Berges is not entitled to participate in our annual equity award program during the initial four-year term of the employment agreement. The employment agreement also provides for the grant to Mr. Berges on July 30, 2001 of an option to purchase 550,000 shares of our common stock and a performance-based option to purchase 275,000 shares of our common stock. Each of the options has a term of ten years and provides for an exercise price of $10.50 per share. The option to purchase 550,000 shares of our common stock becomes exercisable over four years at a rate of one-sixteenth of the shares of common stock covered by the option at the end of each three-month period beginning with the three-month period ending October 31, 2001. The option to purchase 275,000 shares of our common stock becomes exercisable in full on July 29, 2011, subject to earlier vesting, in part or in whole, if the price of our common stock reaches various thresholds. In the event of a change of control of Hexcel, the options become immediately fully vested and exercisable. If Mr. Berges' employment with us terminates, the options, to the extent not vested, are forfeited. If we terminate Mr. Berges' agreement for cause, then the options, whether vested or unvested, are forfeited. The employment agreement further provides for a grant to Mr. Berges of 90,000 restricted shares of our common stock. The restricted shares may not be sold or transferred until they vest and the restrictions lapse. The restricted shares vest and the restrictions lapse on March 31, 2002 as to 18,000 shares and on March 31, 2003 as to 72,000 shares. If we terminate Mr. Berges' employment without cause or Mr. Berges terminates his employment for good reason, or if Mr. Berges' employment terminates by reason of death or disability, the restricted shares vest and the restrictions lapse as to all 90,000 shares. If Mr. Berges terminates his employment other than for good reason, or we terminate his employment for cause, then all unvested shares of restricted stock are forfeited. In the event of a change of control of Hexcel, the restricted shares immediately vest and the restrictions lapse as to all 90,000 shares. The employment agreement further provides that we will make termination payments to Mr. Berges, and continue his participation in our benefit plans for a limited period of time, upon termination of employment under certain circumstances. The amounts payable to Mr. Berges vary depending upon the circumstances of termination of employment, as follows: - for termination by us other than for disability and other than for cause, or by Mr. Berges for good reason, Mr. Berges will be entitled to receive a payment equal to two times the sum of his base salary at that time and average bonus over the last three years, - for termination by us other than for disability and other than for cause, or by Mr. Berges for good reason, in each case during a period which qualifies as a "potential change in control" or within two years after a change in control, Mr. Berges will be entitled to receive three times the sum of his base salary at that time and average bonus over the last three years, and 75 - for termination due to death or disability, Mr. Berges will be entitled to receive his salary through the date of termination plus an annual bonus prorated for the portion of the year he was employed. We will continue Mr. Berges' participation in our benefit plans for up to three years depending on the circumstances of termination. If we terminate Mr. Berges for cause or Mr. Berges terminates employment without good reason, Mr. Berges will be entitled to receive only unpaid amounts owed to him through the date of termination. In the event payments to Mr. Berges would result in the imposition of any excise tax on "excess parachute payments," the payments and benefits to which Mr. Berges is otherwise entitled may be reduced to the extent necessary to maximize the after-tax amount received by him. However, if Mr. Berges receives payments from us as a result of termination of employment before December 19, 2002, then we will hold him harmless from the effect of any excise tax imposed on "excess parachute payments." Mr. Berges has agreed not to compete with us for two years or three years after termination of employment, depending on whether termination occurs under circumstances described in the first bullet point or second bullet point above. SUPPLEMENTAL RETIREMENT AGREEMENT WITH MR. BERGES The supplemental retirement agreement, which we refer to as the SERP agreement, provides a benefit intended to supplement Mr. Berges' retirement income from our other retirement programs. The normal retirement benefit under the SERP agreement for retirement at age 65 is a monthly payment equal to the product of Mr. Berges' final average pay, benefit percentage, and vesting percentage, minus the qualified pension benefits. Final average pay is Mr. Berges' monthly compensation, which includes salary and bonus without reduction for amounts deferred, for the highest paid 36 months of Mr. Berges' final 60 months of employment. The benefit percentage is a percentage, based on a formula, which increases with each month of continuous service with us. The vesting percentage is 100% if Mr. Berges has completed at least 60 months of continuous service with us, otherwise it is 0%. Qualified pension benefits are the actuarially determined monthly value of the vested contributions made by us to our 401(k) Retirement Savings Plan and our 401(k) Restoration Plan, deemed increased at a 6% per annum rate of return. If Mr. Berges' employment terminates after he has attained age 55, we will pay the normal retirement benefit to him starting the month after his employment terminates and ending with his death, or, if later, after 120 payments have been made. Any payments made after his death shall be made to his surviving beneficiary or estate. Upon certain terminations within two years after a change in control, termination by us without cause, and termination by Mr. Berges for good reason, we will pay Mr. Berges a lump sum equal to the actuarial present value of a monthly benefit starting in the month after his employment terminates, computed using a vesting percentage of 100% and continuous service equal to Mr. Berges' actual continuous service plus, in the case of a change of control, 36 months, and in the case of termination by us without cause or by Mr. Berges for good reason, 12 months, with the monthly benefit reduced by 3% per year for each year by which his termination precedes his attaining age 65. If Mr. Berges' employment terminates due to a disability, he will receive a monthly benefit in an amount equal to the product of his final average pay and benefit percentage, less his qualified pension benefits. No benefits are payable if Mr. Berges is terminated for cause. In addition, Mr. Berges may elect to provide certain survivorship benefits to a designated beneficiary, but the benefit payable to Mr. Berges shall be reduced to reflect the actuarial equivalence of the survivorship benefit elected. Generally, Mr. Berges may, from time to time, elect the form of payment of benefits between receiving a monthly amount or a lump sum amount. 76 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth information as of June 1, 2001 with respect to the ownership by any person, including any group of persons acting together, known to us to be the beneficial owner of more than five percent of the issued and outstanding shares of our common stock.
NUMBER OF SHARES OF NAME AND ADDRESS COMMON STOCK PERCENT OF CLASS - ---------------- ------------ ---------------- The Goldman Sachs Group, Inc.(1) ........................... 14,533,001 38.7% 85 Broad Street New York, NY 10004 Ciba Specialty Chemicals Holding Inc.(2) ................... 3,581,545 9.6% Klybeckstrasse 141 CH 4002 Basel, Switzerland Loomis Sayles & Company, L.P.(3) ........................... 2,193,241 5.9% One Financial Center Boston, MA 02111 Dimensional Fund Advisors, Inc.(4) ......................... 1,985,600 5.3% 1299 Ocean Avenue Santa Monica, CA 90401 Gayle K. Lee, as Executrix of the Estate of John J. 3,014,571 7.6% Lee(5) ................................................... c/o Stewart J. McMillan McMillan Constabile LLP 2180 Boston Post Road Larchmont, NY 10538-0300
- ------------------------ (1) Based on information contained in a Statement on Schedule 13D filed with the SEC on December 28, 2000 by the Goldman Sachs Group, Inc. and various affiliates of Goldman Sachs. Based on information included in this Schedule 13D, options to purchase 12,000 shares of our common stock granted to each of Messrs. Mehra and Sacerdote pursuant to the Hexcel Corporation Incentive Stock Plan are held for the benefit of Goldman Sachs. One-third of these options are currently exercisable and, accordingly, are included in the shares beneficially owned by Goldman Sachs. The shares of our common stock beneficially owned by Goldman Sachs are subject to the terms of a governance agreement. See "Certain Relationships and Related Transactions." (2) Based on information contained in a Statement on Schedule 13D/A filed with the SEC on December 20, 2000 on behalf of Ciba. Ciba has sole voting and investment power with respect to 3,496,748 shares of our common stock. Based on information provided to us, options to purchase 84,797 shares of our common stock granted to former directors Walter D. Hosp, John J. McGraw, Martin Riediker and Stanley Sherman are held for the benefit of Ciba. All of these options are currently exercisable and, accordingly, are included in the shares beneficially owned by Ciba above. (3) Based on information contained in a Statement on Schedule 13G filed with the SEC on February 12, 2001. (4) Based on information contained in a Statement on Schedule 13G filed with the SEC on February 2, 2001. (5) Includes 2,007,920 shares issuable upon the exercise of options that are currently exercisable. 77 DESCRIPTION OF MATERIAL DEBT The following description summarizes the material terms of our material debt. Our material outstanding debt includes, in addition to the notes, the senior credit facility, our existing 9 3/4% Senior Subordinated Notes Due 2009, our 7% Convertible Subordinated Notes Due 2003 and our 7% Convertible Subordinated Debentures Due 2011. We have not included in the descriptions below any debt that were repaid in full from the net proceeds of the offering of the original notes. You may request copies of the agreements governing the terms of our different types of debt at our address set forth under "Available Information." In this description, the word "Hexcel" refers only to Hexcel Corporation and not to any of its subsidiaries. SENIOR CREDIT FACILITY In connection with the acquisition of the Clark-Schwebel business on September 15, 1998, Hexcel and several of its foreign subsidiaries entered into a Second Amended and Restated Credit Agreement with various financial institutions as lenders, Credit Suisse First Boston, as the administrative agent, and Citibank, N.A., as documentation agent, to: - fund the purchase of the Clark-Schwebel business; - refinance our then existing revolving credit facility; and - provide for ongoing working capital and other financing requirements of Hexcel. Prior to the offering of the original notes, the senior credit facility was amended five times. In June 2001, the senior credit facility was amended to, among other things, modify financial covenants and permit the offering of the original notes. As of March 31, 2001, the senior credit facility provided for up to $357.3 million of aggregate borrowing capacity, consisting of: - a secured $29.7 million term A loan; - a secured $92.6 million term B loan; - a secured domestic revolving facility in an aggregate amount of $100 million in borrowings available to Hexcel; - a secured European revolving facility in an aggregate amount of $125 million in borrowings available to Hexcel and the foreign subsidiaries; and - a secured European overdraft facility in an aggregate amount of $10.0 million in borrowings available to the foreign subsidiaries. The domestic revolving facility is available to Hexcel for revolving loans subject to utilization by Hexcel of a letter of credit sub-facility and a swing line sub-facility. The European revolving facility is available to Hexcel and the foreign subsidiaries for revolving loans subject to utilization by Hexcel and the foreign subsidiaries of a European letter of credit sub-facility. The European overdraft facility is available to the foreign subsidiaries. As of March 31, 2001, there was approximately $227.9 million of aggregate loans outstanding under the senior credit facility, consisting of $29.7 million of term A loans, $92.6 million of term B loans, $25.6 million of domestic revolving loans, $80.0 million of European revolving loans and no amounts under the European overdraft facility. The term A loan is subject to amortization payments required to be made in quarterly installments until final payment is made in September 2004. The term B loan is subject to amortization payments required to be made in quarterly installments until final payment is made in September 2005. The domestic revolving facility, the European revolving line of credit and the European overdraft facility are available until September 14, 2004. Additionally, the loans under the senior credit facility and the 78 aggregate available commitments under the senior credit facility will generally be reduced in connection with asset and capital stock sales and dispositions, the receipt of insurance proceeds, and incurrences of debt. Borrowings of term A loans, term B loans and domestic revolving loans and borrowings in U.S. dollars of European revolving loans bear interest at a rate equal to, at our option, either: - the base rate, which is based on the prime rate most recently announced by the administrative agent or the Federal Funds rate plus one-half of 1%, or - the applicable London interbank rate, in each case plus an applicable margin determined by reference to the ratio of debt to earnings before interest, taxes, depreciation and amortization (which we refer to as EBITDA) of Hexcel and its subsidiaries. Borrowings of swing line loans under the domestic revolving facility bear interest at a rate equal to the base rate plus an applicable margin determined by reference to the ratio of debt to EBITDA of Hexcel and its subsidiaries. All other borrowings under the European revolving facility and the European overdraft facility bear interest at a rate equal to the applicable London interbank rate plus an applicable margin determined by reference to the ratio of debt to EBITDA of Hexcel and its subsidiaries. Our obligations and those of the foreign subsidiaries are unconditionally guaranteed, jointly and severally, by all material U.S. subsidiaries. The obligations of the foreign subsidiaries are unconditionally guaranteed by Hexcel. Our obligations and those of the foreign subsidiaries and the guarantors are secured by: - a pledge of 100% of the stock of our material U.S. subsidiaries; - a pledge of 65% of the capital stock of each material foreign subsidiary owned directly by Hexcel or a U.S. subsidiary; - a security interest in U.S. accounts receivable, inventories, machinery and equipment; and - mortgages granted for each parcel of real property we own in the U.S. that has a value of greater than $1 million. The senior credit facility contains covenants restricting our ability and the ability of our subsidiaries to: - dispose of assets, - merge, - pay dividends, - repurchase or redeem capital stock and debt, including the notes, - incur debt or give guarantees, - create liens, - enter into agreements with negative pledge clauses, - make investments or acquisitions, - enter into sale and leaseback transactions, - enter into transactions with affiliates, - change our fiscal year, - change our business or make fundamental changes, and - otherwise restrict corporate activities. The senior credit facility also contains a number of financial covenants. We pay fees to the banks under the senior credit facility, including 79 - a facility fee determined by reference to the ratio of debt to EBITDA of Hexcel and its subsidiaries, which is payable in arrears on a quarterly basis, times the daily average of the domestic revolving facility, European revolving facility and European overdraft facility commitments, and - letter of credit fees with respect to each letter of credit outstanding under the senior credit facility based on the applicable margin in effect for London interbank rate loans under the senior credit facility. The senior credit facility agreement was filed with the SEC as an exhibit to our quarterly report on Form 10-Q for the period ended September 30, 1998. Each of the first four amendments to the senior credit facility, and two consents of the lending group under the senior credit facility, have been previously filed with the SEC, and the fifth and sixth amendments are filed with the registration statement of which this prospectus forms a part. 9 3/4% SENIOR SUBORDINATED NOTES DUE 2009 On January 21, 1999, we issued $240.0 million aggregate principal amount of 9 3/4% Senior Subordinated Notes Due 2009 in a private offering. In July 1999, we completed an exchange offer in which all of the notes sold in January 1999 were exchanged for 9 3/4% Senior Subordinated Notes Due 2009 which are identical in all respects to the notes issued in January 1999 except that the notes issued in July 1999 were registered with the SEC and are generally not subject to transfer restrictions. On June 29, 2001, we issued an additional $100.0 million aggregate principal amount of 9 3/4% Senior Subordinated Notes Due 2009 in a private offering. The senior subordinated notes constitute unsecured senior debt of Hexcel, are junior to all of our senior debt and rank equally with and are part of the same series as the exchange notes. See "Description of the Notes." 7% CONVERTIBLE SUBORDINATED NOTES DUE 2003 On July 18, 1996, Hexcel issued $114.5 million aggregate principal amount of 7% Convertible Subordinated Notes Due 2003, of which approximately $114.4 million of principal was outstanding as of March 31, 2001. A portion of the net proceeds from our issuance of the original notes was applied toward the redemption of $67.5 million of convertible notes. The convertible notes are convertible into our common stock at any time on or before August 1, 2003, unless previously redeemed, at a conversion price of $15.81 per share. The convertible notes are redeemable, in whole or in part, at our option at any time, at various redemption prices set forth in the convertible notes indenture, plus accrued interest. Upon a change of control, each holder of convertible notes will have the right to require us to repurchase any or all outstanding convertible notes held by the holder at 100% of their principal amount plus accrued interest. The convertible notes are subordinated to all present and future senior debt of Hexcel. The convertible notes indenture contains covenants that, among other things, limit consolidations, mergers and transfers of all or substantially all assets. 7% CONVERTIBLE SUBORDINATED DEBENTURES DUE 2011 On August 1, 1986, Hexcel issued $35.0 million aggregate principal amount of 7% Convertible Subordinated Debentures Due 2011, of which $25.6 million aggregate principal amount was outstanding as of March 31, 2001. The convertible debentures are convertible into shares of our common stock prior to maturity, unless previously redeemed, at a conversion price of $30.72 per share. Mandatory redemption of the convertible debentures is scheduled to begin in 2002 through annual sinking fund requirements of $1.1 million in 2002 and $1.75 million in each year after 2002. The convertible debentures are subordinated to all of our present and future senior debt. The convertible debentures contain covenants that limit consolidations, mergers and transfers of all or substantially all of our assets. 80 DESCRIPTION OF THE NOTES On January 21, 1999, we issued $240.0 million aggregate principal amount of 9 3/4% Senior Subordinated Notes Due 2009 under an indenture between Hexcel and The Bank of New York as trustee in a private offering. In July 1999, we completed an exchange offer in which all of the notes sold in January 1999 were exchanged for 9 3/4% Senior Subordinated Notes Due 2009 which are identical in all material respects to the notes issued in January 1999, except that the notes issued in July 1999 were registered with the SEC and are generally not subject to transfer restrictions. On June 29, 2001, we issued an additional $100.0 million aggregate principal amount of 9 3/4% Senior Subordinated Notes Due 2009 under the indenture in a private offering. The exchange notes and the notes previously issued under the indenture will be treated as a single series under the indenture, including for purposes of determining whether the required percentage of noteholders have given their approval or consent to an amendment or waiver or joined in directing the trustee to take certain actions on behalf of all noteholders. The form and terms of the exchange notes and the original notes issued on June 29, 2001 are identical in all material respects, except that transfer restrictions and registration rights applicable to the original notes do not apply to the exchange notes. The terms of the notes include those stated in the indenture and those made part of the indenture by reference to the Trust Indenture Act of 1939. This description of the notes contains definitions of terms, including those defined under the caption "--Definition of Terms Used in the Indenture" that are necessary to understand this section of the prospectus. In this section, "Hexcel" refers only to Hexcel Corporation and not to any of its subsidiaries. The following description is only a summary of the material terms of the indenture and the registration rights agreement. We urge you to read the indenture and the registration rights agreement because they, and not these summary descriptions, define your rights as holders of the notes. You may request copies of these agreements at our address set forth under "Available Information." BRIEF DESCRIPTION OF THE NOTES These notes: - are unsecured senior subordinated obligations of Hexcel; - are subordinated in right of payment to all existing and future Senior Indebtedness of Hexcel; and - are senior in right of payment to any future Subordinated Obligations of Hexcel. The original notes are subject to registration with the SEC pursuant to the registration agreement. PRINCIPAL, MATURITY AND INTEREST The original notes are, and the exchange notes will be, issued initially in the aggregate principal amount of $100.0 million. The original notes are, and the exchange notes will be, issued in denominations of $1,000 and any integral multiple of $1,000. The notes will mature on January 15, 2009. Subject to our compliance with the covenant described under the caption "--Covenants-- Limitation on Indebtedness," we are permitted to issue additional notes under the indenture in an unlimited principal amount. The indenture defines notes so issued as "additional notes." Interest on the notes will accrue at the rate of 9 3/4% per annum. Interest will be payable semiannually in arrears on January 15 and July 15, commencing on January 15, 2002. Hexcel will make each interest payment to the holders of record of the notes on the immediately preceding January 1 and July 1. 81 Interest on each exchange note will accrue from the last interest payment date on which interest was paid on the original note surrendered for exchange. If no interest has been paid on the original note, interest will be paid from the date of its original issuance. Holders whose original notes are accepted in the exchange offer will waive their right to receive accrued interest on the original notes. Interest will be computed on the basis of a 360-day year comprised of twelve 30-day months. Additional interest may accrue on the notes in specified circumstances according to the registration rights agreement. OPTIONAL REDEMPTION Except as set forth below, we will not be entitled to redeem the notes at our option before January 15, 2004. On and after January 15, 2004 we will be entitled at our option to redeem all or a portion of the notes upon not less than 30 nor more than 60 days' notice. We will be entitled to redeem the notes at the redemption prices set forth below plus accrued and unpaid interest to the redemption date, if redeemed during the 12-month period beginning on January 15 in the years indicated below:
PERCENTAGE OF PRINCIPAL YEAR AMOUNT - ---- ------------ 2004........................................................ 104.875% 2005........................................................ 103.900 2006........................................................ 102.925 2007........................................................ 101.950 2008........................................................ 100.975 2009........................................................ 100.000
In addition, before January 15, 2002, we may at our option redeem up to 35% of the original aggregate principal amount of notes, including the original principal amount of any additional notes, with the net cash proceeds from one or more public equity offerings following which there is a public market; provided that: - at least 65% of the original aggregate principal amount of notes, including the original principal amount of any additional notes, other than notes held by Hexcel or its affiliates, remains outstanding immediately after the redemption; and - the redemption occurs within 120 days after the date of the related public equity offering. If we exercise this option, we will pay a redemption price of 109 3/4% of the principal amount of the notes, plus accrued and unpaid interest to the redemption date. SELECTION AND NOTICE OF REDEMPTION If we redeem less than all the notes at any time, the trustee will select notes on a pro rata basis, by lot or by another method as the trustee will deem to be fair and appropriate. We will redeem notes of $1,000 or less in whole and not in part. We will cause notices of redemption to be mailed by first-class mail at least 30 but not more than 60 days before the redemption date to each holder of notes to be redeemed at its registered address. If any note is redeemed in part only, the notice of redemption that relates to that note will state the portion of the principal amount of that note to be redeemed. We will issue a new note in principal amount equal to the unredeemed portion of the original note in the name of the holder of the note upon cancellation of the original note. Notes called for redemption become due on the date fixed for 82 redemption. On and after the redemption date, interest ceases to accrue on notes or portions of them called for redemption. RANKING SENIOR INDEBTEDNESS VERSUS NOTES The payment of the principal of, premium and interest on the notes will be subordinate in right of payment to the prior payment in full of all Senior Indebtedness, including Hexcel's obligations under the Credit Agreement. As of March 31, 2001, Hexcel's Senior Indebtedness was $275.5 million. The indenture limits the amount of additional Indebtedness that Hexcel may incur. However, under specified circumstances the amount of the Indebtedness could be substantial. In any case, the Indebtedness may be Senior Indebtedness. As of March 31, 2001, the amount of additional Indebtedness that Hexcel could incur under the indenture was estimated at $58.8 million, all of which is committed borrowing capacity under the senior credit facility. After giving effect to loan covenants under the senior credit facility, the maximum amount of additional debt that Hexcel could borrow as of March 31, 2001 was $52.2 million, all of which is senior debt. LIABILITIES OF SUBSIDIARIES VERSUS NOTES A portion of Hexcel's operations is conducted through its subsidiaries. Claims of creditors of these subsidiaries generally will have priority with respect to the assets and earnings of the subsidiaries over the claims of creditors of Hexcel, including holders of the notes. Accordingly, the notes will be effectively subordinated to creditors and preferred stockholders, if any, of subsidiaries of Hexcel. At March 31, 2001, the total liabilities of our subsidiaries were approximately $269.3 million, including trade payables. Although the indenture limits the incurrence of Indebtedness and preferred stock of some of our subsidiaries, this limitation is subject to a number of significant qualifications. Moreover, the indenture does not limit the incurrence by our subsidiaries of liabilities that are not considered Indebtedness under the indenture. See "--Covenants--Limitation on Indebtedness." OTHER SENIOR SUBORDINATED INDEBTEDNESS VERSUS NOTES Under the indenture, only Senior Indebtedness of Hexcel will rank senior to the notes. The notes will in all respects rank PARI PASSU with all other Senior Subordinated Indebtedness of Hexcel. As of March 31, 2001, Hexcel's outstanding Senior Subordinated Indebtedness was $264.4 million, net of unamortized discount of $0.6 million. We have agreed in the indenture that we will not Incur any Indebtedness that is contractually subordinate or junior in right of payment to our Senior Indebtedness, unless the Indebtedness is Senior Subordinated Indebtedness or is expressly subordinated in right of payment to Senior Subordinated Indebtedness. The indenture does not treat unsecured Indebtedness as subordinated or junior to Secured Indebtedness merely because it is unsecured. PAYMENT OF NOTES We are not permitted to pay principal of, premium or interest on the notes or make any deposit pursuant to the provisions described under "--Defeasance" below and may not purchase, redeem or otherwise retire any notes if: (1) any Designated Senior Indebtedness is not paid when due; or (2) any other default on Designated Senior Indebtedness occurs and its maturity is accelerated; 83 unless, in either case, the default has been cured or waived and any acceleration has been rescinded or the Designated Senior Indebtedness has been paid in full. Regardless of these provisions, we are permitted to pay the notes if we and the trustee receive written notice approving the payment from the representative of any Designated Senior Indebtedness. During the continuance of any default, other than a default described in clause (1) or (2) above, with respect to any Designated Senior Indebtedness pursuant to which the maturity thereof may be accelerated without further notice, except such notice as may be required to effect such acceleration, or the expiration of any applicable grace periods, we are not permitted to pay the notes for a "Payment Blockage Period." The Payment Blockage Period commences upon the receipt by the trustee of a "Blockage Notice" of the default from the holders of the Designated Senior Indebtedness and ends 179 days later. The Payment Blockage Period will end earlier if it is terminated: - by written notice to the trustee and us from the person who gave the Blockage Notice; - because the default giving rise to the Blockage Notice is cured, waived or otherwise no longer continuing; or - because the Designated Senior Indebtedness has been discharged or repaid in full. Unless the holders of the Designated Senior Indebtedness have accelerated the maturity of the Designated Senior Indebtedness, we are permitted to resume paying the notes after the end of the Payment Blockage Period. The notes will not be subject to more than one Payment Blockage Period in any consecutive 360-day period, except that if any Blockage Notice is delivered to the trustee by or on behalf of holders of Designated Senior Indebtedness, other than holders of the Bank Indebtedness, a representative of holders of Bank Indebtedness may give another Blockage Notice within such period. However, in no event may the total number of days during which any Payment Blockage Period or Periods is in effect exceed 179 days in the aggregate during any consecutive 360-day period. Upon any payment or distribution of the assets of Hexcel upon a liquidation, dissolution or reorganization of Hexcel or its property: - the holders of Senior Indebtedness will be entitled to receive payment in full of the Senior Indebtedness before the holders of the notes are entitled to receive any payment; - until the Senior Indebtedness is paid in full, any payment or distribution to which holders of the notes would be entitled but for the subordination provisions of the indenture will be made to holders of the Senior Indebtedness as their interests may appear, except that holders of notes may receive shares of stock and any debt securities that are subordinated to the Senior Indebtedness to at least the same extent as the notes; and - if a distribution is made to holders of the notes that should not have been made to them, the holders of the notes are required to hold it in trust for the holders of Senior Indebtedness and pay it over to them. If payment of the notes is accelerated because of an Event of Default, Hexcel or the trustee shall promptly notify the holders of Designated Senior Indebtedness of the acceleration. In the event of a liquidation or insolvency proceeding, creditors of ours who are holders of Senior Indebtedness may recover more than the holders of the notes. Creditors of ours who are not holders of Senior Indebtedness may recover less than holders of Senior Indebtedness and may recover more than the holders of the notes. The terms of the subordination provisions described above will not apply to payments from money held in trust by the trustee for the payment of principal of and interest on the notes. See "--Defeasance." 84 CHANGE OF CONTROL Upon the occurrence of a "Change of Control," each holder may require us to purchase its notes at a purchase price equal to 101% of the principal amount of the notes plus accrued and unpaid interest to the date of purchase. The following are "Change of Control" events: (1) any person (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) other than one or more Permitted Holders, becomes the beneficial owner (as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that for purposes of this clause (1), such person shall be deemed to have "beneficial ownership" of all shares that any such person has the right to acquire, whether or not such right is exercisable immediately) of more than 40% of the total voting power of voting stock of Hexcel; PROVIDED, HOWEVER, that the Permitted Holders beneficially own (as defined in Rules 13d-3 and 13d-5 under the Exchange Act) in the aggregate a lesser percentage of the total voting power of voting stock of Hexcel than the other person and do not have the right or ability to elect or designate for election a majority of the board of directors; (2) during any period of two consecutive years, individuals who at the beginning of that period constituted the board of directors, together with any new directors whose election by the board of directors or whose nomination for election by the stockholders of Hexcel was approved under the governance agreement or by a vote of 66 2/3% of the directors of Hexcel then still in office who were either directors at the beginning of the two-year period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority of the board of directors then in office; or (3) the merger or consolidation of Hexcel with or into another person other than a Permitted Holder, or the merger of another person other than a Permitted Holder with Hexcel, or the sale of all or substantially all the assets of Hexcel to another person other than a person controlled by the Permitted Holders, and in the case of any such merger or consolidation, the securities of Hexcel that are outstanding immediately prior to the transaction and that represent 100% of the aggregate voting power of the voting stock of Hexcel are changed into or exchanged for cash, securities or property, unless pursuant to the transaction, the securities are changed into or exchanged for, in addition to any other consideration, securities of the surviving person that represent, immediately after the transaction, at least a majority of the aggregate voting power of the voting stock of the surviving person or transferee. If the event described in (1) above occurs as a result of a transfer of voting stock by the Permitted Holders, a Change of Control shall not be deemed to occur unless and until the publicly announced rating of the notes by either Rating Agency shall, within 90 days after the date of occurrence of the event, be less than the rating of the notes by that Rating Agency on the date which is 90 days before the date of the occurrence of that event; provided, however, if the notes have an investment grade rating by both Rating Agencies on the date which is 90 days before the date of occurrence of that event, a Change of Control shall be deemed not to occur following that event unless and until the publicly announced rating of the notes by either Rating Agency shall be less than investment grade rating within 90 days after the date of the occurrence of that event. In each case the 90-day period shall be extended so long as the rating of the notes is under publicly announced consideration for possible downgrade by either Rating Agency. Within 30 days after any Change of Control, we will mail a notice to each holder of notes, a "Change of Control Offer," stating: (1) that a Change of Control has occurred and that the holder has the right to require us to purchase its notes at a purchase price in cash equal to 101% of the principal amount of the notes plus accrued and unpaid interest to the date of purchase; 85 (2) the circumstances and relevant facts regarding the Change of Control, including a statement of pro forma historical income, cash flow and capitalization after giving effect to the Change of Control; (3) the purchase date, which shall be no earlier than 30 days nor later than 60 days from the date the notice is mailed; and (4) the instructions determined by us, consistent with the covenant described under this caption, that a holder must follow in order to have its notes purchased. We will not be required to make a Change of Control Offer following a Change of Control if a third party makes the Change of Control Offer in compliance with the requirements set forth in the indenture and purchases all notes validly tendered and not withdrawn under the Change of Control Offer. We will comply with the requirements of the securities laws in connection with the purchase of notes as a result of a Change of Control. To the extent that the provisions of any securities laws conflict with the provisions of the covenant described under this caption, we will comply with the applicable securities laws and will not be deemed to have breached our obligations under the change of control covenant. The Change of Control purchase feature of the notes may make more difficult or discourage a sale or takeover of Hexcel and, thus, the removal of incumbent management. The Change of Control purchase feature is a result of negotiations between Hexcel and the initial purchasers. It is not the result of our knowledge of any specific effort to accumulate common stock of Hexcel or to obtain control of Hexcel or part of a plan by management to adopt a series of anti-takeover provisions. We have no present intention to engage in a transaction involving a Change of Control, although it is possible that we could decide to do so in the future. Subject to the limitations discussed below, we could enter into transactions that would not constitute a Change of Control under the indenture, but that could increase the amount of Indebtedness outstanding at that time or otherwise affect our capital structure or credit ratings. Restrictions on our ability to incur additional Indebtedness are contained in the covenant described under the caption "--Covenants--Limitation on Indebtedness." These restrictions can only be waived with the consent of the holders of a majority in principal amount of the notes then outstanding. Except for the limitations contained in this covenant, however, the indenture will not contain any covenants or provisions that may afford holders of the notes protection in the event of a highly leveraged transaction. The Credit Agreement will prohibit us from purchasing any notes and will also provide that the occurrence of specified change of control events would constitute a default under the Credit Agreement. In the event a change of control occurs when we are prohibited from purchasing notes, we may seek the consent of our lenders to the purchase of notes or attempt to refinance the borrowings that contain the prohibition. If we do not obtain the consent or repay the borrowings, we will remain prohibited from purchasing the notes. In that case, our failure to purchase tendered notes would constitute an Event of Default under the indenture which would, in turn, constitute a default under the Credit Agreement. In these circumstances, the subordination provisions in the indenture would likely restrict payment to the holders of notes. Future Indebtedness that we may incur may contain prohibitions on the occurrence of events that would constitute a Change of Control or require us to repurchase the Indebtedness upon a Change of Control. Moreover, the exercise by the holders of notes of their right to require us to purchase the notes could cause a default under the Indebtedness, even if the Change of Control itself does not. Finally, our ability to pay cash to the holders of notes following the occurrence of a Change of Control 86 may be limited by our then existing financial resources. We cannot assure you that sufficient funds will be available when necessary to make any required repurchases. Our obligation to purchase the notes as a result of a Change of Control may be waived or modified with the written consent of the holders of a majority in principal amount of the notes. COVENANTS LIMITATION ON INDEBTEDNESS (a) Hexcel will not, and will not permit any Restricted Subsidiary to, Incur, directly or indirectly, any Indebtedness; PROVIDED, HOWEVER, that Hexcel and its Restricted Subsidiaries may Incur Indebtedness if, on the date of the Incurrence and after giving effect to the Incurrence on a pro forma basis, the Consolidated Coverage Ratio exceeds (x) if on or before January 15, 2002, 2.0 to 1.0 and (y) if thereafter, 2.25 to 1.0. (b) Notwithstanding paragraph (a) above, Hexcel and the Restricted Subsidiaries may Incur any or all of the following Indebtedness: (1) Indebtedness Incurred by Hexcel or any Restricted Subsidiary under the Credit Agreement; PROVIDED, HOWEVER, that, after giving effect to the Incurrence, the aggregate principal amount of such Indebtedness then outstanding does not exceed (A) the greater of (x) $680.0 million less the sum of all term loan principal amortization payments scheduled to be made, whether or not in fact made, through the date of the Incurrence under the Credit Agreement as in effect on the issue date (the "Maximum Committed Credit Agreement Amount") and (y) the sum of 50% of the book value of the consolidated inventory of Hexcel and its Restricted Subsidiaries and 80% of the consolidated accounts receivable of Hexcel and its Restricted Subsidiaries (the "Consolidated Working Capital Amount") less the principal amount of any Indebtedness Incurred under clause (2) below and then outstanding, less (B) the sum of all principal payments on such Indebtedness made under paragraph (a)(3)(A) of the covenant described under the caption "--Limitation on Asset Dispositions"; (2) Indebtedness Incurred by foreign subsidiaries to finance the working capital requirements of foreign subsidiaries; PROVIDED, HOWEVER, that the aggregate principal amount of such Indebtedness, when added together with the amount of Indebtedness Incurred by all foreign subsidiaries under this clause (2) and then outstanding, does not exceed the lesser of (A) the sum of 50% of the book value of the consolidated inventories of all foreign subsidiaries and 80% of the consolidated accounts receivable of all foreign subsidiaries and (B) the amount by which the greater of (x) the Consolidated Working Capital Amount and (y) the Maximum Committed Credit Agreement Amount, exceeds the principal amount of Indebtedness Incurred under clause (1) above and then outstanding; (3) Indebtedness owed to and held by Hexcel or any Wholly Owned Subsidiary; provided, however, that (A) any subsequent issuance or transfer of any capital stock which results in the Wholly Owned Subsidiary ceasing to be a Wholly Owned Subsidiary or any subsequent transfer of the Indebtedness, other than to Hexcel or a Wholly Owned Subsidiary, shall be deemed, in each case, to constitute the Incurrence of such Indebtedness and (B) if Hexcel is the obligor on such Indebtedness, the payment of such Indebtedness is expressly subordinate to the prior payment in full in cash of all obligations with respect to the notes; (4) the notes, other than additional notes, and the exchange notes; 87 (5) Indebtedness, other than the Indebtedness described in clauses (1), (2), (3) or (4) above, outstanding on the issue date; (6) Refinancing Indebtedness in respect of Indebtedness Incurred under paragraph (a) above or under clause (4), (5) or this clause (6); (7) hedging obligations directly related to Indebtedness permitted to be Incurred by Hexcel and Restricted Subsidiaries under the indenture or, in the case of a currency exchange protection agreement, reasonably related to the ordinary course of business of Hexcel and its Restricted Subsidiaries; (8) Indebtedness, including Capitalized Lease Obligations and purchase money Indebtedness, Incurred by Hexcel or its Restricted Subsidiaries to finance the acquisition of tangible assets or other capital expenditures, and Indebtedness Incurred by Hexcel or its Restricted Subsidiaries to refinance such Capitalized Lease Obligations and purchase money Indebtedness, in an aggregate outstanding principal amount which, when added together with the amount of Indebtedness Incurred under this clause (8) and then outstanding, does not exceed $20.0 million; (9) Indebtedness in respect of performance, surety or appeal bonds provided in the ordinary course of Hexcel and its Restricted Subsidiaries; or (10) Indebtedness in an aggregate principal amount which, together with all other Indebtedness of Hexcel and Restricted Subsidiaries outstanding on the date of the Incurrence, other than Indebtedness permitted by clauses (1) through (9) above or paragraph (a), does not exceed $25.0 million. (c) Notwithstanding the above provisions, Hexcel will not Incur any Indebtedness under paragraph (b) above, if the proceeds of the Indebtedness are used, directly or indirectly, to refinance any Subordinated Obligations, unless the Indebtedness will be subordinated to the notes to at least the same extent as the Subordinated Obligations. (d) For purposes of determining compliance with this covenant: (1) in the event that an item of Indebtedness meets the criteria of more than one of the types of Indebtedness described above, Hexcel, in its sole discretion, will classify the item of Indebtedness and only be required to include the amount and type of the Indebtedness in one of the above clauses and (2) an item of Indebtedness may be divided and classified under more than one of the types of Indebtedness described above. (e) Notwithstanding paragraphs (a) and (b) above, Hexcel will not Incur: (1) any Indebtedness if that Indebtedness is contractually subordinate or junior in right of payment in any respect to any Senior Indebtedness, unless the Indebtedness is Senior Subordinated Indebtedness or is expressly subordinated in right of payment to Senior Subordinated Indebtedness or (2) any Secured Indebtedness that is not Senior Indebtedness, unless contemporaneously therewith effective provision is made to secure the notes equally and ratably with the Secured Indebtedness for so long as the Secured Indebtedness is secured by a lien. (f) In determining amounts of Indebtedness outstanding under the Limitation on Indebtedness covenant and to avoid duplication, Indebtedness of a person resulting from the grant by that person of security interests with respect to, or from the issuance by that person of guarantees of, or from the assumption of obligations with respect to letters of credit supporting, 88 Indebtedness Incurred by that person under the indenture, or Indebtedness which that person is otherwise permitted to Incur under the indenture, shall not be deemed to be a separate Incurrence of Indebtedness by that person. (g) Indebtedness of any person which is outstanding at the time that person becomes a Restricted Subsidiary, including upon designation of any subsidiary or other person as a Restricted Subsidiary, or is merged with or into or consolidated with Hexcel or a Restricted Subsidiary shall be deemed to have been Incurred at the time that person becomes a Restricted Subsidiary or merged with or into or consolidated with Hexcel or a Restricted Subsidiary, as applicable. LIMITATION ON RESTRICTED PAYMENTS (a) Hexcel will not, and will not permit any Restricted Subsidiary, directly or indirectly, to make a Restricted Payment if at the time Hexcel or any Restricted Subsidiary makes a Restricted Payment: (1) a Default shall have occurred and be continuing, or would result from the Restricted Payment; (2) Hexcel is not able to Incur an additional $1.00 of Indebtedness under paragraph (a) of the covenant described under the caption "--Limitation on Indebtedness"; or (3) the aggregate amount of the Restricted Payment and all other Restricted Payments made since the issue date would exceed the sum of, without duplication: (A) 50% of the Consolidated Net Income accrued during the period, which will be treated as one accounting period, from the beginning of the fiscal quarter in which the issue date occurs to the end of the most recent fiscal quarter ending at least 45 days before the date of the Restricted Payment, or, in case the Consolidated Net Income is a deficit, less 100% of that deficit; plus (B) 100% of the aggregate Net Cash Proceeds received by Hexcel from the issuance or sale of its capital stock, other than capital stock within the meaning of "Disqualified Stock" as defined in the indenture, subsequent to the issue date and on or before the date of the Restricted Payment, other than an issuance or sale to a subsidiary of Hexcel or an issuance or sale to an employee stock ownership plan or to a trust established by Hexcel or any of its subsidiaries for the benefit of their employees; plus (C) the amount by which the Indebtedness of Hexcel is reduced on Hexcel's balance sheet upon the conversion or exchange, other than by a subsidiary of Hexcel, subsequent to the issue date and on or before the date of the Restricted Payment of any Indebtedness of Hexcel convertible or exchangeable for capital stock, other than disqualified stock, of Hexcel, less the amount of any cash, or the fair value of any other property, distributed by Hexcel upon the conversion or exchange; plus (D) an amount equal to the sum of (x) the net reduction in Investments in Unrestricted Subsidiaries resulting from dividends, repayments of loans or advances or other transfers of assets, in each case to Hexcel or any Restricted Subsidiary from Unrestricted Subsidiaries, and (y) the portion, proportionate to Hexcel's equity interest in the subsidiary, of the fair market value of the net assets of an Unrestricted Subsidiary at the time the Unrestricted Subsidiary is designated a Restricted Subsidiary; PROVIDED, HOWEVER, that this sum shall not exceed, in the case of any Unrestricted Subsidiary, the amount of Investments previously made and treated as a Restricted Payment by Hexcel or any Restricted Subsidiary in the Unrestricted Subsidiary. 89 (b) The preceding provisions will not prohibit: (1) any acquisition of any capital stock of Hexcel made by exchange for, or out of the proceeds of the substantially concurrent sale of, capital stock of Hexcel, other than disqualified stock and other than capital stock issued or sold to a subsidiary of Hexcel, or options, warrants or other rights to purchase the capital stock; PROVIDED, HOWEVER, that (A) the purchase or redemption shall be excluded in the calculation of the amount of Restricted Payments and (B) the Net Cash Proceeds from the sale shall be excluded from clause (3)(B) of paragraph (a) above; (2) any purchase, repurchase, redemption, defeasance or acquisition or retirement for value of Subordinated Obligations made by exchange for, or out of the proceeds of the substantially concurrent sale of, capital stock of Hexcel, other than disqualified stock and other than capital stock issued or sold to a subsidiary of Hexcel, or options, warrants or other rights to purchase the capital stock; PROVIDED, HOWEVER, that (A) the purchase, repurchase, redemption, defeasance or acquisition or retirement for value shall be excluded in the calculation of the amount of Restricted Payments and (B) the Net Cash Proceeds from the sale shall be excluded from clause (3)(B) of paragraph (a) above; (3) any purchase, repurchase, redemption, defeasance or acquisition or retirement for value of Subordinated Obligations made by exchange for, or out of the proceeds of the substantially concurrent sale of, Indebtedness of Hexcel which is permitted to be Incurred under the covenant described under the caption "--Limitation on Indebtedness"; PROVIDED, HOWEVER, that the Indebtedness (A) shall have a stated maturity later than the stated maturity of the notes and (B) shall have an Average Life greater than the remaining Average Life of the notes; PROVIDED FURTHER, HOWEVER, that the purchase, repurchase, redemption, defeasance or other acquisition or retirement for value shall be excluded in the calculation of the amount of Restricted Payments; (4) any purchase or redemption of Subordinated Obligations from Net Available Cash after application according to clauses (A), (B) and (C) of paragraph (a)(3) of the covenant described under the caption "--Limitation on Asset Dispositions"; PROVIDED, HOWEVER, that the purchase or redemption shall be excluded in the calculation of the amount of Restricted Payments; (5) dividends paid within 60 days after the date of declaration thereof if at the date of declaration the dividend would have complied with this covenant; PROVIDED, HOWEVER, that at the time of payment of the dividend, no other Default shall have occurred and be continuing, or result therefrom; PROVIDED FURTHER, HOWEVER, that the declaration, but not the payment, of such dividend shall be included in the calculation of the amount of Restricted Payments; (6) so long as no Default shall have occurred and be continuing, or result therefrom, Investments in Joint Ventures or other persons engaged in a related business in an aggregate amount which, when added together with the amount of all other Investments made according to this clause (6) which at the time have not been repaid through dividends, repayments of loans or advances or other transfers of assets, does not exceed $60.0 million; PROVIDED, HOWEVER, that the amount of the Investments shall be excluded in the calculation of Restricted Payments; 90 (7) so long as no Default shall have occurred and be continuing, or result therefrom, payments with respect to employee or director stock options, stock incentive plans or restricted stock plans of Hexcel, including any redemption, repurchase, acquisition, cancellation or other retirement for value of shares of capital stock of Hexcel, restricted stock, options on any of these shares or similar securities held by directors, officers or employees or former directors, officers or employees or by any Plan upon death, disability, retirement or termination of employment of any of these persons under the terms of the Plan or agreement under which the shares or related rights were issued or acquired; PROVIDED, HOWEVER, that the amount of any of these payments shall be included in the calculation of Restricted Payments; (8) so long as no Default shall have occurred and be continuing, or result therefrom, any purchase or defeasance of Subordinated Obligations upon a Change of Control to the extent required by the indenture or other agreement or instrument under which the Subordinated Obligations were issued, but only if Hexcel has first complied with all its obligations under the provisions described under the caption "--Change of Control"; PROVIDED, HOWEVER, that the amount of the purchase or defeasance shall be excluded in the calculation of Restricted Payments; or (9) so long as no Default shall have occurred and be continuing, or result therefrom, Restricted Payments in an aggregate amount which, when added together with the amount of all other Restricted Payments made under, this clause (9) which at that time have not been repaid through dividends, repayments of loans or advances or other transfers of assets, does not exceed $40.0 million; PROVIDED, HOWEVER, that the amount of the Restricted Payments shall be included in the calculation of Restricted Payments. LIMITATION ON RESTRICTIONS ON DISTRIBUTIONS FROM RESTRICTED SUBSIDIARIES Hexcel will not, and will not permit any Restricted Subsidiary to, create or otherwise cause or permit to exist or become effective any consensual encumbrance or restriction on the ability of any Restricted Subsidiary to: (a) pay dividends or make any other distributions on its capital stock to Hexcel or a Restricted Subsidiary or pay any Indebtedness owed to Hexcel, (b) make any loans or advances to Hexcel or any Restricted Subsidiary, or (c) transfer any of its property or assets to Hexcel or any Restricted Subsidiary (collectively "Payment Restrictions"), except: (1) any Payment Restriction imposed under the Credit Agreement, the indenture, Refinancing Indebtedness in respect of the notes and any agreement in effect at or entered into on the issue date; (2) any Payment Restriction with respect to a Restricted Subsidiary under an agreement relating to any Indebtedness Incurred by the Restricted Subsidiary on or before the date on which the Restricted Subsidiary was acquired by Hexcel, other than Indebtedness Incurred as consideration in, or to provide all or any portion of the funds or credit support utilized to complete, the transaction or series of related transactions as a result of which the Restricted Subsidiary became a Restricted Subsidiary of, or was acquired by, Hexcel, and outstanding on that date; (3) any Payment Restriction under an agreement effecting a refinancing of Indebtedness Incurred under an agreement referred to in clause (1) or (2) of this covenant or this clause (3) or contained in any amendment to an agreement referred to in clause (1) or (2) of this covenant or this clause (3); PROVIDED, HOWEVER, that the Payment Restrictions with respect to the 91 Restricted Subsidiary contained in the refinancing agreement or amendment are no less favorable to the holders of the notes than those with respect to the Restricted Subsidiary contained in the predecessor agreements; (4) in the case of clause (c) above, any encumbrance or restriction consisting of customary non-assignment provisions in leases or other contracts governing leasehold interests to the extent these provisions restrict the transfer of the lease or the property leased under the leases and contracts; (5) any restriction with respect to a Restricted Subsidiary imposed under an agreement entered into for the sale or disposition of all or substantially all the capital stock or assets of the Restricted Subsidiary pending the closing of the sale or disposition; and (6) any encumbrance or restriction contained in the governing documents of any Joint Venture Subsidiary. LIMITATION ON ASSET DISPOSITIONS (a) Hexcel will not, and will not permit any Restricted Subsidiary to, make any Asset Disposition unless: (1) Hexcel or a Restricted Subsidiary receives consideration at least equal to the fair market value, of the shares and assets subject to the Asset Disposition; (2) at least 75% of the consideration for the Asset Disposition received by Hexcel or the Restricted Subsidiary is in the form of cash; and (3) an amount equal to 100% of the Net Available Cash from the Asset Disposition is applied by Hexcel or the Restricted Subsidiary, as the case may be: (A) first, to the extent Hexcel or the Restricted Subsidiary elects or is required by the terms of any Senior Indebtedness or Indebtedness of the Restricted Subsidiary, to prepay, repay or purchase Senior Indebtedness or Indebtedness, other than any disqualified stock, of a Restricted Subsidiary, in each case other than Indebtedness owed to Hexcel or an affiliate of Hexcel, within one year from the later of the Asset Disposition or the receipt of the Net Available Cash; (B) second, to the extent Hexcel or the Restricted Subsidiary elects, to acquire additional assets within one year from the later of the Asset Disposition or the receipt of the Net Available Cash; (C) third, to make an offer to the holders of the notes, and to holders of other Senior Subordinated Indebtedness designated by Hexcel, to purchase notes, and the other Senior Subordinated Indebtedness, according to the indenture; and (D) fourth, to the extent of the balance of the Net Available Cash after application according to clauses (A), (B) and (C), for any purpose not prohibited by the terms of the indenture. Notwithstanding the above provisions of this paragraph, Hexcel and the Restricted Subsidiaries will not be required to apply any Net Available Cash according to the foregoing paragraph except to the extent that the aggregate Net Available Cash from all Asset Dispositions which are not applied according to the foregoing paragraph exceeds $15.0 million. Pending application of Net Available Cash under this covenant, the Net Available Cash will be invested in Temporary Cash Investments. For the purposes of the covenant described under this caption, the following shall be deemed to be cash: (x) the assumption of Indebtedness of Hexcel or any Restricted Subsidiary and the release of Hexcel or the Restricted Subsidiary from all liability with respect to the Indebtedness in connection with the Asset Disposition, PROVIDED, HOWEVER, that the amount of the Indebtedness shall not be deemed to be cash for the purpose of the term "Net Available Cash"; and 92 (y) securities received by Hexcel or any Restricted Subsidiary from the transferee that are promptly converted by Hexcel or the Restricted Subsidiary into cash. (b) In the event of an Asset Disposition that requires the purchase of the notes and other Senior Subordinated Indebtedness, we will purchase notes tendered and other Senior Subordinated Indebtedness at a purchase price of 100% of their principal amount, without premium, plus accrued but unpaid interest, or, in respect of the Senior Subordinated Indebtedness, the lesser price, if any, as may be provided for by the terms of the Senior Subordinated Indebtedness according to the procedures set forth in the indenture. If the aggregate purchase price of notes and any other Senior Subordinated Indebtedness tendered is less than the Net Available Cash, we will be entitled to apply the remaining Net Available Cash according to clause (a)(3)(D) above. We will not be required to make the offer to purchase notes and other Senior Subordinated Indebtedness if the Net Available Cash available for the offer, after application of Net Available Cash according to clauses (A) and (B) of paragraph (a) above, is less than $10.0 million. The lesser amount shall be carried forward to determine whether the offer is required for any subsequent Asset Disposition. (c) Hexcel will comply with the requirements of the securities laws in connection with the purchase of the notes under this covenant. To the extent that the provisions of any securities laws conflict with provisions of this covenant, Hexcel will comply with the applicable securities laws and shall not be deemed to have breached its obligations under this covenant. LIMITATION ON AFFILIATE TRANSACTIONS (a) Hexcel will not, and will not permit any Restricted Subsidiary to, enter into or permit to exist any "Affiliate Transaction," including the purchase, sale, lease or exchange of any property, employee compensation arrangements or the rendering of any service, with any affiliate of Hexcel unless: (1) the Affiliate Transaction is made in good faith and on terms which are fair and reasonable to Hexcel or the Restricted Subsidiary, as the case may be; (2) if the Affiliate Transaction involves an amount in excess of $5.0 million, the terms of the Affiliate Transaction are set forth in writing and a majority of the non-employee directors of Hexcel disinterested with respect to the Affiliate Transaction have determined in good faith that the terms are fair and reasonable; and (3) if the Affiliate Transaction involves an amount in excess of $10.0 million, the board of directors shall also have received a written opinion from an investment banking firm to the effect that the Affiliate Transaction is fair, from a financial standpoint, to Hexcel and its Restricted Subsidiaries. (b) The provisions of paragraph (a), above, shall not prohibit: (1) any Permitted Investment and any Restricted Payment permitted to be paid under the covenant described under the caption "--Limitation on Restricted Payments"; (2) any issuance of securities, or other payments, awards or grants in cash, securities or otherwise under, or the funding of, employment arrangements, stock options and stock ownership plans approved by the board of directors; (3) the payment of reasonable fees to directors of Hexcel and its Restricted Subsidiaries; (4) transactions between Hexcel or a Restricted Subsidiary and one or more Restricted Subsidiaries; PROVIDED, HOWEVER, that no affiliate of Hexcel, other than another Restricted Subsidiary, owns, directly or indirectly, any capital stock in any of the Restricted Subsidiaries; 93 (5) transactions in the ordinary course of business, including loans, expense advances and reimbursements, between Hexcel or any of its Restricted Subsidiaries, on the one hand, and any employee of Hexcel or any of its Restricted Subsidiaries, on the other hand; (6) transactions with affiliates entered into in the ordinary course of business of Hexcel or its Restricted Subsidiaries, on terms which are, in the opinion of Hexcel's management or the board of directors, fair and reasonable to Hexcel or its Restricted Subsidiaries; (7) the granting and performance of registration rights for shares of capital stock of Hexcel under a written registration rights agreement approved by a majority of directors of Hexcel that are disinterested with respect to the transactions; (8) transactions with affiliates solely in their capacity as holders of Indebtedness or capital stock of Hexcel or any of its subsidiaries, so long as Indebtedness or capital stock of the same class is also held by persons that are not affiliates of Hexcel and these affiliates are treated no more favorably than holders of the Indebtedness or the capital stock generally, and the redemption of the outstanding principal amount of the Ciba Notes, together with accrued interest; (9) transactions according to the governance agreement, and any amendments to the governance agreement that are not adverse to the interests of the holders of the notes and which are approved by a majority of the directors of Hexcel disinterested with respect to the amendment; and (10) any transaction between Hexcel or any Restricted Subsidiaries and any of the Existing Joint Ventures under agreements in effect on the issue date. LIMITATION ON THE SALE OR ISSUANCE OF CAPITAL STOCK OF RESTRICTED SUBSIDIARIES Hexcel will not sell any shares of capital stock of a Restricted Subsidiary, and shall not permit any Restricted Subsidiary to issue or sell shares of its capital stock, in each case, other than preferred stock within the meaning of "Qualified Preferred Stock" as defined in the indenture, except: (1) to Hexcel or a Wholly Owned Subsidiary; (2) directors' qualifying shares; (3) if, immediately after giving effect to the issuance or sale, neither Hexcel nor any of its subsidiaries own any capital stock of the Restricted Subsidiary; or (4) if, immediately after giving effect to the issuance or sale, the Restricted Subsidiary would no longer constitute a Restricted Subsidiary and any Investment in the person remaining after giving effect to the issuance or sale would have been permitted to be made under the covenant described under the caption "--Limitation on Restricted Payments" if made on the date of the issuance or sale. The issuance or sale of shares of capital stock of any Restricted Subsidiary of Hexcel will not violate the provisions above if the shares are issued or sold in connection with: - the formation or capitalization of a Restricted Subsidiary which, at the time of the issuance or sale or immediately after the issuance or sale, is a Joint Venture Subsidiary or - a single transaction or a series of substantially contemporaneous transactions by which the Restricted Subsidiary becomes a Restricted Subsidiary of Hexcel by reason of the acquisition of securities or assets from another person. 94 MERGER AND CONSOLIDATION Hexcel will not consolidate with or merge with or into, or convey, transfer or lease, in one transaction or a series of transactions, all or substantially all its assets to, any other person, unless: (1) the successor company shall be a person organized and existing under the laws of the United States of America, any U.S. State or the District of Columbia, and the successor company, if other than Hexcel, shall expressly assume, by a supplemental indenture all the obligations of Hexcel under the notes and the indenture; (2) immediately after giving effect to the transaction, and treating any Indebtedness which becomes an obligation of the successor company or any Restricted Subsidiary as a result of the transaction as having been Incurred by the successor company or the Restricted Subsidiary at the time of the transaction, no Default shall have occurred and be continuing; (3) immediately after giving effect to the transaction, the successor company would be able to Incur an additional $1.00 of Indebtedness under paragraph (a) of the covenant described under the caption "--Limitation on Indebtedness"; (4) immediately after giving effect to the transaction, the successor company shall have Consolidated Net Worth in an amount that is not less than the Consolidated Net Worth of Hexcel before the transaction; and (5) Hexcel shall have delivered to the trustee an officers' certificate and an opinion of counsel, each stating that the consolidation, merger or transfer and the supplemental indenture, if any, comply with the indenture. Nothing contained in the preceding paragraphs shall prohibit any wholly owned subsidiary from merging with or into, or transferring all or part of its assets to, Hexcel. The successor company will succeed to, and be substituted for Hexcel under the indenture, but the predecessor company in the case of a conveyance, transfer or lease shall not be released from the obligation to pay the principal of and interest on the notes. LIMITATION ON BUSINESS ACTIVITIES Hexcel will not, and will not permit any Restricted Subsidiary to, engage in any business other than in businesses conducted by Hexcel and its Restricted Subsidiaries on the issue date and businesses which are reasonably related, ancillary or complementary thereto. SEC REPORTS Hexcel will file with the SEC and provide the trustee and the holders of the notes with the annual reports and the applicable information, documents and other reports as are specified in the Exchange Act. In addition Hexcel will file a copy of all of the information and reports referred to above with the SEC for public availability within the time periods specified in the SEC's rules and regulations. Hexcel will make this information available to securities analysts and prospective investors upon request. DEFAULTS Each of the following is an Event of Default: (1) a default for 30 days in the payment when due of interest on the notes, whether or not prohibited by the subordination provisions of the indenture; 95 (2) a default in payment when due of the principal of any note at its stated maturity, upon optional redemption, upon required repurchase, upon declaration or otherwise, whether or not prohibited by the subordination provisions of the indenture; (3) the failure by Hexcel to comply with its obligations described under the caption "--Covenants--Merger and Consolidation" above; (4) the failure by Hexcel to comply for 30 days after notice with any of its obligations in the covenants described above under the caption "--Change of Control," other than a failure to purchase notes, or under the captions "--Covenants--Limitation on Indebtedness," "--Limitation on Restricted Payments," "--Limitation on Restrictions on Distributions from Restricted Subsidiaries," "--Limitation on Asset Dispositions," other than a failure to purchase notes, "--Limitation on Affiliate Transactions," "--Limitation on the Sale or Issuance of Capital Stock of Restricted Subsidiaries," "--Limitation on Business Activities" or "--SEC Reports"; (5) the failure by Hexcel to comply for 60 days after notice with any of the other agreements contained in the indenture; (6) Indebtedness of Hexcel or any significant subsidiary is not paid within any applicable grace period after final maturity or is accelerated by the holders of the Indebtedness because of a default and the total amount of Indebtedness unpaid or accelerated exceeds $10.0 million; (7) events of bankruptcy, insolvency or reorganization of Hexcel or a significant subsidiary; or (8) any judgment or decree for the payment of money in excess of $10.0 million is entered against Hexcel or a significant subsidiary, remains outstanding for a period of 60 days following the judgment and is not discharged, waived or stayed within 10 days after notice. However, a default under clauses (4), (5) or (8) will not constitute an Event of Default until the trustee or the holders of 25% in principal amount of the outstanding notes notify Hexcel of the default and Hexcel does not cure the default within the time specified after receipt of the notice. If an Event of Default occurs and is continuing, the trustee or the holders of at least 25% in principal amount of the outstanding notes may declare the principal of and accrued but unpaid interest on all the notes to be due and payable. Upon this declaration, the principal and interest shall be due and payable immediately. If an Event of Default relating to events of bankruptcy, insolvency or reorganization of Hexcel occurs and is continuing, the principal of and interest on all the notes will become and be immediately due and payable. Under some circumstances, the holders of a majority in principal amount of the outstanding notes may rescind any acceleration with respect to the notes and its consequences. In case an Event of Default occurs and is continuing, the trustee will be under no obligation to exercise any of the rights or powers under the indenture at the request or direction of any of the holders of the notes unless the holders have offered to the trustee indemnity or security satisfactory to it against any loss, liability or expense. Except to enforce the right to receive payment of principal, premium, if any, or interest when due, no holder of a note may pursue any remedy with respect to the indenture or the notes unless: (1) the holder has previously given the trustee notice that an Event of Default is continuing; (2) holders of at least 25% in principal amount of the outstanding notes have requested the trustee to pursue the remedy; (3) the holders have offered the trustee security or indemnity satisfactory to it against any loss, liability or expense; 96 (4) the trustee has not complied with the request within 60 days; and (5) the holders of a majority in principal amount of the outstanding notes have not given the trustee a direction inconsistent with the request within the 60-day period. The holders of a majority in principal amount of the outstanding notes are given the right to direct the time, method and place of conducting any proceeding for any remedy available to the trustee or of exercising any trust or power conferred on the trustee. The trustee, however, may refuse to follow any direction that conflicts with law or the indenture or that the trustee determines is unduly prejudicial to the rights of any other holder of a note or that would involve the trustee in personal liability. The indenture provides that if a Default occurs and is continuing and is known to the trustee, the trustee must mail to each holder of the notes notice of the Default within 90 days after it occurs. Except in the case of a Default in the payment of principal of or interest on any note, the trustee may withhold notice if a committee of its trust officers in good faith determines that withholding notice is in the interests of the holders of the notes. In addition, Hexcel is required to deliver to the trustee, after the end of each fiscal year, a certificate indicating whether the signers of the certificate know of any Default that occurred during the previous year. Hexcel also is required to deliver to the trustee, within 30 days after its occurrence, written notice of any event which would constitute a Default, its status and what action Hexcel is taking or proposes to take in respect to the event. AMENDMENTS AND WAIVERS Subject to exceptions, the indenture may be amended with the consent of the holders of a majority in principal amount of the notes then outstanding. This may include consents obtained in connection with a tender offer or exchange for the notes. Any past default or compliance with any provisions may also be waived with the consent of the holders of a majority in principal amount of the notes then outstanding. However, without the consent of holders of 80% or more in principal amount of the notes then outstanding, Hexcel may not, with respect to any notes held by a non-consenting holder, make any change to the subordination provisions of the indenture that would adversely affect holders of the notes. In addition, without the consent of each holder affected, an amendment or waiver may not: (1) reduce the principal amount of notes whose holders must consent to an amendment; (2) reduce the rate of or extend the time for payment of interest on any note; (3) reduce the principal of or extend the stated maturity of any note; (4) reduce the amount payable upon the redemption of any note or change the time at which any note may be redeemed as described under "--Optional Redemption"; (5) make any note payable in money other than that stated in the notes; (6) impair the right of any holder of the notes to receive payment of principal of and interest on the holder's notes on or after the due dates for payment or to institute suit for the enforcement of any payment on or with respect to the holder's notes; or (7) make any change in the amendment provisions which require each holder's consent or in the waiver provisions. Notwithstanding the preceding, without the consent of any holder of notes, Hexcel and the trustee may amend or supplement the indenture or the notes: (1) to cure any ambiguity, defect or inconsistency; 97 (2) to provide for uncertificated notes in addition to or in place of certificated notes, provided, that the uncertificated notes are issued in registered form for purposes of Section 163(f) of the Code, or in a manner such that the uncertificated notes are described in Section 163(f)(2)(B) of the Code; (3) to provide for the assumption by a successor corporation of the obligations of Hexcel under the indenture; (4) to add guarantees with respect to the notes or to secure the notes; (5) to add to the covenants of Hexcel for the benefit of the holders of the notes or to surrender any right or power conferred upon Hexcel; (6) to make any change that does not adversely affect the rights under the indenture of any holder; or (7) to comply with requirements of the SEC in order to effect or maintain the qualification of the indenture under the Trust Indenture Act. No amendment may be made to the subordination provisions of the indenture that adversely affects the rights of any holder of Senior Indebtedness then outstanding unless the holders of the Senior Indebtedness consent to the change. The consent of the holders of the notes is not necessary under the indenture to approve the particular form of any proposed amendment. It is sufficient if the consent approves the substance of the proposed amendment. After an amendment under the indenture becomes effective, Hexcel is required to mail to holders of the notes a notice briefly describing the amendment. However, the failure to give notice to all holders of the notes, or any defect in the notice, will not impair or affect the validity of the amendment. The notes will be issued in registered form and will be transferable only upon the surrender of the notes being transferred for registration of transfer. We may require payment of a sum sufficient to cover any tax, assessment or other governmental charge payable in connection with certain transfers and exchanges. DEFEASANCE Hexcel may terminate at any time all its obligations under the notes and the indenture, except for specified obligations, including those respecting the defeasance trust and obligations to register the transfer or exchange of the notes, to replace mutilated, destroyed, lost or stolen notes and to maintain a registrar and paying agent in respect of the notes. This type of termination is referred to as legal defeasance. In addition, Hexcel may terminate at any time its obligations described under the caption "--Change of Control" and under the covenants described under the caption "--Covenants", other than the covenant described under the caption "--Covenants--Merger and Consolidation", the operation of the cross acceleration provision, the bankruptcy provisions with respect to significant subsidiaries and the judgment default provision described under the caption "--Defaults" above and the limitations contained in clauses (3) and (4) of the covenant described under the caption "--Covenants--Merger and Consolidation" above. This type of termination is referred to as covenant defeasance. Hexcel may exercise its legal defeasance option regardless of its prior exercise of its covenant defeasance option. If Hexcel exercises its legal defeasance option, payment of the notes may not be accelerated because of an Event of Default. If Hexcel exercises its covenant defeasance option, 98 payment of the notes may not be accelerated because of an Event of Default specified in clause (4), (6), (7), with respect only to significant subsidiaries, or (8) under the caption "--Defaults" above or because of the failure of Hexcel to comply with clause (3) or (4) of the covenant described under the caption "--Covenants--Merger and Consolidation" above. In order to exercise either legal defeasance or covenant defeasance, Hexcel must irrevocably deposit in a defeasance trust money or U.S. government obligations for the payment of principal and interest on the notes to redemption or maturity. Hexcel must also comply with other conditions, including delivery to the trustee of an opinion of counsel to the effect that holders of the notes will not recognize income, gain or loss for federal income tax purposes as a result of the deposit and defeasance and will be subject to federal income tax on the same amount and in the same manner and at the same times as would have been the case if the deposit and defeasance had not occurred. In the case of legal defeasance only, this opinion of counsel must be based on a ruling of the IRS or other change in applicable federal income tax law. CONCERNING THE TRUSTEE The Bank of New York is the trustee under the indenture and has been appointed by Hexcel as registrar and paying agent for the notes. The holders of a majority in principal amount of the then outstanding notes will have the right to direct the time, method and place for exercising any remedy available to the trustee, subject to various exceptions. The indenture provides that in case an Event of Default shall occur and be continuing, the trustee will be required to use the degree of care of a prudent man in the conduct of his own affairs. Subject to these provisions, the trustee will be under no obligation to exercise any of its rights or powers under the indenture at the request of any holder of notes, unless the holder shall have offered to the trustee security and indemnity satisfactory to it against any loss, liability or expense. GOVERNING LAW The indenture provides that it and the notes will be governed by, and construed in accordance with, the laws of the State of New York without giving effect to applicable principles of conflicts of law to the extent that the application of the law of another jurisdiction would be required thereby. DEFINITIONS OF TERMS USED IN THE INDENTURE The following defined terms are used in the indenture and are included in this prospectus because they are necessary to understand the description of the notes contained in this prospectus. "ADDITIONAL ASSETS" means any: (1) property or assets (other than Indebtedness and capital stock) to be used by Hexcel, a Restricted Subsidiary or a Joint Venture; (2) capital stock of a person that becomes a Restricted Subsidiary as a result of the acquisition of such capital stock by Hexcel or another Restricted Subsidiary; or (3) capital stock constituting a minority interest in any person that at such time is a Restricted Subsidiary or a Joint Venture; PROVIDED, HOWEVER, that any Restricted Subsidiary described in clauses (2) and (3) is primarily engaged in related business. 99 "AFFILIATE" of any specified person means: (1) any other person, directly or indirectly, controlling or controlled by or under direct or indirect common control with such specified person; or (2) any other person who is a director or officer (A) of such specified person, (B) of any subsidiary of such specified person or (C) of any person described in clause (1). For the purposes of this definition, "control" when used with respect to any person means the power to direct the management and policies of such person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise, and the terms "controlling" and "controlled" have meanings correlative to the foregoing. For purposes of the covenants described under the captions "--Covenants--Limitation on Affiliate Transactions" and "--Covenants--Limitation on Asset Dispositions" only, "affiliate" shall also mean any beneficial owner of capital stock representing 10% or more of the total voting power of the voting stock (on a fully diluted basis) of Hexcel or of rights or warrants to purchase such capital stock (whether or not currently exercisable) and any person who would be an affiliate of any such beneficial owner pursuant to the first sentence hereof. "ASSET DISPOSITION" means any direct or indirect sale, lease, transfer, conveyance or other disposition (or series of related sales, leases, transfers, conveyances or dispositions) of shares of capital stock of a Restricted Subsidiary (other than directors' qualifying shares), property or other assets (each referred to for the purposes of this definition as a "disposition") by Hexcel or any Restricted Subsidiary (including any disposition by means of a merger, consolidation or similar transaction) involving an amount in excess of $3.0 million other than: (1) a disposition by a Restricted Subsidiary to Hexcel, by Hexcel or a Restricted Subsidiary to a Restricted Subsidiary or between Restricted Subsidiaries; (2) a disposition of property or assets at fair market value in the ordinary course of business and consistent with past practices of Hexcel or any of its Restricted Subsidiaries, as applicable (including sales of products to customers, disposition of excess inventory and dispositions of used or replaced equipment); (3) the disposition or grant of licenses to third parties in respect of intellectual property; (4) a sale or disposition of assets for the purpose of forming any Joint Venture, in exchange for an interest in such Joint Venture; (5) the sale of Specified Properties; (6) a disposition by Hexcel or any subsidiary of assets within 24 months after such assets were directly or indirectly acquired as part of an acquisition of other properties or assets (including capital stock) (the "Primary Acquisition"), if the assets being disposed of are "non-core" assets (as determined in good faith by a majority of the board of directors) or are required to be disposed of pursuant to any law, rule or regulation or any order of or settlement with any court or governmental authority, and the proceeds therefrom are used within 18 months after the date of sale to repay any Indebtedness Incurred in connection with the Primary Acquisition of such assets; (7) for purposes of the covenant described under the caption "--Covenants--Limitation on Asset Dispositions" only, a disposition that constitutes a Restricted Payment permitted by the covenant described under the caption "--Covenants--Limitation on Restricted Payments"; or (8) an Asset Disposition that also constitutes a Change of Control; provided, however, that Hexcel complies with all its obligations described under the caption "--Change of Control." "AVERAGE LIFE" means, as of the date of determination, with respect to any Indebtedness, the quotient obtained by dividing (x) the sum of the products of the numbers of years from the date of 100 determination to the date of each successive scheduled principal payment of such Indebtedness or scheduled redemption multiplied by the amount of such payment by (y) the sum of all such payments. "BANK INDEBTEDNESS" means any and all Indebtedness and other amounts payable under or in respect of the Credit Agreement including principal, premium (if any), interest (including interest accruing at the contract rate specified in the Credit Agreement (including any rate applicable upon default) on or after the filing of any petition in bankruptcy, or the commencement of any similar state, federal or foreign reorganization or liquidation proceeding, relating to Hexcel and interest that would accrue but for the commencement of such proceeding whether or not a claim for post-filing interest is allowed in such proceedings), fees, charges, expenses, reimbursement obligations, guarantees and all other amounts payable thereunder or in respect thereof. "BOARD OF DIRECTORS" means the board of directors of Hexcel or any committee thereof duly authorized to act on behalf of the board. "CAPITALIZED LEASE OBLIGATION" means an obligation that is required to be classified and accounted for as a capitalized lease for financial reporting purposes in accordance with GAAP. The amount of Indebtedness represented by such obligation shall be the capitalized amount of such obligation determined in accordance with GAAP. The stated maturity thereof shall be the date of the last payment of rent or any other amount due under such lease prior to the first date upon which such lease may be terminated by the lessee without payment of a penalty. "CONSOLIDATED COVERAGE RATIO" as of any date of determination means the ratio of (x) the aggregate amount of EBITDA for the most recent four consecutive fiscal quarters ending at least 45 days prior to the date of such determination to (y) Consolidated Interest Expense for such four fiscal quarters; PROVIDED, HOWEVER, that: (1) if Hexcel or any Restricted Subsidiary has Incurred any Indebtedness since the beginning of such period that remains outstanding on such date of determination or if the transaction giving rise to the need to calculate the Consolidated Coverage Ratio is an Incurrence of Indebtedness, or both, EBITDA and Consolidated Interest Expense for such period shall calculated after giving effect on a pro forma basis to (a) such Indebtedness as if such Indebtedness had been Incurred on the first day of such period and (b) the discharge of any other Indebtedness repaid, repurchased, defeased or otherwise discharged with the proceeds of such new Indebtedness as if such discharge had occurred on the first day of such period; (2) if Hexcel or any Restricted Subsidiary has repaid, repurchased, defeased or otherwise discharged any Indebtedness since the beginning of such period or if any Indebtedness is to be repaid, repurchased, defeased or otherwise discharged (in each case other than Indebtedness Incurred under any revolving credit facility unless such Indebtedness has been permanently repaid and has not been replaced) on the date of the transaction giving rise to the need to calculate the Consolidated Coverage Ratio, EBITDA and Consolidated Interest Expense for such period shall be calculated on a pro forma basis as if such discharge had occurred on the first day of such period and as if Hexcel or such Restricted Subsidiary has not earned the interest income actually earned during such period in respect of cash or Temporary Cash Investments used to repay, repurchase, defease or otherwise discharge such Indebtedness; (3) if since the beginning of such period Hexcel or any Restricted Subsidiary shall have made any Asset Disposition, the EBITDA for such period shall be reduced by an amount equal to the EBITDA (if positive) directly attributable to the assets which are the subject of such Asset Disposition for such period or increased by an amount equal to the EBITDA (if negative) directly attributable thereto for such period and Consolidated Interest Expense for such period shall be reduced by an amount equal to the Consolidated Interest Expense directly attributable to any Indebtedness of Hexcel or any Restricted Subsidiary repaid, repurchased, defeased or otherwise discharged with respect to Hexcel and its continuing Restricted 101 Subsidiaries in connection with such Asset Disposition for such period (or, if the capital stock of any Restricted Subsidiary is sold, the Consolidated Interest Expense for such period directly attributable to the Indebtedness of such Restricted Subsidiary to the extent Hexcel and its continuing Restricted Subsidiaries are no longer liable for such Indebtedness after such sale); (4) if since the beginning of such period Hexcel or any Restricted Subsidiary (by merger or otherwise) shall have made an Investment in any Restricted Subsidiary (or any Person which becomes a Restricted Subsidiary) or an acquisition of assets, including any acquisition of assets occurring in connection with a transaction causing a calculation to be made hereunder, EBITDA and Consolidated Interest Expense for such period shall be calculated after giving pro forma effect thereto (including the Incurrence of any Indebtedness) as if such Investment or acquisition occurred on the first day of such period; and (5) if since the beginning of such period any person (that subsequently became a Restricted Subsidiary or was merged with or into Hexcel or any Restricted Subsidiary since the beginning of such period) shall have made any Asset Disposition, any Investment or acquisition of assets requiring an adjustment pursuant to clause (3) or (4) above if made by Hexcel or a Restricted Subsidiary during such period, EBITDA and Consolidated Interest Expense for such period shall be calculated after giving pro forma effect thereto as if such Asset Disposition, Investment or acquisition of assets occurred on the first day of such period. For purposes of this definition, whenever pro forma effect is to be given to an acquisition of assets, the amount of income or earnings relating thereto and the amount of Consolidated Interest Expense associated with any Indebtedness Incurred in connection therewith, the pro forma calculations shall be determined in good faith by a responsible financial or accounting officer of Hexcel. If any Indebtedness bears a floating rate of interest and is being given pro forma effect, the interest expense on such Indebtedness shall be calculated as if the rate in effect on the date of determination had been the applicable rate for the entire period (taking into account any interest rate protection agreement applicable to such Indebtedness if such interest rate protection agreement has a remaining term as at the date of determination in excess of 12 months). "CONSOLIDATED INTEREST EXPENSE" means, for any period, the sum of, without duplication: (a) total interest expense of Hexcel and its consolidated Restricted Subsidiaries for such period, including, to the extent not otherwise included in such interest expense, and to the extent Incurred by Hexcel or its Restricted Subsidiaries in such period, without duplication, (1) interest expense attributable to capital leases; (2) amortization of debt discount and debt issuance cost; (3) amortization of capitalized interest; (4) non-cash interest expense; (5) accrued interest; (6) amortization of commissions, discounts and other fees and charges owed with respect to letters of credit and bankers' acceptance financing; (7) interest actually paid by Hexcel or any such Restricted Subsidiary under any guarantee of Indebtedness of any other person; (8) net payments, if any, made pursuant to interest rate protection agreements (including amortization of fees); (b) preferred stock dividends paid during such period in respect of all preferred stock of Restricted Subsidiaries of Hexcel held by persons other than Hexcel; and 102 (c) cash contributions made during such period to any employee stock ownership plan or other trust for the benefit of employees to the extent such contributions are used by such plan or trust to pay interest or fees to any person (other than Hexcel) in connection with Indebtedness Incurred by such plan or trust to purchase capital stock of Hexcel. "CONSOLIDATED NET INCOME" means, for any period, the net income (loss) of Hexcel and its consolidated subsidiaries; PROVIDED, HOWEVER, that there shall not be included in such Consolidated Net Income: (1) any net income (loss) of any person if such person is not a Restricted Subsidiary, except that (A) Hexcel's equity in the net income of any such person for such period shall be included in such Consolidated Net Income up to the aggregate amount of cash that could have been distributed by such person during such period to Hexcel or a Restricted Subsidiary as a dividend or other distribution (subject, in the case of a dividend or other distribution to a Restricted Subsidiary, to the limitations contained in clause (3) below); and (B) Hexcel's equity in a net loss of any such person for such period shall be included in determining such Consolidated Net Income; (2) any net income (loss) of any person acquired by Hexcel or a subsidiary in a pooling of interests transaction for any period prior to the date of such acquisition; (3) any net income (loss) of any Restricted Subsidiary if such Restricted Subsidiary is subject to restrictions, directly or indirectly, on the payment of dividends or the making of distributions by such Restricted Subsidiary, directly or indirectly, to Hexcel, except that (A) Hexcel's equity in the net income of any such Restricted Subsidiary for such period shall be included in such Consolidated Net Income up to the aggregate amount of cash that could have been distributed by such Restricted Subsidiary during such period to Hexcel or another Restricted Subsidiary as a dividend or other distribution (subject, in the case of a dividend to another Restricted Subsidiary, to the limitation contained in this clause); and (B) Hexcel's equity in a net loss of any such Restricted Subsidiary for such period shall be included in determining such Consolidated Net Income; (4) any gain (but not loss) realized upon the sale or other disposition of any assets of Hexcel, its consolidated subsidiaries or any other person which is not sold or otherwise disposed of in the ordinary course of business and any gain (but not loss) realized upon the sale or other disposition of any capital stock of any person; (5) any extraordinary gain or loss; (6) cumulative effect of a change in accounting principles; and (7) any non-cash business consolidation and acquisition charges recognized with respect to the Clark-Schwebel acquisition (except to the extent such non-cash charges represent an accrual of or a reserve for cash expenditures in any future period). Notwithstanding the foregoing, for the purposes of the covenant described under the caption "--Covenants--Limitation on Restricted Payments" only, there shall be excluded from Consolidated Net Income any dividends, repayments of loans or advances or other transfers of assets from Unrestricted Subsidiaries to Hexcel or a Restricted Subsidiary to the extent such dividends, repayments or transfers increase the amount of Restricted Payments permitted under such covenant pursuant to clause (a)(3)(D) thereof. "CONSOLIDATED NET WORTH" means the total of the amounts shown on the balance sheet of Hexcel and its consolidated subsidiaries, determined on a consolidated basis in accordance with GAAP, as of 103 the end of the most recent fiscal quarter of Hexcel ending at least 45 days prior to the taking of any action for the purpose of which the determination is being made, as the sum of: (1) the par or stated value of all outstanding capital stock of Hexcel; plus (2) paid-in capital or capital surplus relating to such capital stock; plus (3) any retained earnings or earned surplus; less (4) any accumulated deficit; less (5) any amounts attributable to disqualified stock. "CREDIT AGREEMENT" means: (1) one or more credit agreements, loan agreements or similar agreements providing for working capital advances, term loans, letter of credit facilities or similar advances, loan or facilities to Hexcel, any Restricted Subsidiary, domestic or foreign, or any or all of such persons, including the Second Amended and Restated Credit Agreement in effect on the issue date, among Hexcel and specified subsidiaries of Hexcel, as borrowers, the lenders party thereto and Credit Suisse First Boston as administrative agent for the lenders, Citibank, N.A., as documentation agent for the lenders, as the same may be amended, modified, restated or supplemented from time to time, or any other indebtedness referred to in clause (b)(1) of the covenant described under the caption "--Covenants--Limitation on Indebtedness"; and (2) any one or more agreements governing advances, loans or facilities provided to refund, refinance, replace or renew (including subsequent or successive refundings, financings, replacements and renewals) Indebtedness under the agreement or agreements referred to in the foregoing clause (1), as the same may be amended, modified, restated or supplemented from time to time. "DEFAULT" means any event which is, or after notice or passage of time or both would be, an Event of Default. "DESIGNATED SENIOR INDEBTEDNESS" means: (1) the Bank Indebtedness; and (2) any other Senior Indebtedness (other than hedging obligations) which, at the date of determination, has an aggregate principal amount outstanding of, or under which, at the date of determination, the holders of which are committed to lend up to, at least $25.0 million and is specifically designated by Hexcel in the instrument evidencing or governing the Senior Indebtedness as "Designated Senior Indebtedness" for purposes of the indenture in an Officers' Certificate received by the Trustee. "EBITDA" for any period means the sum of Consolidated Net Income plus, without duplication, the following to the extent deducted in calculating such Consolidated Net Income: (1) all income tax expense of Hexcel and its consolidated Restricted Subsidiaries for such period; (2) Consolidated Interest Expense for such period; (3) depreciation expense and amortization expense of Hexcel and its consolidated Restricted Subsidiaries for such period (excluding amortization expense attributable to a prepaid cash item that was paid in a prior period); (4) all other non-cash items of Hexcel and its consolidated Restricted Subsidiaries for such period (excluding any such non-cash charge to the extent that it represents an accrual of or reserve for cash expenditures in any future period) reducing Consolidated Net Income less all non-cash items increasing Consolidated Net Income for such period; and 104 (5) business consolidation and acquisition charges recognized for such period to the extent recognized during or prior to the fiscal year ended December 31, 2000; PROVIDED, HOWEVER, that the aggregate amount of the charges described in this clause (5) through the end of such fiscal year shall not exceed $25.0 million. Notwithstanding the foregoing, the provision for taxes based on the income or profits of, and the depreciation and amortization of, a Restricted Subsidiary shall be added to Consolidated Net Income to compute EBITDA only to the extent (and in the same proportion) that the net income of such Restricted Subsidiary was included in calculating Consolidated Net Income and only if a corresponding amount would be permitted at the date of determination to be dividended to Hexcel by such Restricted Subsidiary without prior approval (that has not been obtained), pursuant to the terms of its charter and all agreements, instruments, judgments, decrees, orders, statutes, rules and governmental regulations applicable to such Restricted Subsidiary or its stockholders. "EXISTING JOINT VENTURES" means: (1) Asahi-Schwebel, (2) Asahi-Schwebel (Taiwan), (3) Asahi-Schwebel Interglas (Philippines), (4) CS Tech-Fab, (5) CS Interglas, (6) Asian Composite Manufacturing, (7) BHA Aero Composite Parts and (8) DIC. The indenture also defines each of the terms set forth in (1)-(8) hereof. "FOREIGN SUBSIDIARY" means a subsidiary that is incorporated in a jurisdiction other than, and the majority of the assets of which are located outside of, the United States, a State thereof and the District of Columbia. "GAAP" means generally accepted accounting principles. "GOVERNANCE AGREEMENT" means the Governance Agreement dated as of February 29, 1996, between Ciba Specialty Chemicals Holdings Inc. and Hexcel. "GUARANTEE" means any obligation, contingent or otherwise, of any person directly or indirectly guaranteeing any Indebtedness of any other person and any obligation, direct or indirect, contingent or otherwise, of such person: (1) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness of such other person (whether arising by virtue of partnership arrangements, or by agreements to keep-well, to purchase assets, goods, securities or services, to take-or-pay or to maintain financial statement conditions or otherwise); or (2) entered into for purposes of assuring in any other manner the obligee of such Indebtedness of the payment thereof or to protect such obligee against loss in respect thereof (in whole or in part); PROVIDED, HOWEVER, that the term "guarantee" shall not include: (1) endorsements for collection or deposit in the ordinary course of business; or (2) obligations, warranties and indemnities, not with respect to Indebtedness of any person, that have been or are undertaken or made in the ordinary course of business or in connection with any Asset Disposition permitted by the covenant described under the caption "--Covenants--Limitation on Asset Dispositions" and not for the benefit of or in favor of an affiliate of Hexcel or any of its subsidiaries. The term "GUARANTEE" used as a verb has a corresponding meaning. 105 "INCUR" means issue, assume, guarantee, incur or otherwise become liable for; PROVIDED, HOWEVER, that any Indebtedness or capital stock of a person existing at the time such person becomes a Restricted Subsidiary (whether by merger, consolidation, acquisition or otherwise) shall be deemed to be Incurred by such Restricted Subsidiary at the time it becomes a Restricted Subsidiary; PROVIDED, FURTHER, that any amendment, modification or waiver of any provision of any document pursuant to which Indebtedness was previously Incurred shall not be deemed to be an Incurrence of Indebtedness as long as such amendment, modification or waiver does not: (1) increase the principal or premium thereof or interest rate thereon; (2) change to an earlier date the stated maturity thereof or the date of any scheduled or required principal payment thereon or the time or circumstances under which such Indebtedness may or shall be redeemed; or (3) if such Indebtedness is contractually subordinated in right of payment to the notes, modify or affect, in any manner adverse to the holders, such subordination. The term "Incurrence" when used as a noun shall have a correlative meaning. The accretion of principal of a non-interest bearing or other discount security shall not be deemed the Incurrence of Indebtedness. "INDEBTEDNESS" means, with respect to any person on any date of determination (without duplication): (1) the principal of and premium (if any such premium is then due and owing) in respect of (A) indebtedness of such person for money borrowed; and (B) indebtedness evidenced by notes, debentures, bonds or other similar instruments for the payment of which such person is responsible or liable; (2) all Capitalized Lease Obligations of such person; (3) all obligations of such person issued or assumed as the deferred purchase price of property, all conditional sale obligations of such person and all obligations of such person under any title retention agreement (but excluding trade accounts payable arising in the ordinary course of business); (4) all obligations of such person for the reimbursement of any obligor on any letter of credit, banker's acceptance or similar credit transaction (other than obligations with respect to letters of credit securing obligations (other than obligations described in (1) through (3) above) entered into in the ordinary course of business of such person to the extent such letters of credit are not drawn upon or, if and to the extent drawn upon, such drawing is reimbursed no later than the tenth business day following receipt by such person of a demand for reimbursement following payment on the letter of credit); (5) the amount of all obligations of such person with respect to the redemption, repayment or other repurchase of any disqualified stock of such person, or with respect to any subsidiary of such person, the liquidation preference with respect to any preferred stock (but excluding, in each case, any accrued dividends); (6) all obligations of the type referred to in clauses (1) through (5) of other persons and all dividends of other persons for the payment of which, in either case, such person is responsible or liable, directly or indirectly, as obligor, guarantor or otherwise, including by means of any guarantee; (7) all obligations of the type referred to in clauses (1) through (6) of other persons secured by any lien on any property or asset of such person (whether or not such obligation is assumed by such person), the amount of such obligation being deemed to be the lesser of the value of such property or assets or the amount of the obligation so secured; and (8) to the extent not otherwise included in this definition, hedging obligations of such person. 106 For purposes of this definition, the obligation of such person with respect to the redemption, repayment or repurchase price of any disqualified stock that does not have a fixed redemption, repayment or repurchase price shall be calculated in accordance with the terms of such stock as if such stock were redeemed, repaid or repurchased on any date on which Indebtedness shall be required to be determined pursuant to the indenture; PROVIDED, HOWEVER, that if such stock is not then permitted to be redeemed, repaid or repurchased, the redemption, repayment or repurchase price shall be the book value of such stock as reflected in the most recent financial statements of such person. The amount of Indebtedness of any person at any date shall be the outstanding balance at such date of all unconditional obligations as described above and, with respect to contingent obligations, the amount of liability required by GAAP to be accrued or reflected on the most recently published balance sheet of such person; PROVIDED, HOWEVER, that: (1) the amount outstanding at any time of any Indebtedness issued with original issue discount is the face amount of such Indebtedness less the remaining unamortized portion of the original issue discount of such Indebtedness at such time as determined in conformity with GAAP; and (2) Indebtedness shall not include any liability for federal, state, local or other taxes. "INVESTMENT" by any person in any other person means any direct or indirect advance, loan (other than advances to customers or suppliers in the ordinary course of business that are recorded as accounts receivable on the balance sheet of such former person) or other extension of credit (including by way of guarantee or similar arrangement) or capital contribution to (by means of any transfer of cash or other property to others or any payment for property or services for the account or use of others), or any purchase or acquisition of capital stock, Indebtedness or other similar instruments issued by such latter person that are or would be classified as investments on a balance sheet of such former person prepared in accordance with GAAP. In determining the amount of any Investment in respect of any property or assets other than cash, such property or asset shall be valued at its fair market value at the time of such Investment (unless otherwise specified in this definition), as determined in good faith by the board of directors. For purposes of the definition of "Unrestricted Subsidiary", the definition of "Restricted Payment" and the covenant described under the caption "--Covenants--Limitation on Restricted Payments," (1) "Investment" shall include the portion (proportionate to Hexcel's equity interest in such subsidiary) of the fair market value of the net assets of any subsidiary of Hexcel at the time that such subsidiary is designated an Unrestricted Subsidiary; PROVIDED, HOWEVER, that upon a redesignation of such subsidiary as a Restricted Subsidiary, Hexcel shall be deemed to continue to have a permanent "Investment" in an Unrestricted Subsidiary equal to an amount (if positive) equal to (x) Hexcel's "Investment" in such subsidiary at the time of such redesignation less (y) the portion (proportionate to Hexcel's equity interest in such subsidiary) of the fair market value of the net assets of such subsidiary at the time of such redesignation; and (2) any property transferred to or from an Unrestricted Subsidiary shall be valued at its fair market value at the time of such transfer, in each case as determined in good faith by the board of directors. "INVESTMENT GRADE RATING" means a rating of BBB- or higher by Standard & Poor's Ratings Group, Inc. and Baa3 or higher by Moody's Investors Service, Inc. or the equivalent of such ratings by Standard & Poor's Ratings Group, Inc. or Moody's Investors Service, Inc. or by any other Rating Agency selected as provided in the definition of Rating Agency. "ISSUE DATE" means the date on which the notes are originally issued. "JOINT VENTURE" means the Existing Joint Ventures, and any other joint venture, partnership or other similar arrangement whether in corporate, partnership or other legal form which is formed by 107 Hexcel or any Restricted Subsidiary and one or more persons which own, operate or service a related business. "JOINT VENTURE SUBSIDIARY" means a Restricted Subsidiary formed by Hexcel or any Restricted Subsidiary and one or more persons which own, operate or service a related business. "LENDERS" has the meaning specified in the Credit Agreement. "NET AVAILABLE CASH" from an Asset Disposition means the aggregate amount of cash received in respect of an Asset Disposition (including any cash payments received by way of deferred payment of principal pursuant to a note or installment receivable or otherwise, but only as and when received, but excluding any other consideration received in the form of assumption by the acquiring person of Indebtedness or other obligations relating to such properties or assets or received in any other noncash form) therefrom, in each case net of: (1) all legal, accounting, title and recording tax expenses, commissions and other fees and expenses incurred, and all federal, state, provincial, foreign and local taxes required to be paid or accrued as a liability under GAAP as a consequence of such Asset Disposition; (2) all payments made on any Indebtedness which is secured by any assets subject to such Asset Disposition, in accordance with the terms of any lien upon such assets, or which must by its terms, or in order to obtain a necessary consent to such Asset Disposition, or by applicable law, be repaid out of the proceeds from such Asset Disposition; (3) all distributions and other payments required to be made to minority interest holders in Restricted Subsidiaries or Joint Ventures as a result of such Asset Disposition; (4) any amount of cash required to be placed in escrow by one or more parties to a transaction relating to contingent liabilities associated with an Asset Disposition until such cash is released to Hexcel or a Restricted Subsidiary; and (5) the deduction of appropriate amounts to be provided by the seller as a reserve, in accordance with GAAP, against any liabilities associated with the assets disposed of in such Asset Disposition, including pension and other post-employment benefit liabilities, liabilities related to environmental matters and liabilities under any indemnification obligations associated with such Asset Dispositions, all as determined in conformity with GAAP, retained by Hexcel or any Restricted Subsidiary after such Asset Disposition. "NET CASH PROCEEDS," with respect to any issuance or sale of capital stock, means the cash proceeds of such issuance or sale net of attorneys' fees, accountants' fees, printing costs, underwriters' or placement agents' fees, discounts or commissions and brokerage stock exchange listing fees, consultant and other fees actually incurred in connection with such issuance or sale and net of taxes paid or payable as a result thereof. "PERMITTED HOLDERS" means: (1) Ciba Specialty Chemicals Holding Inc. and its affiliates; (2) any person succeeding to the business of Ciba Specialty Chemicals Holding Inc., including pursuant to any merger or combination of one or more businesses that includes the business of Ciba Specialty Chemicals Holding Inc.; and (3) any affiliate of any person described in clause (2). "PERMITTED INVESTMENT" means an Investment (1) in Hexcel or a Restricted Subsidiary or a person which will, upon the making of such Investment, become a Restricted Subsidiary; PROVIDED, HOWEVER, that the primary business of such Restricted Subsidiary is a related business; (2) in another person, if as a result of such Investment such other person is merged or consolidated with or into, or transfers or conveys all or substantially all its assets to, Hexcel or 108 a Restricted Subsidiary; PROVIDED, HOWEVER, that such person's primary business is a related business; (3) in Temporary Cash Investments; (4) in receivables owing to Hexcel or any Restricted Subsidiary if created or acquired in the ordinary course of business and payable or dischargeable in accordance with customary trade terms; PROVIDED, HOWEVER, that such trade terms may include such concessionary trade terms as Hexcel or any such Restricted Subsidiary deems reasonable under the circumstances; (5) in loans or advances to officers, directors or employees of Hexcel or any of its subsidiaries for travel, transportation, entertainment, and moving and other relocation expenses and other business expenses that are expected at the time of such advances ultimately to be treated as expenses for accounting purposes and that are made in the ordinary course of business; (6) in loans or advances to employees made in the ordinary course of business consistent with past practices of Hexcel or such subsidiary, as the case may be; (7) in stock, obligations or securities received (A) in settlement of debts created in the ordinary course of business and owing to Hexcel or any subsidiary; (B) in satisfaction of judgments; or (C) as consideration in connection with an Asset Disposition permitted pursuant to the covenant described under the caption "--Covenants--Limitation on Asset Dispositions;" and (8) deemed to have been made as a result of the acquisition of a person that at the time of such acquisition held instruments constituting Investments that were not acquired in contemplation of the acquisition of such person. "PLANS" means any employee benefit plan, retirement plan, deferred compensation plan, restricted stock plan, health, life, disability or other insurance plan or program, employee stock purchase plan, employee stock ownership plan, pension plan, stock option plan or similar plan or arrangement of Hexcel or any subsidiary, or any successor thereof and "Plan" shall have a correlative meaning. "PUBLIC EQUITY OFFERING" means an underwritten primary public offering of common stock of Hexcel pursuant to an effective registration statement under the Securities Act. "PUBLIC MARKET" means any time after (x) a public equity offering has been consummated and (y) at least 15% of the total issued and outstanding common stock of Hexcel has been distributed by means of an effective registration statement under the Securities Act or sales pursuant to Rule 144 under the Securities Act. "RATING AGENCY" means Standard & Poor's Ratings Group, Inc. and Moody's Investors Service, Inc. or if Standard & Poor's Ratings Group, Inc. or Moody's Investors Service, Inc. or both shall not make a rating on the notes publicly available, a nationally recognized statistical rating agency or agencies, as the case may be, selected by Hexcel (as certified by a resolution of the board of directors) which shall be substituted for Standard & Poor's Ratings Group, Inc. or Moody's Investors Service, Inc. or both, as the case may be. "REFINANCING INDEBTEDNESS" means Indebtedness that refunds, refinances, replaces, renews, repays or extends (including pursuant to any defeasance or discharge mechanism) (collectively, "refinances," and "refinanced" shall have a correlative meaning) any Indebtedness or Incurred in compliance with the indenture (including Indebtedness of Hexcel that refinances Indebtedness of any Restricted Subsidiary 109 and Indebtedness of any Restricted Subsidiary that refinances Indebtedness of another Restricted Subsidiary) including Indebtedness that refinances Refinancing Indebtedness; PROVIDED, HOWEVER, that: (1) the Refinancing Indebtedness has stated maturity no earlier than any stated maturity of the Indebtedness being refinanced; (2) the Refinancing Indebtedness has an Average Life at the time such Refinancing Indebtedness is Incurred that is equal to or greater than the Average Life of the Indebtedness being refinanced; and (3) such Refinancing Indebtedness is Incurred in an aggregate principal amount (or if issued with original issue discount, an aggregate issue price) that is equal to or less than the sum of (x) either the aggregate principal amount (or if issued with original issue discount, the aggregate accreted value) of the Indebtedness being refinanced (including, with respect to both the Refinancing Indebtedness and the Indebtedness being refinanced, amounts then outstanding and amounts available thereunder) or, if the Indebtedness being refinanced is the Capitalized Lease Obligation entered into on or about September 15, 1998, the aggregate purchase price of the property subject thereto, plus (y) unpaid interest, prepayment penalties, redemption premiums, defeasance costs, fees, expenses and other amounts owing with respect thereto, plus reasonable financing fees and other reasonable out-of-pocket expenses incurred in connection therewith; PROVIDED FURTHER, HOWEVER, that Refinancing Indebtedness shall not include Indebtedness of a subsidiary that refinances Indebtedness of Hexcel. "REGISTRATION RIGHTS AGREEMENT" means the Registration Rights Agreement dated as of June 29, 2001, between Hexcel and Credit Suisse First Boston Corporation, Deutsche Banc Alex. Brown Inc., Goldman, Sachs & Co. and J.P. Morgan Securities Inc. "RELATED BUSINESS" means any business conducted by Hexcel and its Restricted Subsidiaries on the issue date and any business related, ancillary or complementary to the business of Hexcel and its Restricted Subsidiaries on the issue date. "RESTRICTED PAYMENT" with respect to any person means: (1) the declaration or payment of any dividends or any other distributions of any sort in respect of its capital stock (including any payment in connection with any merger or consolidation involving such person) or similar payment to the direct or indirect holders of its capital stock (other than dividends or distributions payable solely in its capital stock (other than disqualified stock) and dividends or distributions payable solely to Hexcel or a Restricted Subsidiary, and other pro rata dividends or other distributions made by a subsidiary that is not a Wholly Owned Subsidiary to minority stockholders (or owners of an equivalent interest in the case of a subsidiary that is an entity other than a corporation)); (2) the purchase, redemption or other acquisition or retirement for value of any capital stock of Hexcel held by any person or of any capital stock of the Restricted Subsidiary held by any affiliate of Hexcel (other than a Restricted Subsidiary), including the exercise of any option to exchange any capital stock (other than into capital stock of Hexcel that is not disqualified stock); (3) the purchase, repurchase, redemption, defeasance or other acquisition or retirement for value, prior to scheduled maturity, scheduled repayment or scheduled sinking fund payment of any Subordinated Obligations (other than the purchase, repurchase, or other acquisition of Subordinated Obligations purchased in anticipation of satisfying a sinking fund obligation, principal installment or final maturity, in each case due within one year of the date of acquisition); or (4) the making of any Investment (other than a Permitted Investment) in any person. 110 "RESTRICTED SUBSIDIARY" means any subsidiary of Hexcel that is not an Unrestricted Subsidiary. "SECURED INDEBTEDNESS" means any Indebtedness of Hexcel secured by a lien. "SENIOR INDEBTEDNESS" means: (1) all Bank Indebtedness; and (2) all other Indebtedness of Hexcel, including interest (including interest accruing at the contract rate specified in the Credit Agreement or the documentation governing such other Indebtedness, as applicable (including any rate applicable upon default) on or after the filing of any petition in bankruptcy, or the commencement of any similar state, federal or foreign reorganization or liquidation proceeding, relating to Hexcel, whether or not allowed as a claim against Hexcel in any such proceeding) and fees thereon, whether outstanding on the issue date or thereafter issued or Incurred, unless in the instrument creating or evidencing the same or pursuant to which the same is outstanding it is provided that such obligations are not superior in right of payment to the notes; PROVIDED, HOWEVER, that Senior Indebtedness shall not include: (1) any liability for federal, state, local or other taxes owed or owing by Hexcel; (2) any accounts payable or other liabilities to trade creditors arising in the ordinary course of business (including guarantees thereof or instruments evidencing such liabilities); (3) any Indebtedness, guarantee or obligation of Hexcel which is subordinate or junior in any respect to any other Indebtedness, guarantee or obligation of Hexcel, including any Senior Subordinated Indebtedness and any Subordinated Obligations; and (4) any obligations with respect to any capital stock. "SENIOR SUBORDINATED INDEBTEDNESS" means the notes and any other Indebtedness of Hexcel that specifically provides that such Indebtedness is to rank PARI PASSU with the notes in right of payment and is not subordinated by its terms in right of payment to any Indebtedness or other obligation of Hexcel which is not Senior Indebtedness. "SIGNIFICANT SUBSIDIARY" means a Restricted Subsidiary that is a "significant subsidiary" as defined in Rule 1-02 of Regulation S-X promulgated under the Securities Act and the Exchange Act. "SPECIFIED PROPERTIES" shall mean Hexcel's manufacturing plants located in Lancaster, Ohio, Welkenraedt, Belgium, Brindisi, Italy and Lodi, New Jersey, and certain real property adjacent to the Hexcel's manufacturing plant in Livermore, California. "SUBORDINATED OBLIGATION" means any Indebtedness of Hexcel (whether outstanding on the issue date or thereafter incurred) that is contractually subordinated or junior in right of payment to the notes pursuant to a written agreement, including the convertible notes and the convertible debentures. "SUBSIDIARY" of any person means any corporation, association, partnership or other business entity of which more than 50% of the total voting power of shares of voting stock is at the time owned or controlled, directly or indirectly, by: (1) such person, (2) such person and one or more subsidiaries of such person, or (3) one or more subsidiaries of such person. Unless the context requires otherwise, "subsidiary" shall refer to a subsidiary of Hexcel. "TEMPORARY CASH INVESTMENTS" means any of the following: (1) investments in U.S. government obligations; (2) investments in time deposit accounts, certificates of deposit and money market deposits maturing within 180 days of the date of acquisition thereof issued by a bank or trust company 111 which is organized under the laws of the United States of America, any State thereof or any foreign country recognized by the United States of America having capital, surplus and undivided profits aggregating in excess of $50.0 million (or the U.S. dollar equivalent thereof) and whose long-term debt is rated "A-" or higher (or such equivalent rating) by at least one "nationally recognized statistical rating organization" (as defined in Rule 436 under the Securities Act); (3) repurchase obligations with a term of not more than 30 days for underlying securities of the types described in clause (1) above entered into with a bank meeting the qualifications described in clause (2) above; (4) investments in commercial paper, maturing not more than 90 days after the date of acquisition, issued by a corporation (other than an affiliate of Hexcel) organized and in existence under the laws of the United States of America or any foreign country recognized by the with a rating at the time as of which any investment therein is made of "P-1" (or higher) according to Moody's Investors Service, Inc. or "A-1" (or higher) according to Standard & Poor's Ratings Group; and (5) investments in securities with maturities of six months or less from the date of acquisition issued or fully guaranteed by any state, commonwealth or territory of the United States of America, or by any political subdivision or taxing authority thereof, and rated at least "A" by Standard & Poors Ratings Group or "A" by Moody's Investors Service, Inc. "UNRESTRICTED SUBSIDIARY" means: (1) any subsidiary of Hexcel that at the time of determination shall be designated an Unrestricted Subsidiary by the board of directors in the manner provided below; and (2) any subsidiary of an Unrestricted Subsidiary. The board of directors may designate any subsidiary of Hexcel (including any newly acquired or newly formed subsidiary) to be an Unrestricted Subsidiary unless such subsidiary or any of its Subsidiaries owns any capital stock or Indebtedness of, or holds any lien on any property of, Hexcel or any other subsidiary of Hexcel that is not a subsidiary of the subsidiary to be so designated; PROVIDED, HOWEVER, that either (A) the subsidiary to be so designated has total assets of $1,000 or less or (B) if such subsidiary has assets greater than $1,000, such designation would be permitted under the covenant described under the caption "--Covenants--Limitation on Restricted Payments." The board of directors may designate any Unrestricted Subsidiary to be a Restricted Subsidiary; PROVIDED, HOWEVER, that immediately after giving effect to such designation (x) Hexcel could Incur $1.00 of additional Indebtedness under paragraph (a) of the covenant described under the caption "--Covenants--Limitation on Indebtedness" and (y) no Default shall have occurred and be continuing. Any such designation by the board of directors shall be evidenced to the trustee by promptly filing with the trustee a copy of the resolution of the board of directors giving effect to such designation and an officers' certificate certifying that such designation complied with the foregoing provisions. "WHOLLY OWNED SUBSIDIARY" means a Restricted Subsidiary all the capital stock of which (other than Qualified Preferred Stock and directors' qualifying shares) is owned by Hexcel or another Wholly Owned Subsidiary. 112 BOOK-ENTRY; DELIVERY AND FORM The certificates representing the exchange notes will be issued in fully registered form. Except as described below, the exchange notes initially will be represented by one or more global notes, in definitive, fully registered form without interest coupons. The global notes will be deposited with the trustee as custodian for DTC and registered in the name of Cede & Co. or another nominee as DTC may designate. DTC has advised us as follows: - DTC is a limited purpose trust company organized under the laws of the State of New York, a "banking organization" within the meaning of the New York Banking Law, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the Uniform Commercial Code and a "clearing agency" registered pursuant to the provision of Section 17A of the Exchange Act. - DTC was created to hold securities for its participants and to facilitate the clearance and settlement of securities transactions between participants through electronic book-entry changes in accounts of its participants, thereby eliminating the need for physical movement of certificates. Participants include securities brokers and dealers, banks, trust companies and clearing corporations and other organizations. Indirect access to the DTC system is available to others, including banks, brokers, dealers and trust companies that clear through or maintain a custodial relationship with a participant, either directly or indirectly. - Upon the issuance of the global notes, DTC or its custodian will credit, on its internal system, the respective principal amounts of the exchange notes represented by the global notes to the accounts of persons who have accounts with DTC. Ownership of beneficial interests in the global notes will be limited to persons who have accounts with DTC or persons who hold interests through the persons who have accounts with DTC. Persons who have accounts with DTC are referred to as "participants." Ownership of beneficial interests in the global notes will be shown on, and the transfer of that ownership will be effected only through, records maintained by DTC or its nominee, with respect to interests of participants, and the records of participants, with respect to interests of persons other than participants. So long as DTC or its nominee is the registered owner or holder of the global notes, DTC or the nominee, as the case may be, will be considered the sole record owner or holder of the exchange notes represented by the global notes for all purposes under the indenture and the exchange notes. No beneficial owners of an interest in the global notes will be able to transfer that interest except according to DTC's applicable procedures, in addition to those provided for under the indenture. Owners of beneficial interests in the global notes will not: - be entitled to have the exchange notes represented by the global notes registered in their names, - receive or be entitled to receive physical delivery of certificated notes in definitive form, and - be considered to be the owners or holders of any exchange notes under the global notes. Accordingly, each person owning a beneficial interest in the global notes must rely on the procedures of DTC and, if a person is not a participant, on the procedures of the participant through which that person owns its interests, to exercise any right of a holder of exchange notes under the global notes. We understand that under existing industry practice, in the event an owner of a beneficial interest in the global notes desires to take any action that DTC, as the holder of the global notes, is entitled to take, DTC would authorize the participants to take that action, and that the participants would authorize beneficial owners owning through the participants to take that action or would otherwise act upon the instructions of beneficial owners owning through them. 113 Payments of the principal of, premium, if any, and interest on the exchange notes represented by the global notes will be made to DTC or its nominee, as the case may be, as the registered owner of the global notes. Neither we, the trustee, nor any paying agent will have any responsibility or liability for any aspect of the records relating to or payments made on account of beneficial ownership interests in the global notes or for maintaining, supervising or reviewing any records relating to the beneficial ownership interests. We expect that DTC or its nominee, upon receipt of any payment of principal of, premium, if any, or interest on the global notes will credit participants' accounts with payments in amounts proportionate to their respective beneficial ownership interests in the principal amount of the global notes, as shown on the records of DTC or its nominee. We also expect that payments by participants to owners of beneficial interests in the global notes held through these participants will be governed by standing instructions and customary practices, as is now the case with securities held for the accounts of customers registered in the names of nominees for these customers. These payments will be the responsibility of these participants. Transfer between participants in DTC will be effected in the ordinary way in accordance with DTC rules. If a holder requires physical delivery of notes in certificated form for any reason, including to sell notes to persons in states which require the delivery of the notes or to pledge the notes, a holder must transfer its interest in the global notes in accordance with the normal procedures of DTC and the procedures set forth in the indenture. Unless and until they are exchanged in whole or in part for certificated exchange notes in definitive form, the global notes may not be transferred except as a whole by DTC to a nominee of DTC or by a nominee of DTC to DTC or another nominee of DTC. Beneficial owners of exchange notes registered in the name of DTC or its nominee will be entitled to be issued, upon request, exchange notes in definitive certificated form. DTC has advised us that DTC will take any action permitted to be taken by a holder of notes, including the presentation of notes for exchange as described below, only at the direction of one or more participants to whose account the DTC interests in the global notes are credited. Further, DTC will take any action permitted to be taken by a holder of notes only in respect of that portion of the aggregate principal amount of notes as to which the participant or participants has or have given that direction. Although DTC has agreed to these procedures in order to facilitate transfers of interests in the global notes among participants of DTC, it is under no obligation to perform these procedures, and may discontinue them at any time. Neither the trustee nor we will have any responsibility for the performance by DTC or its participants or indirect participants of their respective obligations under the rules and procedures governing their operations. Subject to specified conditions, any person having a beneficial interest in the global notes may, upon request to the trustee, exchange the beneficial interest for exchange notes in the form of certificated notes. Upon any issuance of certified notes, the trustee is required to register the certificated notes in the name of, and cause the same to be delivered to, the person or persons, or the nominee of these persons. In addition, if DTC is at any time unwilling or unable to continue as a depositary for the global notes, and a successor depositary is not appointed by us within 90 days, we will issue certificated notes in exchange for the global notes. 114 EXCHANGE OFFER; REGISTRATION RIGHTS As part of the sale of the original notes to Credit Suisse First Boston Corporation, Deutsche Banc Alex. Brown, Inc., Goldman, Sachs & Co. and J.P. Morgan Securities Inc. pursuant to the purchase agreement, dated June 15, 2001, among Hexcel and the initial purchasers, the holders of the original notes became entitled to the benefits of the registration rights agreement, dated as of June 29, 2001, by and among Hexcel and the initial purchasers. Under the registration rights agreement, we have agreed to use our best efforts: - to file a registration statement with the SEC by September 27, 2001, in connection with a registered offer to exchange the original notes for exchange notes, having terms substantially identical in all material respects to the original notes, except that the exchange notes will not contain transfer restrictions; - to cause the registration statement to become effective by December 26, 2001; - to offer the exchange notes in exchange for surrender of the original notes, as soon as practicable after the effectiveness of the registration statement; and - to keep the exchange offer open for not less than 30 days--or longer if required by applicable law--after the date notice of the exchange offer is mailed to the holders of the original notes. The exchange offer being made by this prospectus, if consummated within the required time periods, will satisfy our obligations under the registration rights agreement. We understand that there are approximately beneficial owners of original notes. This prospectus, together with the letter of transmittal, is being sent to all the beneficial holders known to us. For each original note validly tendered to us in the exchange offer and not withdrawn by the holder of the original note, the holder will receive an exchange note having a principal amount equal to that of the tendered original note. Interest on each exchange note will accrue from the last interest payment date on which interest was paid on the tendered original note in exchange for an exchange note or, if no interest has been paid on the original note, from the date of the original issue of the original note. Based on an interpretation of the Securities Act by the staff of the SEC set forth in several no-action letters to third parties, and subject to the immediately following sentence, we believe that the exchange notes issued in the exchange offer may be offered for resale, resold and otherwise transferred by holders of the exchange notes without further compliance with the registration and prospectus delivery provisions of the Securities Act. However, any purchaser of original notes who is an "affiliate" of ours or who intends to participate in the exchange offer for the purpose of distributing the exchange notes: - will not be able to rely on the interpretation by the staff of the SEC set forth in the above referenced no-action letters, - will not be able to tender original notes in the exchange offer, and - must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any sale or transfer of the notes, unless the sale or transfer is made under an exemption from these requirements. Each holder of the original notes who wishes to exchange original notes for exchange notes in the exchange offer will be required to make representations, including that: - it is neither our affiliate nor a broker-dealer tendering notes acquired directly from us for its own account; - any exchange notes to be received by it were acquired in the ordinary course of its business; and 115 - at the time of commencement of the exchange offer, it has no arrangement with any person to participate in the distribution, within the meaning of the Securities Act, of the exchange notes. In addition, in connection with any resales of exchange notes, any participating broker-dealer who acquired the exchange notes for its own account as a result of market-making activities or other trading activities must deliver a prospectus meeting the requirements of the Securities Act. The SEC has taken the position that participating broker-dealers may fulfill their prospectus delivery requirements, except for the resale of an unsold allotment from the original sale of the original notes, with the prospectus contained in the registration statement. Under the registration rights agreement, we are required to allow participating broker-dealers and other persons, if any, subject to similar prospectus delivery requirements to use the prospectus contained in the registration statement for the resale of exchange notes. In the event that applicable interpretations of the staff of the SEC do not permit us to effect the exchange offer, or if for any other reason we do not consummate the exchange offer within 180 days of the date of the registration rights agreement, or if an initial purchaser notifies us within 10 business days following consummation of the exchange offer that notes held by it are not eligible for exchange in the exchange offer, or if any holder notifies us that it: (1) is prohibited by law or SEC policy from participating in the exchange offer; (2) may not resell the exchange notes acquired in the exchange offer to the public without delivering a prospectus and this prospectus is not appropriate or available for the resales by the holder; or (3) is a broker-dealer and holds notes that are part of an unsold allotment from the original sale of the notes, then, we have agreed: - to file a shelf registration statement as promptly as practicable, covering resales of the original notes or the exchange notes, as the case may be; - to use our best efforts to cause the shelf registration statement to be declared effective under the Securities Act; and - to keep the shelf registration statement effective until the earliest of (A) the time when the notes covered by the shelf registration statement can be sold pursuant to Rule 144 without any limitations under clauses (c), (e), (f) and (h) of Rule 144, (B) two years from the effective date and (C) the date on which all notes registered under the shelf registration statement are disposed of in accordance with the shelf registration statement. We have agreed to pay additional cash interest on the notes if: (1) by September 27, 2001, neither the registration statement nor the shelf registration statement is filed with the SEC; (2) by December 26, 2001, the exchange offer is not consummated and, if applicable, the shelf registration statement is not declared effective; or (3) after either the registration statement or the shelf registration statement is declared effective, the registration statement thereafter ceases to be effective or usable, subject to noted exceptions. The rate of the additional interest will be 0.50% per annum following the occurrence of a registration default, until all registration defaults have been cured, subject to noted exceptions. Interest on each exchange note will accrue from July 15, 2001 or from the most recent interest payment date to which interest was paid on the original note surrendered in exchange for the exchange 116 note or on the exchange note, as the case may be. The exchange notes will bear interest at the rate of 9 3/4% per annum, except that, if any interest accrues on the exchange notes in respect of any period prior to their issuance, interest will accrue at the rate or rates borne by the notes from time to time during that period. If we effect the exchange offer, we will be entitled to close the exchange offer 30 days after the commencement of the offer, provided that we have accepted all notes validly tendered in accordance with the terms of the exchange offer. The summary in this prospectus of these provisions of the registration rights agreement does not purport to be complete and is subject to, and is qualified in its entirety by reference to, all the provisions of the registration rights agreement, which is filed as an exhibit to the registration statement to which this prospectus forms a part. 117 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS GENERAL On December 19, 2000, under the terms of a stock purchase agreement dated October 11, 2000 among a group of investors controlled by subsidiaries of Goldman Sachs and Ciba Specialty Chemicals Holding Inc., the Goldman Sachs investor group acquired 14,525,000 shares of our common stock from Ciba for an aggregate purchase price of $159,775,000. The purchase price was comprised of $123,462,500 in cash and two 7.5% Recourse Secured Pay-In-Kind Promissory Notes due 2004 issued by the Goldman Sachs investor group to Ciba, one in the amount of $20,680,780 and one in the amount of $15,631,720. Each of the two actual companies that purchased the shares is a limited liability company controlled by Goldman Sachs, and obtained the cash portion of the purchase price from capital contributions by its members. On December 19, 2000, we entered into a governance agreement with the Goldman Sachs investor group. The governance agreement was amended on April 25, 2001. We entered into two other agreements with the Goldman Sachs investor group, including a registration rights agreement dated December 19, 2000 and an agreement dated October 11, 2000 in which we made representations and warranties to the Goldman Sachs investor group and provided the Goldman Sachs investor group with indemnification, subject to limitations, for losses suffered as a result of breaches by us of the representations and warranties. Each of these agreements is described below. Prior to the purchase by the Goldman Sachs investor group, we were party to a governance agreement with Ciba under which Ciba had the right to designate four members to our Board of Directors. In connection with the purchase by the Goldman Sachs investor group, we entered into a consent and termination agreement with Ciba that required Ciba to cause its four existing board designees to resign from our Board of Directors and terminated the governance agreement with Ciba. Ciba currently is the beneficial owner of 3,581,545 shares of our common stock, representing approximately 9.5% of our issued and outstanding common stock. We had issued to Ciba an Increasing Rate Senior Subordinated Note Due 2003, which was repaid in full on June 29, 2001. In addition, during the first half of 2000 we were party to supply and manufacturing arrangements with Ciba. The arrangements with Ciba are described below. RELATIONSHIP WITH THE GOLDMAN SACHS INVESTOR GROUP THE GOVERNANCE AGREEMENT CORPORATE GOVERNANCE. Under the governance agreement, we and the Goldman Sachs investor group have agreed to cause any slate of nominees for election to the Board of Directors to consist of up to three nominees of the Goldman Sachs investor group. The remaining nominees must be people who are independent of the Goldman Sachs investor group. In particular: - if the Goldman Sachs investor group beneficially owns 20% or more of the total voting power of our voting securities, and has not transferred to a third party one-third or more of the shares initially purchased by the Goldman Sachs investor group, then the Goldman Sachs investor group is entitled to nominate three directors; - if the Goldman Sachs investor group beneficially owns less than 20% but at least 15% of the total voting power of our voting securities and has not transferred to a third party two-thirds or more of the shares initially purchased by it, or if the Goldman Sachs investor group beneficially owns 20% or more of the total voting power of our voting securities and have transferred to a third party one third or more of the shares initially purchased by it, then the Goldman Sachs investor group is entitled to nominate two directors; and - if the Goldman Sachs investor group beneficially owns less than 15% but at least 10% of the total voting power of our voting securities, or if the Goldman Sachs investor group beneficially owns less than 20% but at least 15% of the total voting power of our voting securities and has 118 transferred to a third party two-thirds or more of the shares initially purchased by it, then the investor group is entitled to nominate one director. The Goldman Sachs investor group currently beneficially owns approximately 39% of the total voting power of our voting securities. Accordingly, the Board of Directors is comprised of the following persons: - Sanjeev K. Mehra, James J. Gaffney and Peter M. Sacerdote, each of whom is a nominee of the Goldman Sachs investor group; and - H. Arthur Bellows, Jr., David E. Berges, Robert S. Evans, Marshall S. Geller, Harold E. Kinne, Lewis Rubin and Martin L. Solomon, each of whom is an independent nominee. The governance agreement further provides that so long as the investors are entitled to designate two or more nominees for election to the Board of Directors, each committee of the Board of Directors shall consist of at least one investors director. New directors chosen to fill vacancies on the Board of Directors are selected as follows: - if the new director is to be an investors' director, then the Goldman Sachs investor group shall designate the new director; and - if the new director is to be an independent director, the remaining independent directors shall designate the new director. If the percentage of the total voting power of our voting securities held by the Goldman Sachs investor group decreases, or the Goldman Sachs investor group transfers some of the shares initially purchased by it, in either case such that the number of directors the Goldman Sachs investor group is entitled to nominate would decrease, then the Goldman Sachs investor group must cause an appropriate number of the Goldman Sachs investor group's directors to resign from the Board of Directors. Any vacancies created by these resignations would be filled by the independent directors. APPROVALS. For so long as the Goldman Sachs investor group beneficially owns at least 15% of the total voting power of our voting securities, the Board of Directors cannot authorize, approve or ratify any of the following actions without the approval of a majority of the Goldman Sachs investor group's directors: - a tender offer, merger or sale of substantially all of our assets, or similar transaction in which there would be a change of control of Hexcel (we refer these as "buyout transactions"); PROVIDED, HOWEVER, that the approval rights of the Goldman Sachs investor group's directors with respect to buyout transactions apply only until June 19, 2002; - any merger, consolidation, acquisition or other business combination involving us, other than a buyout transaction, in which the value of the transaction, when added together with the value of all similar transactions during the previous twelve months, exceeds the greater of $150 million and 11% of our total consolidated assets; - any sale, transfer, conveyance, lease or other disposition or series of related dispositions of any of our assets, business or operations, other than a buyout transaction, if the value of the assets, business or operations disposed of in this manner during the prior 12 months exceeds the greater of $150 million and 11% of our total consolidated assets; and - any issuance by us or any of our significant subsidiaries of equity securities, with exceptions for employee and director benefit plans, intercompany issuances and conversion of outstanding securities, if the value of the consideration received by us for similar transactions during the prior 12 months exceeds the greater of $150 million and 11% of our total consolidated assets. In addition, prior to December 19, 2001 we cannot issue shares of our common stock in a registered public offering or in a private placement or otherwise without the approval of the 119 Goldman Sachs investor group's directors, except for an issuance of up to 6,900,000 shares of our common stock in which the offering price is unanimously approved by a pricing committee of the Board of Directors consisting of one of the Goldman Sachs investor group's directors and two independent directors. The Goldman Sachs investor group has agreed that, in any election of directors or any meeting of our stockholders called for the removal of directors, so long as the Board of Directors includes, and will include after any such removal, the requisite number of Goldman Sachs investor group's directors, the Goldman Sachs investor group will be present for purposes of establishing a quorum and will vote its shares of our common stock - in favor of any nominee or director selected in accordance with the terms of the governance agreement and - against the removal of any director designated in accordance with the terms of the governance agreement. Other than voting for the election of directors, the Goldman Sachs investor group is free to vote their shares of our common stock as they wish except - in connection with an offer for a buyout transaction, in which case other restrictions apply, which are described below, and - the Goldman Sachs investor group must vote against any amendment to our certificate of incorporation that would modify the directors' and officers' indemnification provisions in a manner which would adversely affect the persons who are entitled to indemnification. STANDSTILL. The Goldman Sachs investor group has agreed, subject to specified exceptions, that they will not - purchase or otherwise acquire any beneficial ownership of our voting securities, except: shares acquired in connection with broker-dealer activities in which the Goldman Sachs investor group does not acquire beneficial ownership of the shares, or up to 255,381 shares acquired inadvertently by the Goldman Sachs investor group or its affiliates acting in connection with their activities as a registered broker or dealer or as an asset manager; - enter into, solicit or support any merger or business combination involving us or purchase, acquire, or solicit or support the purchase or acquisition of any portion of our business or assets, except in the ordinary course of business or in nonmaterial amounts; - initiate or propose any shareholder proposal without the approval of the board of directors or make, or in any way participate in, any solicitation of proxies, as these terms are used in Section 14 of the Securities Exchange Act of 1934, to vote or seek to advise or influence any person or entity with respect to the voting of any of our securities or request or take any action to obtain any list of security holders for such purposes with respect to any matter other than those with respect to which the investors may vote in its sole discretion under the governance agreement; - form or otherwise participate in a group formed for the purpose of acquiring, holding, voting, disposing of or taking any action with respect to the investor's voting securities that would be required under Section 13(d) of the Securities Exchange Act of 1934 to file a statement on Schedule 13D with the SEC; - deposit any of our voting securities in a voting trust or enter into any voting agreement other than the governance agreement; 120 - seek representation on the board of directors, remove a director or seek a change in the size or composition of the board of directors; - make any request to amend or waive the provisions of the governance agreement referred to in this paragraph that would require public disclosure; - disclose any intent, purpose, plan, arrangement or proposal inconsistent with the actions listed above, or take any action that would require public disclosure of any such intent, purpose, plan, arrangement or proposal; - take any action challenging the validity or enforceability of the actions listed above; or - assist, advise, encourage or negotiate with respect to or seek to do any of the actions listed above. Notwithstanding the foregoing, no member of the Goldman Sachs investment group may acquire any of our voting securities if such acquisition would result in a default or acceleration of amounts outstanding under our bank credit facility or the indenture governing our outstanding 9 3/4% Senior Subordinated Notes Due 2009, unless, prior to such acquisition, any required consents under these debt documents are obtained. BUYOUT TRANSACTIONS. If we become the subject of a buyout transaction proposed by either a third party or the Goldman Sachs investor group, and the buyout transaction is approved by a majority of our board of directors and a majority of our independent directors, the Goldman Sachs investor group may act in its sole discretion with respect to the buyout transaction. If we become the subject of a buyout transaction proposed by a third party that is made prior to December 19, 2003, and such third party offer is approved by a majority of our Board of Directors but not by a majority of our independent directors, no member of the Goldman Sachs investor group nor any of their affiliates may: - support the third party offer; - vote in favor of the third party offer; or - tender or sell their shares of our common stock to the person making the third party offer. If we become the subject of a buyout transaction proposed by a third party or the Goldman Sachs investor group that is made after December 19, 2003, and such buyout transaction is approved by a majority of our Board of Directors but not by a majority of our independent directors, then the Goldman Sachs investor group: - must vote all of our voting securities it owns against the buyout transaction in proportion to the votes cast by other shareholders against the buyout transaction; and - may not tender or sell their Hexcel voting securities to the person proposing the buyout transaction in a proportion greater than the tenders or sales made by the other holders to the person proposing the buyout transaction. ISSUANCE OF ADDITIONAL SECURITIES. So long as the Goldman Sachs investor group is entitled to designate one or more nominees for election to our Board of Directors, if we issue any additional voting securities for cash, the Goldman Sachs investor group will have the option to purchase an amount of securities that would allow the Goldman Sachs investor group to maintain its percentage ownership of the total voting power of our voting securities after the issuance. If the Goldman Sachs investor group exercises this option, the Goldman Sachs investor group would purchase the securities for the same price and otherwise on the same terms as the securities are sold by us in the issuance. However, this right of the Goldman Sachs investor group shall not apply to 121 - any issuance of voting securities in connection with a registered public offering of up to 6,900,000 shares of our common stock in which the offering price is unanimously approved by a pricing committee of the Board of Directors consisting of one of the Goldman Sachs investor group's directors and two independent directors, or - upon conversion of any convertible securities, or - pursuant to stock option or incentive compensation or similar plans. TRANSFER RESTRICTIONS. None of the members of the Goldman Sachs investor group or their affiliates may sell or transfer our voting securities prior to December 19, 2001, except to another member of the Goldman Sachs investor group or by persons holding shares acquired inadvertently by affiliates of the member of the Goldman Sachs investor group acting as a registered broker or dealer or as an asset manager. After December 19, 2001, the Goldman Sachs investor group may sell or transfer our voting securities - to another member of the Goldman Sachs investor group, provided the investor agrees to be bound by the terms of the governance agreement, - in accordance with the volume and manner-of-sale limitations of Rule 144 under the Securities Act of 1933, and otherwise subject to compliance with the Securities Act, - in a registered public offering or a non-registered offering subject to an exemption from the registration requirements of the Securities Act, in a manner calculated to achieve a broad distribution, - in a buyout transaction proposed by a third party, but only if otherwise permitted by the governance agreement, as described above under "Buyout Transactions", or - which are shares acquired inadvertently by affiliates of the Goldman Sachs investor group acting as a registered broker or dealer or as an asset manager. In addition to the above restrictions, if members of the Goldman Sachs investor group desire to transfer any shares of our common stock after December 19, 2001 to any person other than another member of the Goldman Sachs investor group, and that person would, after the transfer, beneficially own 5% or more of our outstanding common stock, then the shares cannot be transferred unless the person acquiring the shares agrees with us, for a period of three years, to be bound by the provisions described under "Standstill" and the last paragraph of "Approvals" above. For the period from December 19, 2001 to June 19, 2002, we have the option to purchase any shares of our common stock proposed to be sold by the Goldman Sachs investor group at the price at which the investors propose to sell the shares. If we do not exercise our option for a proposed sale by the Goldman Sachs investor group of shares of our common stock during this period, then the Goldman Sachs investor group must sell the shares at a price no less than the price at which the Goldman Sachs investor group offered to sell the shares to us. However, we do not have this option for any proposed sale by the Goldman Sachs investor group - to another member of the Goldman Sachs investor group, - in accordance with the volume and manner-of-sale limitations of Rule 144 under the Securities Act of 1933, - in a manner calculated to achieve a broad distribution, - in a buyout transaction proposed by a third party, or 122 - of shares acquired inadvertently by affiliates of the Goldman Sachs investor group acting as a registered broker or dealer or as an asset manager. Notwithstanding anything else in this section, no member of the Goldman Sachs investor group may transfer any of our voting securities if the transfer would result in a default or acceleration of amounts outstanding under our bank credit facility or the indenture governing our outstanding 9 3/4% Senior Subordinated Notes Due 2009, unless, prior to the transfer, any required consents under these debt documents are obtained. TERM. The governance agreement will terminate upon the earlier of December 19, 2010, and any event that causes the percentage of our voting securities beneficially owned by the Goldman Sachs investor group to be below 10% or equal to or above 90%. In addition, either party may terminate the governance agreement if the other party breaches a material obligation under the governance agreement and fails to cure the breach within 60 days of written notice of the breach from the other party. THE REGISTRATION RIGHTS AGREEMENT In connection with the purchase by the Goldman Sachs investor group of shares of our common stock from Ciba, we entered into a registration rights agreement with the Goldman Sachs investor group. The registration rights agreement provides that any time after December 19, 2001, the Goldman Sachs investor group may demand that we prepare and file with the SEC a registration statement covering our shares of common stock held by the Goldman Sachs investor group. The Goldman Sachs investor group's demand must be for a number of shares of our common stock that represents at least 20% of the our common stock then owned by the Goldman Sachs investor group and must have an aggregate anticipated offering price of at least $25,000,000. The Goldman Sachs investor group is entitled to make up to three demands for registration. The Goldman Sachs investor group also has the right, subject to restrictions, to include their shares of our common stock in any other registration by us to sell shares of our common stock under the Securities Act. The registration rights agreement provides for blackout periods during which the Goldman Sachs investor group would not be permitted to sell shares of our common stock otherwise eligible for sale under the registration rights agreement. The registration rights agreement also contains provisions relating to priority for inclusion of shares in an offering in the event that the underwriters for the offering determine that the number of shares requested to be included in the offering must be reduced. We are generally required to pay for all expenses in connection with a sale of all or a portion of the Goldman Sachs investor group's shares, except for underwriting discounts and commissions relating to the shares of our common stock sold by the investors. THE GOLDMAN SACHS INVESTOR GROUP AGREEMENT In connection with the purchase by the investors of shares of our common stock from Ciba, we entered into an agreement with the Goldman Sachs investor group in which we made customary representations and warranties to the Goldman Sachs investor group regarding the transaction and matters relating to our business and corporate organization. If the Goldman Sachs investor group suffers any losses caused by a breach of any of these representations and warranties, we will indemnify the Goldman Sachs investor group for one-third of the losses suffered by the Goldman Sachs investor group over approximately $1.6 million, subject to a maximum total indemnification by us of $10 million. Similarly, Ciba has agreed with the Goldman Sachs investor group that, in the event the Goldman Sachs investor group suffers any losses caused by one or more breaches of the representations or warranties, Ciba will indemnify the Goldman Sachs investor group for one-third of any losses suffered by the Goldman Sachs investor group over approximately $1.6 million, subject to a maximum total indemnification amount by Ciba of $10 million. With respect to most of the representations and 123 warranties, if the Goldman Sachs investor group does not make a claim by December 19, 2001 that such representations and warranties were breached, any claim is permanently barred. RELATIONSHIP WITH CIBA GENERAL On February 29, 1996, we consummated various transactions with Ciba in which we acquired the composites business of Ciba in exchange for $25 million in cash, the issuance of $42.8 million worth of notes and the issuance of 18 million newly issued shares of our common stock. At the time these shares were issued, these shares represented approximately 49.9% of our common stock. We entered into numerous agreements with Ciba in connection with these transactions, including a governance agreement. Under the terms of the Ciba governance agreement, Ciba was entitled to designate four members to our ten-member Board of Directors and was subject to restrictions in connection with the transfer of its shares of our common stock. CONSENT AND TERMINATION AGREEMENT WITH CIBA In connection with the purchase by the Goldman Sachs investor group of shares of our common stock from Ciba, we entered into a consent and termination agreement with Ciba. Under the terms of the consent and termination agreement: - we waived the transfer restrictions on the shares of our common stock held by Ciba to permit the sale of 14,525,000 shares of our common stock to the Goldman Sachs investor group; - the Ciba governance agreement was terminated as of the closing date of the purchase by the Goldman Sachs investor group; - Ciba agreed to cause all four of its designees then serving on our Board of Directors to resign as of the closing date of the purchase by the Goldman Sachs investor group; and - Ciba agreed to be present for purposes of establishing a quorum for any future vote of our shareholders. The Goldman Sachs investor group entered into two pledge agreements with Ciba under which the Goldman Sachs investor group granted to Ciba a security interest in all of the Goldman Sachs investor group's rights to any shares of our common stock held by the Goldman Sachs investor group to secure the payment of the promissory notes issued by the Goldman Sachs investor group as part of the purchase price for the shares. Absent a default under the promissory notes, the investors have the right to vote all shares of our common stock held by them. If there is a default under a promissory note, then as long as the default continues, Ciba has the right to vote all shares of our common stock held by the Goldman Sachs investor group that the Goldman Sachs investor group pledged to Ciba to secure payment under that note. In addition, after a default under a promissory note, Ciba has the right to acquire all shares of our common stock held by the Goldman Sachs investor group that the investors pledged to Ciba to secure payment under that note. The consent and termination agreement provides that if, under the pledge agreements Ciba acquires enough shares of our common stock from the Goldman Sachs investor group such that the number of shares of our common stock owned by Ciba exceeds 10% of our outstanding common stock, then so long as Ciba holds greater than 10% of our outstanding common stock Ciba is prohibited from transferring its shares of our common stock except for - transfers among Ciba and its subsidiaries, - in accordance with the volume and manner-of-sale limitations of Rule 144 under the Securities Act, in a manner designed to achieve a broad distribution, or 124 - in a registered public offering or a non-registered offering exempt from the registration requirements of the Securities Act, in a manner designed to achieve a broad distribution. - The consent and termination agreement will terminate if our independent directors vote to enter into an agreement relating to - a proposal for us to merge, consolidate, or enter into another similar business combination, with another company, or - an offer to acquire greater than 50% of our equity, or our assets. The consent and termination agreement also contains provisions regarding the Ciba note and the indenture governing the Ciba note, as discussed below. CIBA NOTE We issued an Increasing Rate Senior Subordinated Note Due 2003 to Ciba as part of the purchase price for the composites business of Ciba. We used a portion of the proceeds from the offering of the original notes to prepay the entire aggregate principal amount outstanding under the note, which was approximately $25 million. SUPPLY AND MANUFACTURING ARRANGEMENTS WITH CIBA We were a party to various supply agreements and purchase orders with Ciba during 2000. In May 2000, Ciba sold its performance polymers division to Vantico International S.A., and assigned these supply agreements and purchase orders to Vantico. Before the sale to Vantico and during 2000, sales by Ciba to us under the supply agreements and purchase orders were approximately $24.4 million on a worldwide basis. After the sale to Vantico, there were nominal sales by Ciba to us. In addition, we sold a nominal amount of products to Ciba in 2000. We believe that the terms of each of these arrangements between Ciba and us were on terms as fair to us as terms that would have been obtained from an unaffiliated third party. 125 CERTAIN UNITED STATES FEDERAL TAX CONSEQUENCES The following is a general discussion of certain United States federal tax consequences associated with the exchange of the original notes for the exchange notes pursuant to the exchange offer and the ownership and disposition of the exchange notes. This discussion applies only to a holder of an exchange note who acquired an original note at the initial offering from an initial purchaser for the original offering price thereof and who acquires the exchange note in the exchange offer. This discussion is based on provisions of the Internal Revenue Code of 1986, as amended (the "Code"), Treasury regulations promulgated thereunder, and administrative and judicial interpretations of the Code and the regulations, all as currently in effect and all of which are subject to change, possibly with retroactive effect. This discussion does not address the tax consequences to subsequent purchasers of the exchange notes and is limited to investors who hold the exchange notes as capital assets. The tax treatment of the holders of the notes may vary depending upon their particular situations. In addition, certain holders, including insurance companies, tax-exempt organizations, financial institutions and broker-dealers, may be subject to special rules not discussed below. Each holder should consult its tax advisor regarding the particular tax consequences to such holder of the exchange of the original notes for the exchange notes pursuant to the exchange offer and the ownership and disposition of the exchange notes, as well as any tax consequence that may arise under the laws of any relevant foreign, state, local or other taxing jurisdiction. For purposes of this discussion, the term United States holder means a holder of an exchange note that is, for United States federal income tax purposes: - a citizen or resident of the United States, - a corporation or partnership created or organized in or under the laws of the United States or of any political subdivision of the United States, - an estate the income of which is subject to United States federal income taxation regardless of its source and - a trust if a United States court is able to exercise primary supervision over the administration of that trust and one or more United States persons have the authority to control all substantial decisions of the trust. The term non-U.S. holder means a holder of an exchange note that is not a United States holder. UNITED STATES HOLDERS EXCHANGE OFFER The exchange of an original note for an exchange note pursuant to the exchange offer will not constitute a significant modification of the original note for United States federal income tax purposes. Therefore, the exchange note received will be treated as a continuation of the original note in the hands of the holder. As a result, there will be no United States federal income tax consequences to a United States holder who exchanges an original note for an exchange note pursuant to the exchange offer and that holder will have the same adjusted tax basis and holding period in the exchange note as it had in the original note immediately before the exchange. STATED INTEREST Stated interest payable on an exchange note generally will be included in the gross income of a United States holder as ordinary interest income at the time accrued or received, according to the United States holder's method of accounting for United States federal income tax purposes. 126 DISPOSITION OF THE EXCHANGE NOTES Upon the sale, exchange, retirement at maturity or other taxable disposition (collectively, a "disposition") of an exchange note, a United States holder generally will recognize capital gain or loss equal to the difference between the amount realized by such holder, except to the extent such amount is attributable to accrued interest, which will be treated as ordinary interest income, and such holder's adjusted tax basis in the exchange note. The capital gain or loss will be long-term capital gain or loss if the United States holder's holding period for the exchange note exceeds one year at the time of the disposition. NON-U.S. HOLDERS STATED INTEREST Interest that we pay to a non-U.S. holder on an exchange note will not be subject to U.S. federal income or withholding tax if the interest is not connected with the conduct of a trade or business within the United States by the non-U.S. holder and the non-U.S. holder, among other things, (i) does not actually or constructively own 10% or more of the total combined voting power of all classes of our stock; (ii) is not, for U.S. federal income tax purposes, a controlled foreign corporation to which we are a related person either actually or constructively through stock ownership; and (iii) provides a statement signed under penalty of perjury that includes its name and address and certifies that it is a non-U.S. holder in compliance with applicable requirements, and satisfies documentary evidence requirements for establishing that it is a non-U.S. holder. In the case of interest on an exchange note that is not effectively connected with the conduct of a trade or business within the United States and does not satisfy the three requirements in the above list, the non-U.S. holder's interest on such note would generally be subject to United States withholding tax at a flat rate of 30%, or a lower applicable treaty rate. If a non-U.S. holder's interest on an exchange note is effectively connected with the conduct of a trade or business within the United States, then the non-U.S. holder will be subject to U.S. federal income tax on such interest income in essentially the same manner as a U.S. person. In addition, if the non-U.S. holder is a foreign corporation, it may also be subject to the branch profits tax. GAIN ON DISPOSITION A non-U.S. holder generally will not be subject to U.S. federal income tax with respect to gain recognized on a disposition of an exchange note unless (i) the gain is effectively connected with the conduct of a trade or business within the United States by the non-U.S. holder or (ii) in the case of a non-U.S. holder who is a nonresident alien individual, such holder is present in the United States for 183 or more days in the taxable year of the disposition and other requirements are met. In addition, a non-U.S. holder will not be subject to U.S. federal income tax upon the exchange of an original note for an exchange note pursuant to the exchange offer. See "United States Holders--Exchange Offer." FEDERAL ESTATE TAXES An exchange note held by an individual who at the time of death is a non-U.S. holder generally will not be subject to U.S. federal estate tax if, immediately before death, such non-U.S. holder did not actually or constructively own 10% or more of the total combined voting power of all classes of our stock, and the interest on the exchange note was not effectively connected with the conduct of a trade or business within the United States by the non-U.S. holder. 127 INFORMATION REPORTING AND BACKUP WITHHOLDING We will, when required, report to non-U.S. holders of the exchange notes and the IRS the amount of any interest paid on such notes in each calendar year and the amounts of tax withheld, if any, with respect to such payments. In the case of payments of interest to a non-U.S. holder, the general backup withholding tax (which is imposed at a rate of 30.5% for payments of interest made after August 6, 2001, and thereafter will be gradually reduced to 28% for payments of interest made in 2006) and information reporting requirements will not apply to the payments if the non-U.S. holder has certified, under penalty of perjury, that it is not a U.S. person and also satisfied documentary evidence requirements for establishing that it is not a U.S. person, or an exemption has otherwise been established. Information reporting and backup withholding requirements will apply to the gross proceeds paid to a non-U.S. holder on the disposition of an exchange note by or through a U.S. office of a United States or foreign broker, unless the broker does not have actual knowledge or reason to know that the holder is a U.S. person and the holder furnishes to the broker appropriate documentation upon which the holder certifies to the broker under penalty of perjury as to its name, address and status as a foreign person or upon which the broker may rely to treat the payment as made to a non-U.S. person in accordance with U.S. Treasury regulations, or the holder otherwise establishes an exemption. Information reporting requirements, but not backup withholding, will also apply to a payment of the proceeds of a disposition of an exchange note by or through a foreign office of a U.S. broker or foreign brokers with some types of relationships to the United States unless such broker has documentary evidence in its file that the holder of the exchange note is not a U.S. person and such broker has no actual knowledge to the contrary, or the holder establishes an exemption. Neither information reporting nor backup withholding will generally apply to a payment of the proceeds of a disposition of an exchange note effected outside the United States by or through a foreign office of a foreign broker not described in the preceding sentence. For purposes of applying the above rules to an entity that is treated as fiscally transparent, e.g., a partnership or trust, the beneficial owner means each of the ultimate beneficial owners of the entity. Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules may be refunded or credited against the non-U.S. holder's U.S. federal income tax liability, so long as the required information is furnished to the IRS. 128 PLAN OF DISTRIBUTION Each broker-dealer that receives exchange notes for its own account in the exchange offer must acknowledge that it will deliver a prospectus in connection with any resale of the exchange notes. This prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of exchange notes received in exchange for original notes where the original notes were acquired as a result of market-making activities or other trading activities. Hexcel has agreed that, for a period of 180 days after the expiration date of the exchange offer, it will make this prospectus, available to any broker-dealer for use in connection with any resale. In addition, until , 2001, all dealers effecting transactions in the exchange notes may be required to deliver a prospectus. Hexcel will not receive any proceeds from any sale of exchange notes by broker-dealers. Exchange notes received by broker-dealers for their own account in the exchange offer may be sold from time to time in one or more transactions in the over-the-counter market, in negotiated transactions, through the writing of options on the exchange notes or a combination of these methods of resale. These resales may be made at market prices prevailing at the time of resale, at prices related to these prevailing market prices or negotiated prices. Any resale may be made directly to purchasers or to or through brokers or dealers who may receive compensation in the form of commissions or concessions from any broker-dealer or the purchasers of any of the exchange notes. Any broker-dealer that resells exchange notes that were received by it for its own account in the exchange offer and any broker or dealer that participates in a distribution of the exchange notes may be deemed to be an underwriter within the meaning of the Securities Act, and any profit on the resale of exchange notes and any commission or concessions received by those persons may be deemed to be underwriting compensation under the Securities Act. The letter of transmittal states that, by acknowledging that it will deliver and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an underwriter within the meaning of the Securities Act. For a period of 180 days after the expiration date of the exchange offer, Hexcel will promptly send additional copies of this prospectus and any amendment or supplement to this prospectus to any broker-dealer that requests these documents in the letter of transmittal. Hexcel has agreed to pay all expenses incident to the exchange offer, including the expenses of one counsel for the holders of the notes, other than commissions or concessions of any brokers or dealers. Hexcel will indemnify the holders of the notes, including any broker-dealers, against various liabilities, including liabilities under the Securities Act. LEGAL MATTERS Skadden, Arps, Slate, Meagher & Flom LLP, New York, New York, will pass upon the validity and enforceability of the notes. EXPERTS The financial statements as of December 31, 2000 and 1999 and for each of the three years in the period ended December 31, 2000, included in this prospectus, have been so included in reliance on the report of PricewaterhouseCoopers LLP, independent accountants, given on the authority of said firm as experts in auditing and accounting. 129 AVAILABLE INFORMATION We file annual, quarterly and special reports, proxy statements and other information with the SEC. You may read and copy any reports, statements or other information filed by us at the SEC's public reference room at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the public reference room. Our filings with the SEC are also available to the public from commercial document retrieval services and at the SEC's Web site at "http://www.sec.gov." Reports and other information concerning us can also be inspected at the offices of the New York Stock Exchange, 20 Broad Street, New York, New York 10005. The SEC allows us to "incorporate by reference" the information we file with them, which means we can disclose important information to you by referring you to those documents. The information incorporated by reference is considered to be part of this prospectus, and information that we file later with the SEC will automatically update and supersede this information. We incorporate by reference the documents listed below and any further filings made with the SEC under Sections 13(a), 14 or 15(d) of the Exchange Act until all of the notes are exchanged or this exchange offer is terminated: - Annual Report on Form 10-K for the fiscal year ended December 31, 2000; - Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2001; and - Current Reports on Form 8-K dated January 19, 2001, April 19, 2001, April 30, 2001, May 8, 2001 and June 15, 2001. You may also access copies of these filings at our website at "http: //www.Hexcel.com." However, our website and any other information it contains are not a part of this prospectus. In addition, you may request a copy of any of these filings, at no cost, by writing or telephoning us at the following address or phone number: Hexcel Corporation Two Stamford Plaza 281 Tresser Blvd. Stamford, Connecticut 06901 (203) 969-0666 Attention: Investor Relations 130 GLOSSARY OF TERMS ADHESIVES--A thermoset resin (e.g., epoxy, phenolic or BMI) in the form of a thin film or paste, cured under heat and pressure to bond a wide range of composite, metallic and honeycomb surfaces. ARAMID--A high strength, high stiffness fiber derived from polyamide (Nylon). Kevlar-TM- and Nomex-TM- are examples of aramids. Woven Aramid fabrics are used in both ballistic and composite materials applications. CARBON FIBER--Fiber produced by heat treating precursor fibers, such as PAN (Polyacrylonitrile), rayon and pitch, to drive off non-carbon atoms. The term is often used interchangeably with graphite; however, carbon fibers and graphite fibers differ. The basic differences lie in the temperatures at which the fibers are made and heat treated, and in the resultant carbon content. COMPOSITE MATERIALS--Product made from combining two or more materials such that the resultant product has exceptional structural properties not present in either of the constituent materials. COWLS OR COWLING--The outside protective shell of a jet engine traditionally made out of metal. Cowls mainly provides the engine with protection from the elements and structural support. FAIRINGS--secondary structure of an airplane providing enhanced aerodynamics. Typically, fairings are found where the wing meets the body or at various locations on the leading or trailing edge of the wing. FIBER--Placement Fabrication of complex shaped components using computer or numerically controlled machines to place impregnated fiber tows in a predetermined pattern. FIBERGLASS--An individual filament made by drawing molten glass. As a composite materials reinforcement, it is a major material used to reinforce plastic. FILAMENT WINDING--A process to manufacture composite materials components such as mirole and rocket casings and cylinders. Fiber filaments are dipped in a resin matrix and then wound in a predetermined pattern over a form of the desired component that is mounted on a mandrel. FINISHED PARTS--Completed components that typically contain prepregs, honeycomb, adhesive and assembled hardware. These parts are ready for direct attachment to a structure (e.g., aircraft) or to sub-assemblies. HONEYCOMB--A unique, lightweight, cellular structure made from either metallic sheet material or non-metallic materials (e.g., resin-impregnated paper or woven fabric) and formed into hexagonal nestled cells, similar in appearance to a cross-sectional slice of a beehive. INLET DUCTS--Intake passages or tubes that confine and conduct air. They are usually located at the upstream end of an airplane engine on the engine cowling and aid in both propulsion and engine cooling. Inlet ducts are also used to improve aerodynamics of fighter planes and for this purpose are usually located on the fuselage near the wings. INTERIORS--Finished internal aircraft components, such as overhead storage compartments, lavatories, sidewalls, floor panels and ceilings. NOMEX--DuPont's registered trademark for its high-temperature-resistant aramid papers, pressboard, staple fibers and filament yarns. Type 412 Nomex7 aramid paper is used in the manufacture of honeycomb due to its unique combination of physical and thermal properties. PCBS--Printed wiring boards (also known as printed circuit boards) contain high pressure laminates derived from fiberglass fabric on which are mounted and interconnected semiconductors, passive electronic devices and other electronic components. PAN (POLYACRYLONITRILE)--A material used as a base or precursor material in the manufacture of certain carbon fibers. 131 POLYETHYLENE--A common plastic made by polymerizing ethylene which is used widely in packaging and consumer products. PRECURSOR--For carbon or graphite, the PAN, rayon or pitch fibers from which carbon or graphite fibers are derived. PREPREGS (PRE-IMPREGNATED)--A composite material made from combining high performance reinforcement fibers or fabrics with a thermoset or thermoplastic resin matrix. The prepreg has exceptional structural properties not present in either of the constituent materials. PRIMARY STRUCTURE--A critical load bearing structure on an aircraft. If this structure is severely damaged, the aircraft cannot fly. QUALIFIED AND QUALIFICATIONS--The testing and manufacturing protocols in aerospace and military applications by which materials, such as composite materials, are approved for production supply. To qualify a product requires the creation of a technical database which records the performance of a product against certain customer specifications, and the documentation of the manufacturing equipment and process steps for production of the product. The performance database for the product forms a basis upon which engineers can design components and against which the manufacturer must test all future production to ensure that the product performance is replicated consistently. The manufacturing process and equipment documentation ensure that the future manufacture of the product replicates product performance. Once a product is qualified, changes to the product composition, manufacturing process or manufacturing location and equipment can only be made with customer approval after further testing has demonstrated that the original product performance will be replicated. By their nature, these qualification protocols are expensive and time consuming. RADOMES--The housing which protects the aircraft radar system from the elements while allowing transmission of radar signals. Often the radome is in the nose of an aircraft but can be found at other locations on the aircraft as well. REDUX--A registered trademark exclusively licensed by Hexcel for one of Hexcel's lines of adhesives and primers. REINFORCEMENTS--A strong material incorporated into a matrix to improve its mechanical properties. Reinforcements are usually long continuous fibers, which may be woven. Fiberglass, aramid and carbon fibers are typical reinforcements. REINFORCEMENT FABRICS--Woven fiberglass, carbon or aramid fabrics used in later production of prepregs and honeycomb. RESIN MATRIX--In reinforced fiber composites, a polymeric substrate material, such as epoxy or phenolic resin, is used to bind together with the reinforcement material. S-2-FIBERGLASS--A type of high modulus glass fiber. SECONDARY STRUCTURE--A non-critical structure on an aircraft. If damaged, the aircraft can still fly. Fairings, access doors and some flight control surfaces are examples of secondary structures. SPECIAL PROCESS--The forming, shaping, machining or bonding of sheets or blocks of honeycomb into profiled and complex shapes to ready for use as semi-finished components in the fabrication of composite parts and structures. STRUCTURES--Finished components for aircraft, truck or other vehicles constructed from composite materials. For aircraft, these may be for Primary and Secondary Structures or Interiors. Truck applications include chassis fairings and floors. THORSTRAND--A family of electrically conductive fabrics woven by Hexcel from metallized yarns. 132 INDEX TO FINANCIAL STATEMENTS
PAGE -------- CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF HEXCEL CORPORATION Condensed Consolidated Balance Sheets as of March 31, 2001 (unaudited) and December 31, 2000......................... F-2 Condensed Consolidated Statements of Operations (unaudited) for the three months ended March 31, 2001 and 2000........ F-3 Condensed Consolidated Statements of Cash Flows (unaudited) for the three months ended March 31, 2001 and 2000........ F-4 Notes to Condensed Consolidated Financial Statements........ F-5 CONSOLIDATED FINANCIAL STATEMENTS OF HEXCEL CORPORATION Report of Independent Accountants......................... F-13 Consolidated Balance Sheets as of December 31, 2000 and 1999...................................................... F-14 Consolidated Statements of Operations for the three years ended December 31, 2000................................. F-15 Consolidated Statements of Stockholder's Equity and Comprehensive Income for the three years ended December 31, 2000....................................... F-16 Consolidated Statements of Cash Flows for the three years ended December 31, 2000................................. F-17 Notes to the Consolidated Financial Statements............ F-18
F-1 HEXCEL CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 31, DECEMBER 31, (IN MILLIONS, EXCEPT PER SHARE DATA) 2001 2000 - ------------------------------------ --------- ------------ UNAUDITED ASSETS Current assets: Cash and cash equivalents................................. $ 7.2 $ 5.1 Accounts receivable....................................... 163.9 150.3 Inventories............................................... 162.8 155.4 Prepaid expenses and other assets......................... 6.7 5.5 Deferred tax asset........................................ 7.7 9.7 -------- -------- Total current assets...................................... 348.3 326.0 Property, plant and equipment............................... 610.3 615.3 Less accumulated depreciation............................... (257.7) (255.6) -------- -------- Net property, plant and equipment......................... 352.6 359.7 Goodwill and other purchased intangibles, net of accumulated amortization of $39.2 in 2001 and $36.1 in 2000........... 387.8 391.7 Investments in affiliated companies and other assets........ 136.8 134.0 -------- -------- Total assets................................................ $1,225.5 $1,211.4 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Notes payable and current maturities of capital lease obligations............................................. $ 16.7 $ 22.1 Accounts payable.......................................... 88.0 69.4 Accrued liabilities....................................... 101.6 106.4 -------- -------- Total current liabilities................................. 206.3 197.9 Long-term notes payable and capital lease obligations....... 663.2 651.5 Other non-current liabilities............................... 48.8 46.3 -------- -------- Total liabilities........................................... 918.3 895.7 Stockholders' equity: Preferred stock, no par value, 20.0 shares authorized, No shares issued or outstanding in 2001 and 2000............. -- -- Common stock, $0.01 par value, 100.0 shares authorized, 38.0 shares issued and outstanding in 2001 and 2000............ 0.4 0.4 Additional paid-in capital.................................. 281.9 280.7 Retained earnings........................................... 71.3 65.8 Accumulated other comprehensive loss........................ (35.2) (20.0) -------- -------- 318.4 326.9 Less--Treasury stock, at cost, 0.9 shares in 2001 and 2000...................................................... (11.2) (11.2) -------- -------- Total stockholders' equity.................................. 307.2 315.7 -------- -------- Total liabilities and stockholders' equity.................. $1,225.5 $1,211.4 ======== ========
The accompanying notes are an integral part of these condensed consolidated financial statements. F-2 HEXCEL CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
QUARTER ENDED MARCH 31, ----------------------- (IN MILLIONS, EXCEPT PER SHARE DATA) 2001 2000 - ------------------------------------ ---------- ---------- UNAUDITED Net sales................................................... $276.2 $279.8 Cost of sales............................................... 216.1 217.6 ------ ------ Gross margin.............................................. 60.1 62.2 Selling, general and administrative expenses................ 31.7 32.9 Research and technology expenses............................ 4.7 6.3 Business consolidation expenses............................. 1.1 1.2 ------ ------ Operating income.......................................... 22.6 21.8 Interest expense............................................ 16.3 18.4 ------ ------ Income before income taxes................................ 6.3 3.4 Provision for income taxes.................................. 2.2 1.2 Equity in earnings of affiliated companies.................. 1.4 0.4 ------ ------ Net income................................................ $ 5.5 $ 2.6 ====== ====== Net income per share: Basic..................................................... $ 0.15 $ 0.07 Diluted................................................... $ 0.15 $ 0.07 Weighted average shares: Basic..................................................... 37.2 36.6 Diluted................................................... 38.1 36.8 ====== ======
The accompanying notes are an integral part of these condensed consolidated financial statements. F-3 HEXCEL CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
QUARTER ENDED MARCH 31, ----------------------- (IN MILLIONS) 2001 2000 - ------------- ---------- ---------- UNAUDITED CASH FLOWS FROM OPERATING ACTIVITIES Net income................................................ $ 5.5 $ 2.6 Reconciliation to net cash provided by operating activities: Depreciation and amortization........................... 15.2 15.0 Deferred income taxes................................... (3.6) (4.5) Business consolidation expenses......................... 1.1 1.2 Business consolidation payments......................... (1.4) (2.0) Equity in earnings of affiliated companies.............. (1.4) (0.4) Working capital changes and other....................... (12.0) (18.0) ------ ------ Net cash provided by (used for) operating activities.......................................... 3.4 (6.1) ------ ------ CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures...................................... (10.6) (4.4) Investments in affiliated companies....................... -- (3.4) ------ ------ Net cash used for investing activities................ (10.6) (7.8) ------ ------ CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from credit facilities, net...................... 15.5 26.5 Repayments of long-term debt and capital lease obligations, net........................................ (8.1) (7.9) Debt issuance costs....................................... -- (0.9) Activity under stock plans................................ 0.1 0.1 ------ ------ Net cash provided by financing activities............. 7.5 17.8 ------ ------ Effect of exchange rate changes on cash and cash equivalents............................................... 1.8 0.7 ------ ------ Net increase in cash and cash equivalents................... 2.1 4.6 Cash and cash equivalents at beginning of year.............. 5.1 0.2 ------ ------ Cash and cash equivalents at end of period.................. $ 7.2 $ 4.8 ====== ======
The accompanying notes are an integral part of these condensed consolidated financial statements. F-4 HEXCEL CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NOTE 1--BASIS OF ACCOUNTING The accompanying condensed consolidated financial statements have been prepared from the unaudited records of Hexcel Corporation and subsidiaries ("Hexcel" or the "Company") in accordance with generally accepted accounting principles, and, in the opinion of management, include all adjustments necessary to present fairly the balance sheet of the Company as of March 31, 2001 and the results of operations and cash flows for the quarters ended March 31, 2001 and 2000. The condensed consolidated balance sheet of the Company as of December 31, 2000 was derived from the audited 2000 consolidated balance sheet. Certain information and footnote disclosures normally included in financial statements have been omitted pursuant to rules and regulations of the Securities and Exchange Commission. Certain prior period amounts in the condensed consolidated financial statements and accompanying notes have been reclassified to conform to the 2001 presentation. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's 2000 Annual Report on Form 10-K. NOTE 2--DISPOSITION OF BELLINGHAM AIRCRAFT INTERIORS BUSINESS On April 26, 2000, Hexcel sold its Bellingham aircraft interiors business ("Bellingham") to Britax Cabin Interiors, Inc., a wholly owned subsidiary of Britax International plc, for cash proceeds of $113.3 million. The sale resulted in an after-tax gain of approximately $44 million or $0.97 per diluted share. Net proceeds from the sale were used to repay $111.6 million of outstanding term debt under the Company's Senior Credit Facility. The condensed consolidated financial statements and accompanying notes reflect Bellingham's operating results as a continuing operation in the Engineered Products business segment up to the date of disposal. Net sales and operating income for the Bellingham business is as follows:
QUARTER ENDED MARCH 31, ----------------------- (IN MILLIONS) 2001 2000 - ------------- ---------- ---------- Net sales........................................... $ -- $ 16.6 Operating income.................................... $ -- $ 1.1 ======= ========
NOTE 3--INVENTORIES
(IN MILLIONS) 3/31/01 12/31/00 - ------------- ---------- ---------- Raw materials....................................... $ 69.0 $ 74.5 Work in progress.................................... 46.2 45.2 Finished goods...................................... 47.6 35.7 ------- -------- Total inventories............................... $ 162.8 $ 155.4 ======= ========
F-5 HEXCEL CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 4--NOTES PAYABLE AND CAPITAL LEASE OBLIGATIONS
(IN MILLIONS) 3/31/01 12/31/00 - ------------- -------- -------- Senior credit facility...................................... $227.9 $211.9 European credit and overdraft facilities.................... 5.5 13.7 9.75% Senior subordinated notes, due 2009................... 240.0 240.0 Senior subordinated notes, due 2003......................... 24.4 24.4 7.0% Convertible subordinated notes, due 2003............... 114.4 114.4 7.0% Convertible subordinated debentures, due 2011.......... 25.6 25.6 Various notes payable....................................... 0.1 0.3 ------ ------ Total notes payable......................................... 637.9 630.3 Capital lease obligations................................... 42.0 43.3 ------ ------ Total notes payable and capital lease obligations......... $679.9 $673.6 ====== ====== Notes payable and current maturities of long-term liabilities............................................... $ 16.7 $ 22.1 Long-term notes payable and capital lease obligations, less current maturities........................................ 663.2 651.5 ------ ------ Total notes payable and capital lease obligations......... $679.9 $673.6 ====== ======
SENIOR CREDIT FACILITY Hexcel's global credit facility (the "Senior Credit Facility") was amended on October 26, 2000, March 7, 2000 and May 11, 2001, to accommodate, among other things, the planned sale of assets, the planned investment in additional manufacturing capacity for selected products, the impact of the decline in the Company's operating results on certain financial covenants, the sale by an investor group of approximately 14.5 million shares of Hexcel common stock held by a significant shareholder of the Company, and a restructuring of the ownership of certain of the Company's European subsidiaries. The Senior Credit Facility, as amended, provides Hexcel with approximately $357 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 foreign 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. At March 31, 2001, the Company was in compliance with all covenants. Interest on outstanding borrowings under the Senior Credit Facility ranges from 1.00% to 3.25% in excess of the applicable London interbank rate, or at the option of the Company, from 0.25% to 2.25% in excess of the base rate of the administrative agent for the lenders. Prior to May 11, 2001, the upper limits of these interest ranges were 3.00% and 2.00%, respectively. In addition, the Senior Credit Facility is subject to a commitment fee varying from approximately 0.20% to 0.50% per annum of the total facility. As of March 31, 2001 and December 31, 2000, Hexcel had an interest rate cap agreement outstanding which covered a notional amount of $50.0 million of the Senior Credit Facility, providing a maximum fixed rate of interest of 5.5% on the applicable London interbank rate. Unused borrowing capacity under the Senior Credit Facility was approximately $122 million on March 31, 2001. The Company has outstanding letters of credit of approximately $7.0 million at March 31, 2001. The Company expects that the Senior Credit Facility will be sufficient to fund its F-6 HEXCEL CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 4--NOTES PAYABLE AND CAPITAL LEASE OBLIGATIONS (CONTINUED) worldwide operations for the foreseeable future. The Senior Credit Facility is scheduled to expire in 2004, except for approximately $58 million of term loans that are due for repayment in 2005. SENIOR SUBORDINATED NOTES, DUE 2003 The Senior Subordinated Notes, due 2003 are general unsecured obligations of Hexcel. Effective February 2001, these notes bear interest at a rate of 11.5% per annum, a rate which will increase by 0.5% per annum each February thereafter until the notes mature in 2003. Prior to February 2001 and February 2000, these notes bore interest at a rate of 11.0% and 10.5% per annum, respectively. These notes have a $0.6 million unamortized discount at March 31, 2001 and December 31, 2000. NOTE 5--BUSINESS CONSOLIDATION PROGRAMS Total accrued business consolidation expenses at March 31, 2001 and December 31, 2000, activity during the three months ended March 31, 2001, and a brief description of the Company's business consolidation program follows:
EMPLOYEE FACILITY & SEVERANCE & EQUIPMENT (IN MILLIONS) RELOCATION RELOCATION TOTAL - ------------- ------------ ----------- -------- BALANCE AS OF DECEMBER 31, 2000............................. $ 2.4 $ 0.3 $ 2.7 Business consolidation expenses............................. 0.1 1.0 1.1 Cash expenditures........................................... (0.5) (0.9) (1.4) Asset write-off............................................. -- (0.2) (0.2) ----- ----- ----- BALANCE AS OF MARCH 31, 2001................................ $ 2.0 $ 0.2 $ 2.2 ===== ===== =====
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. All of the business consolidation activities initiated in 1996 and 1998 have been completed as of December 31, 2000, although cash expenditures relating to accrued severance will continue to be paid through 2001. As of March 31, 2001, the entire September 1999 program was completed with the exception of the fourth quarter 2000 amendment, which includes the closure of two manufacturing facilities and the elimination of an additional 60 positions (primarily manufacturing positions). The business consolidation activities related to the fourth quarter 2000 amendment are not expected to be completed until early 2002. For the three months ended March 31, 2001, Hexcel recognized $1.1 million of business consolidation expenses. Accrued expenses as of March 31, 2001 primarily reflected accrued severance and costs for early termination of certain leases. The Company's policy is to pay severance over a period of time rather than in a lump-sum amount. F-7 HEXCEL CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 6--NET INCOME PER SHARE
QUARTER ENDED MARCH 31, ----------------------- (IN MILLIONS, EXCEPT PER SHARE DATA) 2001 2000 - ------------------------------------ ---------- ---------- Basic net income per share: Net income................................................ $ 5.5 $ 2.6 Weighted average common shares outstanding................ 37.2 36.6 ----- ----- Basic net income per share.............................. $0.15 $0.07 ===== ===== Diluted net income per share: Net income.................................................. $ 5.5 $ 2.6 Weighted average common shares outstanding.................. 37.2 36.6 Effect of dilutive securities--Stock options................ 0.9 0.2 ----- ----- Diluted weighted average common shares outstanding...... 38.1 36.8 ----- ----- Diluted net income per share............................ $0.15 $0.07 ===== =====
The convertible subordinated notes, due 2003, and the convertible subordinated debentures, due 2011, were excluded from the first quarter 2001 and 2000 computations of diluted net income per share, as they were antidilutive. For the quarters ended March 31, 2001 and 2000, 3.9 million and substantially all of the outstanding stock options were excluded from the calculation of diluted net income per share, respectively. The exercise price for these stock options ranged from approximately $11.00 to $29.63 per share, with the weighted average price being approximately $12.87 per share in 2001 and $11.18 per share in 2000. NOTE 7--COMPREHENSIVE INCOME (LOSS)
QUARTER ENDED MARCH 31, (IN MILLIONS) 2001 2000 - ------------- ---------- ---------- Net income.......................................... $ 5.5 $ 2.6 Net derivative loss................................. (4.9) -- Currency translation adjustment..................... (10.3) (3.0) ------ ------ Total comprehensive loss............................ $ (9.7) $ (0.4) ====== ======
NOTE 8--DERIVATIVE FINANCIAL INSTRUMENTS The Company adopted Statement of Financial Accounting Standards No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES, as amended by Statement of Financial Accounting Standards No. 137, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES--DEFERRAL OF THE EFFECTIVE DATE OF FASB STATEMENT NO. 133, AN AMENDMENT OF FASB NO. 133, and Statement of Financial Accounting Standards No. 138, ACCOUNTING FOR CERTAIN DERIVATIVE INSTRUMENTS AND CERTAIN HEDGING ACTIVITIES, AN AMENDMENT OF FASB STATEMENT NO. 133 (referred herein as FAS 133), on January 1, 2001. There was no transition adjustment recorded, as the amount was immaterial to earnings and other comprehensive loss. F-8 HEXCEL CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 8--DERIVATIVE FINANCIAL INSTRUMENTS (CONTINUED) DERIVATIVES POLICY As a result of the Company's global operating and financing activities, Hexcel is exposed to various market risks that may affect its operational results and financial position. These market risks include, but are not limited to, 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 considers its strategic use of cash flow hedges to be a prudent method of managing interest rate and foreign currency exchange rate sensitivities. The Company formally documents all relationships between hedging instruments and hedged items, as well as its risk management objectives and strategy for undertaking various hedging transactions. The hedging instruments are assessed for effectiveness at the inception of the hedge and throughout the term of the hedge designation. As long as the hedge remains highly effective, changes in the fair value of the Company's cash flow hedges are recorded in other comprehensive income, until earnings are affected by the transaction being hedged. Ineffectiveness is recorded immediately in the income statement. All derivatives are recognized on the balance sheet at their fair value. The Company discontinues hedge accounting prospectively when (1) it determines that the derivative is no longer effective in offsetting changes in the cash flows of a hedged item (including hedged items such as forecasted transactions); (2) the derivative expires or is sold, terminated, or exercised; (3) it is no longer probable that the forecasted transaction will occur; or (4) management determines that designating the derivative as a hedging instrument is no longer appropriate. The market risk associated with interest rate and foreign exchange contracts is managed by the Company through monitoring of parameters that limit the types and degree of market risk that may be undertaken. The Company's derivative activities are regulated by written policies and procedures that are managed and monitored for compliance by the Finance Management Committee (FMC). The FMC is composed of the chief financial officer, the chief accounting officer, the assistant treasurer, and other senior managers of the Company as may be appointed to the committee from time to time. The FMC periodically reports to the Audit Committee on the scope of the Company's derivative activities. The Company's policies together with the decisions and guidelines of the FMC: (a) sets forth risk-management philosophy and objectives through a corporate policy, (b) provides guidelines for derivative instrument usage, and (c) establishes procedures for control and valuation, counterparty credit approval, and monitoring and reporting of derivative activity. The use of derivative financial instruments to hedge exposures to changes in exchange rates and interest rates exposes the Company to credit risk. The Company minimizes the credit risk in derivative instruments by (a) entering into transactions with high-quality counterparties whose credit ratings are AA/Aa or higher, (b) limiting the amount of exposure to each counterparty, and (c) monitoring the financial condition of its counterparties. CASH FLOW HEDGES FOREIGN CURRENCY--A number of the European subsidiaries of Hexcel are exposed to the impact of exchange rate volatility between the U.S. dollar and the subsidiaries' functional currencies, being either the Euro or the British pound sterling. In January 2001, Hexcel entered into foreign exchange contracts to exchange 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 a portion of the F-9 HEXCEL CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 8--DERIVATIVE FINANCIAL INSTRUMENTS (CONTINUED) forecasted transactions of European subsidiaries under long-term sales contracts with certain customers. The forward exchange 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. For the quarter ended March 31, 2001, hedge ineffectiveness was immaterial and the fair value of the foreign currency cash flow hedges recognized in other comprehensive income was a loss of $4.9 million. Over the next twelve-month period, a $1.0 million loss is expected to be reclassified into earnings as the hedged sales are recorded. INTEREST RATE--Hexcel's results are affected by interest rate changes on its variable rate debt. In order to partially mitigate this interest rate risk, the Company entered into a five-year interest rate cap agreement in 1998. 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. For the quarter ended March 31, 2001, hedge ineffectiveness and the fair value of the interest rate cap at March 31, 2001 was not material. DERIVATIVE INSTRUMENTS COMPONENT OF OTHER COMPREHENSIVE INCOME (LOSS):
(IN MILLIONS) - ------------- Balance, December 31, 2000.................................. $ -- Current period cash flow hedging............................ (4.9) ------ Total Derivative instruments at March 31, 2001.............. $ (4.9) ======
NOTE 9--SEGMENT INFORMATION Hexcel evaluates the performance of its operating segments based on adjusted income before business consolidation expenses, interest, taxes and equity in earnings of affiliated companies ("Adjusted EBIT"), and generally accounts for intersegment sales based on arm's length prices. Corporate and certain other expenses are not allocated to the operating segments, except to the extent that the expense can be directly attributable to the business segment. F-10 HEXCEL CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 9--SEGMENT INFORMATION (CONTINUED) Financial information for the Company's segments for the periods ended March 31, 2001 and 2000, is as follows: HEXCEL CORPORATION AND SUBSIDIARIES ACTUAL AND PRO FORMA SEGMENT DATA
REINFORCEMENT COMPOSITE ENGINEERED CORPORATE & (IN MILLIONS) PRODUCTS MATERIALS PRODUCTS OTHER(1) TOTAL - ------------- ------------- --------- ---------- ----------- -------- UNAUDITED FIRST QUARTER 2001 Net sales to external customers......... $86.4 $160.2 $29.6 $ -- $276.2 Intersegment sales...................... 29.7 2.1 -- -- 31.8 ----- ------ ----- ----- ------ Total sales......................... 116.1 162.3 29.6 -- 308.0 Adjusted EBIT(2) ....................... 11.4 20.7 0.6 (9.0) 23.7 Depreciation and amortization........... 9.2 4.7 0.8 0.5 15.2 Business consolidation expenses......... -- 1.1 -- -- 1.1 Capital expenditures.................... 6.2 3.9 0.2 0.3 10.6 ----- ------ ----- ----- ------ PRO FORMA FIRST QUARTER 2000 Net sales to external customers......... $87.1 $146.5 $29.6 $ -- 263.2 Intersegment sales...................... 27.2 1.8 -- -- 29.0 ----- ------ ----- ----- ------ Total sales......................... 114.3 148.3 29.6 -- 292.2 Adjusted EBIT(2) ....................... 10.5 18.5 2.1 (9.2) 21.9 Depreciation and amortization........... 8.6 4.8 0.7 0.6 14.7 Business consolidation expenses......... 0.7 0.4 0.1 -- 1.2 Capital expenditures.................... 1.0 3.0 0.2 -- 4.2 ----- ------ ----- ----- ------ FIRST QUARTER 2000 Net sales to external customers......... $87.1 $146.5 $46.2 $ -- 279.8 Intersegment sales...................... 27.2 2.3 -- -- 29.5 ----- ------ ----- ----- ------ Total sales......................... 114.3 148.8 46.2 -- 309.3 Adjusted EBIT(2) ....................... 10.5 18.5 3.2 (9.2) 23.0 Depreciation and amortization........... 8.6 4.8 1.0 0.6 15.0 Business consolidation expenses......... 0.7 0.4 0.1 -- 1.2 Capital expenditures.................... 1.0 3.0 0.4 -- 4.4 ----- ------ ----- ----- ------
- ------------------------ (1) The Company does not allocate corporate expenses to its business segments. (2) Consists of earnings before interest, taxes, business consolidation expenses and equity in earnings of affiliated companies. Adjusted EBIT has been presented to provide a measure of Hexcel's operating performance that is commonly used by investors and financial analysts to analyze and compare companies. Adjusted EBIT may not be comparable to similarly titled financial measures of other companies. Adjusted EBIT does not represent an alternative measure of the Company's cash flows or operating income, and should not F-11 HEXCEL CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 9--SEGMENT INFORMATION (CONTINUED) be considered in isolation or as a substitute for measures of performance presented in accordance with generally accepted accounting principles. A reconciliation of Adjusted EBIT reported for the segments to consolidated income before income taxes is as follows:
QUARTER ENDED MARCH 31, ------------------------------ PRO FORMA (IN MILLIONS) 2001 2000 2000 - ------------- -------- -------- -------- Total Adjusted EBIT............................... $23.7 $23.0 $21.9 Less: Business consolidation expenses............. 1.1 1.2 1.2 Interest expense............................. 16.3 18.4 16.1 ----- ----- ----- Consolidated income before income taxes........... $ 6.3 $ 3.4 $ 4.6 ===== ===== =====
NOTE 10--SUPPLEMENTAL CASH FLOW INFORMATION
QUARTER ENDED MARCH 31, ----------------------- (IN MILLIONS) 2001 2000 - ------------- ---------- ---------- Cash paid for: Interest.......................................... $25.2 $25.3 Income taxes...................................... $ 1.9 $ -- ===== =====
F-12 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 31, 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 F-13 HEXCEL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31,
2000 1999 --------- --------- (IN MILLIONS, EXCEPT PER SHARE DATA) 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. F-14 HEXCEL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31,
2000 1999 1998 ---------- ---------- ---------- (IN MILLIONS, EXCEPT PER SHARE DATA) 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. F-15 HEXCEL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
COMMON STOCK --------------------- ADDITIONAL RETAINED EARNINGS ACCUMULATED OTHER PAID-IN (ACCUMULATED COMPREHENSIVE TREASURY PAR CAPITAL DEFICIT) INCOME (LOSS) SHARES -------- ---------- ----------------- ----------------- -------- (IN MILLIONS) BALANCE, JANUARY 1, 1998.......... $ 0.4 $266.8 $(15.5) $ (1.1) $ (0.7) Net income.................... 50.4 Currency translation adjustment.................. 7.4 Comprehensive income.......... Activity under stock plans.... 4.6 Conversion of senior subordinated notes.......... 0.1 Treasury stock purchased...... (10.0) ----- ------ ------ ------ ------ BALANCE, DECEMBER 31, 1998........ 0.4 271.5 34.9 6.3 (10.7) Net loss...................... (23.3) Currency translation adjustment.................. (11.1) Comprehensive loss........ Activity under stock plans.... 2.1 ----- ------ ------ ------ ------ BALANCE, DECEMBER 31, 1999........ 0.4 273.6 11.6 (4.8) (10.7) Net income.................... 54.2 Currency translation adjustment.................. (10.2) Minimum pension obligation.... (5.0) Comprehensive income...... Activity under stock plans.... 7.1 Treasury stock purchased...... (0.5) ----- ------ ------ ------ ------ BALANCE, DECEMBER 31, 2000........ $ 0.4 $280.7 $ 65.8 $(20.0) $(11.2) ===== ====== ====== ====== ====== TOTAL STOCKHOLDERS' COMPREHENSIVE EQUITY INCOME (LOSS) ------------- ------------- (IN MILLIONS) BALANCE, JANUARY 1, 1998.......... $249.9 Net income.................... 50.4 $ 50.4 Currency translation adjustment.................. 7.4 7.4 ------ Comprehensive income.......... 57.8 ------ Activity under stock plans.... 4.6 Conversion of senior subordinated notes.......... 0.1 Treasury stock purchased...... (10.0) ------ BALANCE, DECEMBER 31, 1998........ 302.4 Net loss...................... (23.3) (23.3) Currency translation adjustment.................. (11.1) (11.1) ------ Comprehensive loss........ (34.4) ------ Activity under stock plans.... 2.1 ------ BALANCE, DECEMBER 31, 1999........ $270.1 Net income.................... 54.2 54.2 Currency translation adjustment.................. (10.2) (10.2) Minimum pension obligation.... (5.0) (5.0) ------ Comprehensive income...... $ 39.0 ====== Activity under stock plans.... 7.1 Treasury stock purchased...... (0.5) ------ BALANCE, DECEMBER 31, 2000........ $315.7 ======
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS. F-16 HEXCEL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31,
2000 1999 1998 -------- -------- -------- (IN MILLIONS) 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 liabilities......................................... 10.7 11.9 (17.1) 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. F-17 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 F-18 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA) useful lives range from 10 to 40 years for buildings and improvements and from 3 to 20 years for machinery and equipment. 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. F-19 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA) 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. 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
F-20 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA) 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: - 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; - 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 - 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, F-21 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA) 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. 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. F-22 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA) Key initiatives under the three business consolidation programs have been: - Rationalizing manufacturing activities and eliminating excess capacity by moving and requalifying certain production processes, closing manufacturing plants and vacating some leased facilities. - 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. - 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. F-23 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA) 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. F-24 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA) 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. 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 F-25 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA) 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% 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. F-26 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA) 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. 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 F-27 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA) 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. F-28 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA) 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 ======
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. F-29 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA) Future minimum lease payments as of December 31, 2000 were:
TYPE OF LEASE -------------------- CAPITAL OPERATING -------- --------- Payable during years ending December 31: 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. 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. F-30 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA) 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 ===== ===== =====
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: - 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. - 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 F-31 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA) 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. 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 ------------------------------ ------------------------------ 2000 1999 1998 2000 1999 1998 ---- -------- -------- -------- -------- -------- DEFINED BENEFIT RETIREMENT PLANS 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 ----- ----- ----- ----- ----- -----
2000 1999 1998 -------- -------- -------- POSTRETIREMENT PLANS- U.S. PLANS 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 ===== ===== =====
F-32 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA) 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) ===== ====== ===== ====== ====== ======
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. F-33 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA) 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) ===== =====
F-34 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA) 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. F-35 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA) 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 ====== ======
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
2000 1999 1998 -------- -------- -------- (NUMBER OF SHARES) 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. F-36 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA) 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. 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. F-37 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA) 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. 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. F-38 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA) 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. 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 F-39 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA) 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 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 F-40 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA) 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 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. F-41 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA) 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 ------ ------ ------ ------- -------- Investments in affiliated companies 2000....................................... 59.6 -- 12.5 -- 72.1
F-42 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA)
REINFORCEMENT COMPOSITE ENGINEERED CORPORATE/ PRODUCTS MATERIALS PRODUCTS ELIMINATIONS TOTAL ------------- --------- ---------- ------------ -------- 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 F-43 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA) 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. 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. F-44 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- WE HAVE NOT AUTHORIZED ANY DEALER, SALESPERSON OR OTHER PERSON TO GIVE ANY INFORMATION OR REPRESENT ANYTHING NOT CONTAINED IN THIS PROSPECTUS. YOU MUST NOT RELY ON UNAUTHORIZED INFORMATION. THIS PROSPECTUS DOES NOT OFFER TO SELL OR BUY ANY SHARES IN ANY JURISDICTION WHERE IT IS UNLAWFUL. THE INFORMATION IN THIS PROSPECTUS IS CURRENT AS OF , 2001. HOWEVER, YOU SHOULD REALIZE THAT OUR AFFAIRS MAY HAVE CHANGED SINCE THE DATE OF THIS PROSPECTUS. ------------------------ TABLE OF CONTENTS
PAGE -------- Prospectus Summary.................... 1 Risk Factors.......................... 10 Forward-Looking Statements............ 15 Use of Proceeds....................... 16 Capitalization........................ 17 Pro Forma Financial Information....... 18 Selected Consolidated Financial Information......................... 23 The Exchange Offer.................... 24 Management's Discussion and Analysis of Financial Condition and Results of Operations....................... 32 Business.............................. 57 Management............................ 71 Security Ownership of Certain Beneficial Owners and Management.... 77 Description of Material Debt.......... 78 Description of the Notes.............. 81 Book-Entry; Delivery and Form......... 113 Exchange Offer; Registration Rights... 115 Certain Relationships and Related Transactions........................ 118 Certain United States Federal Tax Consequences........................ 126 Plan of Distribution.................. 129 Legal Matters......................... 129 Experts............................... 129 Available Information................. 130 Glossary of Terms..................... 131 Index to Financial Statements......... F-1
$100,000,000 [LOGO] 9 3/4% SENIOR SUBORDINATED NOTES DUE 2009 --------------------- PROSPECTUS --------------------- , 2001 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS Set forth below is a description of certain provisions of the Delaware General Corporation Law (the "DGCL"), the Certificate of Incorporation of Hexcel, the Strategic Alliance Agreement dated as of September 29, 1995 among Ciba-Geigy Limited, Ciba-Geigy Corporation and Hexcel, as amended December 12, 1995 (the "Strategic Alliance Agreement"), the Hexcel Corporation Incentive Stock Plan, as amended and restated December 19, 2000, and the Hexcel Corporation 1998 Broad Based Incentive Stock Plan, as amended on February 3, 2000 and further amended on February 1, 2001 (together, the "Incentive Stock Plans"), as such provisions relate to the indemnification of the directors and officers of Hexcel. This description is intended only as a summary and is qualified in its entirety by reference to the applicable provisions of the DGCL, the Certificate of Incorporation of Hexcel, the Bylaws of Hexcel, the Strategic Alliance Agreement and the Incentive Stock Plans, which are incorporated herein by reference. Section 145 of the DGCL provides that a corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed legal action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of such corporation) by reason of the fact that such person is or was a director, officer, employee or agent of the corporation, or is or was serving at its request in such capacity at another corporation or business organization, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding, provided that such person acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interest of the corporation, and, with respect to any criminal proceeding, had no reasonable cause to believe that such person's conduct was unlawful. A Delaware corporation may indemnify officers and directors against expenses (including attorneys' fees) in an action by or in the right of the corporation under the same conditions, except that no indemnification is permitted without judicial approval if the officer or director is adjudged to be liable to the corporation. Where an officer or director is successful on the merits or otherwise in the defense of any action referred to above, the corporation must indemnify him against the expenses that such officer or director actually and reasonably incurred. Section 102(b)(7) of the DGCL permits a corporation to provide in its certificate of incorporation that a director of a corporation shall not be personally liable to the corporation or its stockholders for monetary damages for breach of his fiduciary duty as a director; provided, however, that such clause shall not apply to any liability of a director (i) for any breach of the director's duty of loyalty to the corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the DGCL (Liability of Directors for Unlawful Payment of Dividend or Unlawful Stock Purchase or Redemption) or (iv) for any transaction from which the director derived an improper personal benefit. Hexcel's Certificate of Incorporation provides for the elimination of personal liability of a director for breach of fiduciary duty, to the full extent permitted by the DGCL. Hexcel's Certificate of Incorporation also provides that Hexcel shall indemnify its directors and officers to the full extent permitted by the DGCL; provided, however, that Hexcel shall indemnify any such person seeking indemnification in connection with a proceeding initiated by such person only if such proceeding was authorized by the Board of Directors of Hexcel. The Certificate of Incorporation further provides that Hexcel may, to the extent authorized from time to time by the Board of Directors, provide rights to indemnification similar to those provided to the directors and officers of Hexcel to the employees and agents of Hexcel who are not directors or officers of Hexcel. II-1 The Strategic Alliance Agreement provides that Hexcel's Certificate of Incorporation and Bylaws will continue to contain the provisions with respect to indemnification of directors and officers as of September 29, 1995, which provisions will not be amended, repealed or otherwise modified for a period of six years following the Closing contemplated by the Strategic Alliance Agreement (the "Ciba Closing") in any manner that would adversely affect the rights of individuals who at any time prior to the Ciba Closing were directors or officers of Hexcel in respect of actions or omissions occurring at or prior to the Ciba Closing, except for such modifications as are required by applicable law. In addition, the Strategic Alliance Agreement generally requires Hexcel to indemnify, to the fullest extent permitted under the DGCL, its officers and directors as of September 29, 1995 against all losses, expense, claims, damages, liabilities, costs or expenses (including reasonable fees and expenses of counsel) arising out of any claim, action, suit, proceeding or investigation based in whole or in part on the fact that such person was a director or officer of Hexcel at or prior to the Ciba Closing. Hexcel maintains, at its expense, an insurance policy which insures the directors and officers of Hexcel, subject to certain exclusions and deductions, against certain liabilities that they may incur in their capacity as such. The Strategic Alliance Agreement provides that for six years after the Ciba Closing, Hexcel is generally required to provide directors' and officers' liability insurance meeting certain specified criteria for its officers and directors as of September 29, 1995. Pursuant to the Incentive Stock Plans, no member of the Executive Compensation Committee of the Board of Directors of Hexcel, or such other committee or committees of the Board of Directors as may be designated by the Board of Directors from time to time to administer the Incentive Stock Plans, shall be liable for any action or determination made in good faith, and the members of such committee or committees shall be entitled to indemnification in the manner provided in Hexcel's Certificate of Incorporation. Item 21. Exhibits and Financial Statement Schedules
EXHIBIT NO. DESCRIPTION - ----------- ----------- 2.1 Asset Purchase Agreement between Hexcel Corporation and Britax Cabin Interiors, Inc., dated as of March 31, 2000 (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. 4.1 Indenture dated as of January 21, 1999 between Hexcel Corporation and The Bank of New York, as trustee, relating to the issuance of the 9 3/4% Senior Subordinated Notes Due 2009 (incorporated herein by reference to Exhibit 4.1 to Hexcel'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 Hexcel (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 August 1, 1986 between Hexcel Corporation and the Bank of California, N.A., as trustee, relating to the 7% Convertible Subordinated Notes due 2011 of Hexcel (incorporated herein by reference to Exhibit 4.3 to Hexcel's Annual Report on Form 10-K for the fiscal year ended December 31, 1993). 4.3(a) Instrument of Resignation, Appointment and Acceptance, dated as of October 1, 1993 (incorporated herein by reference to Exhibit 4.10 to Hexcel's Annual Report on Form 10-K for the fiscal year ended December 31, 1993).
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EXHIBIT NO. DESCRIPTION - ----------- ----------- 5.1* Opinion of Skadden, Arps, Slate, Meagher & Flom LLP as to the validity of the exchange notes. 10.1 Second Amended and Restated Credit Agreement, dated as of September 15, 1998, by and among Hexcel Corporation 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 Hexcel'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(b) to Hexcel'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 Hexcel'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 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 10.3 of Hexcel's Quarterly Report on Form 10-Q for the Quarter ended June 30, 1999). 10.1(d) Third Amendment dated as of March 7, 2000 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(j) of Hexcel's Annual Report on Form 10-K for the fiscal year ended December 31, 1999). 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, 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 2.1 of Hexcel'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 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 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 Hexcel'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, 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 parties thereto, Citibank, N.A., as Documentation Agent, and Credit Suisse First Boston, as Administrative Agent (incorporated herein by reference to Exhibit 10.1(k) of Hexcel's Annual Report on Form 10-K for the fiscal year ended December 31, 1999).
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EXHIBIT NO. DESCRIPTION - ----------- ----------- 10.1(h)* Fifth Amendment and Consent, dated as of May 11, 2001, to the Second 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 parties thereto, Citibank, N.A., as Documentation Agent, and Credit Suisse First Boston, as Administrative Agent. 10.1(i)* Sixth Amendment and Consent, dated as of June 21, 2001, to the Second 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 parties thereto, Citibank, N.A., as Documentation Agent, and Credit Suisse First Boston, as Administrative Agent. 10.2 Schedule to the ISDA Master Agreement between Credit Lyonnais (New York Branch) and Hexcel Corporation, dated as of September 15, 1998 (incorporated herein by reference to Exhibit 10.2 of Hexcel'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 herein by reference to Exhibit 10.2 of Hexcel'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 on January 30, 1997 (incorporated herein by reference to Exhibit 4.3 to Hexcel's Registration Statement on Form S-8, Registration No. 333-36163). 10.3(a) Hexcel Corporation Incentive Stock Plan, as amended and restated on January 30, 1997 and further amended December 10, 1997 (incorporated herein by reference to Exhibit 10.5(a) to Hexcel'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 December 10, 1997 and March 25, 1999 (incorporated herein by reference to Exhibit 4.3 of Hexcel'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 December 10, 1997, March 25, 1999 and December 2, 1999 (incorporated herein by reference to Exhibit 10.3(c) to Hexcel'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 Hexcel's Proxy Statement dated March 31, 2000). 10.3(e) Hexcel Corporation Incentive Stock Plan, as amended and restated on December 19, 2000 (incorporated herein by reference to Exhibit 10.3(e) to Hexcel's Annual Report on Form 10-K for the fiscal year ended December 31, 2000). 10.4 Hexcel Corporation 1998 Broad Based Incentive Stock Plan (incorporated herein by reference to Exhibit 4.3 of Hexcel'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 herein by reference to Exhibit 10.1 to Hexcel's Quarterly Report on From 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 (incorporated herein by reference to Exhibit 10.4(b) to Hexcel's Annual Report on Form 10-K for the fiscal year ended December 31, 2000).
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EXHIBIT NO. DESCRIPTION - ----------- ----------- 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 Hexcel'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 herein by reference to Exhibit 10.5(b) of Hexcel'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 Hexcel's Proxy Statement dated March 31, 2000). 10.5(d) Hexcel Corporation Management Stock Purchase Plan, as amended and restated on December 19, 2000 (incorporated herein by reference to Exhibit 10.5(d) to Hexcel's Annual Report on Form 10-K for the fiscal year ended December 31, 2000). 10.6 Hexcel Corporation Management Incentive Compensation Plan, amended and restated on December 19, 2000 (incorporated herein by reference to Exhibit 10.6 to Hexcel's Annual Report on Form 10-K for the fiscal year ended December 31, 2000). 10.7 Form of Employee Option Agreement (2000) (incorporated herein by reference to Exhibit 10.7 to Hexcel's Annual Report on Form 10-K for the fiscal year ended December 31, 2000). 10.8 Form of Employee Option Agreement Special Executive Grant (2000) dated December 20, 2000 (incorporated herein by reference to Exhibit 10.8 to Hexcel's Annual Report on Form 10-K for the fiscal year ended December 31, 2000). 10.9 Form of Employee Option Agreement Special Executive Grant (1999) dated December 2, 1999 (incorporated herein by reference to Exhibit 10.7 of Hexcel's Annual Report on Form 10-K for the fiscal year ended December 31, 1999). 10.10 Form of Employee Option Agreement Special Executive Grant (1999) dated December 2, 1999 (incorporated herein by reference to Exhibit 10.8 of Hexcel'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 Hexcel'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 Hexcel's Quarterly Report on Form 10-Q for the Quarter ended September 30, 1998). 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) (incorporated herein by reference to Exhibit 10.16 to Hexcel's Annual Report on Form 10-K for the fiscal year ended December 31, 2000).
II-5
EXHIBIT NO. DESCRIPTION - ----------- ----------- 10.17 Form of Retainer Fee Option Agreement for Non-Employee Directors (1999) (incorporated herein by reference to Hexcel'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 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) (incorporated herein by reference to Exhibit 10.22 to Hexcel's Annual Report on Form 10-K for the fiscal year ended December 31, 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 Hexcel'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 Hexcel'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). 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).
II-6
EXHIBIT NO. DESCRIPTION - ----------- ----------- 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* Employment Agreement dated as of July 30, 2001 between Hexcel Corporation and David E. Berges. 10.37(a)* Employee Option Agreement dated as of July 30, 2001 between Hexcel Corporation and David E. Berges. 10.37(b)* Employee Option Agreement (performance-based option) dated as of July 30, 2001 between Hexcel Corporation and David E. Berges. 10.37(c)* Restricted Stock Agreement dated as of July 30, 2001 between Hexcel Corporation and David E. Berges. 10.37(d)* Supplemental Executive Retirement Agreement dated as of July 30, 2001 between Hexcel Corporation and David E. Berges. 10.37(e)* Letter Agreement dated August 1, 2001 between Hexcel Corporation and David E. Berges. 10.38 Amended and Restated Employment Agreement dated October 11, 2000 between Hexcel Corporation and John J. Lee (incorporated herein by reference to Exhibit 10.4 to Hexcel's Quarterly Report on Form 10-Q for the quarter ended September 30, 2000). 10.38(a) Amendment to Amended and Restated Employment Agreement dated October 11, 2000 between Hexcel Corporation and John J. Lee (incorporated herein by reference to Exhibit 10.37(a) to Hexcel's Annual Report on Form 10-K for the fiscal year ended December 31, 2000). 10.38(b) Employee Option Agreement dated as of February 29, 1996 between Hexcel Corporation and John J. Lee (incorporated herein by reference to Exhibit 10.14(a) to Hexcel's Annual Report on Form 10-K for the fiscal year ended December 31, 1995). 10.38(c) Bankruptcy Court Option Agreement dated as of February 29, 1996 between Hexcel Corporation and John J. Lee (incorporated herein by reference to Exhibit 10.14(b) to Hexcel's Annual Report on Form 10-K for the fiscal year ended December 31, 1995). 10.38(d) Performance Accelerated Restricted Stock Unit Agreement dated as of February 29, 1996 between Hexcel Corporation and John J. Lee (incorporated herein by reference to Exhibit 10.14(c) to Hexcel's Annual Report on Form 10-K for the fiscal year ended December 31, 1995). 10.38(e) Short-Term Option Agreement dated as of February 29, 1996 between Hexcel Corporation and John J. Lee (incorporated herein by reference to Exhibit 10.14(d) to Hexcel's Annual Report on Form 10-K for the fiscal year ended December 31, 1995). 10.38(f) Form of Reload Option Agreement dated as of February 29, 1996 between Hexcel Corporation and John J. Lee (incorporated herein by Reference to Exhibit 10.14(e) to Hexcel's Annual Report on Form 10-K for the fiscal year ended December 31, 1995). 10.38(g) Supplemental Executive Retirement Agreement dated as of May 20, 1998 between Hexcel Corporation and John J. Lee (incorporated herein by reference to Exhibit 10.3 to Hexcel's Quarterly Report on Form 10-Q for the Quarter ended June 30, 1998).
II-7
EXHIBIT NO. DESCRIPTION - ----------- ----------- 10.38(h) Amendment to Supplemental Executive Retirement Agreement dated January 21, 1999, between Hexcel Corporation and John J. Lee (incorporated herein by reference to Exhibit 10.37(h) to Hexcel's Annual Report on Form 10-K for the fiscal year ended December 31, 2000). 10.38(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 Hexcel's Quarterly Report on Form 10-Q for the Quarter ended September 30, 2000). 10.38(j) Split Dollar Agreement dated as of January 21, 1999 among Hexcel Corporation, John J. Lee and certain Trustees (incorporated herein by reference to Exhibit 10.4 to Hexcel's Quarterly Report on Form 10-Q for the Quarter ended March 31, 1999). 10.38(k) Executive Severance Agreement between Hexcel Corporation and John J. Lee dated as of February 3, 1999 (incorporated herein by reference to Exhibit 10.5 to Hexcel's Quarterly Report on Form 10-Q for the Quarter ended March 31, 1999). 10.38(l) Letter dated December 2, 1999 from Hexcel Corporation to John J. Lee, regarding Hexcel's Management Incentive Compensation Plan for 1999 (incorporated herein by reference to Exhibit 10.33(i) of Hexcel's Annual Report on Form 10-K for the fiscal year ended December 31, 1999). 10.38(m) Employee Option Agreement dated as of December 20, 2000 between Hexcel Corporation and John J. Lee (incorporated herein by reference to Exhibit 10.37(m) to Hexcel's Annual Report on Form 10-K for the fiscal year ended December 31, 2000). 10.38(n)* Agreement, dated as of April 27, 2001, by and between Hexcel and John J. Lee. 10.39 Summary of Terms of Employment (effective as of July 15, 1998) between Hexcel Corporation and Harold E. Kinne, President and Chief Operating Officer of Hexcel (incorporated herein by reference to Exhibit 10.5 of Hexcel's Quarterly Report on Form 10-Q for the Quarter ended September 30, 1998). 10.39(a) Letter dated December 2, 1999 from Hexcel Corporation to Harold E. Kinne, regarding Hexcel's Management Incentive Compensation Plan for 1999 (incorporated herein by reference to Exhibit 10.34(a) of Hexcel's Annual Report on Form 10-K for the fiscal year ended December 31, 1999). 10.39(b) Supplemental Executive Retirement Agreement dated as of May 10, 2000 between Hexcel Corporation and Harold E. Kinne (incorporated herein by reference to Exhibit 10.4 of Hexcel's Quarterly Report on Form 10-Q for the Quarter ended June 30, 2000). 10.39(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 Hexcel's Quarterly Report on Form 10-Q for the Quarter ended September 30, 2000). 10.39(d) Amendment to Amendments to Agreements, dated as of November 21, 2000, by and between Hexcel Corporation and Harold E. Kinne (incorporated herein by reference to Exhibit 10.38(d) to Hexcel's Annual Report on Form 10-K for the fiscal year ended December 31, 2000). 10.40 Letter dated December 2, 1999 from Hexcel Corporation to Stephen C. Forsyth, regarding Hexcel's Management Incentive Compensation Plan for 1999 (incorporated herein by reference to Exhibit 10.35 of Hexcel's Annual Report on Form 10-K for the fiscal year ended December 31, 1999). 10.40(a) Supplemental Executive Retirement Agreement dated as of May 10, 2000 between Hexcel Corporation and Stephen C. Forsyth (incorporated herein by reference to Exhibit 10.5 of Hexcel's Quarterly Report on Form 10-Q for the Quarter ended June 30, 2000).
II-8
EXHIBIT NO. DESCRIPTION - ----------- ----------- 10.40(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 Hexcel's Quarterly Report on Form 10-Q for the Quarter ended September 30, 2000). 10.40(c) Amendment to Amendments to Agreements, dated as of November 21, 2000, by and between Hexcel Corporation and Stephen C. Forsyth (incorporated herein by reference to Exhibit 10.39(c) to Hexcel's Annual Report on Form 10-K for the fiscal year ended December 31, 2000). 10.41 Letter dated December 2, 1999 from Hexcel Corporation to Ira J. Krakower, regarding Hexcel's Management Incentive Compensation Plan for 1999 (incorporated herein by reference to Exhibit 10.40 to Hexcel's Annual Report on Form 10-K for the fiscal year ended December 31, 2000). 10.41(a) Supplemental Executive Retirement Agreement dated as of May 10, 2000 between Hexcel Corporation and Ira J. Krakower (incorporated herein by reference to Exhibit 10.6 of Hexcel's Quarterly Report on Form 10-Q for the Quarter ended June 30, 2000). 10.41(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 Hexcel's Quarterly Report on Form 10-Q for the Quarter ended September 30, 2000). 10.42 Form of Executive Severance Agreement between Hexcel Corporation and certain executive officers dated as of February 3, 1999 (incorporated herein by reference to Exhibit 10.6 to Hexcel's "s Quarterly Report on Form 10-Q for the Quarter ended March 31, 1999). 10.43 Form of Executive Severance Agreement between Hexcel Corporation and certain executive officers dated as of February 3, 1999 (incorporated herein by reference to Exhibit 10.7 to Hexcel's Quarterly Report on Form 10-Q for the Quarter ended March 31, 1999). 10.44 Executive Severance Agreement between Hexcel Corporation 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). 10.44(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 Hexcel'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 Robert F. Matthews (incorporated herein by reference to Exhibit 10.43(b) to Hexcel's Annual Report on Form 10-K for the fiscal year ended December 31, 2000). 10.45 Executive Severance Agreement between Hexcel Corporation 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). 10.45(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 Hexcel's Quarterly Report on Form 10-Q for the Quarter ended September 30, 2000). 10.45(b) Amendment to Amendments to Agreements, dated as of November 21, 2000, by and between Hexcel Corporation and Steven Warshaw (incorporated herein by reference to Exhibit 10.44(b) to Hexcel's Annual Report on Form 10-K for the fiscal year ended December 31, 2000). 10.46 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 Hexcel's Quarterly Report on Form 10-Q for the Quarter ended September 30, 2000).
II-9
EXHIBIT NO. DESCRIPTION - ----------- ----------- 10.46(a) Amendment to Amendments to Agreements, dated as of November 21, 2000, by and between Hexcel Corporation and William Hunt (incorporated herein by reference to Exhibit 10.45(a) to Hexcel's Annual Report on Form 10-K for the fiscal year ended December 31, 2000). 10.47 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 Hexcel's Quarterly Report on Form 10-Q for the Quarter ended September 30, 2000). 10.48 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 Hexcel'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 Justin Taylor (incorporated herein by reference to Exhibit 10.47(a) to Hexcel's Annual Report on Form 10-K for the fiscal year ended December 31, 2000). 10.49 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 Hexcel's Quarterly Report on Form 10-Q for the Quarter ended September 30, 2000). 10.49(a) Amendment to Amendments to Agreements, dated as of November 21, 2000, by and between Hexcel Corporation and Joseph Shaulson (incorporated herein by reference to Exhibit 10.48(a) to Hexcel's Annual Report on Form 10-K for the fiscal year ended December 31, 2000). 10.50 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 Hexcel's Quarterly Report on Form 10-Q for the Quarter ended September 30, 1998). 10.51 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 Hexcel's Current Report on Form 8-K dated December 22, 2000). 10.51(a)* Amendment, dated as of April 25, 2001, to the 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. 10.52 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 Hexcel's Current Report on Form 8-K dated December 22, 2000). 10.53 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 Hexcel's Current Report on Form 8-K dated October 13, 2000). 10.54 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 Hexcel'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 Hexcel Corporation. 21.1* Subsidiaries of Hexcel Corporation. 23.1* Consent of PricewaterhouseCoopers LLP. 23.2* Consent of Skadden, Arps, Slate, Meagher & Flom LLP (included in Exhibit 5.1). 24.1* Powers of attorney (included on signature page to the Registration Statement).
II-10
EXHIBIT NO. DESCRIPTION - ----------- ----------- 25.1* Statement of Eligibility and Qualification on Form T-1 of The Bank of New York, as trustee, under the Indenture relating to the Exchange Notes. 99.1* Form of Letter of Transmittal. 99.2* Form of Notice of Guaranteed Delivery. 99.3* Form of Letter to Clients. 99.4* Form of Letter to Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees. 99.5* Form of Exchange Agency Agreement. 99.6* Guidelines for Certification of Taxpayer Identification Number of Substitute Form W-9.
- ------------------------ * Filed herewith. ITEM 22. UNDERTAKINGS (a) The undersigned Registrant hereby undertakes: Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers, and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. The undersigned Registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: (i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933. (ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the SEC pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20 percent change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement. (iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement. II-11 (2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. The undersigned registrant hereby undertakes that: (1) For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) For purposes of determining any liability under the Securities Act of 1933, each filing of the registrant's annual report pursuant to section 13(a) or section 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan's annual report pursuant to section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (b) The undersigned registrant hereby undertakes to respond to requests for information that is incorporated by reference into the prospectus pursuant to Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in documents filed subsequent to the effective date of the registration statement through the date of responding to the request. (c) The undersigned registrant hereby undertakes to supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in the registration statement when it became effective. II-12 SIGNATURES Pursuant to the requirements of the Securities Act, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Stamford, State of Connecticut, on the 31st day of July, 2001. HEXCEL CORPORATION By: /s/ IRA J. KRAKOWER ----------------------------------------- Ira J. Krakower SENIOR VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
KNOWN TO ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Ira J. Krakower his attorney-in-fact, with the power of substitution, for him in any and all capacities, to sign any amendments to this registration statement (including post-effective amendments), and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that said attorney-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
NAME TITLE DATE ---- ----- ---- /s/ DAVID E. BERGES Chairman of the Board; ------------------------------------------- Chief Executive Officer; July 31, 2001 David E. Berges director /s/ STEPHEN C. FORSYTH ------------------------------------------- Executive Vice President; July 31, 2001 Stephen C. Forsyth Chief Financial Officer /s/ WILLIAM J. FAZIO ------------------------------------------- Corporate Controller; Chief July 31, 2001 William J. Fazio Accounting Officer /s/ H. ARTHUR BELLOWS, JR. ------------------------------------------- Director July 16, 2001 H. Arthur Bellows, Jr. /s/ ROBERT S. EVANS ------------------------------------------- Director July 18, 2001 Robert S. Evans. /s/ JAMES J. GAFFNEY ------------------------------------------- Director July 31, 2001 James J. Gaffney /s/ MARSHALL S. GELLER ------------------------------------------- Director July 31, 2001 Marshall S. Geller
II-13
NAME TITLE DATE ---- ----- ---- /s/ SANJEEV K. MEHRA ------------------------------------------- Director July 31, 2001 Sanjeev K. Mehra /s/ LEWIS RUBIN ------------------------------------------- Director July 17, 2001 Lewis Rubin /s/ PETER SACERDOTE ------------------------------------------- Director July 13, 2001 Peter Sacerdote /s/ MARTIN L. SOLOMON ------------------------------------------- Director July 31, 2001 Martin L. Solomon
II-14 INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION - ----------- ----------- 2.1 Asset Purchase Agreement between Hexcel Corporation and Britax Cabin Interiors, Inc., dated as of March 31, 2000 (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. 4.1 Indenture dated as of January 21, 1999 between Hexcel Corporation and The Bank of New York, as trustee, relating to the issuance of the 9 3/4% Senior Subordinated Notes Due 2009 (incorporated herein by reference to Exhibit 4.1 to Hexcel'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 Hexcel Corporation (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 August 1, 1986 between Hexcel Corporation and the Bank of California, N.A., as trustee, relating to the 7% Convertible Subordinated Notes due 2011 of Hexcel (incorporated herein by reference to Exhibit 4.3 to Hexcel's Annual Report on Form 10-K for the fiscal year ended December 31, 1997). 4.3(a) Instrument of Resignation, Appointment and Acceptance, dated as of October 1, 1993 (incorporated herein by reference to Exhibit 4.10 to Hexcel's Annual Report on Form 10-K for the fiscal year ended December 31, 1993). 5.1* Opinion of Skadden, Arps, Slate, Meagher & Flom LLP as to the validity of the exchange notes. 10.1 Second Amended and Restated Credit Agreement, dated as of September 15, 1998, by and among Hexcel Corporation 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 Hexcel'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(b) to Hexcel'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 Hexcel'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 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 10.3 of Hexcel's Quarterly Report on Form 10-Q for the Quarter ended June 30, 1999).
EXHIBIT NO. DESCRIPTION - ----------- ----------- 10.1(d) Third Amendment dated as of March 7, 2000 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(j) of Hexcel's Annual Report on Form 10-K for the fiscal year ended December 31, 1999). 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, 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 2.1 of Hexcel'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 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 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 Hexcel'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, 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 parties thereto, Citibank, N.A., as Documentation Agent, and Credit Suisse First Boston, as Administrative Agent (incorporated herein by reference to Exhibit 10.1(k) of Hexcel's Annual Report on Form 10-K for the fiscal year ended December 31, 1999). 10.1(h)* Fifth Amendment and Consent, dated as of May 11, 2001, to the Second 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 parties thereto, Citibank, N.A., as Documentation Agent, and Credit Suisse First Boston, as Administrative Agent. 10.1(i)* Sixth Amendment and Consent, dated as of June 21, 2001, to the Second 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 parties thereto, Citibank, N.A., as Documentation Agent, and Credit Suisse First Boston, as Administrative Agent. 10.2 Schedule to the ISDA Master Agreement between Credit Lyonnais (New York Branch) and Hexcel Corporation, dated as of September 15, 1998 (incorporated herein by reference to Exhibit 10.2 of Hexcel'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 herein by reference to Exhibit 10.2 of Hexcel'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 on January 30, 1997 (incorporated herein by reference to Exhibit 4.3 to Hexcel's Registration Statement on Form S-8, Registration No. 333-36163).
EXHIBIT NO. DESCRIPTION - ----------- ----------- 10.3(a) Hexcel Corporation Incentive Stock Plan, as amended and restated on January 30, 1997 and further amended December 10, 1997 (incorporated herein by reference to Exhibit 10.5(a) to Hexcel'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 December 10, 1997 and March 25, 1999 (incorporated herein by reference to Exhibit 4.3 of Hexcel'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 December 10, 1997, March 25, 1999 and December 2, 1999 (incorporated herein by reference to Exhibit 10.3(c) to Hexcel'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 Hexcel's Proxy Statement dated March 31, 2000). 10.3(e) Hexcel Corporation Incentive Stock Plan, as amended and restated on December 19, 2000 (incorporated herein by reference to Exhibit 10.3(e) to Hexcel's Annual Report on Form 10-K for the fiscal year ended December 31, 2000). 10.4 Hexcel Corporation 1998 Broad Based Incentive Stock Plan (incorporated herein by reference to Exhibit 4.3 of Hexcel'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 herein by reference to Exhibit 10.1 to Hexcel's Quarterly Report on From 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 (incorporated herein by reference to Exhibit 10.4(b) to Hexcel's Annual Report on Form 10-K for the fiscal year ended December 31, 2000). 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 Hexcel'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 herein by reference to Exhibit 10.5(b) of Hexcel'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 Hexcel's Proxy Statement dated March 31, 2000). 10.5(d) Hexcel Corporation Management Stock Purchase Plan, as amended and restated on December 19, 2000 (incorporated herein by reference to Exhibit 10.5(d) to Hexcel's Annual Report on Form 10-K for the fiscal year ended December 31, 2000). 10.6 Hexcel Corporation Management Incentive Compensation Plan, amended and restated on December 19, 2000 (incorporated herein by reference to Exhibit 10.6 to Hexcel's Annual Report on Form 10-K for the fiscal year ended December 31, 2000). 10.7 Form of Employee Option Agreement (2000) (incorporated herein by reference to Exhibit 10.7 to Hexcel's Annual Report on Form 10-K for the fiscal year ended December 31, 2000).
EXHIBIT NO. DESCRIPTION - ----------- ----------- 10.8 Form of Employee Option Agreement Special Executive Grant (2000) dated December 20, 2000 (incorporated herein by reference to Exhibit 10.8 to Hexcel's Annual Report on Form 10-K for the fiscal year ended December 31, 2000). 10.9 Form of Employee Option Agreement Special Executive Grant (1999) dated December 2, 1999 (incorporated herein by reference to Exhibit 10.7 of Hexcel's Annual Report on Form 10-K for the fiscal year ended December 31, 1999). 10.10 Form of Employee Option Agreement Special Executive Grant (1999) dated December 2, 1999 (incorporated herein by reference to Exhibit 10.8 of Hexcel'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 Hexcel'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 Hexcel's Quarterly Report on Form 10-Q for the Quarter ended September 30, 1998). 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) (incorporated herein by reference to Exhibit 10.16 to Hexcel's Annual Report on Form 10-K for the fiscal year ended December 31, 2000). 10.17 Form of Retainer Fee Option Agreement for Non-Employee Directors (1999) (incorporated herein by reference to Hexcel'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 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) (incorporated herein by reference to Exhibit 10.22 to Hexcel's Annual Report on Form 10-K for the fiscal year ended December 31, 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 Hexcel'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 Hexcel's Annual Report on Form 10-K for the fiscal year ended December 31, 1999).
EXHIBIT NO. DESCRIPTION - ----------- ----------- 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). 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* Employment Agreement dated as of July 30, 2001 between Hexcel Corporation and David E. Berges. 10.37(a)* Employee Option Agreement dated as of July 30, 2001 between Hexcel Corporation and David E. Berges. 10.37(b)* Employee Option Agreement (performance-based option) dated as of July 30, 2001 between Hexcel Corporation and David E. Berges. 10.37(c)* Restricted Stock Agreement dated as of July 30, 2001 between Hexcel Corporation and David E. Berges. 10.37(d)* Supplemental Executive Retirement Agreement dated as of July 30, 2001 between Hexcel Corporation and David E. Berges. 10.37(e)* Letter Agreement dated August 1, 2001 between Hexcel Corporation and David E. Berges.
EXHIBIT NO. DESCRIPTION - ----------- ----------- 10.38 Amended and Restated Employment Agreement dated October 11, 2000 between Hexcel Corporation and John J. Lee (incorporated herein by reference to Exhibit 10.4 to Hexcel's Quarterly Report on Form 10-Q for the quarter ended September 30, 2000). 10.38(a) Amendment to Amended and Restated Employment Agreement dated October 11, 2000 between Hexcel Corporation and John J. Lee (incorporated herein by reference to Exhibit 10.37(a) to Hexcel's Annual Report on Form 10-K for the fiscal year ended December 31, 2000). 10.38(b) Employee Option Agreement dated as of February 29, 1996 between Hexcel Corporation and John J. Lee (incorporated herein by reference to Exhibit 10.14(a) to Hexcel's Annual Report on Form 10-K for the fiscal year ended December 31, 1995). 10.38(c) Bankruptcy Court Option Agreement dated as of February 29, 1996 between Hexcel Corporation and John J. Lee (incorporated herein by reference to Exhibit 10.14(b) to Hexcel's Annual Report on Form 10-K for the fiscal year ended December 31, 1995). 10.38(d) Performance Accelerated Restricted Stock Unit Agreement dated as of February 29, 1996 between Hexcel Corporation and John J. Lee (incorporated herein by reference to Exhibit 10.14(c) to Hexcel's Annual Report on Form 10-K for the fiscal year ended December 31, 1995). 10.38(e) Short-Term Option Agreement dated as of February 29, 1996 between Hexcel Corporation and John J. Lee (incorporated herein by reference to Exhibit 10.14(d) to Hexcel's Annual Report on Form 10-K for the fiscal year ended December 31, 1995). 10.38(f) Form of Reload Option Agreement dated as of February 29, 1996 between Hexcel Corporation and John J. Lee (incorporated herein by Reference to Exhibit 10.14(e) to Hexcel's Annual Report on Form 10-K for the fiscal year ended December 31, 1995). 10.38(g) Supplemental Executive Retirement Agreement dated as of May 20, 1998 between Hexcel Corporation and John J. Lee (incorporated herein by reference to Exhibit 10.3 to Hexcel's Quarterly Report on Form 10-Q for the Quarter ended June 30, 1998). 10.38(h) Amendment to Supplemental Executive Retirement Agreement dated January 21, 1999, between Hexcel Corporation and John J. Lee (incorporated herein by reference to Exhibit 10.37(h) to Hexcel's Annual Report on Form 10-K for the fiscal year ended December 31, 2000). 10.38(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 Hexcel's Quarterly Report on Form 10-Q for the Quarter ended September 30, 2000). 10.38(j) Split Dollar Agreement dated as of January 21, 1999 among Hexcel Corporation, John J. Lee and certain Trustees (incorporated herein by reference to Exhibit 10.4 to Hexcel's Quarterly Report on Form 10-Q for the Quarter ended March 31, 1999). 10.38(k) Executive Severance Agreement between Hexcel Corporation and John J. Lee dated as of February 3, 1999 (incorporated herein by reference to Exhibit 10.5 to Hexcel's Quarterly Report on Form 10-Q for the Quarter ended March 31, 1999). 10.38(l) Letter dated December 2, 1999 from Hexcel Corporation to John J. Lee, regarding Hexcel's Management Incentive Compensation Plan for 1999 (incorporated herein by reference to Exhibit 10.33(i) of Hexcel's Annual Report on Form 10-K for the fiscal year ended December 31, 1999). 10.38(m) Employee Option Agreement dated as of December 20, 2000 between Hexcel Corporation and John J. Lee (incorporated herein by reference to Exhibit 10.37(m) to Hexcel's Annual Report on Form 10-K for the fiscal year ended December 31, 2000). 10.38(n)* Agreement, dated as of April 27, 2001, by and between Hexcel and John J. Lee.
EXHIBIT NO. DESCRIPTION - ----------- ----------- 10.39 Summary of Terms of Employment (effective as of July 15, 1998) between Hexcel Corporation and Harold E. Kinne, President and Chief Operating Officer of Hexcel (incorporated herein by reference to Exhibit 10.5 of Hexcel's Quarterly Report on Form 10-Q for the Quarter ended September 30, 1998). 10.39(a) Letter dated December 2, 1999 from Hexcel Corporation to Harold E. Kinne, regarding Hexcel's Management Incentive Compensation Plan for 1999 (incorporated herein by reference to Exhibit 10.34(a) of Hexcel's Annual Report on Form 10-K for the fiscal year ended December 31, 1999). 10.39(b) Supplemental Executive Retirement Agreement dated as of May 10, 2000 between Hexcel Corporation and Harold E. Kinne (incorporated herein by reference to Exhibit 10.4 of Hexcel's Quarterly Report on Form 10-Q for the Quarter ended June 30, 2000). 10.39(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 Hexcel's Quarterly Report on Form 10-Q for the Quarter ended September 30, 2000). 10.39(d) Amendment to Amendments to Agreements, dated as of November 21, 2000, by and between Hexcel Corporation and Harold E. Kinne (incorporated herein by reference to Exhibit 10.38(d) to Hexcel's Annual Report on Form 10-K for the fiscal year ended December 31, 2000). 10.40 Letter dated December 2, 1999 from Hexcel Corporation to Stephen C. Forsyth, regarding Hexcel's Management Incentive Compensation Plan for 1999 (incorporated herein by reference to Exhibit 10.35 of Hexcel's Annual Report on Form 10-K for the fiscal year ended December 31, 1999). 10.40(a) Supplemental Executive Retirement Agreement dated as of May 10, 2000 between Hexcel Corporation and Stephen C. Forsyth (incorporated herein by reference to Exhibit 10.5 of Hexcel'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 Stephen C. Forsyth (incorporated herein by reference to Exhibit 10.8 of Hexcel's Quarterly Report on Form 10-Q for the Quarter ended September 30, 2000). 10.40(c) Amendment to Amendments to Agreements, dated as of November 21, 2000, by and between Hexcel Corporation and Stephen C. Forsyth (incorporated herein by reference to Exhibit 10.39(c) to Hexcel's Annual Report on Form 10-K for the fiscal year ended December 31, 2000). 10.41 Letter dated December 2, 1999 from Hexcel Corporation to Ira J. Krakower, regarding Hexcel's Management Incentive Compensation Plan for 1999 (incorporated herein by reference to Exhibit 10.40 to Hexcel's Annual Report on Form 10-K for the fiscal year ended December 31, 2000). 10.41(a) Supplemental Executive Retirement Agreement dated as of May 10, 2000 between Hexcel Corporation and Ira J. Krakower (incorporated herein by reference to Exhibit 10.6 of Hexcel's Quarterly Report on Form 10-Q for the Quarter ended June 30, 2000). 10.41(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 Hexcel's Quarterly Report on Form 10-Q for the Quarter ended September 30, 2000). 10.42 Form of Executive Severance Agreement between Hexcel Corporation and certain executive officers dated as of February 3, 1999 (incorporated herein by reference to Exhibit 10.6 to Hexcel's Quarterly Report on Form 10-Q for the Quarter ended March 31, 1999). 10.43 Form of Executive Severance Agreement between Hexcel Corporation and certain executive officers dated as of February 3, 1999 (incorporated herein by reference to Exhibit 10.7 to Hexcel's Quarterly Report on Form 10-Q for the Quarter ended March 31, 1999).
EXHIBIT NO. DESCRIPTION - ----------- ----------- 10.44 Executive Severance Agreement between Hexcel Corporation 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). 10.44(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 Hexcel'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 Robert F. Matthews (incorporated herein by reference to Exhibit 10.43(b) to Hexcel's Annual Report on Form 10-K for the fiscal year ended December 31, 2000). 10.45 Executive Severance Agreement between Hexcel Corporation 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). 10.45(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 Hexcel's Quarterly Report on Form 10-Q for the Quarter ended September 30, 2000). 10.45(b) Amendment to Amendments to Agreements, dated as of November 21, 2000, by and between Hexcel Corporation and Steven Warshaw (incorporated herein by reference to Exhibit 10.44(b) to Hexcel's Annual Report on Form 10-K for the fiscal year ended December 31, 2000). 10.46 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 Hexcel's Quarterly Report on Form 10-Q for the Quarter ended September 30, 2000). 10.46(a) Amendment to Amendments to Agreements, dated as of November 21, 2000, by and between Hexcel Corporation and William Hunt (incorporated herein by reference to Exhibit 10.45(a) to Hexcel's Annual Report on Form 10-K for the fiscal year ended December 31, 2000). 10.47 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 Hexcel's Quarterly Report on Form 10-Q for the Quarter ended September 30, 2000). 10.48 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 Hexcel'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 Justin Taylor (incorporated herein by reference to Exhibit 10.47(a) to Hexcel's Annual Report on Form 10-K for the fiscal year ended December 31, 2000). 10.49 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 Hexcel's Quarterly Report on Form 10-Q for the Quarter ended September 30, 2000). 10.49(a) Amendment to Amendments to Agreements, dated as of November 21, 2000, by and between Hexcel Corporation and Joseph Shaulson (incorporated herein by reference to Exhibit 10.48(a) to Hexcel's Annual Report on Form 10-K for the fiscal year ended December 31, 2000). 10.50 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 Hexcel's Quarterly Report on Form 10-Q for the Quarter ended September 30, 1998).
EXHIBIT NO. DESCRIPTION - ----------- ----------- 10.51 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 Hexcel's Current Report on Form 8-K dated December 22, 2000). 10.51(a)* Amendment, dated as of April 25, 2001, to the 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. 10.52 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 Hexcel's Current Report on Form 8-K dated December 22, 2000). 10.53 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 Hexcel's Current Report on Form 8-K dated October 13, 2000). 10.54 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 Hexcel'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 Hexcel Corporation. 21.1* Subsidiaries of Hexcel Corporation. 23.1* Consent of PricewaterhouseCoopers LLP. 23.2* Consent of Skadden, Arps, Slate, Meagher & Flom LLP (included in Exhibit 5.1). 24.1* Powers of attorney (included on signature page to the Registration Statement). 25.1* Statement of Eligibility and Qualification on Form T-1 of The Bank of New York, as trustee, under the Indenture relating to the Exchange Notes. 99.1* Form of Letter of Transmittal. 99.2* Form of Notice of Guaranteed Delivery. 99.3* Form of Letter to Clients. 99.4* Form of Letter to Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees. 99.5* Form of Exchange Agency Agreement. 99.6* Guidelines for Certification of Taxpayer Identification Number of Substitute Form W-9.
- ------------------------ * Filed herewith. EX-3.2 3 a2055198zex-3_2.txt EXHIBIT 3.2 Exhibit 3.2 BYLAWS OF HEXCEL CORPORATION A DELAWARE CORPORATION AMENDED AND RESTATED AS OF APRIL 25, 2001 OFFICES 1. PRINCIPAL EXECUTIVE OFFICE. The principal executive office of the Corporation is hereby fixed and located at 2 Stamford Plaza, Stamford, Connecticut. The Board of Directors is hereby granted full power and authority to change the place of said principal executive office from time to time. 2. OTHER OFFICES. The registered office of the Corporation in the State of Delaware is hereby fixed and located at 1209 Orange Street, Wilmington, Delaware, c/o The Corporation Trust Company. The Board of Directors is hereby granted full power and authority to change the place of said registered office within the State of Delaware from time to time. The Corporation may also have offices in such other places in the United States or elsewhere as the Board of Directors may from time to time designate or as the business of the Corporation may from time to time require. STOCKHOLDERS 3. PLACE OF MEETINGS. Stockholders' meetings shall be held at such place, whether within or without the State of Delaware, as the Board of Directors shall, by resolution, designate. 4. ANNUAL MEETINGS. Annual meetings of stockholders shall be held on such dates and at such times as shall be designated from time to time by the Board of Directors and stated in the notice of such annual meeting. At such annual meetings directors shall be elected and such other business as may be properly brought before such meeting shall be conducted. Written notice of each annual meeting shall be mailed to or delivered to each stockholder of record entitled to vote thereat not less than ten (10) days nor more than sixty (60) days before the date of such annual meeting. Such notice shall specify the place, the day, and the hour of such meeting, and the matters which the Board of Directors intends to present for action by the stockholders. Except to the extent, if any, specifically provided to the contrary in the Certificate of Incorporation or these Bylaws, to be properly brought before an annual 1 meeting, all business must be either (a) specified in the notice of annual meeting (or any supplement thereto) given by or at the direction of the Board of Directors, (b) otherwise properly brought before the annual meeting by or at the direction of the Board of Directors or (c) otherwise properly brought before the annual meeting by a stockholder of record who complies with the notice procedures set forth below. In addition to any other applicable requirements, for business (including the nomination of a person or persons for election to the Board of Directors) to be properly brought before any annual meeting by a stockholder, the stockholder must have given timely notice thereof, in proper form, to the Secretary of the Corporation. To be timely, a stockholder's notice must be delivered to or mailed and received at the principal executive offices of the Corporation not less than sixty (60) nor more than ninety (90) days prior to the anniversary date of the immediately preceding annual meeting; PROVIDED, HOWEVER, that in the event the annual meeting is called for a date that is not within thirty (30) days before or after such anniversary date, notice by the stockholder in order to be timely must be so received not later than the close of business on the tenth (10th) day following the date on which notice of the date of the annual meeting was mailed or otherwise made public. To be in proper form, a stock-holder's notice to the Secretary must be in writing and must set forth with respect to each matter the stockholder proposes to bring before the annual meeting (a) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (b) the name and record address of the stockholder proposing such business, (c) the class or series and number of shares of the capital stock of the Corporation that are owned beneficially or of record by the stockholder, (d) as to each person whom the stockholder proposes to nominate for election to the Board of Directors, (i) the name, age, business address and residence address of the person, (ii) the principal occupation or employment of the person and (iii) the class or series and number of shares of capital stock of the Corporation that are owned beneficially or of record by the person, (e) a description of all arrangements or understandings between such stockholder and any other person or persons (including their name(s)) in connection with the proposal of such business (or the nomination of any person or persons for election to the Board of Directors) by any stockholder and any material interest of such stockholder in such business (or nomination), (f) any other information that would be required to be disclosed in a proxy statement or other filing required to be made in connection with the solicitation of proxies for the proposal (or the election of a person or persons to the Board of Directors) pursuant to the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder if such stockholder were engaged in such a solicitation and (g) a representation that such stockholder or a representative thereof intends to appear in person at the annual meeting to bring such business before the meeting (or nominate a person or persons for election to the Board of Directors). Any such notice relating to the nomination of a person or persons for election to the Board of Directors must be accompanied by a written consent of each proposed nominee to being named as a nominee and to serve as a director if elected. 2 The Chairman of the annual meeting shall, if the facts warrant, determine and declare to the meeting that business was not properly brought before the meeting in accordance with the provisions of this Section 4 and any such business not properly brought before the meeting shall not be transacted at the meeting. 5. SPECIAL MEETINGS. Special meetings of the stockholders may be called at any time and for any purpose or purposes by the Board of Directors, the Chairman of the Board, the Chief Executive Officer or by a committee of the Board of Directors which has been duly designated by the Board of Directors and whose powers and authority, as provided in a resolution of the Board of Directors or in these Bylaws, include the power to call such meetings. If and to the extent that any special meeting of stockholders may be called by any other person or persons specified in any provision of the Certificate of Incorporation or any amendment thereto, or any certificate filed under Section 151(g) of the General Corporation Law of the State of Delaware (the "GCL") designating the number of shares of Preferred Stock to be issued and the rights, preferences, privileges and restrictions granted to and imposed on the holders of such designated Preferred Stock, then such special meeting may also be called by such person or persons in the manner, at the times and for the purposes so specified. Except in special cases where other express provision is made by statute, notice of such special meeting shall be given in the same manner as for an annual meeting of stockholders. Such notice shall also specify the general nature of the business to be transacted at the meeting, and no business shall be transacted at the special meeting except as specified in such notice (or any supplement thereto). 6. ADJOURNED MEETINGS AND NOTICE THEREOF. Any stockholders' meeting, annual or special, whether or not a quorum is present, may be adjourned from time to time by the chairman of such meeting or by the vote of a majority of the shares present in person or represented by proxy at such meeting, but in the absence of a quorum no other business may be transacted at such meeting. Notice of an adjourned meeting need not be given if (a) the meeting is adjourned for thirty (30) days or less, (b) the time and place of the adjourned meeting are announced at the meeting at which the adjournment is taken, and (c) no new record date is fixed for the adjourned meeting. Otherwise, notice of the adjourned meeting shall be given as if the adjourned meeting were a new meeting. 7. VOTING. Except as otherwise provided by applicable law, the Certificate of Incorporation or these Bylaws, a stockholder shall be entitled to one vote for each share held of record on the record date fixed for the determination of the stockholders entitled to notice of and to vote at a meeting or, if no such date is fixed, the date determined in accordance with applicable law. If any share is entitled to more or less than one vote on 3 any matter, all references herein to a majority or other proportion of shares shall refer to a majority or other proportion of the voting power of shares entitled to vote on such matter. 8. QUORUM. A majority of the outstanding shares entitled to vote, represented in person or by proxy, shall constitute a quorum for the transaction of business. No business may be transacted at a meeting in the absence of a quorum other than the adjournment of such meeting, except that if a quorum is present at the commencement of a meeting, business may be transacted until the meeting is adjourned even though the withdrawal of stockholders results in less than a quorum being present in person or by proxy at such meeting. If a quorum is present at a meeting, the affirmative vote of a majority of the shares present or represented by proxy at the meeting and entitled to vote on any matter shall be the act of the stockholders unless the vote of a larger number is required by applicable law, the Certificate of Incorporation or these Bylaws. If a quorum is present at the commencement of a meeting but the withdrawal of stockholders results in less than a quorum being present in person or by proxy at such meeting, the affirmative vote of a majority of the shares required to constitute a quorum shall be the act of the stockholders unless the vote of a larger number is required by applicable law, the Certificate of Incorporation or these Bylaws. 9. PROXIES. A stockholder may be represented at any meeting of stockholders by a written proxy signed by the person entitled to vote or by such person's duly authorized attorney-in-fact. A proxy must bear a date within three (3) years prior to the meeting, unless the proxy specifies a different length of time. A revocable proxy is revoked by a writing delivered to the Secretary of the Corporation stating that the proxy is revoked or by a subsequent proxy executed by, or by attendance at the meeting and voting in person by, the person executing the proxy. 10. CHAIRMAN AND SECRETARY AT MEETINGS. At any meeting of stockholders, the Chairman of the Board of Directors, or in his absence, a person designated by the Board of Directors, shall preside at and act as chairman of the meeting. The Secretary, or in his absence a person designated by the chairman of the meeting, shall act as secretary of the meeting. 11. INSPECTORS. The Board of Directors may, in advance of any meeting of stockholders, appoint one or more inspectors to act at such meeting or any adjournment thereof. Each inspector, before entering upon the discharge of his duties, shall take and sign an oath to faithfully execute the duties of inspector. The inspector(s) shall determine the number of shares of capital stock of the Corporation outstanding and the voting power of each, the number of shares present or represented by proxy at the meeting, the existence of a quorum, the validity and effect of proxies, and shall receive votes, ballots or consents, count and tabulate all votes, ballots or consents, determine the 4 results of any election or vote, and do such acts as are proper to conduct the election or vote with fairness to all stockholders. At the request of the chairman of the meeting, the inspectors shall make a written report of any matters determined by them. No director or candidate for the office of director shall act as an inspector of an election of directors. 12. LIST OF STOCKHOLDERS. The Secretary of the Corporation shall prepare and make, at least ten (10) days before every meeting of the stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. DIRECTORS 13. POWERS. Subject to any limitations contained in the Certificate of Incorporation, these Bylaws or the GCL as to actions to be authorized or approved by the stockholders, and subject to the duties of directors as prescribed by these Bylaws, all corporate powers shall be exercised by or under the ultimate direction of, and the business and affairs of the Corporation shall be managed by, or under the ultimate direction of, the Board of Directors. 14. CERTAIN DEFINITIONS. For purposes of these Bylaws: "ADDITIONAL SHARES" means, as of any date of determination, up to 255,381 shares of the Corporation's Common Stock (as equitably adjusted to reflect any stock split, combination, reorganization, recapitalization, reclassification or other similar event involving the Corporation's Common Stock), in the aggregate, (i) the Beneficial Ownership of which may be acquired inadvertently from time to time by The Goldman Sachs Group, Inc. or its Affiliates acting in connection with their activities as a broker or dealer registered under Section 15 of the Exchange Act or as an asset manager (excluding Affiliates formed for the purpose of effecting principal transactions) or (ii) the Beneficial Ownership of which may be acquired by the Investors pursuant to grants of stock options or other stock-based awards to the Investors' Directors by the Corporation pursuant to any stock option or stock incentive plan approved by the Board of Directors of the Corporation, including without limitation the Hexcel Incentive Stock Plan; provided, that if and for so long as The Goldman Sachs Group, Inc. and its Affiliates collectively Beneficially Own less than 30% of the Total Voting Power of the 5 Corporation, the maximum number of Additional Shares shall be 400,000 (as equitably adjusted to reflect any stock split, combination, reorganization, recapitalization, reclassification or other similar event involving the Corporation's Common Stock). An "AFFILIATE" of any Person means any other Person that directly or indirectly, through one or more intermediaries, Controls, is Controlled by, or is under common Control with, such first Person. "CONTROL" has the meaning specified in Rule 12b-2 under the Exchange Act as in effect on the date of this Agreement. Any person shall be deemed to "BENEFICIALLY OWN", to have "BENEFICIAL OWNERSHIP" of, or to be "BENEFICIALLY OWNING" any securities (which securities shall also be deemed "BENEFICIALLY OWNED" by such person) that such person is deemed to "beneficially own" within the meaning of Rule 13d-3 and 13d-5 under the Securities Exchange Act of 1934, as amended, as in effect on December 19, 2000; provided that, except for the rights set forth in Section 3.02 of the Governance Agreement, any Person shall be deemed to Beneficially Own any securities that such Person has the right to acquire, whether or not such right is exercisable immediately. "BUYOUT TRANSACTION" means a tender offer, merger, sale of all or substantially all the Corporation's assets or any similar transaction that offers holders of Voting Securities (other than, if applicable, the Person proposing such transaction) the opportunity to dispose of Voting Securities Beneficially Owned by such holders or otherwise contemplates the acquisition by any Person or Group of Voting Securities that would result in Beneficial Ownership by such Person or Group of a majority of the Voting Securities outstanding, or a sale of all or substantially all of the Corporation's assets. "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder. "GOVERNANCE AGREEMENT" means the Governance Agreement dated as of December 19, 2000 among LXH, L.L.C., LXH II, L.L.C., the Corporation and the other parties listed on the signature pages thereto (the "Limited Partnerships"). "GROUP" has the meaning set forth in Section 13(d) of the Exchange Act as in effect on the date of this Agreement. "GS CAPITAL" means GS Capital Partners 2000, L.P., a Delaware limited partnership. 6 "HEXCEL INCENTIVE STOCK PLAN" means the Hexcel Corporation Incentive Stock Plan, as amended and restated as of February 3, 2000 and any subsequent amendment thereto approved by the Board of Directors of the Corporation. "INDEPENDENT DIRECTOR" means a director of the Corporation who is not an Investors' Director and who (i) is not and has never been an officer, employee or director of any of the Investors or their Affiliates or associates (as defined in Rule 12b-2 under the Exchange Act), in each case other than the Corporation, and (ii) has no affiliation or compensation, consulting or contractual relationship with any of the Investors or their Affiliates or associates (in each case other than the Corporation) such that a reasonable person would regard such director as likely to be unduly influenced by any of such Persons or any of their Affiliates or associates (in each case other than the Corporation). "INITIAL INVESTORS' SHARES" means the 14,525,000 shares of the Corporation's Common Stock initially purchased by the Investors pursuant to the Stock Purchase Agreement, dated October 10, 2000, among Ciba Specialty Chemicals Holding Inc., Ciba Specialty Chemicals Inc., and the Investors (as equitably adjusted to reflect any stock split, combination, reorganization, recapitalization, reclassification or other similar event involving the Initial Investors' shares). "INVESTORS" means (i) LXH, L.L.C., a Delaware limited liability company, (ii) LXH II, L.L.C., a Delaware limited liability company, (iii) each of the Limited Partnerships, (iv) The Goldman Sachs Group, Inc., or any direct or indirect Subsidiary of The Goldman Sachs Group, Inc. formed for the purpose of effecting principal transactions, and (v) subject to the approval of a majority of the Independent Directors, one other Person designated within 90 days following the Closing Date by LXH, L.L.C. or LXH II, L.L.C. as a proposed transferee of up to 2,200,000 shares of the Corporation's Common Stock; provided, that any of the foregoing Persons shall be an Investor only for so long as it Beneficially Owns Voting Securities subject to the provisions of the Governance Agreement or is a transferee of Voting Securities pursuant to Section 4.01(a)(i) of the Governance Agreement; provided, further, that any such Person specified in clause (iv) or (v) that acquires Voting Securities in accordance with the Governance Agreement has executed a joinder in which it shall agree to be bound by the provisions of the Governance Agreement to the same extent as the Investors. "INVESTORS' DIRECTORS" means Investors' Nominees who are elected or appointed to serve as members of the Board of Directors. "INVESTORS' NOMINEES" means such persons as are so designated by GS Capital or LXH II, L.L.C., as such designations may change from time to time, to serve as members of the Board of Directors pursuant to Sections 17 and 18. 7 "ORDINARY COURSE BROKER DEALER SHARES" means those shares of the Corporation's Common Stock which are acquired by any Person solely in connection with the activities of a broker or dealer registered under Section 15 of the Exchange Act (i) as a result of underwriting activities in connection with a registration statement filed by Hexcel (including any shares acquired for the investment account of a broker or dealer in connection with such underwriting activities), (ii) as a result of the exercise of investment or voting discretion authority with respect to any of such Person's customer accounts, or (iii) in good faith in connection with a debt previously contracted; provided, in each case, that the Person engaging in such activities does not Beneficially Own such shares of the Corporation's Common Stock. "PERSON" or "PERSON" means any individual, group, corporation, partnership, joint venture, trust, business association, organization, governmental entity or other entity. "SUBSIDIARY" means, with respect to any Person, as of any date of determination, any other Person as to which such Person owns, directly or indirectly, or otherwise controls, more than 50% of the voting shares or other similar interests. "SIGNIFICANT SUBSIDIARY" has the meaning set forth in Rule 1-02 of Regulation S-X under the Securities Act of 1933, as amended, as in effect on December 19, 2000. "TOTAL VOTING POWER OF THE CORPORATION" means the total number of votes that may be cast in the election of directors of the Corporation if all Voting Securities outstanding or treated as outstanding pursuant to the final sentence of this definition were present and voted at a meeting held for such purpose. The percentage of the Total Voting Power of the Corporation Beneficially Owned by any Person is the percentage of the Total Voting Power of the Corporation that is represented by the total number of votes that may be cast in the election of directors of the Corporation by Voting Securities Beneficially Owned by such Person. In calculating such percentage, the Voting Securities Beneficially Owned by any Person that are not outstanding but are subject to issuance upon exercise or exchange of rights of conversion or any options, warrants or other rights Beneficially Owned by such Person shall be deemed to be outstanding for the purpose of computing the percentage of the Total Voting Power represented by Voting Securities Beneficially Owned by such Person, but shall not be deemed to be outstanding for the purpose of computing the percentage of the Total Voting Power represented by Voting Securities Beneficially Owned by any other Person. "VOTING SECURITIES" means the Common Stock of the Corporation and any other securities of the Corporation or any subsidiary of the Corporation entitled to vote 8 generally in the election of directors of the Corporation or such subsidiary of the Corporation. 15. NUMBER OF DIRECTORS. (a) Except as provided in Subsection 6.1 of the Certificate of Incorporation and subject to compliance with Section 17, the authorized number of directors of this Corporation shall be not less than three (3) nor more than fifteen (15), with the exact number of directors within such range specified in subsection (b) below, or, if not so specified, with the exact number of directors within such range fixed from time to time by resolution of the Board of Directors. (b) It is hereby specified that this Corporation shall have ten (10) directors, one of whom shall be designated the Chairman of the Board. The Chairman of the Board shall be designated by a majority of the members of the Board of Directors. 16. ELECTION. (a) Directors shall hold office until the annual meeting next following their election and until their successors are nominated, elected and qualified pursuant to these Bylaws; subject, however, to their prior resignation, death or removal as provided by the Certificate of Incorporation, these Bylaws or applicable law. Subject to the Certificate of Incorporation and Subsections (b), (c), (d) and (e) hereof, any vacancies in the Board of Directors for any reason, and any newly created directorships resulting from any increase in the number of directors, may be filled by the Board of Directors, acting by a majority of the directors then in office, even if less than a quorum; and any directors so chosen shall hold office until the next election of the class for which such directors shall have been chosen, and until their successors shall be elected and qualified or until their earlier death, resignation or removal. (b) If at any time a member of the Board dies, resigns or is removed, a new member shall be designated to replace such member until the next election of directors. If, consistent with Section 17, the replacement director is to be an Investors' Director, the Investors shall designate the replacement Investors' Director. Except as set forth in paragraph (d) below, if consistent with Section 17, the replacement director is to be an Independent Director, the remaining Independent Directors shall designate the replacement Independent Director. (c) Subject to paragraph (d) below, if at any time the number of Investors' Nominees entitled to be nominated to the Board of Directors in accordance with these 9 Bylaws in an election of directors presented to stockholders decreases, within 10 days thereafter the Investors shall cause a sufficient number of Investors' Directors to resign from the Board of Directors so that the number of Investors' Directors on the Board of Directors after such resignation(s) equals the number of Investors' Nominees that GS Capital and the Investors would have been entitled to designate had an election of directors taken place at such time. GS Capital and the Investors shall also cause a sufficient number of Investors' Directors to resign from any relevant committees of the Board of Directors so that such committees are comprised in the manner contemplated by Section 19 after giving effect to such resignations. Any vacancies created by the resignations required by this Subsection (c) shall be filled by Independent Directors. (d) If at any time the percentage of the Total Voting Power of the Corporation Beneficially Owned by the Investors decreases as a result of an issuance of Voting Securities by the Corporation (other than any of the issuances described in the last sentence of this Section 16(d)), the Investors may notify the Corporation that the Investors intend to acquire a sufficient amount of additional Voting Securities necessary to maintain its then current level of Board of Directors representation within 90 days. In such event, until the end of such period (and thereafter if the Investors in fact restore their percentage of the Total Voting Power of the Corporation during such period and provided that the Investors continue to maintain the requisite level of Beneficial Ownership of Voting Securities in accordance with Section 17) the Board of Directors shall continue to have the number of Investors' Directors that corresponds to the percentage of the Total Voting Power of the Corporation Beneficially Owned by the Investors prior to such issuance of Voting Securities by the Corporation. Notwithstanding any provision in the Governance Agreement to the contrary, the provisions of this Section 16(d) shall not apply to any issuance of Voting Securities (x) in connection with the registered public offering of up to 6,900,000 shares of the Corporation's Common Stock permitted by Section 20(c), (y) upon conversion of any convertible securities which are either outstanding on the date hereof or approved by the Board or a duly authorized committee of the Board after the date hereof in accordance with Section 2.06 of the Governance Agreement, or (z) pursuant to employee or director stock option or incentive compensation or similar plans outstanding as of the date hereof or, subsequent to the date hereof, approved by the Board or a duly authorized committee of the Board. (e) Whenever the holders of any one or more classes or series of Preferred Stock issued by the Corporation shall have the right, voting separately by class or series, to elect directors at any annual or special meeting of stockholders, the election, term of office, filling of vacancies, removal and other features of such directorships shall be governed by the terms of the Certificate of Incorporation applicable thereto, and by the terms of any certificate filed pursuant to Section 151(g) of the GCL designating such 10 class or series and the rights, preferences, privileges and restrictions granted to and imposed on the holders of such designated Preferred Stock. 17. INVESTORS BOARD REPRESENTATION. (a) For so long as the Investors Beneficially Own 20% or more of the Total Voting Power of the Corporation, subject to Section 2.02(d), the Corporation shall exercise all authority under applicable law to cause any slate of directors presented to stockholders for election to the Board of Directors to consist of such nominees that, if elected, would result in the entire Board of Directors consisting of three Investors' Directors and seven Independent Directors; PROVIDED, HOWEVER, that if the Investors, directly or indirectly, shall have sold, transferred or otherwise disposed of, on a cumulative basis, Beneficial Ownership of such number of shares of the Corporation's Common Stock representing 33a% or more of the Initial Investors' Shares to Persons who are not Investors, then the Corporation shall exercise all authority under applicable law to cause any slate of directors presented to stockholders for election to the Board of Directors to consist of such nominees that, if elected, would result in the entire Board of Directors consisting of two Investors' Directors and eight Independent Directors. (b) For so long as the Investors Beneficially Own less than 20% but at least 15% of the Total Voting Power of the Corporation, subject to Section 17(d), the Corporation shall exercise all authority under applicable law to cause any slate of directors presented to stockholders for election to the Board of Directors to consist of such nominees that, if elected, would result in the entire Board of Directors consisting of two Investors' Directors and eight Independent Directors; PROVIDED, HOWEVER, that if the Investors, directly or indirectly, shall have sold, transferred or otherwise disposed of, on a cumulative basis, Beneficial Ownership of such number of shares representing 66b% or more of the Initial Investors' Shares, then the Corporation shall exercise all authority under applicable law to cause any slate of directors presented to stockholders for election to the Board of Directors to consist of such nominees that, if elected, would result in the entire Board of Directors consisting of one Investors' Director and nine Independent Directors. (c) For so long as the Investors Beneficially Own less than 15% but at least 10% of the Total Voting Power of the Corporation, subject to Section 17(d), the Corporation shall exercise all authority under applicable law to cause any slate of directors presented to stockholders for election to the Board of Directors to consist of such nominees that, if elected, would result in the entire Board of Directors consisting of one Investors' Director and nine Independent Directors. (d) In order to determine (x) the number of Investors' Nominees to be included in any slate of directors to be presented to stockholders for election to the 11 Board of Directors and (y) the percentage of the Total Voting Power of the Corporation Beneficially Owned by the Investors for purposes of Section 20, the Investors shall be deemed to Beneficially Own a percentage of the Total Voting Power of the Corporation that is no more than (1) 39.3% of the Total Voting Power of the Corporation less (2) the percentage of the Total Voting Power of the Corporation represented by any Voting Securities disposed of, directly or indirectly, by the Investors since December 19, 2000. (e) The Additional Shares shall not be included in any calculation of the Investors' Beneficial Ownership of the Total Voting Power of the Corporation under these Bylaws. 18. DESIGNATION OF SLATE. Any Investors' Nominees that are included in a slate of directors pursuant to Section 17 shall be designated by the Investors, and any Independent Director nominees who are to be included in any slate of directors pursuant to Section 17 shall be designated by majority vote of the then incumbent Independent Directors. The Corporation's nominating committee, if any (or if there is no such nominating committee, the Board or any other duly authorized committee thereof) shall nominate each person so designated. 19. COMMITTEE MEMBERSHIP. Subject to applicable law, rules and regulations (including those of applicable self-regulatory organizations), so long as the Investors shall be entitled to designate two or more Investors' Directors for election to the Board of Directors, each committee of the Board of Directors, including the finance, audit, nominating, and compensation committees, shall include at least one Investors' Director. 20. APPROVALS. The Board of Directors shall not authorize, approve or ratify any of the following actions without the approval of a majority of the Investors' Directors for so long as (subject to the provisions of Section 17(d)) the Investors Beneficially Own 15% or more of the Total Voting Power of the Corporation and, if the Investors' collective percentage Beneficial Ownership of the Total Voting Power of the Corporation is reduced below 15% as so determined by an issuance of Voting Securities by the Corporation, until (x) 10 business days after the Corporation notifies the Investors in writing of such issuance, and (y) if the Investors shall have notified the Corporation within 10 business days after their receipt of a written notification of such issuance that the Investors, pursuant to the option granted to the Investors by Section 3.02 of the Governance Agreement, intend to acquire a sufficient amount of Voting Securities within such 90-day period referred to therein, so that the Investors will collectively Beneficially Own at least 15% of the Total Voting Power of the Corporation determined in accordance with Section 17(d) by the end of such 90-day period, during the 90-day period following an issuance of Voting Securities by the Corporation that 12 causes the Investors to collectively Beneficially Own less than 15% of the Total Voting Power of the Corporation as so determined: (a) any merger, consolidation, acquisition or other business combination involving the Corporation or any Subsidiary of the Corporation (other than a Buyout Transaction) if the value of the consideration to be paid or received by the Corporation and/or its stockholders in any such individual transaction or in such transaction when added to the aggregate value of the consideration paid or received by the Corporation in all other such transactions approved by the Board of Directors during the immediately preceding 12 months exceeds the greater of (x) $150 million or (y) 11% of the Corporation's total consolidated assets; (b) any Buyout Transaction; PROVIDED, HOWEVER, that the Investors' rights pursuant to this clause (b) shall apply only for the 18-month period following December 19, 2000; (c) any sale, transfer, assignment, conveyance, lease or other disposition or any series of related dispositions of any assets, business or operations of the Corporation or any of its Subsidiaries (other than a Buyout Transaction) if the value of the assets, business or operations so disposed during the immediately preceding 12 months exceeds the greater of (x) $150 million or (y) 11% of the Corporation's total consolidated assets; (d) any issuance by the Corporation or any Significant Subsidiary of the Corporation of equity or equity-related securities other than (i) pursuant to customary employee or director stock option or incentive compensation or similar plans approved by the Board of Directors or a duly authorized committee of the Board of Directors, (ii) pursuant to transactions solely among the Corporation and its wholly owned Subsidiaries (including any Subsidiaries which would be wholly owned by the Corporation but for the issuance of directors' or shareholders' qualifying shares), (iii) upon conversion of convertible securities or upon exercise of warrants or options, which convertible securities, warrants or options are either outstanding on December 19, 2000 or approved by the Board or a duly authorized committee of the Board after December 19, 2000 in accordance with Section 2.06 of the Governance Agreement, or (iv) in connection with any mergers, consolidations, acquisitions or other business combinations involving the Corporation or any Subsidiary of the Corporation which are approved by the Board or a duly authorized committee of the Board in accordance with Section 2.06 of the Governance Agreement (if applicable) and for which the consideration received by the Corporation for such transactions during the immediately preceding 12 months exceeds the greater of (x) $150 million or (y) 11% of the Corporation's total consolidated assets; PROVIDED, HOWEVER, that during the 12 month period following December 19, 2000, neither the Corporation nor any Subsidiary of the Corporation may issue shares of Common Stock in a registered public offering under 13 the Securities Act in a private placement or otherwise without the approval of a majority of the Investors' Directors unless the aggregate number of shares issued during this 12 month period does not exceed 6,900,000 and the offering price of such shares is unanimously approved by a pricing committee of the Board of Directors, such committee consisting solely of one Investors' Director and two Independent Directors (selected by the Independent Directors). 21. NONEXCLUSIVITY. The Investor's rights under Sections 14, 15, 16, 17, 18, 19, and 20 shall not be deemed exclusive of any rights related to similar matters to which the Investors may be entitled under these Bylaws, the Certificate of Incorporation, any agreement (including the Governance Agreement) or otherwise. 22. QUORUM AND REQUIRED VOTE. A majority of the directors then in office shall constitute a quorum for the transaction of business, provided that unless the authorized number of directors is one, the number constituting a quorum shall not be less than the greater of one-third of the authorized number of directors or two directors. Except as otherwise provided by the Certificate of Incorporation or these Bylaws, every act or decision done or made by a majority of the directors present at a meeting duly held at which a quorum is present is the act of the Board of Directors. A meeting at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of directors, if any action taken is approved by at least a majority of the required quorum for such meeting. A majority of the directors present at a meeting, whether or not a quorum is present, may adjourn the meeting to another time and place. 23. REMOVAL. Except as provided in the Certificate of Incorporation and in Section 16 hereof, a director may be removed from office at any time, with or without cause, by the affirmative vote of the holders of a majority of the outstanding shares entitled to vote at an election of directors. No reduction in the number of directors shall have the effect of removing any director prior to the expiration of his term. 24. RESIGNATION. Any director may resign by giving written notice to the Chairman of the Board, the Chief Executive Officer, the Secretary or the Board of Directors. Such resignation shall be effective when given unless the notice specifies a later time. The resignation shall be effective regardless of whether it is accepted by the Corporation. 25. COMPENSATION. If the Board of Directors so resolves, the directors, including the Chairman of the Board, shall receive compensation and expenses of attendance at meetings of the Board of Directors and committees of the Board of Directors. Nothing herein shall preclude any director from serving the Corporation in another capacity and receiving compensation for such service. 14 26. COMMITTEES. Subject to Section 19, the Board of Directors may, by resolution adopted by a majority of the authorized number of directors, designate one or more committees, each consisting of two or more directors, to serve at the pleasure of the Board of Directors. In the absence or disqualification of any member of a committee of the Board of Directors, the other members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may, subject to Section 19, unanimously appoint another member of the Board of Directors to act in the place of such absent or disqualified member. The Board of Directors may, subject to Section 19, designate one or more directors as alternate members of a committee who may replace any absent member at any meeting of the committee. To the extent permitted by resolution of the Board of Directors, a committee may exercise all of the authority of the Board of Directors to the extent permitted by Section 141(c) of the GCL. 27. TIME AND PLACE OF MEETINGS AND TELEPHONE MEETINGS. Immediately following each annual meeting of stockholders (or at such other time and place as may be determined by the Board of Directors), the Board of Directors shall hold a regular meeting for purposes of organizing the Board of Directors, electing officers, appointing committees and transacting other business. The Board of Directors may establish by resolution the times, if any, that other regular meetings of the Board of Directors shall be held. All meetings of directors shall be held at the principal executive office of the Corporation or at such other place, whether within or without the State of Delaware, as shall be designated in the notice for the meeting or in a resolution of the Board of Directors. Directors may participate in a meeting through use of conference telephone or similar communications equipment, so long as all directors participating in such meeting can hear each other. 28. CALL. Meetings of the Board of Directors, whether regular or special, may be called by the Chairman of the Board, the Chief Executive Officer, the Secretary or any two directors. 29. NOTICE. Regular meetings of the Board of Directors may be held without notice if the date and time of such meetings have been fixed by the Board of Directors. Special meetings shall be held upon four days' notice by mail, 24 hours notice delivered personally or by telephone, telegraph or confirmed fax or on such shorter notice as the person or persons calling such meeting may deem necessary or appropriate under the circumstances. Regular meetings shall be held upon similar notice if notice is required for such meetings. Neither a notice nor a waiver of notice need specify the purpose of any regular or special meeting. Notice sent by mail, telegram or fax shall be addressed to a director at his business or home address/fax number as shown upon the records of the Corporation, or at such other address/fax number as the director specifies in writing delivered to the Corporation, or if such an address/fax number is not so shown on such 15 records and no written instructions have been received from the director, at the place at which meetings of directors are regularly held. Such mailing, telegraphing, delivery or transmittal, as above provided, shall be due, legal and personal notice to such director. If a meeting is adjourned for more than 24 hours, notice of the adjourned meeting shall be given prior to the time of such meeting to the directors who were not present at the time of the adjournment. 30. MEETING WITHOUT REGULAR CALL AND NOTICE. The transaction of business at any meeting of the Board of Directors, however called and noticed or wherever held, is as valid as though transacted at a meeting duly held after regular call and notice if a quorum is present and if, either before or after the meeting, each of the directors not present signs a written waiver of notice, a consent to holding the meeting or an approval of the minutes of the meeting. For such purposes, a director shall not be considered present at a meeting if, although in attendance at the meeting, the director protests the lack of notice prior to the meeting or at its commencement. 31. ACTION WITHOUT MEETING. Any action required or permitted to be taken by the Board of Directors may be taken without a meeting, if all of the members of the Board of Directors individually or collectively consent in writing to such action. In addition, all directors (including those who are not members of a particular committee) shall receive notice of, and shall be entitled to attend, all meetings of any committee of the Board of Directors. Only those directors who are members of a particular committee shall be entitled to vote at meetings thereof. 32. COMMITTEE MEETINGS. The principles set forth in Sections 27 through 31 of these Bylaws shall also apply to committees of the Board of Directors and to actions taken by such committees. 33. HONORARY ADVISORS TO THE BOARD. The Board of Directors may appoint one or more Honorary Advisors, who shall hold such position for such period, shall have such authority and perform such duties as the Board of Directors may specify, subject to change at any time by the Board of Directors. An Honorary Advisor to the Board of Directors shall not be a director for any purpose or with respect to any provision of the Certificate of Incorporation, these Bylaws or of the GCL, and shall have no vote as a director. However, an Honorary Advisor to the Board of Directors may receive such compensation and expense reimbursement as the Board of Directors shall from time to time determine. OFFICERS 34. TITLES AND RELATION TO BOARD OF DIRECTORS. The officers of the Corporation shall include a Chief Executive Officer, a President and a Secretary. The 16 Board of Directors may also choose a Chairman of the Board, one or more Vice Chairmen of the Board, a Chief Operating Officer, a Chief Financial Officer, a General Counsel, a Treasurer, and one or more Vice Presidents (who may be designated Executive or Senior Vice Presidents), Assistant Secretaries, Assistant Treasurers or other officers. All officers shall perform their duties and exercise their powers subject to the direction of the Chief Executive Officer and the overriding direction of the Board of Directors. If there shall occur a vacancy in any office, in the absence of the appointment of a replacement by the Board of Directors, the Chief Executive Officer shall have the right and power to appoint a Secretary, a Treasurer, a Chief Operating Officer, a Chief Financial Officer, a General Counsel, one or more additional Vice Presidents (who may be designated Executive or Senior Vice Presidents), one or more Assistant Secretaries and one or more Assistant Treasurers, all of whom shall serve at the pleasure of the Board of Directors, and shall perform their duties and exercise their powers subject to the direction of the Chief Executive Officer and the overriding direction of the Board of Directors. Any number of offices may be held simultaneously by the same person. 35. ELECTION, TERM OF OFFICE AND VACANCIES. At its regular annual meeting, the Board of Directors shall choose the officers of the Corporation. The officers shall hold office until their successors are chosen, except that the Board of Directors may remove any officer at any time. Subject to Section 34 of these Bylaws, if an office becomes vacant for any reason, the vacancy shall be filled by the Board of Directors. 36. RESIGNATION. Any officer may resign at any time upon written notice to the Corporation without prejudice to the rights, if any, of the Corporation under any contract to which the officer is a party. Such resignation shall be effective when given unless the notice specifies a later time. The resignation shall be effective regardless of whether it is accepted by the Corporation. 37. COMPENSATION. The Board of Directors shall fix the compensation of the Chairman of the Board, any Vice Chairman, the Chief Executive Officer and the President and may fix the salaries of other employees of the Corporation including the other officers. If the Board of Directors does not fix the salaries of the other officers, the Chief Executive Officer shall fix such salaries. 38. CHAIRMAN OF THE BOARD. The Chairman of the Board shall, if present, preside at all meetings of the Board of Directors, and exercise and perform such other powers and duties as may be from time to time assigned to him by the Board of Directors or prescribed by these Bylaws. 17 39. CHIEF EXECUTIVE OFFICER. Unless otherwise determined by the Board of Directors, the Chief Executive Officer shall be deemed general manager of the Corporation. The Chief Executive Officer shall effectuate orders and resolutions of the Board of Directors and exercise such other powers and perform such other duties as the Board of Directors shall from time to time prescribe. 40. PRESIDENT AND VICE PRESIDENTS. Unless otherwise determined by the Board of Directors, in the absence or disability of the Chief Executive Officer, the President, and in the absence or disability of the President, the Vice President (who may be designated Executive or Senior Vice President), if any, or if more than one, the Vice Presidents (who may be designated Executive or Senior Vice Presidents) in order of their rank as fixed by the Board of Directors or, if not so ranked, the Vice President (who may be designated Executive or Senior Vice President) designated by the Board of Directors, shall perform all the duties of the Chief Executive Officer, and when so acting shall have all the powers of, and be subject to all the restrictions upon, the Chief Executive Officer. The President and Vice Presidents (who may be designated Executive or Senior Vice Presidents) shall have such other powers and perform such other duties as from time to time may be prescribed for them by the Board of Directors or these Bylaws. 41. SECRETARY. The Secretary (or in his absence an Assistant Secretary or, if there be no Assistant Secretaries, another person designated by the Board of Directors) shall have the following powers and duties: (a) RECORD OF CORPORATE PROCEEDINGS. The Secretary shall attend all meetings of the Board of Directors and its committees and shall record all votes and the minutes of such meetings in a book to be kept for that purpose at the principal executive office of the Corporation or at such other place as the Board of Directors may determine. The Secretary shall keep at the Corporation's principal executive office the original or a copy of these Bylaws, as amended from time to time. (b) RECORD OF SHARES. Unless a transfer agent is appointed by the Board of Directors to keep a share register, the Secretary shall keep at the principal executive office of the Corporation a share register showing the names of the stockholders and their addresses, the number and class of shares held by each, the number and date of certificates issued, and the number and date of cancellation of each certificate surrendered for cancellation. (c) NOTICES. The Secretary shall give such notices as may be required by law or these Bylaws. 18 (d) ADDITIONAL POWERS AND DUTIES. The Secretary shall exercise such other powers and perform such other duties as the Board of Directors or the Chief Executive Officer shall from time to time prescribe. 42. TREASURER. Unless otherwise determined by the Board of Directors, the Treasurer of the Corporation shall be its chief financial officer, and shall have custody of the corporate funds and securities and shall keep adequate and correct accounts of the Corporation's properties and business transactions. The Treasurer shall disburse such funds of the Corporation as may be ordered by the Board of Directors or by one or more persons authorized by the Board of Directors, taking proper vouchers for such disbursements, and when requested shall render to the Chief Executive Officer, the Board of Directors and, if applicable, the Chief Financial Officer, an account of all transactions and the financial condition of the Corporation and shall exercise such other powers and perform such other duties as the Board of Directors, the Chief Executive Officer or, if applicable, the Chief Financial Officer shall prescribe. 43. OTHER OFFICERS AND AGENTS. Such other officers and agents as the Board of Directors may choose shall perform such duties and have such powers as from time to time may be assigned to them by the Board of Directors. The Board of Directors may delegate to any other officer of the Corporation the power to choose such other officers and to prescribe their respective duties and powers. SHARES 44. CERTIFICATES. Every stockholder shall be entitled to have a certificate or certificates certifying the number and class of shares of the capital stock of the Corporation owned by him. All such certificates shall be signed in the manner prescribed in the GCL. Any signature on such certificates may be a facsimile signature. The Board of Directors shall have the power to appoint one or more transfer agents and/or registrars for the transfer or registration of certificates of stock of any class, and may require stock certificates to be countersigned or registered by one or more of such transfer agents and/or registrars. 45. TRANSFERS OF SHARES OF CAPITAL STOCK. Transfers of shares shall be made only upon the transfer books of the Corporation, kept at the office of the Corporation or transfer agents and/or registrars designated by the Board of Directors. Before any new certificate is issued, the old certificate shall be surrendered for cancellation. 46. STOCKHOLDERS OF RECORD. Only stockholders of record shall be entitled to be treated by the Corporation as the holders in fact of the shares standing in their respective names and the Corporation shall not be bound to recognize any 19 equitable or other claim to or interest in any share of any other person, whether or not it shall have express or other notice thereof, except as expressly provided by law. 47. LOST, STOLEN OR DESTROYED CERTIFICATES. The Corporation may cause a new stock certificate to be issued in place of any certificate previously issued by the Corporation alleged to have been lost, stolen or destroyed. The Corporation may, at its discretion and as a condition precedent to such issuance, require the owner of such certificate to deliver an affidavit stating that such certificate was lost, stolen or destroyed, or to give the Corporation a bond or other security sufficient to indemnify it against any claim that may be made against it, including any expense or liability, on account of the alleged loss, theft or destruction or the issuance of a new certificate. 48. STOCKHOLDERS RECORD DATE. In order that the Corporation may determine the stockholders entitled to notice of and to vote at any meeting of stockholders or any adjournment thereof, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix a record date, which shall be not more than sixty (60) days nor less than ten (10) days before the date of such meeting. A determination of stockholders of record entitled to notice of and to vote at a meeting of stockholders shall apply to any adjournment of the meeting, PROVIDED, HOWEVER, that the Board of Directors may fix a new record date for the adjourned meeting, and shall fix a new record date for such adjourned meeting if the adjourned meeting is to take place more than thirty (30) days from the date set for the original meeting. 49. DIVIDENDS. Subject to the provisions of the Certificate of Incorporation and the GCL, the Board of Directors may, out of funds legally available therefor, declare dividends upon the stock of the Corporation. Before the declaration of any dividend, the Board of Directors may set apart, out of any funds of the Corporation available for dividends, such sum or sums as from time to time in its discretion may be deemed proper for working capital or as a reserve fund to meet contingencies or for such other purposes as shall be deemed conducive to the interests of the Corporation. 20 AMENDMENTS 50. ADOPTION OF AMENDMENTS. The Board of Directors is authorized and empowered from time to time in its discretion to make, alter, amend or repeal these Bylaws, except as such power may be restricted or limited by the GCL; PROVIDED, HOWEVER, that the provisions set forth in Sections 14, 16(a)-(d), 17, 18, 19, 20 or this Section 50 shall not be amended or repealed unless the Investors shall have consented thereto in writing. Notwithstanding the foregoing, Sections 14, 16(b)-(d), 17, 18, 19, 20 and the proviso in the preceding sentence of this Section 50 shall be automatically repealed and cease to have any force or effect on the date upon which the Investors rights under the Governance Agreement terminate pursuant to the terms of such agreement. 51. RECORD OF AMENDMENTS. Whenever an amendment or new bylaw is adopted, it shall be copied in the book to be kept for that purpose at the principal executive office of the Corporation or at such other place as the Board of Directors may determine. If any bylaw is repealed, the fact of repeal with the date of the meeting at which the repeal was enacted or written consent with respect thereto was filed shall be stated in said book. CORPORATE SEAL 52. FORM OF SEAL. The corporate seal shall be circular in form, and shall have inscribed thereon the name of the Corporation, the date of its incorporation and the word "Delaware". MISCELLANEOUS 53. CHECKS, DRAFTS, ETC. All checks, drafts, or other orders for payment of money, notes, or other evidences of indebtedness, issued in the name of or payable by or to the Corporation, shall be signed or endorsed by the Chief Executive Officer, the President, the Chief Financial Officer, the Treasurer or such other person or persons as may from time to time be so authorized in accordance with a resolution of the Board of Directors. 54. CONTRACTS, ETC.; HOW EXECUTED. Except as otherwise provided in these Bylaws, the Chief Executive Officer, the President, any Vice President (who may be designated Executive or Senior Vice President) or Treasurer, or such other officer or officers as may from time to time be so authorized in accordance with a resolution of the Board of Directors, shall have the power and authority to sign and execute on behalf of the Corporation deeds, conveyances and contracts, and any and all other documents requiring execution by the Corporation. The Board of Directors may authorize any 21 other officer or officers, or agent or agents, to enter into any contract or execute any instrument in the name of and on behalf of the Corporation, and such authority may be general or confined to specific instances. 55. REPRESENTATION OF SHARES OF OTHER CORPORATIONS. The Chief Executive Officer, the President or any Vice President (who may be designated Executive or Senior Vice President) or the Secretary or Assistant Secretary of the Corporation are authorized to vote, represent, and exercise on behalf of the Corporation all rights incident to any and all shares of any other corporation or corporations standing in the name of the Corporation. The authority herein granted to said officers to vote or represent on behalf of the Corporation any and all shares held by the Corporation in any other corporation or corporations may be exercised either by such officers in person or by any other person authorized so to do by proxy or power of attorney duly executed by said officers. 56. INSPECTION OF BYLAWS. The Corporation shall keep in its principal office for the transaction of business the original or a copy of these Bylaws as amended or otherwise altered to date, certified by the Secretary, which shall be open to inspection by the stockholders at all reasonable times during office hours. 57. FISCAL YEAR. The fiscal year of the Corporation shall be fixed by resolution of the Board of Directors. 58. CONSTRUCTION AND DEFINITIONS. Unless the context otherwise requires, the general provisions, rules and construction, and definitions contained in the GCL shall govern the construction of these Bylaws. Without limiting the generality of the foregoing, the masculine gender includes the feminine and neuter, the singular number includes the plural and the plural number includes the singular, and the term "person" includes a corporation or other entity or organization as well as a natural person. 59. SEVERABILITY. If any provision of these Bylaws is determined to be invalid, void, illegal or unenforceable, the remaining provisions of these Bylaws shall continue to be valid and enforceable and shall in no way be affected, impaired or invalidated thereby. 22 EX-5.1 4 a2055198zex-5_1.txt EXHIBIT 5.1 Exhibit 5.1 August 2, 2001 Hexcel Corporation Two Stamford Plaza 281 Tresser Boulevard Stamford, Connecticut 06901-3238 Re: Hexcel Corporation Registration Statement on Form S-4 Ladies and Gentlemen: We are acting as special counsel to Hexcel Corporation, a Delaware corporation (the "Company"), in connection with the registration of $100,000,000 aggregate principal amount of the Company's 9 3/4% Senior Subordinated Notes Due 2009 (the "Exchange Notes"). The Exchange Notes are to be issued pursuant to an exchange offer (the "Exchange Offer") in exchange for a like principal amount of the issued and outstanding 9 3/4% Senior Subordinated Notes Due 2009 of the Company (the "Original Notes") issued as additional notes under the Indenture, dated as of January 21, 1999 (the "Indenture"), between the Company and The Bank of New York, as Trustee (the "Trustee"), as contemplated by the Registration Rights Agree ment, dated as of June 29, 2001 (the "Registration Rights Agreement"), by and among the Company, Credit Suisse First Boston Corporation, Deutsche Banc Alex. Brown Inc., Goldman, Sachs & Co. and J.P. Morgan Securities. This opinion is being furnished in accordance with the requirements of Item 601(b)(5) of Regulation S-K under the Securities Act of 1933, as amended (the "Act"). In connection with this opinion, we have examined and relied on originals or copies, certified or otherwise identified to our satisfaction, of: (a) the Registration Statement on Form S-4 to be filed with the Securities and Exchange Commission (the "Commission") on the date hereof under the Act (the "Registration Statement"); Page 2 Hexcel Corporation August 2, 2001 (b) an executed copy of the Registration Rights Agreement; (c) an executed copy of the Indenture; (d) the Restated Certificate of Incorporation of the Company, as certified by the Secretary of State of the State of Delaware, as currently in effect; (e) the Restated By-Laws of the Company, as currently in effect; (f) certain resolutions adopted by the Board of Directors of the Company and the Pricing Committee of the Board of Directors relating to the Exchange Offer, the issuance of the Original Notes and the Exchange Notes, the Indenture and related matters; (g) the Form T-1 of the Trustee filed as an exhibit to the Registra tion Statement; and (h) the form of the Exchange Notes. We have also examined originals or copies, certified or otherwise identified to our satisfaction, of such records of the Company and such agreements, certificates of public officials, certificates of officers or other representatives of the Company and others, and such other documents, certificates and records as we have deemed necessary or appropriate as a basis for the opinions set forth herein. In our examination, we have assumed the legal capacity of all natural persons, the genuineness of all signatures, the authenticity of all documents submit ted to us as originals, the conformity to original documents of all documents submitted to us as certified, conformed or photostatic copies, and the authenticity of the originals of such copies. In making our examination of executed documents or documents to be executed, we have assumed that the parties thereto, other than the Company, had or will have the power, corporate or other, to enter into and perform all obligations thereunder and have also assumed the due authorization by all requisite action, Page 3 Hexcel Corporation August 2, 2001 corporate or other, and execution and delivery by such parties of such documents and the validity and binding effect thereof. As to any facts material to the opinions expressed herein which we have not inde pendently established or verified, we have relied upon statements and representa tions of officers and other representatives of the Company and others. Our opinions set forth herein are limited to Delaware corporate law and the laws of the State of New York which are normally applicable to transactions of the type contemplated by the Exchange Offer and to the extent that judicial or regulatory orders or decrees or consents, approvals, licenses, authorizations, valida tions, filings, recordings or registrations with governmental authorities are relevant, to those required under such laws (all of the foregoing being referred to as "Opined on Law"). We do not express any opinion with respect to the law of any jurisdiction other than Opined on Law or as to the effect of any such non-opined on law on the opinions herein stated. Based upon and subject to the foregoing and the limitations, qualifi cations, exceptions and assumptions set forth herein, we are of the opinion that when the Exchange Notes (in the form examined by us) have been duly executed and authenticated in accordance with the terms of the Indenture and have been delivered upon consummation of the Exchange Offer against receipt of Original Notes surren dered in exchange therefor in accordance with the terms of the Exchange Offer, the Exchange Notes will constitute valid and binding obligations of the Company, enforceable against the Company in accordance with their terms, except to the extent that enforcement thereof may be limited by (1) bankruptcy, insolvency, reorganiza tion, moratorium, fraudulent conveyance or other similar laws now or hereafter in effect relating to creditors' rights generally and (2) general principles of equity (regardless of whether enforceability is considered in a proceeding at law or in equity). In rendering the opinion set forth above, we have assumed that the execution and delivery by the Company of the Indenture and the Exchange Notes and the performance by the Company of its obligations thereunder do not and will not violate, conflict with or constitute a default under any agreement or instrument to which the Company or its properties is subject, except for those agreements and instruments which have been identified to us by the Company as being material to it and which are listed in Part II of the Registration Statement. Page 4 Hexcel Corporation August 2, 2001 We hereby consent to the filing of this opinion with the Commission as an exhibit to the Registration Statement. We also consent to the reference to our firm under the caption "Legal Matters" in the Registration Statement. In giving this consent, we do not thereby admit that we are included in the category of persons whose consent is required under Section 7 of the Act or the rules and regulations of the Commission. Very truly yours, /s/ Skadden, Arps, Slate, Meagher & Flom LLP EX-10.1(H) 5 a2055198zex-10_1h.txt EXHIBIT 10.1(H) Exhibit 10.1(h) EXECUTION COPY FIFTH AMENDMENT FIFTH AMENDMENT, dated as of May 11, 2001 (this "AMENDMENT"), to the Second Amended and Restated Credit Agreement, dated as of September 15, 1998 (as amended, supplemented or otherwise modified from time to time, the "CREDIT AGREEMENT"), among Hexcel Corporation (the "COMPANY") and the Foreign Borrowers from time to time party thereto (together with the Company, the "BORROWERS"), the banks and other financial institutions from time to time parties thereto (the "LENDERS"), Citibank, N.A., as Documentation Agent, and Credit Suisse First Boston, as Administrative Agent (the "ADMINISTRATIVE AGENT"). W I T N E S S E T H: - - - - - - - - - - WHEREAS, pursuant to the Credit Agreement, the Lenders have agreed to make, and have made, certain loans and other extensions of credit to the Borrowers; and WHEREAS, the Borrowers have requested, and, upon this Amendment becoming effective, the Lenders shall have agreed, that certain provisions of the Credit Agreement be amended in the manner provided for in this Amendment. NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and in consideration of the premises and mutual agreements contained herein, the parties hereto hereby agree as follows: SECTION 1. DEFINED TERMS DEFINED TERMS. Unless otherwise defined herein, capitalized terms used herein have the meanings given to such terms in the Credit Agreement. SECTION 2. AMENDMENTS 2.1. AMENDMENT TO SUBSECTION 1.1. Subsection 1.1 of the Credit Agreement is hereby amended: (a) by adding at the end of the definition of "EBITDA" the following: "; PROVIDED, HOWEVER, that in any computation of EBITDA for the second quarter of the Borrower's 2001 fiscal year (or for any four quarter period which includes such quarter) up to $5,000,000 in compensation-related expenses reflected in the Company's consolidated income statement for such quarter that are associated with the retirement by reason of disability of Mr. John J. Lee may be disregarded" (b) for and during the period from the Effective Date (as defined below) to and including the date upon which the Administrative Agent receives the financial statements and compliance certificate required to be delivered with respect to the second fiscal quarter of 2002 2 pursuant to subsections 13.1 and 13.2 of the Credit Agreement, by replacing in its entirety the table of Leverage Ratios and Applicable Margins contained in the definition of "Applicable Margin" with the following new table:
============================================================================================================= Applicable Margin ---------------------------------------------------------------- Tranche A Loans Revolving Credit Loans Swing Line Loans European Revolving Loans Tranche B Loans ------------------------------- ----------------------------- Leverage Ratio Eurocurrency Euro-currency ABR Loans ABR Loans Loans Loans - ------------------------------------------ ------------------------------- ----------------------------- Greater than or equal to 5.0 to 1.0 275 b.p. 175 b.p. 325 b.p. 225 b.p. Greater than or equal to 4.5 to 1.0, 250 b.p. 150 b.p. 300 b.p. 200 b.p. but less than 5.0 to 1.0 Greater than or equal to 4.0 to 1.0, 225 b.p. 125 b.p. 275 b.p. 175 b.p. but less than 4.5 to 1.0 Greater than or equal to 3.5 to 1.0, 200 b.p. 100 b.p. 275 b.p. 175 b.p. but less than 4.0 to 1.0 Greater than or equal to 3.0 to 1.0, 150 b.p. 50 b.p. 225 b.p. 125 b.p. but less than 3.5 to 1.0 Greater than or equal to 2.5 to 1.0, 112.5 b.p. 25 b.p. 200 b.p. 100 b.p. but less than 3.0 to 1.0 Less than 2.5 to 1.0 100 b.p. 25 b.p. 200 b.p. 100 b.p. =============================================================================================================
(c) by deleting "$30,000,000" where it appears in the definition of "Fixed Charge Coverage Ratio" and by inserting, in lieu thereof, "$20,000,000". (d) by deleting "14.8(j)" where it appears in the definition of "Investment" and by inserting, in lieu thereof, "14.8(k)". 2.2. AMENDMENT TO SUBSECTION 14.1(A). Subsection 14.1(a) is hereby amended by deleting such subsection in its entirety and by substituting therefor the following: (a) MINIMUM INTEREST COVERAGE RATIO. Permit the Interest Coverage Ratio of the Company and its Subsidiaries on the last day of any fiscal quarter of the Company occurring during a period set forth below to be less than the ratio set forth opposite such period: 3
- ---------------------------------------------------------------------------- Period Ratio - ---------------------------------------------------------------------------- January 1, 2000 - March 31, 2000 1.80 to 1.0 April 1, 2000 - June 30, 2000 1.80 to 1.0 July 1, 2000 - September 30, 2000 1.80 to 1.0 October 1, 2000 - December 31, 2000 1.85 to 1.0 January 1, 2001 - March 31, 2001 2.25 to 1.0 April 1, 2001 - June 30, 2001 2.10 to 1.0 July 1, 2001 - September 30, 2001 2.10 to 1.0 October 1, 2001 - December 31, 2001 2.15 to 1.0 January 1, 2002 - March 31, 2002 2.20 to 1.0 April 1, 2002 - June 30, 2002 2.25 to 1.0 July 1, 2002 - Thereafter 2.50 to 1.0 - ----------------------------------------------------------------------------
2.3. AMENDMENT TO SUBSECTION 14.1(B). Subsection 14.1(b) of the Credit Agreement is hereby amended by deleting such subsection in its entirety and by substituting therefor the following: (b) MAXIMUM LEVERAGE RATIO. Permit the Leverage Ratio of the Company and its Subsidiaries on the last day of any fiscal quarter of the Company occurring during a period set forth below to be greater than the ratio set forth opposite such period:
- ---------------------------------------------------------------------------- Period Ratio - ---------------------------------------------------------------------------- January 1, 2000 - March 31, 2000 6.15 to 1.0 April 1, 2000 - June 30, 2000 6.15 to 1.0 July 1, 2000 - September 30, 2000 6.15 to 1.0 October 1, 2000 - December 31, 2000 5.75 to 1.0 January 1, 2001 - March 31, 2001 5.00 to 1.0 April 1, 2001 - June 30, 2001 5.25 to 1.0 July 1, 2001 - September 30, 2001 5.25 to 1.0 October 1, 2001 - December 31, 2001 5.25 to 1.0 January 1, 2002 - March 31, 2002 5.00 to 1.0 April 1, 2002 - June 30, 2002 4.75 to 1.0 July 1, 2002 - Thereafter 4.50 to 1.0 - ----------------------------------------------------------------------------
2.4. AMENDMENT TO SUBSECTION 14.8(K). For and during the period from the Effective Date (as defined below) to and including June 30, 2002 only, subsection 14.8(k) of the Credit 4 Agreement is hereby amended by replacing clause (i) in its entirety with the following new clause (i): "(i) the aggregate amount of all Investments (with the amount of any Guarantee Obligations being deemed to be the amount so guaranteed) made by the Company and its Subsidiaries in reliance upon the provisions of this subsection 14.8(k) does not exceed $50,000,000" and SECTION 3. MISCELLANEOUS 3.1. CONDITIONS TO EFFECTIVENESS OF THIS AMENDMENT. This Amendment shall become effective (as of the date first set forth above) on the date (the "EFFECTIVE DATE") upon which (a)the Administrative Agent shall have received counterparts hereof, duly executed and delivered by each Borrower, the Documentation Agent, the Administrative Agent, each Subsidiary Guarantor and the Majority Lenders and (b) the Amendment Fee specified in Section 3.4 of this Amendment shall have been paid. 3.2. REPRESENTATIONS AND WARRANTIES. The Company, as of the date hereof after giving effect to the amendments contained herein, hereby confirms, reaffirms and restates the representations and warranties made by it and each Foreign Borrower in Subsection 11 of the Credit Agreement and otherwise in the Credit Documents to which it is a party; PROVIDED that each reference to the Credit Agreement therein shall be deemed to be a reference to the Credit Agreement after giving effect to this Amendment. 3.3. LIMITED EFFECT. The execution, delivery and effectiveness of this Amendment shall not, except as expressly provided herein, operate as a waiver of any right, power or remedy of any Lender or the Administrative Agent under any of the Credit Documents, nor constitute a waiver or amendment of any provisions of any of the Credit Documents. Except as expressly modified herein, all of the provisions and covenants of the Credit Agreement and the other Credit Documents are and shall continue to remain in full force and effect in accordance with the terms thereof and are hereby in all respects ratified and confirmed. 3.4. AMENDMENT FEE. The Company shall pay to the Administrative Agent, for the account of each Lender executing this Amendment on or before May 11, 2001, an amendment fee (the "AMENDMENT FEE") equal to 25 b.p. of each such Lender's applicable (i) Commitment, in the case of Revolving Credit Commitment, European Loan Commitment or European Overdraft Commitment and (ii) outstanding Loans, in the case of Tranche A Loans and Tranche B Loans. Such Amendment Fee shall be calculated immediately prior to the effectiveness of this Amendment and shall be payable on the Effective Date. 3.5. COUNTERPARTS. This Amendment may be executed by one or more of the parties hereto in any number of separate counterparts (which may include counterparts delivered by facsimile transmission), and all of said counterparts taken together shall be deemed to constitute one and the same instrument. Any executed counterpart delivered by facsimile transmission shall be effective as for all purposes hereof. 5 3.6. GOVERNING LAW. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK. (End of Page) 6 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered by their respective proper and duly authorized officers as of the day and year first above written. HEXCEL CORPORATION HEXCEL COMPOSITES S.A. (Belgium) HEXCEL (U.K.) LIMITED HEXCEL COMPOSITES S.A. (France) HEXCEL COMPOSITES LIMITED HEXCEL COMPOSITES GMBH (Austria) HEXCEL S.A. (France) HEXCEL COMPOSITES, S.A. (Spain) HEXCEL FABRICS S.A. HEXCEL COMPOSITES GMBH (Germany) HEXCEL HOLDINGS (UK) LIMITED By:_________________________ Name: Title: 7 CREDIT SUISSE FIRST BOSTON, as Administrative Agent and Lead Arranger By: ------------------------------------------------- Name: Title: By: ------------------------------------------------- Name: Title: CITIBANK, N.A., as Documentation Agent and as a Lender By: ------------------------------------------------- Name: Title: ARCHIMEDES FUNDING II, Ltd. By: ING CAPITAL ADVISORS LLC, as Collateral Manager By: ------------------------------------------------- Name: Title: CREDIT SUISSE FIRST BOSTON, as a Lender By: ------------------------------------------------- Name: Title: By: ------------------------------------------------- Name: Title: AERIES FINANCE II LTD. By: INVESCO SENIOR SECURED MANAGEMENT, INC., as Sub- Managing Agent By: ------------------------------------------------- Name: Title: AMARA 2 FINANCE, LTD. By: INVESCO SENIOR SECURED MANAGEMENT, INC., as Sub-Adviser By: ------------------------------------------------- Name: Title: THE BANK OF NEW YORK By: ------------------------------------------------- Name: Title: BANK ONE, NA By: ------------------------------------------------- Name: Title: BANQUE NATIONALE DE PARIS By: ------------------------------------------------- Name: Title: By: ------------------------------------------------- Name: Title: 8 BANQUE WORMS CAPITAL CORPORATION By: ------------------------------------------------- Name: Title: By: ------------------------------------------------- Name: Title: BATTERSON PARK CBO 1 By: GENERAL RE - NEW ENGLAND ASSET MANAGEMENT, INC., as Collateral Manager By: ------------------------------------------------- Name: Title: THE CHASE MANHATTAN BANK By: ------------------------------------------------- Name: Title: CHAIO TUNG BANK CO., NEW YORK AGENCY By: ------------------------------------------------- Name: Title: CREDIT AGRICOLE INDOSUEZ By: ------------------------------------------------- Name: Title: CAPTIVA II FINANCE LTD. By: ------------------------------------------------- Name: Title: CERES FINANCE LTD. By: INVESCO SENIOR SECURED MANAGEMENT INC., as Sub- Managing Agent By: ------------------------------------------------- Name: Title: CREDIT LYONNAIS NEW YORK BRANCH By: ------------------------------------------------- Name: Title: CYPRESSTREE SENIOR FLOATING RATE FUND By: CYPRESSTREE INVESTMENT MANAGEMENT COMPANY, INC., as Portfolio Manager By: ------------------------------------------------- Name: Title: 9 CYPRESSTREE INVESTMENT PARTNERS I, LTD. BY: CYPRESSTREE INVESTMENT MANAGEMENT COMPANY, INC., as Portfolio Manager By: ------------------------------------------------- Name: Title: CYPRESSTREE INVESTMENT PARTNERS II, LTD. BY: CYPRESSTREE INVESTMENT MANAGEMENT COMPANY, INC., as Portfolio Manager By: ------------------------------------------------- Name: Title: DEUTSCHE BANK AG NEW YORK BRANCH AND/OR CAYMAN ISLANDS BRANCH By: ------------------------------------------------- Name: Title: By: ------------------------------------------------- Name: Title: EATON VANCE CDO III LTD. By: EATON VANCE MANAGEMENT, as Investment Advisor By: ------------------------------------------------- Name: Title: EATON VANCE INST. SENIOR LOAN FUND By: EATON VANCE MANAGEMENT, as Investment Advisor By: ------------------------------------------------- Name: Title: EATON VANCE SENIOR INCOME TRUST By: EATON VANCE MANAGEMENT, as Investment Advisor By: ------------------------------------------------- Name: Title: ERSTE BANK By: ------------------------------------------------- Name: Title: By: ------------------------------------------------- Name: Title:: FIRST UNION NATIONAL BANK By: ------------------------------------------------- Name: Title: 10 GALAXY CLO 1999-1, LTD. By: ------------------------------------------------- Name: Title: GENERAL ELECTRIC CAPITAL CORPORATION By: ------------------------------------------------- Name: Title: GRAYSTON & CO. By: ________________________________ Name: Title: GRAYSTON CLO 2001-01 LTD. By: _______________________________ Name: Title: THE INDUSTRIAL BANK OF JAPAN, LIMITED, NEW YORK BRANCH By: ------------------------------------------------- Name: Title: KATONAH I LTD. By: ------------------------------------------------- Name: Title: KEYBANK NATIONAL ASSOCIATION By: ------------------------------------------------- Name: Title: KZH CYPRESSTREE-1 LLC By: ------------------------------------------------- Name: Title: KZH ING-2 LLC By: ------------------------------------------------- Name: Title: KZH ING-3 LLC By: ------------------------------------------------- Name: Title: KZH SOLEIL 2 LLC By: ------------------------------------------------- Name: Title: ------------------------------------------ Title: 11 KZH WATERSIDE LLC By: ------------------------------------------------- Name: Title: MERITA BANK Plc By: ------------------------------------------------- Name: Title: By: ------------------------------------------------- Name: Title: METROPOLITAN LIFE INSURANCE COMPANY By: ------------------------------------------------- Name: Title:: MORGAN GUARANTY TRUST COMPANY OF NEW YORK By: ------------------------------------------------- Name: Title: NORTH AMERICAN SENIOR FLOATING RATE FUND BY: CYPRESSTREE INVESTMENT MANAGEMENT COMPANY, INC., as Portfolio Manager By: ------------------------------------------------- Name: Title: OXFORD STRATEGIC INCOME FUND By: EATON VANCE MANAGEMENT, as Investment Advisor By: ------------------------------------------------- Name: Title: SENIOR DEBT PORTFOLIO By: BOSTON MANAGEMENT AND RESEARCH, as Investment Advisor By: ------------------------------------------------- Name: Title: SOCIETE GENERALE By: ------------------------------------------------- Name: Title:: STRATA FUNDING, LTD. By: INVESCO SENIOR SECURED MANAGEMENT, INC., as Sub- Managing Agent By: ------------------------------------------------- Name: Title: UNION BANK OF CALIFORNIA, N.A. By: ------------------------------------------------- Name: Title: 12 VAN KAMPEN SENIOR FLOATING RATE FUND BY: VAN KAMPAN INVESTMENT ADVISORY CORP. By: ------------------------------------------------- Name: Title: WACHOVIA BANK, N.A. By: ------------------------------------------------- Name: Title: The undersigned Subsidiary Guarantors do hereby consent and agree to the execution and delivery of this Amendment: HEXCEL INTERNATIONAL HEXCEL OMEGA CORPORATION HEXCEL BETA CORP. CLARK-SCHWEBEL HOLDING CORP. CLARK-SCHWEBEL CORPORATION CS TECH-FAB HOLDING, INC. By: --------------------------------------- Name: Title: EX-10.1(I) 6 a2055198zex-10_1i.txt EXHIBIT 10.1(I) Exhibit 10.1(i) SIXTH AMENDMENT AND CONSENT SIXTH AMENDMENT AND CONSENT, dated as of June 21, 2001 (this "AMENDMENT"), to the Second Amended and Restated Credit Agreement, dated as of September 15, 1998 (as amended, supplemented or otherwise modified from time to time, the "CREDIT AGREEMENT"), among Hexcel Corporation (the "COMPANY") and the Foreign Borrowers from time to time party thereto (together with the Company, the "BORROWERS"), the banks and other financial institutions from time to time parties thereto (the "LENDERS"), Citibank, N.A., as Documentation Agent, and Credit Suisse First Boston, as Administrative Agent (the "ADMINISTRATIVE AGENT"). W I T N E S S E T H: - - - - - - - - - - WHEREAS, pursuant to the Credit Agreement, the Lenders have agreed to make, and have made, certain loans and other extensions of credit to the Borrowers; WHEREAS, the Borrowers have requested, and, upon this Amendment becoming effective, the Lenders shall have agreed, that certain provisions of the Credit Agreement be amended in the manner provided for in this Amendment; WHEREAS, the Company has advised the Lenders that it proposes to issue up to $100,000,000 in aggregate principal amount of its senior subordinated notes (the "NEW NOTES"), and that the net proceeds thereof shall be applied first, to pay fees and expenses related to the issuance of the New Notes, SECOND, to prepay the Subordinated Ciba Notes with a principal amount outstanding of approximately $25,000,000, and THIRD, to the extent of the remaining balance (which is expected to be approximately $70,000,000) of such net proceeds, to refinance Subordinated Convertible Notes due 2003 (the Subordinated Ciba Notes and the Subordinated Convertible Notes, collectively, the "REFINANCABLE DEBT"); and WHEREAS, the Borrowers have requested that the Lenders consent to and agree with (i) the issuance of the New Notes (ii) the terms and conditions of the New Notes and (iii) the application of the net proceeds resulting from the issuance of the New Notes; NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and in consideration of the premises and mutual agreements contained herein, the parties hereto hereby agree as follows: SECTION 1. DEFINED TERMS 1.1. DEFINED TERMS. Unless otherwise defined herein, capitalized terms which are defined in the Credit Agreement are used herein as defined therein. 2 SECTION 2. CONSENTS 2.1. CONSENT TO NEW NOTES AND APPLICATION OF NET PROCEEDS. Pursuant to subsection 14.2(k) of the Credit Agreement, the Lenders hereby consent and agree to the issuance and sale by the Company of the New Notes having gross cash proceeds of not more than $100,000,000; provided that (i) the New Notes shall be issued in the form of senior subordinated notes having a maturity date which is after September 15, 2005 with other terms and conditions substantially similar to those contained in the Company's 9 3/4% Senior Subordinated Notes due 2009 (except that the interest rate payable therein and original issue discount, if any, shall be determined in accordance with market conditions at the time of the issue), (ii) such New Notes shall be issued on or before August 31, 2001 and (iii) notwithstanding the provisions of subsection 14.14 and 10.5(g) of the Credit Agreement, the Company may use the net proceeds of the New Notes to pay fees and expenses related to the issuance of such New Notes and to prepay or purchase the Refinancable Debt in the order specified in the third recital to this Amendment and no Loan prepayment or Commitment reduction under the Credit Agreement shall be required as a result of the receipt of such proceeds. 2.2. CONSENT TO FINANCIAL RATIO CALCULATION ADJUSTMENTS. The Lenders understand that the Company is required to give 45 days prior notice of the redemption of the Subordinated Convertible Notes and that, accordingly, the portion of the net proceeds of the New Notes that will be used to refinance a portion of the Subordinated Convertible Notes will be held in escrow for such purpose during the period from the date of issuance of the New Notes until the date (following the expiry of such notice period) on which the Company shall actually redeem such Subordinated Convertible Notes. In this connection, the Lenders hereby consent and agree that: (a) in connection with any calculation of the Leverage Ratio made as at a time when net proceeds from the New Notes are being held in such escrow, the Subordinated Convertible Notes shall be deemed to have been reduced by an amount equal to the amount then held in such escrow; and (b) in connection with the calculation of Interest Expense and EBITDA for any period of four consecutive fiscal quarters (a "TEST PERIOD") which includes a period (an "INCLUDED ESCROW PERIOD") during which net proceeds from the New Notes are being held in such escrow: (i) the Borrowers shall be entitled, in the case of any calculation of Interest Expense, to deduct from total Interest Expense for such Test Period an amount equal to the amount of interest accrued for the Included Escrow Period on a principal amount of New Notes equal to the amount held in such escrow during such Included Escrow Period; and (ii) the Borrowers shall be required, in the case of any calculation of EBITDA, to exclude from the amount of interest and other non-operating income for such Test Period (otherwise required to be subtracted in such calculation of EBITDA pursuant to clause (ii)(B) of the definition of such term) the amount of interest actually earned during such Included Escrow Period on the amount of such net proceeds held in such escrow. 3 SECTION 3. AMENDMENT 3.1. AMENDMENT TO SUBSECTION 14.1(a). Subsection 14.1(a) of the Credit Agreement is hereby amended, effective simultaneously with the issuance of the New Notes, by deleting such subsection in its entirety and by substituting therefor the following: (a) MINIMUM INTEREST COVERAGE RATIO. Permit the Interest Coverage Ratio of the Company and its Subsidiaries on the last day of any fiscal quarter of the Company occurring during a period set forth below to be less than the ratio set forth opposite such period:
---------------------------------------------------------------- Period Ratio -------------------------------------- -------------------- January 1, 2000 - March 31, 2000 1.80 to 1.0 April 1, 2000 - June 30, 2000 1.80 to 1.0 July 1, 2000 - September 30, 2000 1.80 to 1.0 October 1, 2000 - December 31, 2000 1.85 to 1.0 January 1, 2001 - March 31, 2001 2.25 to 1.0 April 1, 2001 - June 30, 2001 2.10 to 1.0 July 1, 2001 - September 30, 2001 2.05 to 1.0 October 1, 2001 - December 31, 2001 2.05 to 1.0 January 1, 2002 - March 31, 2002 2.10 to 1.0 April 1, 2002 - June 30, 2002 2.20 to 1.0 July 1, 2002 - Thereafter 2.35 to 1.0 ----------------------------------------------------------------
3.2. AMENDMENT TO SUBSECTION 14.1(b). Subsection 14.1(b) of the Credit Agreement is hereby amended, effective simultaneously with the issuance of the New Notes, by deleting such subsection in its entirety and by substituting therefor the following: (b) MAXIMUM LEVERAGE RATIO. Permit the Leverage Ratio of the Company and its Subsidiaries on the last day of any fiscal quarter of the Company occurring during a period set forth below to be greater than the ratio set forth opposite such period: 4
---------------------------------------------------------------- Period Ratio -------------------------------------- -------------------- January 1, 2000 - March 31, 2000 6.15 to 1.0 April 1, 2000 - June 30, 2000 6.15 to 1.0 July 1, 2000 - September 30, 2000 6.15 to 1.0 October 1, 2000 - December 31, 2000 5.75 to 1.0 January 1, 2001 - March 31, 2001 5.00 to 1.0 April 1, 2001 - June 30, 2001 5.25 to 1.0 July 1, 2001 - September 30, 2001 5.25 to 1.0 October 1, 2001 - December 31, 2001 5.25 to 1.0 January 1, 2002 - March 31, 2002 5.00 to 1.0 April 1, 2002 - June 30, 2002 4.85 to 1.0 July 1, 2002 - Thereafter 4.60 to 1.0 ----------------------------------------------------------------
3.3. AMENDMENT TO SUBSECTION 14.4(h). Subsection 14.4(h) of the Credit Agreement is hereby amended by deleting "14.8(j)" from where it appears in subsection 14.4(h) and inserting, in lieu thereof, "14.8(k)". SECTION 4. MISCELLANEOUS 4.1. CONDITIONS TO EFFECTIVENESS OF AMENDMENT. This Amendment shall become effective on the date (the "EFFECTIVE DATE") upon which the Administrative Agent shall have received counterparts hereof, duly executed and delivered by each Borrower, the Administrative Agent, each Subsidiary Guarantor and the Majority Lenders. 4.2. REPRESENTATIONS AND WARRANTIES. The Company, as of the date hereof after giving effect to the amendment contained herein, hereby confirms, reaffirms and restates the representations and warranties made by it and each Foreign Borrower in Subsection 11 of the Credit Agreement and otherwise in the Credit Documents to which it is a party; PROVIDED that each reference to the Credit Agreement therein shall be deemed to be a reference to the Credit Agreement after giving effect to this Amendment. 4.3. LIMITED EFFECT. The execution, delivery and effectiveness of this Amendment shall not, except as expressly provided herein, operate as a waiver of any right, power or remedy of any Lender or the Administrative Agent under any of the Credit Documents, nor constitute a waiver or amendment of any provisions of any of the Credit Documents. Except as expressly modified herein, all of the provisions and covenants of the Credit Agreement and the other Credit Documents are and shall continue to remain in full force and effect in accordance with the terms thereof and are hereby in all respects ratified and confirmed. 4.4. AMENDMENT FEE. The Company shall pay to the Administrative Agent, for the account of each Lender executing this Amendment, an amendment fee (the "Amendment Fee") as follows: 10 b.p. to Lenders executing this Amendment by 5:00 p.m. New York City time on June 21, 2001 and 5 b.p. to Lenders executing this Amendment by 5:00 p.m. New York City time on June 25, 2001, in each case calculated on such Lender's applicable (i) Commitment, in the case of Revolving Credit Commitment, European Loan Commitment or European Overdraft Commitment and (ii) outstanding Loans, in the case of Tranche A Loans and Tranche B Loans. 5 Such Amendment Fee shall be calculated immediately prior to the effectiveness of this Amendment and shall be payable on the Effective Date. 4.5. COUNTERPARTS. This Amendment may be executed by one or more of the parties hereto in any number of separate counterparts (which may include counterparts delivered by facsimile transmission), and all of said counterparts taken together shall be deemed to constitute one and the same instrument. Any executed counterpart delivered by facsimile transmission shall be effective as for all purposes hereof. 4.6. GOVERNING LAW. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK. 6 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered by their respective proper and duly authorized officers as of the day and year first above written. HEXCEL COMPOSITES S.A. (Belgium) HEXCEL COMPOSITES S.A. (France) HEXCEL COMPOSITES GMBH (Austria) HEXCEL COMPOSITES, S.A. (Spain) HEXCEL CORPORATION HEXCEL (U.K.) LIMITED HEXCEL HOLDINGS (U.K.) LIMITED HEXCEL COMPOSITES LIMITED HEXCEL S.A. (France) HEXCEL FABRICS S.A. HEXCEL COMPOSITES GMBH (Germany) By: --------------------------------- Title: 7 CREDIT SUISSE FIRST BOSTON, as Administrative Agent and Lead Arranger By: ------------------------------------------------- Name: Title: By: ------------------------------------------------- Name: Title: CITIBANK, N.A., as Documentation Agent and as a Lender By: ------------------------------------------------- Name: Title: , as a - ------------------------------- Lender By: ------------------------------------------------- Name: Title: The undersigned Subsidiary Guarantors do hereby consent and agree to the execution and delivery of this Amendment: HEXCEL INTERNATIONAL HEXCEL OMEGA CORPORATION HEXCEL BETA CORP. CLARK-SCHWEBEL HOLDING CORP. CLARK-SCHWEBEL CORPORATION CS TECH-FAB HOLDING, INC. By: ------------------------------------- Title: EX-10.37 7 a2055198zex-10_37.txt EXHIBIT 10.37 Exhibit 10.37 EMPLOYMENT AGREEMENT AGREEMENT made as of this 30th day of July, 2001, between Hexcel Corporation, a Delaware corporation (the "COMPANY"), and David E. Berges (the "EXECUTIVE"). WHEREAS, the parties desire to enter into this agreement, together with the Exhibits attached hereto, setting forth the terms and conditions of the employment relationship of the Executive with the Company (this "Agreement"); NOW, THEREFORE, in consideration of the premises and the respective covenants and agreements of the parties herein contained, and intending to be legally bound hereby, the parties hereto agree as follows: 1. EMPLOYMENT. The Company hereby agrees to employ the Executive, and the Executive hereby agrees to serve the Company, on the terms and conditions set forth herein. 2. TERM. The period during which the Executive is employed by the Company hereunder (the "EMPLOYMENT PERIOD") shall commence on July 30, 2001 (the "EFFECTIVE DATE") and shall end on the fourth anniversary thereof; PROVIDED, HOWEVER, that commencing on the fourth anniversary of the Effective Date and on each subsequent anniversary of the Effective Date (each such anniversary, a "RE NEWAL DATE"), the Employment Period shall automatically be extended for one additional year unless, not later than the date which is one year prior to such Renewal Date, the Company or the Executive shall have given notice not to extend the Employment Period for such one additional year. 3. POSITION AND DUTIES. The Executive shall serve as Chairman of the Board of Directors of the Company (the "BOARD") and Chief Executive Officer of the Company and shall have such responsibilities, duties and authorities consistent with such position and as may from time to time be assigned to the Executive by the Board. The Executive shall devote substantially all of his working time and efforts to the business and affairs of the Company; PROVIDED, HOWEVER, that the Executive will be permitted to serve as a director to other for-profit and not-for-profit organiza tions and corporations so long as (a) such service does not materially interfere with the performance of his obligations hereunder and (b) such organizations and corpora tions are not competitive in any business area in which the Company is engaged during the Employment Period. The Executive shall furnish to the Company a list of each such entity on the Effective Date and shall update such list as appropriate. 4. PLACE OF PERFORMANCE. In connection with the Executive's employment by the Company, the Executive shall perform his duties and conduct his business, and his principal place of employment shall be, at the principal executive offices of the Company, except for required travel on the Company's business. 5. COMPENSATION AND RELATED MATTERS. (a) SALARY. During the period of the Executive's employment hereunder, the Company shall pay to the Executive an annual base salary at a rate of $550,000, which salary shall be reviewed annually by the Board for possible increase; PROVIDED, HOWEVER, that once the Executive's annual base salary is in creased, it may not thereafter be decreased during the term of this Agreement (such salary, as it may be increased, the "BASE SALARY"). The Base Salary shall be paid in substantially equal installments, no less frequently than monthly, in accordance with the Company's standard payroll practices. (b) ANNUAL BONUSES; SIGN-ON AWARD. (i) During the term of the Executive's employment hereunder, the Executive shall participate in the Company's Management Incentive Compensation Plan (or in such alternative or successor annual cash incentive compensation plans as the Company shall make available to its other officers) (such plan or alternative or successor plan, the "MICP") and shall have (A) a target bonus opportunity thereunder of not less than 100% of his rate of Base Salary and (B) a maximum bonus opportunity thereunder of not less than 200% of his rate of Base Salary. With respect to fiscal 2001, the Company shall pay to the Executive a bonus pursuant to the terms of the MICP which is no less than $229,167. (ii) Immediately following the Effective Date, the Company shall pay to the Executive a lump sum cash payment of $200,000 as a Sign-on Award. 2 (c) EQUITY COMPENSATION. (i) STOCK OPTION. Effective as of the Effective Date, the Company shall grant to the Executive options to purchase 550,000 and 275,000 shares of common stock of the Company, par value $.01 per share ( the "COMMON STOCK") pursuant to option agreements that are attached hereto as Exhibits A and B, respectively. (ii) RESTRICTED STOCK. Effective as of the Effective Date, the Company shall grant to the Executive 90,000 shares of restricted Common Stock pursuant to a restricted stock agreement that is attached hereto as Exhibit C. (iii) ANNUAL GRANTS. The Executive shall not be entitled to participate in the Company's long-term annual equity award grant programs available to other senior level executives until the fourth anniver sary of the Effective Date; PROVIDED, HOWEVER, that the Board or the Compen sation Committee of the Board may grant equity awards to the Executive in its sole discretion. (d) OTHER BENEFITS. As of the Effective Date, the Com pany and the Executive shall enter into a Supplemental Executive Retirement Agreement in the form annexed hereto as Exhibit D. Pursuant to the terms of the Company's executive perquisite plan, the Company shall pay the Executive $1,000 per month as an automobile allowance. In addition, the Executive shall be entitled to elect benefits with a value up to $23,000 for benefits offered pursuant to such plan, which perquisites currently include dues for one country club, dues for one luncheon club, financial planning and tax preparation assistance, supplemental health insur ance and supplemental life insurance. The Executive shall also be entitled to participate in all other employee benefit plans and arrangements of the Company applicable to, and on a basis no less favorable than, senior level executives (includ ing, without limitation, medical, dental, vision, hospitalization, life insurance, short- term disability, long-term disability, accidental death and dismemberment protection and travel accident insurance plans). (e) VACATIONS. The Executive shall be entitled to six weeks of vacation in each calendar year. 3 (f) EXPENSES. During the term of the Executive's employ ment hereunder, the Executive shall be entitled to receive prompt reimbursement for all reasonable and customary expenses incurred by the Executive in performing services hereunder, including but not limited to (i) legal fees and expenses incurred by the Executive in connection with the Executive undertaking employment with the Company in an amount up to the sum of (A) $50,000 and (B) the lesser of (1) $25,000 and (2) one-half (1/2) of the excess, if any, of the Executive's actual legal fees and expenses over $50,000, (ii) all reasonable and customary expenses of travel and living expenses while away from home on business or at the request of and in the service of the Company, in each case provided that such expenses are incurred and accounted for in accordance with the policies and procedures established by the Company and (iii) relocation, at his election, from his current residence to the Stamford, Ct. area, in accordance with the Company's relocation policy for new employees (without regard to the 50-mile limitation therein). 6. DIRECTORSHIPS/OTHER OFFICES. The Executive agrees to serve without additional compensation, if elected or appointed thereto, as a director of any of the Company's subsidiaries and in one or more executive offices of any of the Company's subsidiaries, provided that the Executive is indemnified for serving in any and all such capacities on a basis no less favorable than is from time to time provided by the Company or any of its subsidiaries to its other directors and senior executive officers. 7. TERMINATION. The Executive's employment hereunder may be terminated without any breach of this Agreement only under the following circum stances: (a) DEATH. The Executive's employment hereunder shall terminate upon his death. (b) DISABILITY. If, the Executive is unable, due to physical or mental incapacity, to substantially perform his full time duties and responsibilities under this Agreement for a period of six consecutive months (as determined by a medical doctor selected by Company and Executive) the Company may terminate the Executive's employment hereunder for "DISABILITY". If the parties cannot agree on a medical doctor for purposes of such determination of Disability, each party shall select a medical doctor and the two doctors shall select a third who shall be the approved medical doctor for this purpose. 4 (c) CAUSE. The Company may terminate the Executive's employment hereunder for Cause. For purposes of this Agreement, "CAUSE" shall mean (i) the willful and continued failure by the Executive to substantially perform his duties with the Company (other than any such failure resulting from the Execu tive's incapability due to physical or mental illness or any such actual or anticipated failure after the issuance of a Notice of Termination by the Executive for Good Reason), after demand for substantial performance is delivered by the Company that specifically identifies the manner in which the Company believes that the Executive has not substantially performed his duties, or (ii) the willful engaging by the Execu tive in misconduct which is demonstrably and materially injurious to the Company, monetarily or otherwise (including, but not limited to, conduct that constitutes a violation of Section 11 hereof). No act, or failure to act, on the Executive's part shall be considered "willful" unless done, or omitted to be done, by him not in good faith and without reasonable belief that his action or omission was in the best interest of the Company. Notwithstanding the foregoing, the Executive shall not be deemed to have been terminated for Cause without (1) reasonable notice from the Board to Executive setting forth the reasons for Company's intention to terminate for Cause, (2) delivery to the Executive of a resolution duly adopted by the affirmative vote of two-thirds or more of the Board then in office (excluding the Executive) at a meeting of the Board called and held for such purpose, finding that in the good faith opinion of the Board, the Executive was guilty of the conduct set forth in this section and specifying the particulars thereof in detail, (3) an opportunity for the Executive, together with his counsel, to be heard before the Board and (4) delivery to the Executive of a Notice of Termination from the Board specifying the particulars thereof in detail. (d) TERMINATION BY THE EXECUTIVE. (i) The Executive may terminate his employment hereunder for (A) Good Reason or (B) upon no less than 30 days notice, without Good Reason. A termination by the Executive pursuant to clause (B) above is not a breach of this Agreement. (ii) For purposes of this Agreement, "GOOD REASON" shall mean termination by the Executive of his employment after the occurrence of any of the following events without his consent: (A) a diminution in the Executive's position, duties, responsibilities or authority (except during periods when the Execu- 5 tive is unable to perform all or substantially all of his duties on account of illness (either physical or mental) or other incapacity); (B) a reduction in the Executive's annual rate of Base Salary as in effect on the date hereof or as the same may be increased from time to time; (C) a failure to elect or reelect the Executive to the positions of Chairman and Chief Executive Officer or removal of him from either of such positions; (D) a change in the reporting structure so that the Executive reports to someone other than the Board of Directors; (E) failure by the Company to continue in effect any compensation plan in which the Executive participates which is material to the Executive's total compensation, unless an equitable arrangement (embodied in an ongoing substitute plan) has been made with respect to such plan, or failure by the Company to continue the Executive's participation therein (or in such substitute plan) on a basis not materially less favorable to the Executive includ ing, without limitation, his target and maximum annual bonus oppor tunities provided in Section 5(b)(i); (F) failure by the Company to continue to provide the Executive with benefits substantially similar to those enjoyed by the Executive under any of the Company's pension, savings, life insurance, medical, health and accident, or disability plans in which the Executive was participating (except for across-the-board changes similarly affecting all senior executives of Company and all senior executives of any Person in control of Company), or failure by the Company to continue to provide the Executive with the number of paid vacation days per year equal to the greater of (1) six weeks and (2) the number to which Executive is entitled in accordance with Company's vacation policy; (G) failure to provide facilities or services which are suitable to the Executive's position; 6 (H) failure of any successor (whether direct or indirect, by purchase of stock or assets, merger, consolidation or otherwise) to the Company to assume the Company's obligations hereunder or failure by the Company to remain liable to the Executive hereunder after such assumption; (I) any termination by the Company of Executive's employment which is not effected pursuant to a Notice of Termination satisfying the requirements of a Notice of Termination contained in this Agreement; or (J) the relocation of the Executive's principal place of employment to a location more than fifty (50) miles from the Executive's principal place of employment as of the date hereof. There shall be no termination for Good Reason without written notice from the Executive within 30 days following his knowledge of the circumstances giving use to Good Reason describing the basis for the termination and the Company's having 30 days in which to cure. (e) NOTICE OF TERMINATION. Any termination of the Executive's employment by the Company or by the Executive (other than a termination by reason of death) shall be communicated by written Notice of Termination to the other party hereto in accordance with Section 13 hereof. For purposes of this Agreement, a "NOTICE OF TERMINATION" shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated. (f) DATE OF TERMINATION. "DATE OF TERMINATION" shall mean (i) if the Executive's employment is terminated by his death, the date of his death, (ii) if the Executive's employment is terminated pursuant to subsection (b) above, thirty (30) days after Notice of Termination is given (provided that the Executive shall not have returned to the performance of his duties on a full-time basis during such thirty (30)-day period), (iii) if the Executive's employment is terminated pursuant to subsection (c) above, the date specified in the Notice of Termination, (iv) if the Executive's employment is terminated pursuant to subsection (d)(i)(B) above, the date specified in the Notice of Termination, but 7 in no event less than thirty (30) days after Notice of Termination is given) and (v) if the Executive's employment is terminated for any other reason, the date on which a Notice of Termination is given. (g) INDEMNIFICATION. Notwithstanding any other provision of this Agreement to the contrary, during the Employment Period and upon the Executive's termination of employment hereunder for any reason, the Company shall take such action necessary and appropriate to provide that the Executive's rights to indemnification from the Company as provided by applicable law, by the Company's charter and by-laws and by any agreement between the Company and the Executive shall not be affected in any manner adverse to the Executive and shall be continued in full force and effect for a period of at least six years following such termination of employment. 8. COMPENSATION UPON CERTAIN EVENTS. (a) ANY TERMINATION OF EMPLOYMENT. If the Executive's employment with the Company is terminated for any reason, in addition to the amounts and benefits provided pursuant to the remainder of this Section 8, the Company shall pay or provide to the Executive (i) any fully earned but unpaid performance bonus for completed performance periods, subject to any deferral election that the Executive has made with respect to such amounts, (ii) any expense reimbursements owed to the Executive by the Company and (iii) all compensation and benefits that are due to the Executive under the terms of the Company's compensation and benefit plans, programs and arrangements in accordance with the terms of such plans, programs and arrangements. (b) DISABILITY. If the Executive's employment with the Company is terminated by reason of the Executive's Disability, then (i) the Executive shall receive disability benefits in accordance with the terms of the long-term disability program then in effect for senior executives of the Company, (ii) the Company shall pay to the Executive his Base Salary through the end of the month immediately preceding the month in which such disability benefits commence and (iii) the Company shall pay to the Executive at the time bonuses are customarily paid to senior level executives a bonus for the year in which such termination of employ ment occurs equal to the Executive's bonus as determined under the MICP for such year multiplied by a fraction, the numerator of which is the number of days during such year that the Executive was employed by the Company and the denominator of which is 365 (the "PRO RATA BONUS"). 8 (c) DEATH. If the Executive's employment is terminated by reason of the Executive's death, then (i) the Company shall pay to his legal represen tative the Executive's Base Salary through the Date of Termination (the "EARNED SALARY") and (ii) the Company shall pay to the Executive's legal representative the Pro Rata Bonus. (d) BY THE COMPANY FOR CAUSE. If the Executive's employment with the Company shall be terminated by the Company for Cause, then the Company shall pay the Executive the Earned Salary. (e) BY THE COMPANY OTHER THAN FOR DISABILITY OR CAUSE; BY THE EXECUTIVE FOR GOOD REASON. If the Company shall terminate the Executive's employment other than for Disability or Cause or the Executive shall terminate his employment for Good Reason, then: (i) the Company shall pay to the Executive the Earned Salary; (ii) notwithstanding any provision of the MICP to the contrary, the Company shall pay to the Executive the Pro Rata Bonus; (iii) the Company shall pay to the Executive, promptly following the Date of Termination, a cash lump sum equal to the product of (A) two and (B) the sum of (1) the annual Base Salary rate in effect for the Executive immediately preceding the Date of Termination, disregarding any reduction in annual Base Salary which constitutes Good Reason hereunder and (2) the average of the last three annual bonus amounts awarded to the Executive under the MICP (or, if the Executive has not participated in the MICP for three completed annual award periods, the average of the annual bonus amounts awarded), provided that any award made in respect of an annual award period in which the Executive did not participate for the full period shall be annualized for purposes of this calcula tion; and (iv) for the twenty-four (24) month period immedi ately following the Date of Termination, the Executive shall continue to participate in all medical, dental, hospitalization, life insurance and other welfare and perquisite plans and programs, in each case in which he was participating on the Date of Termination (or, if any such plan or program does not permit his participation, the 9 Company shall provide the Executive with the economic equivalent on an after-tax basis). Benefits or payments other wise receivable by the Executive pursuant to this Section 8(e)(iv) shall be re duced to the extent benefits of the same type are received by or made avail able to the Executive by a subsequent employer during the twenty-four (24) month period following the Date of Termination (and any such benefits re ceived by or made available to the Executive shall be reported to the Compa ny by the Executive). (f) UPON TERMINATION OF EMPLOYMENT BY THE EXECUTIVE OTHER THAN FOR GOOD REASON OR OTHER THAN BY REASON OF DEATH. If the Executive terminates his employment with the Company other than for Good Reason or other than by reason of his death, then the Company shall pay to the Executive the Earned Salary. If such termination is prior to the six-month anniversary of the Effective Date, the Executive shall pay to the Company an amount equal to the Sign on Award. (g) CHANGE IN CONTROL. (i) IN GENERAL. If the Executive's employment is terminated by the Company other than for Cause or Disability or if the Executive terminates his employment for Good Reason, in either case within two years following a Change in Control, then the Executive shall receive the payments and benefits set forth in Section 8(e) above, except that the two times multiplier set forth in Section 8(e)(iii) shall be increased to three and the 24-month benefit continuation period set forth in Section 8(e)(iv) above shall be extended to 36 months. (ii) POTENTIAL CHANGE IN CONTROL. If the Company shall terminate the Executive's employment other than for Cause, or the Executive shall terminate his employment for Good Reason, in either case, during the period of a Potential Change in Control or at the request of a Person who, directly or indirectly, takes any action designed to cause a Change in Control, then the Company shall make payments and provide benefits to the Executive under this Agreement as though a Change in Control had occurred immediately prior to such termination. A "Potential Change in Control" shall exist during the period commencing at the time the Company enters into any agreement or arrangement which, if consummated, would result in a Change in Control and ending at the time such 10 agreement or arrangement either (i) results in a Change in Control or (ii) terminates, expires or otherwise becomes of no further force or effect. (h) DEFINITIONS. For purposes of this Agreement, the following terms shall have the following meanings: (i) "CHANGE IN CONTROL" shall mean the occurrence of any one of the following events: (A) any Person is or becomes the Beneficial Owner, directly or indirectly, of 40% or more of either (x) the then outstanding common stock of 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 Company (the "TOTAL VOTING POWER"), excluding, however, the fol lowing: (1) any acquisition by Company or any of its Controlled Affiliates, (2) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by Company or any of its Controlled Affiliates and (3) any Person who becomes such a Beneficial Owner in connection with a transaction described in the exception within paragraph (C) below; or (B) a change in the composition of the Board such that the individuals who, on the date hereof, constitute the Board (such individuals shall be hereinafter referred to as the "INCUM BENT 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 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 11 entity other than the Board shall not be considered a member of the Incumbent Board; or (C) there is consummated a merger or consolidation of Company or any direct or indirect subsidiary of Company or a sale or other disposition of all or substantially all of the assets of 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 Benefi cially 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 Company resulting from such Corporate Transaction (including, without limitation, a corporation which as a result of such transaction owns Company or all or substantially all of Company's assets either directly or through one or more subsidiaries) in substan tially 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 follow ing which the individuals who comprise the Board immediately prior thereto constitute at least a majority of the board of directors of Company resulting from such Corporate Transaction (including, without limitation, a corporation which as a result of such transaction owns Company or all or substantially all of Company's assets either directly or through one or more subsidiaries); or (D) the approval by the stockholders of Company of a complete liquidation or dissolution of Company. (ii) "AFFILIATE" of any Person shall mean any other Person that directly or indirectly, through one or more intermediaries, Con trols, is Controlled by, or is under common Control with, such first Person. (iii) "BENEFICIAL OWNER" shall have the meaning used in Rule 13d-3 promulgated under the Exchange Act. 12 (iv) "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. (v) "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as amended. (vi) "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. (vii) "PERSON" shall have the meaning set forth in Section 3(a)(9) of the Exchange Act, as modified and used in Section 13(d) and 14(d) of the Exchange Act. 9. EXCISE TAX. (a) GROSS-UP. The following provision shall apply if the Date of Termination occurs on or prior to December 19, 2002. (i) If any of the payments or benefits received or to be received by the Executive in connection with a Change in Control or the Executive's termination of employment, whether pursuant to the terms of this Agreement or any other plan, arrangement or agreement with the Company, any Person whose actions result in a Change in Control or any Person affili ated with the Company or such Person (all such payments and benefits, excluding the Gross-Up Payment, being hereinafter referred to as the "TOTAL PAYMENTS") will be subject to the excise tax (the "EXCISE TAX") imposed under Section 4999 of the Internal Revenue Code of 1986, as amended (the "CODE"), the Company shall pay to the Executive an additional amount (the "GROSS-UP PAYMENT") such that the net amount retained by the Executive, after deduction of any Excise Tax on the Total Payments and any federal, state and local income and employment taxes and Excise Tax upon the Gross- Up Payment, shall be equal to the Total Payments. (ii) For purposes of determining whether any of the Total Payments will be subject to the Excise Tax and the amount of such Excise Tax, (i) 13 all of the Total Payments shall be treated as "parachute payments" (within the meaning of Section 280G(b)(2) of the Code) unless, in the opin ion of tax counsel ("TAX COUNSEL") reasonably acceptable to the Executive and selected by the accounting firm which was, immediately prior to the Change in Control, the Company's independent auditor (the "AUDITOR"), such payments or benefits (in whole or in part) do not constitute parachute pay ments, including by reason of Section 280G(b)(4)(A) of the Code, (ii) all "excess parachute payments" within the meaning of Section 280G(b)(l) of the Code shall be treated as subject to the Excise Tax unless, in the opinion of Tax Counsel, such excess parachute payments (in whole or in part) represent reasonable compensation for services actually rendered (within the meaning of Section 280G(b)(4)(B) of the Code) in excess of the base amount (within the meaning of Section 280G(b)(3) of the Code) allocable to such reasonable compensation, or are otherwise not subject to the Excise Tax, and (iii) the value of any noncash benefits or any deferred payment or benefit shall be determined by the Auditor in accordance with the principles of Sections 280G(d)(3) and (4) of the Code. For purposes of determining the amount of the Gross-Up Payment, the Executive shall be deemed to pay federal income tax at the highest marginal rate of federal income taxation in the calendar year in which the Gross-Up Payment is to be made and state and local income taxes at the highest marginal rate of taxation in the state and locality of the Executive's residence on the Date of Termination (or if there is no Date of Termination, then the date on which the Gross-Up Payment is calculated for purposes of this Section), net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes. (iii) In the event that the Excise Tax is finally determined to be less than the amount taken into account hereunder in calculating the Gross-Up Payment, the Executive shall repay to the Company, within five (5) business days following the time that the amount of such reduction in the Excise Tax is finally determined, the portion of the Gross-Up Payment attributable to such reduction (plus that portion of the Gross-Up Payment attributable to the Excise Tax and federal, state and local income and employ ment taxes imposed on the Gross-Up Payment being repaid by the Executive, to the extent that such repayment results in a reduction in the Excise Tax and a dollar-for-dollar reduction in the Executive's taxable income and wages for purposes of federal, state and local income and employment taxes, plus interest on the amount of such repayment at 120% of the rate provided in Section 1274(b)(2)(B) of the Code. In the event that the Excise 14 Tax is determined to exceed the amount taken into account hereunder in calculating the Gross-Up Payment (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross-Up Payment), the Company shall make an additional Gross-Up Payment in respect of such excess (plus any interest, penalties or additions payable by the Executive with respect to such excess) within five (5) business days following the time that the amount of such excess is finally determined. The Executive and the Company shall each reasonably cooperate with the other in connection with any administrative or judicial proceedings concerning the existence or amount of liability for Excise Tax with respect to the Total Payments. (b) VALLEY. The following provision shall apply if the Date of Termination occurs after December 19, 2002. (i) Notwithstanding any other provisions of this Agree ment, in the event that any payment, benefit, property or right received or to be received by the Executive in connection with a Change in Control or the Executive's termination of employment (whether pursuant to the terms of this Agreement or any other plan, arrangement or agreement with the Company, any Person whose actions result in a Change in Control or any Person affili ated with the Company or such Person) (all such payments, benefits, proper ties and rights being hereinafter referred to as the "Total Payments") would be subject (in whole or part) to the tax (the "Excise Tax") imposed by Section 4999 of the Internal Revenue Code of 1986, as amended, or any successor provision (the "Code"), then the payments and benefits provided under Section 4(d) or 4(e) hereof ("Severance Payments") which are cash shall first be reduced, and the noncash Severance Payments shall thereafter be reduced, to the extent necessary so that no portion of the Total Payments is subject to the Excise tax, but only if (A) the net amount of such Total Payments, as so reduced (and after subtracting the net amount of federal, state and local income taxes on such reduced Total Payments) is greater than or equal to (B) the net amount of such Total Payment without such reduction (but after subtracting the net amount of federal, state and local income taxes an such Total Payments and the amount of Excise Tax to which the Executive would be subject in respect of such unreduced Total Payments); provided, however, that the Executive may elect (by waiving the receipt or enjoyment of all or any portion of the noncash Severance Payments at such time and in such manner that the Severance Payments so waived shall not constitute a "pay ment" within the meaning of section 280G(b) of the Code) to have 15 the noncash Severance Payments reduced (or eliminated) prior to any reduction of the cash Severance Payments. (ii) For purposes of determining whether and the extent to which the Total Payments will be subject to the Excise tax (i) no portion of the Total Payments the receipt or enjoyment of which the Executive shall have waived at such time and in such manner as not to constitute a "payment" within the meaning of section 280G(b) of the Code shall be taken into account, (ii) no portion of the Total Payments shall be taken into account which, in the written opinion of tax counsel ("Tax Counsel") reasonably acceptable to the Executive and selected by the accounting firm (the "Audi tor") which was, immediately prior to the Change in Control, the Company's Independent auditor, does not constitute a "parachute payment" within the meaning of section 280G(b)(4)(A) of the Code) and, in calculating the Excise Tax, no portion of such Total Payments shall be taken into account which, in the written opinion of Tax Counsel, constitutes reasonable compensation for services actually rendered within the meaning of section 280G(b)(4)(B) of the Code, in excess of the Base Amount allocable to such reasonable compensa tion, and (iii) the value of any noncash benefit or any deferred payment or benefit included in the Total Payments shall be determined by the Auditor in accordance with the principles of sections 280G(d)(3) and (4) of the Code. (iii) At the time that payments are made under this Agree ment, the Company shall provide the Executive with a written statement setting forth the manner in which such payments were calculated and the basis for such calculations including, without limitation, any opinions, or other advice the Company has received from Tax Counsel, the Auditor or other advisors or consultants (and all such opinions or advice shall be in writing, shall be attached to the statement and shall expressly state that the Executive may rely thereon). If the Executive objects to the Company's calculations, the Company shall pay to the Executive such portion of the Severance Payments (up to 100% thereof) as the Executive determines is necessary to result in the proper application of the first sentence of Section 9(b)(i) above. The Executive and the Company shall each reasonably cooper ate with the other in connection with any administrative or judicial proceed ing concerning the existence or amount of liability for Excise Tax with respect to the Total Payments. 16 10. NO MITIGATION. The Company agrees that, if the Executive's employment with the Company terminates during the term of this Agreement, the Executive is not required to seek other employment or to attempt in any way to reduce any amounts payable to the Executive by the Company hereunder. Further, the amount of any payment or benefit provided for in this Agreement shall not be reduced by any compensation earned by the Executive as the result of employment by another employer, by retirement benefits, by offset against any amount claimed to be owed by the Executive to the Company, or otherwise, except as specifically provided in this Agreement. 11. NONCOMPETITION/CONFIDENTIAL INFORMATION/COMPANY MATERIALS. (a) The Executive acknowledges that, as a senior management employee, the Executive will be involved, on a high level, in the development, implementation and management of the Company's global business plans, including those which involve the Company's finances, research, marketing, planning, opera tions, and acquisition strategies. By virtue of the Executive's position and knowledge of the Company, the Executive acknowledges that his employment by a competitor of the Company represents a serious competitive danger to the Company, and that the use of the Executive's experience and knowledge about the Company's business, strategies and plans by a competitor can and would constitute a valuable competitive advantage over the Company. In view of the foregoing, and in consideration of the payments made to the Executive under this Agreement, the Executive covenants and agrees that, if the Executive's employment is terminated and the Company has fulfilled its obligations under this Agreement, for a period of two years (or three years if the Executive receives payments under Section 8(g) above) after the Date of Termination the Executive will not engage, in any capacity, directly or indirectly, including but not limited as employee, agent, consultant, manager, executive, owner or stockholder (except as a passive investor holding less than a 5% equity interest in any enterprise) in any business entity engaged in competition with the business conducted by the Company on the Date of Termination anywhere in the world (the "Business"); provided, that these restrictions shall not apply so long as the Execu tive's duties and responsibilities for any such business entity do not relate directly or indirectly to the business segment of such business entity which is actually or potentially competitive with the Business. (b) The Executive agrees that all processes, technologies, designs and inventions, including new contributions, improvements, ideas and discoveries, whether patentable or not (collectively "Inventions"), conceived, developed, invented or made by the Executive prior to the Date of Termination shall belong to the Company, provided that 17 such Inventions grew out of the Executive's work with the Company or any of its subsidiaries or affiliates, are related in any manner to the business (commercial or experimental) of the Company or any of its subsidiaries or affiliates or are conceived or made on the Company's time or with the use of the Company's facilities or materials. At the request of the Company, the Executive shall (i) promptly disclose such inventions to the Company, (ii) assign to the Com pany, without additional compensation, all patent and other rights to such Inventions for the United States and foreign countries, (iii) sign all papers necessary to carry out the foregoing, and (iv) give testimony or otherwise take action in support of the Executive's status as the inventor of such Inventions, in each case at the Company's expense. (c) In addition to any obligation regarding Inventions, the Execu tive acknowledges that the trade secrets and confidential and proprietary information of the Company, its subsidiaries and affiliates, including without limitation: (i) unpublished information concerning (A) research activities and plans, (B) marketing or sales plans, (C) pricing or pricing strategies, (D) operational techniques, and (E) strategic plans; (ii) Unpublished financial information, including information concerning revenues, profits and profit margins; (iii) internal confidential manuals; and (iv) any "material inside information" as such phrase is used for purposes of the Exchange Act; all constitute valuable, special and unique information of the Company, its subsidiar ies and affiliates. In recognition of this fact, the Executive agrees that he will not disclose any such trade secrets or confidential or proprietary information (except (i) information which becomes publicly available without violation of this Agreement, (ii) information of which the Executive, prior to disclosure by the Executive, did not know and should not have known was disclosed to the Executive by a third party in violation of any other person's confidentiality or fiduciary obligation, (iii) disclosure required in connection with any legal process (provided the Executive promptly gives the Company written notice of any legal process seeking to compel such disclosure and reasonably cooperates in the Company's attempt to eliminate or limit the scope of such disclosure) and (iv) disclosure while employed by the 18 Company which the Executive reasonably and in good faith believes to be in or not opposed to the interests of the Company) to any person, firm, corporation, association or other entity, for any reason or purpose whatsoever, nor shall the Executive make use of any such information for the benefit of any person, firm, corporation or other entity except on behalf of the Company, its subsidiaries and affiliates. 12. SUCCESSORS; BINDING AGREEMENT. (a) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substan tially all of the business and/or assets of the Company to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which executes and delivers the agreement provided for in this Section 12 or which otherwise becomes bound by all the terms and provisions of this Agreement by operation of law. (b) This Agreement and all rights of the Executive hereunder shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Executive should die while any amounts would still be payable to him hereunder if he had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agree ment to the Executive's devisee, legatee, or other designee or, if there be no such designee, to the Executive's estate. 13. NOTICE. For the purposes of this Agreement, notices, demands and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when delivered or (unless otherwise specified) mailed by United States certified or registered mail, return receipt re quested, postage prepaid, addressed as follows: If to the Executive: David E. Berges c/o Hexcel Corporation Two Stamford Plaza 19 281 Tresser Blvd. If to the Company: Hexcel Corporation Two Stamford Plaza 281 Tresser Blvd. Stamford, CT 06902 Attn: Board of Directors or to such other address as any party may have furnished to the other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt. 14. MISCELLANEOUS. No provisions of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing signed by the Executive and such officer of the Company as may be specifically designated by the Board. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not set forth expressly in this Agreement. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Connecticut without regard to its conflicts of law principles. 15. VALIDITY. The invalidity or unenforceability of any provision or provisions of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 16. COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 17. DISPUTE RESOLUTION. Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration, conducted 20 before a panel of three arbitrators in Stamford, Connecticut, in accordance with the Commercial Arbitration Rules of the American Arbitration Association then in effect. Judgement may be entered on the arbitrator's award in any court having jurisdiction; PROVIDED, HOWEVER, that the Company shall be entitled to seek a restrain ing order or injunction in any court of competent jurisdiction to prevent any continu ation of any violation of the provisions of Section 11 hereof. The Company shall advance to the Executive all legal fees and expenses incurred by the Executive in seeking to obtain or enforce any right under this Agreement as a result of his termina tion of employment, including all such fees and expenses incurred in contesting, arbitrating or disputing any action or failure to act by the Company, provided that the Executive shall be required to repay all such amounts to the Company unless the Executive obtains a final determination supporting at least part of his claim and there has been no determination that the balance of his claim was made in bad faith. 18. ENTIRE AGREEMENT; REPRESENTATIONS. (a) This Agreement sets forth the entire agreement of the parties hereto in respect of the subject matter contained herein and supersedes all prior agreements, promises, covenants, arrangements, communications, representa tions or warranties, whether oral or written, by any officer, employee or representa tive of any party hereto; and any prior agreement of the parties hereto in respect of the subject matter contained herein is hereby terminated and canceled. In the event of any inconsistency between any provision of this Agreement and any provision applicable to the Executive in any plan, program, policy or other agreement of the Company, the provisions of this Agreement shall control to the extent that such provisions of this Agreement are more favorable to the Executive. (b) The Company represents and warrants that (i) it is fully authorized by its Board or the Committee (and by any person or body whose action is required) to enter into this Agreement and to perform its obligations under it, (ii) the execution, delivery and performance of this Agreement by the Company does not violate any applicable law, regulation, order, judgment or decree or any agreement, plan or corporate governance document of the Company or any agreement among holders of its shares and (iii) upon execution and delivery of this Agreement by the Company and the Executive, this Agreement shall be the valid and binding obliga tion of the Company, enforceable in accordance with its terms, except to the extent enforceability may be limited 21 by applicable bankruptcy, insolvency or similar laws affecting the enforcement of creditors' rights generally or by the inapplicability of equitable remedies in certain circumstances. (c) The Executive represents and warrants that he is not a party to any agreement or instrument which would prevent him from entering into or performing his duties in any way under this Agreement. 22 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date and year first above written. HEXCEL CORPORATION Attest: By: /s/ Rodney P. Jenks, Jr. By: /s/ Ira J. Krakower ----------------------------- --------------------------- Name: Ira J. Krakower Title: Senior Vice President WITNESS EXECUTIVE /s/ Seth L. Kaplan /s/ David E. Berges - ----------------------------- --------------------------- David E. Berges 23 EX-10.37(A) 8 a2055198zex-10_37a.txt EXHIBIT 10.37(A) Exhibit 10.37(a) 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 Corporation and the Optionee have entered into an employment agreement dated as of July 30, 2001 (the "Employment Agreement"); 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 defined in such Notice of Grant shall have the meanings ascribed to them in the Notice of Grant and capitalized terms used herein (and in the Notice of Grant) and defined in the Plan shall have the meanings ascribed to them in the Plan. Sections II, IV, and IX (other than Section IX(b)) - XIV of the Plan are incorporated by reference and made a part of this Employee Option Agreement, and this Employee Option Agreement shall be subject to the terms of such Sections of the Plan, as such Sections of 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) as if the Option granted herein constituted an Award within the meaning of the Plan. Notwithstanding the foregoing, this Option is not granted under the Plan. 2. GRANT OF OPTION. 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, 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 one sixteenth (1/16) of the Option Shares at the end of each of the first sixteen (16) three-calendar-month periods following 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 Employment Agreement), the Option, whether or not then vested, shall be automatically terminated as of the date of such termination of employment. If the Optionee terminates his employment with the Corporation other than for Good Reason (as defined in the Employment Agreement), the Option (to the extent then vested) may be exercised at any time within (A) ninety (90) days after such termination if such termination occurs prior to the fifth anniversary of the Grant Date or (B) three (3) years after such termination if such termination occurs on or after the fifth anniversary of the Grant Date (but, in either case, not beyond the Term of the Option). The Option, to the extent not then vested, shall immediately expire upon such termination of employment. Except as provided in Section 4(c)(ii) below, if the Optionee's employment with the Corporation is terminated for any reason other than (A) by the Company for Cause or (B) by the Optionee other than for Good Reason, the Option (to the extent then vested) may be exercised at any time within one (1) 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 of employment. (ii) In the event of a Change in Control (as defined in the Employment Agreement), the Option shall immediately become fully vested and exercisable and remain exercisable for its originally scheduled term, provided that if the Optionee's employment is terminated, 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 (3) years from the date of such termination of employment, if, within two (2) years after a Change in Control, (A) the Optionee's employment is 2 terminated by the Company other than by reason of Cause, Disability (as defined in the Employment Agreement) or death or (B) the Optionee terminates the Optionee's employment for Good Reason. 5. ADJUSTMENT UPON CHANGES IN CAPITALIZATION. (a) The aggregate number of Option Shares and the Purchase Price shall be appropriately adjusted by the Committee for any increase or decrease in the number of issued shares of Common Stock resulting from a subdivision or consolidation of shares or other capital adjustment, or the payment of a stock dividend or other increase or decrease in such shares, effected without receipt of consideration by the Corporation, or other change in corporate or capital structure. The Committee shall also make the foregoing changes and any other changes, including changes in the classes of securities available, to the extent reasonably necessary or desirable to preserve the intended benefits under this Employee Option Agreement in the event of any other reorganization, recapitalization, merger, consolidation, spin-off, extraordinary dividend or other distribution or similar transaction involving the Corporation. (b) Any adjustment under this Section 5 in the number of Option Shares and the Purchase Price shall apply to only the unexercised portion of the Option. If fractions of a share would result from any such adjustment, the adjustment shall be rounded down to the nearest whole number of shares. 6. METHOD OF EXERCISING OPTION AND WITHHOLDING. (a) The Option shall be exercised by the delivery by the Optionee to the Corporation at its principal office (or at such other address as may be established by the Committee) of written notice of the number of Option Shares with respect to which the Option is exercised, accompanied by payment in full of the aggregate Purchase Price for such Option Shares. Payment for such Option Shares shall be made (i) in U.S. dollars by personal check, bank draft or money order payable to the order of the Corporation, or by money transfers or direct account debits to an account designated by the Corporation; (ii) through the delivery of shares of Common Stock with a Fair Market Value equal to the total payment due from the Optionee; (iii) pursuant to a "cashless exercise" program if such a program is established by the Corporation; or (iv) by any combination of the methods described in (i) through (iii) above. (b) The Corporation's obligation to deliver shares of Common Stock upon the exercise of the Option shall be subject to the payment by the Optionee of applicable federal, state and local withholding tax, if any. The Corporation shall, to the extent permitted by law, have 3 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 shall be void AB INITIO. The Option shall not be subject to execution, attachment or other process. Notwithstanding the foregoing, the Optionee shall be permitted to transfer the Option to members of his or her immediate family (I.E., children, grandchildren or spouse), trusts for the benefit of such family members, and partnerships whose only partners are such family members; provided, however, that no consideration can be paid for the transfer of the Option and the transferee of the Option shall be subject to all conditions applicable to the Option prior to its transfer. 8. NO RIGHTS IN OPTION SHARES. The Optionee shall have none of the rights of a stockholder with respect to the Option Shares unless and until shares of Common Stock are issued upon exercise of the Option. 9. NO RIGHT TO EMPLOYMENT. Nothing contained herein shall be deemed to confer upon the Optionee any right of continued employment for any period by 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 in accordance with the provisions of Section 17 of the Employment Agreement, including the provisions for advancement of legal fees of the Optionee. 12. NOTICES. Any notice required or permitted under this Employee Option Agreement shall be given as provided in Section 13 of the Employment Agreement. 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 may be amended, modified or changed only by a written instrument executed by the Optionee and the Corporation. No provision of this Employee Option Agreement may be waived except by a writing executed and delivered by the party sought to be charged. Any such written waiver will be effective only with respect to the event or circumstance described therein 4 and not with respect to any other event or circumstance, unless such waiver expressly provides to the contrary. This Employee Option Agreement, including the provisions of the Plan incorporated herein by reference, and the Employment Agreement 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. ADDITIONAL COVENANTS. (a) The Corporation shall at all times reserve, out of its authorized and unissued shares, a number of shares sufficient to provide for the exercise in full of the Option. All shares issued upon exercise of the Option shall be duly authorized and, when issued upon such exercise, shall be (i) validly issued, fully paid and non-assessable, (ii) registered for purchase by the Optionee from the Corporation under Federal and state securities laws and shall remain registered until the Option has been exercised in full or been terminated and (iii) listed, or otherwise qualified, for trading in the United States on each national securities exchange or national securities market system on which the Common Stock is listed or qualified. (b) The Corporation represents and warrants that (i) it is fully authorized by its Board or the Committee (and by any person or body whose action is required) to enter into this Employee Option Agreement and to perform its obligations under it, (ii) the execution, delivery and performance of this Employee Option Agreement by the Corporation does not violate any applicable law, regulation, order, judgment or decree or any agreement, plan or corporate governance document of the Corporation or any agreement among holders of its shares and (iii) upon execution and delivery of this Employee Option Agreement by the Corporation and the Optionee, this Employee Option Agreement shall be the valid and binding obligation of the Corporation, enforceable in accordance with its terms, except to the extent enforceability may be limited by applicable bankruptcy, insolvency or similar laws affecting the enforcement of creditors' rights generally or by the inapplicability of equitable remedies in certain circumstances. (c) This Stock Option Agreement shall inure to the benefit of and be binding upon the Corporation and its successors. It shall not be assignable except in connection with the sale or other disposition of all or substantially all of the assets or business of the Corporation, whether by merger, consolidation or otherwise. 5 ANNEX A NOTICE OF GRANT EMPLOYEE STOCK OPTION 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 David E. Berges - ------------------------------------------------------------- ----------------------------------------------------- Address of Optionee c/o Hexcel Corporation - ------------------------------------------------------------- ----------------------------------------------------- Employee Number - ------------------------------------------------------------- ----------------------------------------------------- Employee ID Number - ------------------------------------------------------------- ----------------------------------------------------- Foreign Sub Plan, if applicable - ------------------------------------------------------------- ----------------------------------------------------- Grant Date July 30, 2001 - ------------------------------------------------------------- ----------------------------------------------------- Purchase Price the greater of (1) $10.50 and (2) the Fair Market Value of a share of Common Stock on the Grant Date - ------------------------------------------------------------- ----------------------------------------------------- Aggregate Number of Shares 550,000 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/ David E. Berges HEXCEL CORPORATION - -------------------------------- David E. Berges By: /s/ Ira J. Krakower ----------------------------------- Ira J. Krakower Sr. Vice President 6 EX-10.37(B) 9 a2055198zex-10_37b.txt EXHIBIT 10.37(B) Exhibit 10.37(b) EMPLOYEE OPTION AGREEMENT EMPLOYEE OPTION AGREEMENT, dated as of the Grant Date, by and between the Optionee and Hexcel Corporation (the "Corporation"). W I T N E S S E T H: - - - - - - - - - - WHEREAS, the Corporation has adopted the Hexcel Corporation Incentive Stock Plan (the "Plan"); and WHEREAS, the Corporation and the Optionee have entered into an employment agreement dated as of July 30, 2001 (the "Employment Agreement"); 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 defined in such Notice of Grant shall have the meanings ascribed to them in the Notice of Grant and capitalized terms used herein (and in the Notice of Grant) and defined in the Plan shall have the meanings ascribed to them in the Plan. Sections II, IV, and IX (other than Section IX(b)) - XIV of the Plan are incorporated by reference and made a part of this Employee Option Agreement, and this Employee Option Agreement shall be subject to the terms of such Sections of the Plan, as such Sections of 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) as if the Option granted herein constituted an Award within the meaning of the Plan. Notwithstanding the foregoing, this Option is not granted under the Plan. 2. GRANT OF OPTION. 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, 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. (i) Subject to Sections 4(b)(ii) and 4(c) below, the Option shall vest and become exercisable in full on the day immediately preceding the tenth anniversary of the Grant Date. (ii) If the Fair Market Value of a share of Common Stock equals or exceeds $15.75 for 30 consecutive days on which the Common Stock is traded on the New York Stock Exchange, then the Option shall vest and become exercisable with respect to one third (1/3) of the Option Shares on the day immediately following the last of such 30 days. If the Fair Market Value of a share of Common Stock equals or exceeds $21 for 30 consecutive days on which the Common Stock is traded on the New York Stock Exchange, then the Option shall vest and become exercisable with respect to two thirds (2/3) of the Option Shares, including any portion of the Option that became exercisable pursuant to the first sentence of this Section 4(b)(ii), on the day immediately following the last of such 30 days. If the Fair Market Value of a share of Common Stock equals or exceeds $26.25 for 30 consecutive days on which the Common Stock is traded on the New York Stock Exchange, then the Option shall vest and become exercisable in its entirety on the day immediately following the last of such 30 days. If the Common Stock is at any time principally traded on a national securities exchange or national market system other than the New York Stock Exchange, the provisions of this Section 4(b)(ii) shall apply instead to the exchange or system on which the Common Stock is principally traded. (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 Employment Agreement), the Option, whether or not then vested, shall be automatically terminated as of the date of such termination of 2 employment. If the Optionee terminates his employment with the Corporation other than for Good Reason (as defined in the Employment Agreement), the Option (to the extent then vested) may be exercised at any time within (A) ninety (90) days after such termination if such termination occurs prior to the fifth anniversary of the Grant Date or (B) three (3) years after such termination if such termination occurs on or after the fifth anniversary of the Grant Date (but, in either case, not beyond the Term of the Option). The Option, to the extent not then vested, shall immediately expire upon such termination of employment. Except as provided in Section 4(c)(ii) below, if the Optionee's employment with the Corporation is terminated for any reason other than (A) by the Company for Cause or (B) by the Optionee other than for Good Reason, the Option (to the extent then vested) may be exercised at any time within one (1) 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 of employment. (ii) In the event of a Change in Control (as defined in the Employment Agreement), the Option shall immediately become fully vested and exercisable and remain exercisable for its originally scheduled term, provided that if the Optionee's employment is terminated, 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 (3) years from the date of such termination of employment, if, within two (2) years after a Change in Control, (A) the Optionee's employment is terminated by the Company other than by reason of Cause, Disability (as defined in the Employment Agreement) or death or (B) the Optionee terminates the Optionee's employment for Good Reason. 5. ADJUSTMENT UPON CHANGES IN CAPITALIZATION. (a) The aggregate number of Option Shares and the Purchase Price shall be appropriately adjusted by the Committee for any increase or decrease in the number of issued shares of Common Stock resulting from a subdivision or consolidation of shares or other capital adjustment, or the payment of a stock dividend or other increase or decrease in such shares, effected without receipt of consideration by the Corporation, or other change in corporate or capital structure. The Committee shall also make the foregoing changes and any other changes, including changes in the classes of securities available, to the extent reasonably necessary or desirable to preserve the intended benefits under this Employee Option Agreement in the event of any other reorganization, recapitalization, merger, consolidation, spin-off, extraordinary dividend or other distribution or similar transaction involving the Corporation. 3 (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 shall be 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. 4 9. NO RIGHT TO EMPLOYMENT. Nothing contained herein shall be deemed to confer upon the Optionee any right of continued employment for any period by 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 in accordance with the provisions of Section 17 of the Employment Agreement, including the provisions for advancement of legal fees of the Optionee. 12. NOTICES. Any notice required or permitted under this Employee Option Agreement shall be given as provided in Section 13 of the Employment Agreement. 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 may be amended, modified or changed only by a written instrument executed by the Optionee and the Corporation. No provision of this Employee Option Agreement may be waived except by a writing executed and delivered by the party sought to be charged. Any such written waiver will be effective only with respect to the event or circumstance described therein and not with respect to any other event or circumstance, unless such waiver expressly provides to the contrary. This Employee Option Agreement, including the provisions of the Plan incorporated herein by reference, and the Employment Agreement 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. ADDITIONAL COVENANTS. (a) The Corporation shall at all times reserve, out of its authorized and unissued shares, a number of shares sufficient to provide for the exercise in full of the Option. All shares issued upon exercise of the Option shall be duly authorized and, when issued upon such exercise, shall be (i) validly issued, fully paid and non-assessable, (ii) registered for purchase by the Optionee from the Corporation under Federal and state securities laws and shall remain registered until the Option has been exercised in full or been terminated and (iii) listed, or otherwise qualified, for trading in the United States on each national securities exchange or national securities market system on which the Common Stock is listed or qualified. 5 (b) The Corporation represents and warrants that (i) it is fully authorized by its Board or the Committee (and by any person or body whose action is required) to enter into this Employee Option Agreement and to perform its obligations under it, (ii) the execution, delivery and performance of this Employee Option Agreement by the Corporation does not violate any applicable law, regulation, order, judgment or decree or any agreement, plan or corporate governance document of the Corporation or any agreement among holders of its shares and (iii) upon execution and delivery of this Employee Option Agreement by the Corporation and the Optionee, this Employee Option Agreement shall be the valid and binding obligation of the Corporation, enforceable in accordance with its terms, except to the extent enforceability may be limited by applicable bankruptcy, insolvency or similar laws affecting the enforcement of creditors' rights generally or by the inapplicability of equitable remedies in certain circumstances. (c) This Stock Option Agreement shall inure to the benefit of and be binding upon the Corporation and its successors. It shall not be assignable except in connection with the sale or other disposition of all or substantially all of the assets or business of the Corporation, whether by merger, consolidation or otherwise. 6 ANNEX A NOTICE OF GRANT EMPLOYEE STOCK OPTION 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 David E. Berges - ------------------------------------------------------------- ----------------------------------------------------- Address of Optionee c/o Hexcel Corporation - ------------------------------------------------------------- ----------------------------------------------------- Employee Number - ------------------------------------------------------------- ----------------------------------------------------- Employee ID Number - ------------------------------------------------------------- ----------------------------------------------------- Foreign Sub Plan, if applicable - ------------------------------------------------------------- ----------------------------------------------------- Grant Date July 30, 2001 - ------------------------------------------------------------- ----------------------------------------------------- Purchase Price the greater of (1) $10.50 and (2) the Fair Market Value of a share of Common Stock on the Grant Date - ------------------------------------------------------------- ----------------------------------------------------- Aggregate Number of Shares 275,000 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/ David E. Berges HEXCEL CORPORATION - ----------------------------- David E. Berges By: /s/ Ira J. Krakower ------------------------------ Ira J. Krakower Sr. Vice President 7 EX-10.37(C) 10 a2055198zex-10_37c.txt EXHIBIT 10.37(C) Exhibit 10.37(c) RESTRICTED STOCK AGREEMENT This Restricted Stock 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 employment agreement entered into between the Company and the Grantee as of July 30, 2001 (the "Employment Agreement"), the Compensation Committee (the "Committee") of the Board of Directors of the Company (the "Board") has determined that the Grantee shall be granted shares of the Company's Common Stock (the "Restricted Shares") 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 Hexcel Corporation Incentive Stock Plan (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 defined 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 defined in the Plan shall have the meanings ascribed to them in the Plan. Sections II, IV, and IX (other than Section IX(b)) - XIV of the Plan are incorporated by reference and made a part of this Agreement, and this Agreement shall be subject to the terms of such sections of the Plan, as such Sections of 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), as if the Restricted Shares granted herein constitute an Award within the meaning of the Plan. Notwithstanding the foregoing, the Restricted Shares are not granted under the Plan. 2. TERMS OF RESTRICTED STOCK. The grant of Restricted Shares provided in Section 1 hereof shall be subject to the following terms, conditions and restrictions: (a) The Grantee's grant and record of ownership of the Restricted Shares shall be kept on the books of the Company, until the Restricted Shares have vested and the restrictions on transfer have lapsed pursuant to Section 3 below. Subject to Section 5 hereof, following such lapse unrestricted shares shall be evidenced by stock certificates, which certificates shall be registered in the name of the Grantee and transferred to the Grantee free of the restrictions set forth in Section 2(b) below. Except as set forth herein, the Grantee shall possess all incidents of ownership (including, without limitation, dividend and voting rights) in respect of the Restricted Shares unless such Restricted Shares are forfeited in accordance with Section 2(c) below. (b) Except as provided in this Section 2 (b), the Restricted Shares 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 Restricted Shares and subject to the conditions set forth in this Agreement. Any attempt to transfer Restricted Shares in contravention of this Section shall be void AB INITIO. Restricted Shares shall not be subject to execution, attachment or other process. Notwithstanding the foregoing, the Grantee shall be permitted to transfer Restricted Shares to members of his 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 Restricted Shares and the transferee of the Restricted Shares shall be subject to all conditions applicable to the Restricted Shares (including all of the terms and conditions of this Agreement) prior to transfer. (c) 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. If the Grantee's employment with the Company is terminated for any reason other than death, Disability (as defined in the Employment Agreement), termination of employment by the Company without Cause (as defined in the Employment Agreement) or termination by the Grantee for Good Reason (as defined in the Employment Agreement), all of the Restricted Shares which have not vested and with respect to which the restrictions on transfer set forth in Section 2(b) hereof have not yet lapsed in accordance with Section 3 below, shall be forfeited by the Grantee and shall be cancelable by the Company without further action by Grantee. 3. VESTING OF RESTRICTED SHARES. Twenty percent (20%) of the Restricted Shares shall vest (and the restrictions on transfer with respect thereto set forth in Section 2(b) hereof shall lapse) on March 31, 2002 and the remaining eighty percent (80%) of the Restricted Shares shall vest (and the restrictions on transfer with respect thereto set forth in Section 2(b) hereof shall lapse) on March 31, 2003. Notwithstanding the foregoing, all Restricted Shares shall vest (and the restrictions on transfer with respect thereto set forth in Section 2(b) hereof shall lapse) on the earliest to occur of (a) the termination of the Grantee's employment with the Company by reason of death, Disability, termination of employment by the Company without Cause or termination by the Grantee for Good Reason or (b) the occurrence of a Change in Control (as defined in the Employment Agreement). 4. EQUITABLE ADJUSTMENT. The aggregate number of Restricted Shares 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. 2 5. LEGEND ON CERTIFICATES. Any certificates issued for unrestricted shares shall be inscribed with the following legend (in addition to any other legend or legends required under applicable federal and state securities laws): THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY OTHER FEDERAL, STATE, LOCAL OR FOREIGN SECURITIES LAWS AND MAY NOT BE OFFERED, SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS (1) SO REGISTERED UNDER APPLICABLE SECURITIES LAWS OR (2) SUCH OFFER, SALE, TRANSFER OR DISPOSITION IS EXEMPT FROM REGISTRATION UNDER APPLICABLE SECURITIES LAWS. 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 Restricted Shares or the vesting thereof. 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 given as provided in Section 13 of the Employment Agreement. 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. RESOLUTION OF DISPUTES. Any disputes arising under or in connection with this Agreement shall be resolved by binding arbitration in accordance with the provisions of Section 17 of the Employment Agreement, including the provisions for advancement of legal fees of the Grantee. 12. ADDITIONAL COVENANTS. (a) All Restricted Shares shall be (i) when issued, duly authorized, (ii) when issued, validly issued, fully paid and non-assessable, (iii) as soon as practicable following their issuance, registered for purchase by the Grantee from the Company under Federal and state securities laws (and the 3 Restricted Shares shall remain so registered for so long as the shares remain subject to the restrictions set forth in Section 2(b) above) and (iv) when issued, listed, or otherwise qualified, for trading in the United States on each national securities exchange or national securities market system on which the Company's Common Stock is listed or qualified. (b) The Company represents and warrants that (i) it is fully authorized by its Board or the Committee (and by any person or body whose action is required) to enter into this Agreement and to perform its obligations under it, (ii) the execution, delivery and performance of this Agreement by the Company does not violate any applicable law, regulation, order, judgment or decree or any agreement, plan or corporate governance document of the Company or any agreement among holders of its shares and (iii) upon execution and delivery of this Agreement by the Company and the Grantee, this Agreement shall be the valid and binding obligation of the Company, enforceable in accordance with its terms, except to the extent enforceability may be limited by applicable bankruptcy, insolvency or similar laws affecting the enforcement of creditors' rights generally or by the inapplicability of equitable remedies in certain circumstances. (c) This Agreement shall inure to the benefit of and be binding upon the Company and its successors. It shall not be assignable except in connection with the sale or other disposition of all or substantially all of the assets or business of the Company, whether by merger, consolidation or otherwise. 13. 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. 14. MISCELLANEOUS. This Agreement may be amended, modified or changed only by a written instrument executed by the Grantee and the Company. No provision of this Agreement may be waived except by a writing executed and delivered by the party sought to be charged. Any such written waiver will be effective only with respect to the event or circumstance described therein and not with respect to any other event or circumstance, unless such waiver expressly provides to the contrary. This Agreement, including the provisions of the Plan incorporated herein by reference, and the Employment Agreement 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. 4 ANNEX A NOTICE OF GRANT OF RESTRICTED STOCK The following employee of Hexcel Corporation, a Delaware corporation, or a Subsidiary, has been granted Restricted Shares 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 David E. Berges Address of Grantee c/o Hexcel Corporation Employee Number Employee ID Number Foreign Sub Plan, if applicable Grant Date July 30, 2001 Aggregate Number of Restricted Shares 90,000 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. /s/ David E. Berges HEXCEL CORPORATION - ---------------------------- David E. Berges By: /s/ Ira J. Krakower ----------------------- Ira J. Krakower Senior Vice President 5 EX-10.37(D) 11 a2055198zex-10_37d.txt EXHIBIT 10.37(D) Exhibit 10.37(d) SUPPLEMENTAL EXECUTIVE RETIREMENT AGREEMENT AGREEMENT made as of the 30th day of July, 2001, between Hexcel Corporation, a Delaware corporation (the "Company"), and David E. Berges (the "Executive"). WHEREAS, the Executive is presently employed by the Company as Chairman and Chief Executive Officer; and WHEREAS, the Company is willing to provide the Executive with certain benefits in the event of the retirement from or termination of the Executive's employment with the Company; NOW, THEREFORE, in consideration of the continued employment of the Executive by the Company and the benefits to be derived by the Executive hereunder, the parties mutually agree as follows: ARTICLE I DEFINITIONS The following terms when used in this Agreement shall have the designated meaning, unless a different meaning is clearly required by the context. 1.1 ACTUARIAL EQUIVALENCE. Determinations hereunder of actuarial value, actuarial equivalence or the like shall be made by the Company's independent actuary, using the mortality and other applicable actuarial assumptions specified, from time to time, in the Hexcel Corporation Pension Plan (the "Pension Plan") or any successor plan thereto; PROVIDED, however, that for the purpose of determining any lump sum amount under this Agreement, or the amount of reduction to reflect the payment of a special benefit under Section 2.3, actuarial equivalence shall be determined using an interest rate equal to 120% of the rate published by the Pension Benefit Guaranty Corporation for purposes of plans terminating in the month in which benefit payments are to commence hereunder. 1.2 AFFILIATE. Any trade or business, whether or not incorporated, which at the time of reference (i) controls, is controlled by or is under common control with the Company within the meaning of section 414(b) or (c) of the Code, or (ii) is, together with the Company, a member of an affiliated service group within the meaning of section 414(m) of the Code. 1.3 BOARD. The Board of Directors of the Company. 1.4 CAUSE. Cause shall have the meaning set forth in the Employ ment Agreement. 1.5 CHANGE IN CONTROL. Change in Control shall have the meaning set forth in the Employment Agreement. 1.6 CODE. The Internal Revenue Code of 1986, as amended. 1.7 COMPANY. Hexcel Corporation, a Delaware corporation, and its successors. 1.8 CONTINUOUS SERVICE. The number of full and partial calendar months of the Executive's period of continuous employment with the Company and its Affiliates. A transfer between employment with the Company and an Affiliate or between Affiliates shall not be deemed a termination of employment or otherwise interrupt the Executive's Continuous Service. Leaves of absence of not more than one year and any period during which the Executive is entitled to receive disability benefits from the Company (including medical and short-term disability benefits preceding the commencement of long-term disability benefits under the Company's long-term disability plan) shall be taken into account as Continuous Service. 1.9 DISABILITY. Disability shall have the meaning set forth in the Employment Agreement. 1.10 EMPLOYMENT AGREEMENT. The Employment Agreement between the Executive and the Company entered into as of July 30, 2001. 1.11 GOOD REASON. Good Reason shall have the meaning set forth in the Employment Agreement. 2 1.12 NORMAL RETIREMENT BENEFIT. The benefit defined in Section 2.2.1 hereof. 1.13 NORMAL RETIREMENT DATE. The date on which the Executive attains age sixty-five (65). 1.14 TERMINATION OF EMPLOYMENT. References hereunder to the Executive's termination of employment, the date the Executive's employment terminates and the like, shall, except as specifically provided herein, refer to the ceasing of the Executive's employment with the Company and all Affiliates for any reason. ARTICLE II RETIREMENT BENEFITS 2.1 IN GENERAL. The amount of the Executive's benefit shall be based on his Final Average Pay, Benefit Percentage and Vesting Percentage; the benefit otherwise payable under this Agreement's basic benefit formula shall be reduced by the amount of the Executive's Qualified Pension Benefits. The following definitions shall apply in making benefit calculations under this Agreement: 2.1.1 FINAL AVERAGE PAY. The average monthly compensation of the Executive for the highest-paid 36 months (or the Executive's entire period of employment with the Company and its Affiliates if such period is less than 36 months) of the Executive's final 60 months of Continuous Service. For this purpose (i) the Executive's "compensation" shall mean his base salary (without regard to any salary deferral pursuant to sections 125 or 401(k) of the Code or any successor provision) and all amounts earned (whether paid or payable) under all management incentive or other bonus plans in which he participates and (ii) any incentive pay or other bonus shall be deemed to have been earned ratably over the period with respect to which it is earned. 2.1.2 BENEFIT PERCENTAGE. With respect to each of the first 96 months of Continuous Service, one half of one percent (1/2%); and with respect to each of the next 60 months of Continuous Service, one sixth of one percent (1/6%) . 3 2.1.3 VESTING PERCENTAGE. 100% if the Executive has completed at least 60 months of Continuous Service; otherwise, 0%. 2.1.4 QUALIFIED PENSION BENEFITS. (i) the vested contributions made by the Company to the Hexcel Corporation 401(k) Plan or any successor plan thereto (to the extent paid), and (ii) the vested contributions made by the Company to the Hexcel Corporation 401(k) Restoration Plan or any successor plan thereto (to the extent paid), in each case, whether as a periodic payment, as a lump sum, or other wise. The aggregate of the Executive's Qualified Pension Benefits shall be expressed as a monthly amount in the form of an actuarially equivalent 50% joint and survivor annuity with 120 months of guaranteed payments starting at the date the Executive attains age 65; PROVIDED, HOWEVER, that notwithstanding anything in Section 1.1 to the contrary, for purposes of determining the amount of offset attributable to this Section 2.1.4, Company contributions (or allocations, in the case of clause (ii) above) shall be deemed to earn interest at an annual rate of 6%, compounded annually, from the date of such contribution (or allocation) until the date it is actually paid to or in respect of the Executive. 2.2 PAYMENT OF BENEFITS. Benefits shall be paid as follows: 2.2.1 NORMAL RETIREMENT. Subject to Section 2.2.7, and except as otherwise set forth in Section 2.2.2 or 2.2.3, if the Executive's employment terminates on or after his Normal Retirement Date, the Company will pay the Executive a monthly benefit starting on the first of the month after his employment terminates and ending with the payment for the month in which his death occurs or, if later, after the payment of 120 such payments. Any such payments made after the death of the Executive shall be made (i) to the Executive's designated beneficiary, if any or (ii) if there is no designated beneficiary or the designated beneficiary dies before a total of 120 payments have been made to the Executive and the designated beneficiary, to the Executive's estate. Such monthly benefit (the "Normal Retirement Benefit") shall be an amount equal to (A) the product of his Final Average Pay, Benefit Percentage, and his Vesting Percentage, less (B) his Qualified Pension Benefits. 2.2.2 TERMINATION FOLLOWING CHANGE IN CONTROL. Subject to Section 2.2.7, upon (i) termination by the Executive of his employment for Good Reason within two years following a Change in Control, (ii) termination of the Executive's employment by the Company other than for Cause within two years following a Change in Control or (iii) a termination of the Executive's employment described in Section 8(g)(ii) of the 4 Employment Agreement (whether by the Com pany or the Executive), the Company will pay the Executive, no later than the next business day following the date of such termination, by wire transfer to the Execu tive's bank account, as designated by the Executive, an amount equal to the actuarial present value of a monthly benefit starting on the first of the month after his employ ment terminates, computed under Section 2.2.1 using a Vesting Percentage of 100% and Continuous Service equal to the Executive's actual Continuous Service at the time his employment terminates plus 36 months, with such monthly benefit reduced by one quarter of one percent (1/4%) per payment for each full calendar month by which the first day of the month after his employment terminates precedes the Executive's attainment of age 65. 2.2.3 TERMINATION WITHOUT CAUSE OR FOR GOOD REASON. Subject to Section 2.2.7, and except as otherwise provided in Section 2.2.2, upon termination of the Executive's employment at any time by the Company other than for Cause or by the Executive for Good Reason, the Company will pay the Execu tive, as soon as practicable following such date of termination, an amount equal to the actuarial present value of a monthly benefit starting on the first of the month after his employment terminates, computed under Section 2.2.1 using a Vesting Percent age of 100% and Continuous Service equal to the Executive's actual Continuous Service at the time his employment terminates plus 12 months, with such monthly benefit reduced by one quarter of one percent (1/4%) per payment for each full calendar month by which the first day of the month after his employment terminates precedes the Executive's attainment of age 65. 2.2.4 TERMINATION FOR CAUSE. No benefits shall be payable hereunder with respect to the Executive if his employment is terminated by the Company for Cause. 2.2.5 DISABILITY. If the Executive's employment with the Company or any Affiliate terminates on account of Disability, the Company shall pay the Executive a monthly benefit in an amount (computed using a Vesting Percentage of 100%) equal to (i) the product of his Final Average Pay and Benefit Percentage less (ii) his Qualified Pension Benefits. The benefit so determined shall be payable, without actuarial or other reduction to reflect commencement of payment before his Normal Retirement Date, beginning on the first date of the month next following the last month with respect to which the Executive is entitled to payments under the Company's long term disability plan (or, if earlier, such time as the Executive shall elect not to receive such payments) and ending with the payment for the month in which his death occurs or, if later, after the 5 payment of 120 such payments. Any such payments made after the death of the Executive shall be made (i) to the Execu tive's designated beneficiary, if any or (ii) if there is no designated beneficiary or the designated beneficiary dies before a total of 120 payments have been made to the Executive and the designated beneficiary, to the Executive's estate. 2.2.6 OTHER TERMINATION. Subject to Section 2.2.7, and except as otherwise set forth in Sections 2.2.2, 2.2.3 or 2.2.5, if the Executive terminates his employment prior to his attainment of age 65, the Company will pay the Executive a monthly benefit starting on the date elected by the Executive, but no earlier than the first of the month after his attainment of age 55, and ending with the payment for the month in which his death occurs or, if later, after the payment of 120 such payments. Any such payments made after the death of the Executive shall be made (i) to the Executive's designated beneficiary, if any or (ii) if there is no desig nated beneficiary or the designated beneficiary dies before a total of 120 payments have been made to the Executive and the designated beneficiary, to the Executive's estate. Such monthly benefit shall be calculated and paid in accordance with Section 2.2.1 hereof, reduced by one quarter of one percent (1/4%) per payment for each full calendar month by which the benefit commencement date precedes the Executive's attainment of age 65. 2.2.7 OPTIONAL FORMS OF BENEFIT. In lieu of the form of benefit prescribed in Section 2.2.1 and Section 2.2.6, the Executive may elect to receive his benefit hereunder, as soon as practicable following the date of his termination of employment, in a cash lump sum, the amount of which shall equal the actuarial present value of, in the case of Section 2.2.1, his Normal Retirement Benefit and, in the case of Section 2.2.6, the reduced monthly benefit he would have received thereunder. In lieu of the lump sum form of benefit prescribed in Sections 2.2.2. and 2.2.3, the Executive may elect to receive his benefit hereunder as a monthly benefit, computed under Section 2.2.1 and reduced by one quarter of one percent (1/4%) per payment for each full calendar month by which the benefit commencement date precedes the Executive's attainment of age 65, starting on the first of the month after his employment terminates and ending with the payment for the month in which his death occurs or, if later, after the payment of 120 such payments. Any such payments made after the death of the Executive shall be made (i) to the Executive's designated beneficiary, if any or (ii) of there is no designated beneficiary or the designated beneficiary dies before a total of 120 payments have been made to the Executive and the designated beneficiary, to the Executive's estate. Any election to change to or from the lump sum form of benefit that is made by the Executive less than one year preceding the Executive's date of termination shall not be given effect; PROVIDED, HOWEVER, that the 6 foregoing shall be inapplicable with respect to (i) any election made by the Executive within 30 days of the date of this Agreement and (ii) any election with respect to the Executive's benefit under Section 2.2.2 to the extent such election is made at least 90 days prior to a Change in Control or at any time prior to the Company entering into an agreement the consummation or shareholder approval of which would constitute a Change in Control. 2.3 SPECIAL BENEFIT. If it shall be determined by a final administra tive decision of the Internal Revenue (which is not appealed by the Executive) or by a final decision of a court of competent jurisdiction (which is not appealed by the Executive) that the value of all or any part of any benefit contemplated by this Agreement is includable in the income of the Executive prior to the actual receipt of such benefit, the Company shall make a special payment to the Executive, in discharge of the actuarially equivalent value (based upon the actuarial factors in effect when benefits other than the benefit described in this Section 2.3 commence to be paid to the Executive hereunder) of any benefits otherwise due hereunder (and such other benefit shall be reduced to reflect the actuarial value of any such special payment made pursuant to this Section 2.3), in an amount equal to the Executive's estimated federal, state and local income tax liabilities related to such inclusion and to the inclusion in income of such special payment. The Executive shall have no obligation to appeal any determination made by the Internal Revenue Service or the decision of any such court. 2.4 NO DUPLICATION. Except as provided in Section 2.3 hereof, in no event shall benefits become payable to the Executive under more than one Section of this Article II. ARTICLE III SURVIVOR BENEFITS 3.1 POST-RETIREMENT SURVIVOR BENEFIT. Notwithstanding any provision hereof to the contrary, the Executive may elect, at any time prior to commencement of his benefits under Article II (and may revoke or modify any such election and/or make a new election, in each case at any time and from time to time prior to commencement of his benefits under Article II), to have his benefit paid in the from of a joint and survivor annuity pursuant to which (i) payment of the Execu tive's benefit will be made in accordance with Article II and (ii) if the Executive dies after payment of his benefits under Article II has 7 started, the Company shall pay a monthly benefit to the Executive's designated beneficiary, starting on the first of the month immediately following the month in which the Executive dies or, if later, with the month immediately following the last month for which a payment is made to such beneficiary under Article II, and ending with the payment for the month in which the death of such designated beneficiary occurs. Such monthly benefit shall be an amount equal to 50% or 100%, as elected by the Executive, of the monthly benefit the Executive was receiving under the Agreement prior to his death. If the Executive makes such election, the benefit payable to the Executive under Article II hereof shall be reduced to reflect the actuarial equivalence of the additional Post-Retirement Survivor Benefit so elected by the Executive. 3.2 PRE-RETIREMENT SURVIVOR BENEFIT. Notwithstanding any provision hereof to the contrary, the Executive may elect at any time (and may revoke or modify any such election and/or make a new election, in each case at any time and from time to time prior to commencement of his benefits under Article II) that, in the event the Executive dies before distribution of his benefits under Article II has started, the Company shall pay a monthly benefit to the Executive's designated beneficiary, starting on the first of the month immediately following the month in which the Executive dies, but in no event earlier than the date on which the Execu tive would have been eligible to commence receipt of his benefits under Article II had he terminated employment on the day immediately preceding his death, and ending with the payment for the month in which the death of such designated beneficiary occurs. Such monthly benefit shall be an amount equal to 50% or 100%, as elected by the Executive, of the monthly benefit the Executive would have received had he terminated employment on the day immediately preceding his death and commenced benefits on the date on which the benefit under this Section 3.2 commences. If the Executive makes such election, the benefit payable to the Executive under Article II hereof shall be reduced to reflect the actuarial equivalence of the additional Pre-Retirement Survivor Benefit so elected by the Executive. ARTICLE IV MISCELLANEOUS 4.1 BINDING AGREEMENT. This Agreement and all rights of the Executive hereunder shall inure to the benefit of and be enforceable by the Executive's person or legal 8 representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. 4.2 NOTICE. Notices, elections, demands and all other communica tions provided for in this Agreement shall be in writing and shall be deemed to have been duly given when delivered by hand (or received by telecopy, telex or similar device) or mailed by United States certified or registered mail, return receipt re quested, postage prepaid, addressed as follows: If to the Executive: Mr. David E Berges c/o Hexcel Corporation Two Stamford Plaza 281 Tresser Boulevard Stamford, Connecticut 06901-3238 If to the Company: Hexcel Corporation Two Stamford Plaza 281 Tresser Boulevard Stamford, Connecticut 06901-3238 Attn: General Counsel or to such other address as any party may have furnished to the other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt. 4.3 GENERAL PROVISIONS. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing signed by the Executive and such officer of the Company as may be specifically designated by the Board. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreements or 9 representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not set forth expressly in this Agreement. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of New York without regard to its conflicts of law principles. 4.4 VALIDITY. The invalidity or unenforceability of any provision or provisions of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 4.5 COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 4.6 ARBITRATION. Except as set forth in Section 4.9, any dispute or controversy arising under or in connection with this Agreement shall be settled in accordance with the provisions of Section 17 of the Employment Agreement, including the provisions for advancement of legal fees of the Executive. 4.7 ENTIRE AGREEMENT. This Agreement sets forth the entire agreement of the parties hereto in respect of the subject matter contained herein and supersedes all prior agreements, promises, covenants, arrangements, communica tions, representations or warranties, whether oral or written, by any officer, employee or representative of any party hereto; and any prior agreement of the parties hereto in respect of the subject matter contained herein is hereby terminated and cancelled and of no further force or effect. 4.8 NO RIGHT OF OFFSET. The amount of any payment or benefit provided for in this Agreement shall not be reduced by any compensation earned by the Executive as a result of employment by another employer, by retirement benefits (except as otherwise set forth in this Agreement), by offset against any amount owed or claimed to be owed by the Executive to the Company, or otherwise. 4.9 PROTECTIVE PROVISIONS. The Executive and the Company shall cooperate with each other by furnishing any and all information and computations reasonably requested by the other in order to determine the amounts payable hereun der or to facilitate the payment of benefits hereunder. If upon written request of the Company, the Executive shall, within ninety days thereof (180 days if the Executive is Disabled), if such 10 information is reasonably available to the Executive, fail to comply with such a request for information, the Company may terminate any benefits otherwise payable under this Agreement. 4.10 ASSIGNMENT. This Agreement shall inure to the benefit of and be binding upon the Company and its successors. It shall not be assignable by the Company except in connection with the sale or other disposition of all or substan tially all of the assets or business of the Company, whether by merger, consolidation or otherwise. The voluntary or involuntary assignment, encumbrance or alienation of any benefit hereunder or any interest therein, whether or not payable to the Execu tive, is not permitted and will not be recognized. Any such purported assignment, encumbrance or alienation, by operation of law or otherwise, shall be void. Subject to the provisions of applicable law, no payment of any benefit shall, prior to actual receipt thereof by the Executive or his designated beneficiary, be subject to garnish ment, attachment, execution, levy or other legal process for debts or for alimony or support of any spouse, former spouse or other relative. HEXCEL CORPORATION By: /s/ Ira J. Krakower --------------------------------------- Name: Ira J. Krakower Title: Senior Vice President /s/ David E. Berges ------------------------------------------ David E. Berges 11 TABLE OF CONTENTS ARTICLE I DEFINITIONS..................................................................1 1.1 Actuarial Equivalence......................................1 1.2 Affiliate..................................................2 1.3 Board......................................................2 1.4 Cause......................................................2 1.5 Change in Control..........................................2 1.6 Code.......................................................4 1.7 Company....................................................4 1.8 Continuous Service.........................................4 1.9 Disability.................................................4 1.10 Employment Agreement.......................................5 1.11 Good Reason................................................5 1.12 Normal Retirement Benefit..................................5 1.13 Normal Retirement Date.....................................5 1.14 Termination of Employment..................................5 ARTICLE II RETIREMENT BENEFITS..........................................................6 2.1 In General.................................................6 2.2 Payment of Benefits........................................7 2.3 Special Benefit............................................9 2.4 No Duplication............................................10 ARTICLE III SURVIVOR BENEFITS...........................................................10 3.1 Post-Retirement Survivor Benefit..........................10 3.2 Pre-Retirement Survivor Benefit...........................10 i ARTICLE IV MISCELLANEOUS...............................................................11 4.1 Binding Agreement.........................................11 4.2 Notice....................................................11 4.3 General Provisions........................................12 4.4 Validity..................................................12 4.5 Counterparts..............................................12 4.6 Arbitration...............................................12 4.7 Entire Agreement..........................................12 4.8 No Right of Offset........................................13 4.9 Protective Provisions.....................................13 4.10 Assignment................................................13 ii EX-10.37(E) 12 a2055198zex-10_37e.txt EXHIBIT 10.37(E) Exhibit 10.37(e) David E. Berges c/o Hexcel Corporation Two Stamford Plaza 281 Tresser Blvd. August 1, 2001 Hexcel Corporation Two Stamford Plaza 281 Tresser Blvd. Attn: Board of Directors Gentlemen: Reference is made to the Employment Agreement entered into as of July 30, 2001, between Hexcel Corporation, a Delaware corporation (the "COM PANY"), and me (the "Employment Agreement"), the Restricted Stock Agreement entered into as of July 30, 2001 by and between the Company and me (the "Re stricted Stock Agreement") and the Employee Option Agreements, dated as of July 30, 2001, by and between me and the Company (the "Option Agreements"). We hereby agree as follows (notwithstanding anything in the Employment Agreement, the Restricted Stock Agreement or the Option Agreements to the contrary): 1. The Company shall issue the Restricted Shares (as defined in the Restricted Stock Agreement) to me as soon as practicable following the filing by the Company of a Form S-8 with the Securities and Exchange Commission with respect to such issuance, which filing the Company shall make as soon as practicable after the date hereof. 2. Unless otherwise legally required, certificates for unrestricted shares issuable under the Restricted Stock Agreement and for shares issuable pursuant to the Option Agreements shall not bear any restrictive legend. In the event a restrictive legend is legally required, upon written request, the Company will cause any such legend on such certificates to be removed as promptly as practicable after it becomes legally appropriate for the Company to do so. Please acknowledge your agreement with the foregoing by signing the enclosed copy of this letter and returning it to me. Sincerely, /s/ DAVID E. BERGES --------------------- David E. Berges Agreed to and Accepted: HEXCEL CORPORATION By: /s/ IRA J. KRAKOWER -------------------- Name: Ira J. Krakower Title: Senior Vice President EX-10.38(N) 13 a2055198zex-10_38n.txt EXHIBIT 10.38(N) Exhibit 10.38(n) AGREEMENT AGREEMENT, dated as of April 27 (this "Agreement"), by and between Hexcel Corporation (the "Company") and John J. Lee (the "Executive"). WHEREAS, the Company and the Executive desire to agree to certain interpretations and modifications regarding the Executive's compensation arrangements, including stock incentives, and to set forth certain other terms, in connection with the termination of employment by the Executive of as the Chief Executive Officer of the Company on the date hereof. NOW, THEREFORE, the Company and the Executive hereby agree as follows: 1. STOCK INCENTIVES. (a) Exhibit A hereto lists each agreement between the Executive and the Company pursuant to which the Executive was granted stock options with respect to which all or part of the stock options are outstanding as of April 27, 2001. The status of the vesting of, and period of exercisability for, the stock options granted pursuant to each such agreement, as agreed to between the Company and the Executive, is indicated on Exhibit A. (b) Exhibit B hereto lists each agreement between the Executive and the Company pursuant to which the Executive was granted restricted stock units ("RSUs") or performance accelerated restricted stock ("PARS") with respect to which all or part of the RSUs or PARS are outstanding as of April 27, 2001. The RSUs and PARS granted pursuant to the agreements listed on Exhibit B, to the extent not previously vested, are hereby fully vested as of April 27, 2001 as a result of the Retirement (as defined in each such agreement) of the Executive, and the shares of common stock of the Company underlying such RSUs and PARS shall be distributed to the Executive as soon as practicable after such date in accordance with the normal practices of the Company. 2. SEVERANCE AGREEMENT. In accordance with Section 4(b) of the Executive Severance Agreement dated as of February 3, 1999 between the Company and the Executive (as amended, the "Severance Agreement"), as a result of the termination of employment by the Executive due to disability (as defined in the Severance Agreement), the Executive is entitled to receive a cash payment from the Company in the amount of $1,080,196 on or before May 7, 2001. The Executive hereby directs the Company to pay such amount (subject to Section 7(a) hereof) to Gayle Lee, his spouse. Other than satisfaction of its obligation pursuant to this Section 2, the Company shall have no further obligations to the Executive, his beneficiaries or his estate pursuant to the Severance Agreement. 3. SERP AGREEMENT. As a result of the termination of the employment by the Executive due to disability (as such term is defined in the Supplemental Executive Retirement Agreement dated as of May 20, 1998 between the Company and the Executive (as amended, the "SERP")), the Executive will receive, on January 2, 2002, a cash payment from the Company in the amount of $2,908,854, which payment shall be in lieu of any and all other cash payments from the Company to the Executive, his beneficiaries or his estate pursuant to the SERP. The Company will also continue to pay for and maintain the life, medical and dental insurance provided for in Section 2.4 of the SERP. Other than satisfaction of its obligations pursuant to this Section 3, the Company shall have no further obligations to the Executive, his beneficiaries or his estate pursuant to the SERP Agreement. 4. EMPLOYMENT AGREEMENT. The Company and the Executive agree that the Executive's termination of employment under the Amended and Restated Employment Agreement dated as of October 11, 2000 between the Company and the Executive (as amended, the "Employment Agreement") is due to disability. The Executive shall receive, on January 2, 2002, a cash payment in the amount of $5,093,511 in respect of the deferred compensation account maintained by the Company pursuant to Section 5(d) of the Employment Agreement and, other than the obligation to make such payment, the Company shall have no further obligations to the Executive, his beneficiaries or his estate pursuant to the Employment Agreement. 5. CHAIRMANSHIP. The Executive will remain as Chairman of the Board of the Company until the Board of Directors of the Company determines otherwise. So long as the Executive is Chairman of the Board of the Company, the Company will provide a suitable office and administrative staff (including Elvira Wyart) at its Stamford, Connecticut offices, and will reimburse the Executive for all reasonable and customary expenses incurred by the Executive in the ordinary course of the Executive performing his duties as Chairman of the Board of the Company. 6. OTHER BENEFITS. The Company shall pay to the Executive his salary through April 27, 2001, the date of termination of the Executive's employment, and shall reimburse the Executive for all reasonable and customary expenses incurred by the Executive on or prior to April 27, 2000 in the ordinary course of the Executive performing his duties under the Employment Agreement. The Executive shall receive payment for two weeks of accrued and unused vacation. The Executive will receive all amounts to which he is entitled under the Hexcel Corporation Retirement Savings Plan, the Hexcel Corporation 401(k) Restoration Plan, the Hexcel Corporation Pension Plan, the Management Incentive Compensation Plan and any other welfare or other employee benefit or compensation plans in which the Executive participates, if any, in each case in accordance with and as provided for in the terms of each such plan. 7. MISCELLANEOUS. (a) All payments or shares of stock issuable to the Executive, his spouse, his beneficiaries or his estate pursuant to this Agreement are subject to reduction to reflect applicable withholding and payroll taxes. 2 (b) This Agreement constitutes the entire agreement, and supercedes all prior agreements and understandings, both written and oral, among the parties hereto regarding the subject matter hereof. (c) No change, modification or waiver of any provision of this Amendment shall be valid unless the same is in writing and signed by the parties hereto. (d) 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. (e) 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 Agreement to be duly executed as of the date and year first written above. HEXCEL CORPORATION By: /s/ Ira J. Krakower --------------------------------------- Name: Ira J. Krakower Title: Senior Vice President /s/ John J. Lee --------------------------------- John J. Lee 3 EXHIBIT A
GRANT OPTION AGREEMENT NUMBER VESTING EXERCISABILITY Director Option Agreement dated as of April 4, 003160 Fully vested prior to Exercisable until three years after the 1995 granting the Executive the option to April 27, 2001. last day Executive serves as a director purchase 40,000 shares of common stock of the on the Board of Directors of the Company at a price of $4.75 per share. Company; period of exercisability not extended. Employee Option Agreement dated February 29, 003255 Fully vested prior to Period of exercisability extended to 1996 granting the Executive the option to April 27, 2001. February 28, 2006. purchase 200,000 shares of common stock of the Company at a price of $12.50 per share. Reload Option Agreement dated March 5, 1996 003216 Fully vested prior to Period of exercisability extended to granting the Executive the option to purchase April 27, 2001. March 5, 2006. 40,000 shares of common stock of the Company at a price of $12.25 per share. Reload Option Agreement dated March 11, 1996 003219 Fully vested prior to Period of exercisability extended to granting the Executive the option to purchase April 27, 2001. March 11, 2006. 40,000 shares of common stock of the Company at a price of $11.625 per share. Reload Option Agreement dated March 20, 1996 003218 Fully vested prior to Period of exercisability extended to granting the Executive the option to purchase April 27, 2001. March 20, 2006. 80,000 shares of common stock of the Company at a price of $11.875 per share.
GRANT OPTION AGREEMENT NUMBER VESTING EXERCISABILITY Reload Option Agreement dated April 15, 1996 003217 Fully vested prior to Period of exercisability extended to granting the Executive the option to purchase April 27, 2001. April 15, 2006. 40,000 shares of common stock of the Company at a price of $12.50 per share. Employee Option Agreement dated March 1, 1996 003238 Fully vested prior to Period of exercisability extended to granting the Executive the option to purchase April 27, 2001. March 1, 2006. 67,000 shares of common stock of the Company at a price of $12.50 per share. Employee Option Agreement dated January 2, 1997 003529 Fully vested prior to Period of exercisability extended to granting the Executive the option to purchase April 27, 2001. April 27, 2006. 62,500 shares of common stock of the Company at a price of $16.00 per share. Reload Option Agreement dated February 6, 1997 003505 Fully vested prior to Period of exercisability extended to granting the Executive the option to purchase April 27, 2001. April 27, 2006. 25,000 shares of common stock of the Company at a price of $18.00 per share. Employee Option Agreement dated January 2, 1998 003967 Fully vested prior to Period of exercisability extended to granting the Executive the option to purchase April 27, 2001. April 27, 2006. 51,000 shares of common stock of the Company at a price of $24.00 per share. Employee Option Agreement dated October 13, 004643 Fully vested on April Exercisable until April 27, 2004; 1998 granting the Executive the option to 27, 2001 as a result of period of exercisability not extended. purchase 116,600 shares of common stock of the the Retirement (as Company at a price of $8.75 per share. defined in the option agreement) of the Executive.
2
GRANT OPTION AGREEMENT NUMBER VESTING EXERCISABILITY Employee Option Agreement dated February 3, 004866 Fully vested on April Exercisable until April 27, 2004; 1999 granting the Executive the option to 27, 2001 as a result of period of exercisability not extended. purchase 14,620 shares of common stock of the the Retirement (as Company at a price of $9.0625 per share. defined in the option agreement) of the Executive. Employee Option Agreement dated December 2, 004895 Fully vested on April Exercisable until April 27, 2004; 1999 granting the Executive the option to 27, 2001 as a result of period of exercisability not extended. purchase 107,000 shares of common stock of the the Retirement (as Company at a price of $5.75 per share. defined in the option agreement) of the Executive. Employee Option Agreement dated December 2, 004899 Fully vested on April Exercisable until April 27, 2004; 1999 granting the Executive the option to 27, 2001 as a result of period of exercisability not extended. purchase 205,000 shares of common stock of the the Retirement (as Company at a price of $5.75 per share. defined in the option agreement) of the Executive. Employee Option Agreement dated December 20, 005257 Fully vested on April Period of exercisability extended to 2000 granting the Executive the option to 27, 2001 as a result of April 27, 2006. purchase 155,200 shares of common stock of the the Retirement (as Company at a price of $9.9375 per share. defined in the option agreement) of the Executive. Exchange Performance Accelerated Stock Option 004596 Fully vested on April Period of exercisability extended to Agreement dated October 30, 1998 granting the 27, 2001 as a result of April 27, 2006. Executive the option to purchase 400,000 shares acceleration of vesting of common stock of the Company at a price of by the Company. $12.00 per share.
3
GRANT OPTION AGREEMENT NUMBER VESTING EXERCISABILITY Employee Option Agreement dated December 20, 005247 Fully vested on April Period of exercisability extended to 2000 granting the Executive the option to 27, 2001 as a result of April 27, 2006. purchase 364,000 shares of common stock of the disability Company at a price of $11.00 per share.
4 EXHIBIT B RESTRICTED STOCK UNITS 1. Grant of Restricted Stock Units Under The Hexcel Corporation Management Stock Purchase Plan dated February 3, 1999 for 19,837 RSUs (grant # 004942). 2. Grant of Restricted Stock Units Under The Hexcel Corporation Management Stock Purchase Plan dated February 1, 2001 for 35,156 RSUs (grant # 005292). PERFORMANCE ACCELERATED RESTRICTED STOCK (PARS) 1. Performance Accelerated Restricted Stock Unit Agreement dated February 29, 1996 for 200,000 PARS (this agreement remains in effect with respect to 50,000 PARS, as the Executive previously received 150,000 shares of common stock of the Company upon the conversion of 150,000 PARS) (grant # 003317). 2. Performance Accelerated Restricted Stock Unit Agreement dated March 1, 1996 for 20,600 PARS (grant # 003491). 3. Performance Accelerated Restricted Stock Unit Agreement dated January 1, 1997 for 19,500 PARS (grant # 003549). 4. Performance Accelerated Restricted Stock Unit Agreement dated March 25, 1998 for 15,300 PARS (grant # 003987). 5. Performance Accelerated Restricted Stock Unit Agreement dated October 13, 1998 for 40,700 PARS (grant # 004839). 6. Performance Accelerated Restricted Stock Unit Agreement dated February 3, 1999 for 5,263 PARS (grant # 004880). 7. Performance Accelerated Restricted Stock Unit Agreement dated December 2, 1999 for 100,000 PARS (grant # 004912). 8. Performance Accelerated Restricted Stock Unit Agreement dated December 2, 1999 for 137,000 PARS (grant # 004956). 9. Performance Accelerated Restricted Stock Unit Agreement dated December 20, 2000 for 51,700 PARS (grant # 005268). EX-10.51(A) 14 a2055198zex-10_51a.txt EXHIBIT 10.51(A) Exhibit 10.51(a) AMENDMENT TO GOVERNANCE AGREEMENT AMENDMENT, dated as of April 25, 2001 (this "Amendment"), to the Governance Agreement (the "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. WHEREAS, the parties hereto desire to amend the Governance Agreement as provided herein. NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and in consideration of the premises and mutual agreements contained herein, the parties hereto agree as follows: 1. Unless otherwise defined herein, capitalized terms which are defined in the Governance Agreement are used herein as defined therein. 2. Section 1.01 of the Governance Agreement is hereby amended by deleting therefrom the definition of the term "Chairman" contained therein. 3. Section 2.01 of the Governance Agreement is hereby amended by deleting such section in its entirety and substituting in lieu thereof the following: "The Board shall consist of ten members, one of whom shall be designated the Chairman of the Board. The Chairman of the Board shall be designated by a majority of the members of the Board." 4. Section 2.02(a) of the Governance Agreement is hereby amended by (a) deleting ", the Chairman and six additional Independent Directors" contained therein and inserting in lieu thereof "and seven Independent Directors", and (b) deleting ", the Chairman and seven additional Independent Directors" contained therein and inserting in lieu thereof "and eight Independent Directors". 5. Section 2.02(b) of the Governance Agreement is hereby amended by (a) deleting ", the Chairman and seven additional Independent Directors" contained therein and inserting in lieu thereof "and eight Independent Directors", and (b) deleting ", the Chairman and eight additional Independent Directors" contained therein and inserting in lieu thereof "and nine Independent Directors". 6. Section 2.02(c) of the Governance Agreement is hereby amended by deleting ", the Chairman and eight additional Independent Directors" contained therein and inserting in lieu thereof "and nine Independent Directors". 7. Section 2.03(a) of the Governance Agreement is hereby amended by inserting "of the Board" after "Chairman" in each of the two places the word "Chairman" appears in such section. 8. Section 2.05 of the Governance Agreement is hereby amended by (a) deleting therefrom "If the former member was the Chairman, the replacement Chairman shall be the replacement."; (b) deleting therefrom "(other than the Chairman)"; and (c) inserting "of the Board" after the word "Chairman" in the last parenthetical in such section. 9. Section 2.06 of the Governance Agreement is hereby amended by deleting ", the Chairman and one additional Independent Director" from clause (iv) contained therein and inserting in lieu thereof "and two Independent Directors." 10. Each Investor consents to the Amendment and Restatement of the Bylaws of Hexcel Corporation in the form of Exhibit A attached hereto. 11. Except as expressly modified herein, all terms and provisions of the Governance Agreement shall remain in full force and effect and are hereby in all respects ratified and confirmed. 12. No change, modification or waiver of any provision of this Amendment shall be valid unless the same is in writing and signed by the parties hereto. 13. 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. 14. 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. [remainder of page intentionally left blank] 2 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed as of the date and year first written above.
GS CAPITAL PARTNERS 2000, L.P. GS CAPITAL PARTNERS 2000 OFFSHORE, L.P. By: GS Advisors 2000, L.L.C., its general partner By: GS Advisors 2000, L.L.C., its general partner By: /s/ Katherine L. Nissenbaum By: /s/ Katherine L. Nissenbaum ----------------------------- ----------------------------- Name: Katherine L. Nissenbaum Name: Katherine L. Nissenbaum Title: Vice President Title: Vice President GS CAPITAL PARTNERS 2000 EMPLOYEE FUND, L.P. GS CAPITAL PARTNERS 2000 GMBH & CO. BETEILIGUNGS KG By: GS Employee Funds 2000 GP, L.L.C., its general partner By: Goldman Sachs Management GP GmbH, its general partner By: /s/ Katherine L. Nissenbaum By: /s/ Katherine L. Nissenbaum ----------------------------- ----------------------------- Name: Katherine L. Nissenbaum Name: Katherine L. Nissenbaum Title: Vice President Title: Managing Director LXH, L.L.C. LXH II, L.L.C. By: GS Capital Partners 2000, L.P., its managing member By: GS Capital Partners 2000 Offshore, L.P., its managing member By: GS Advisors 2000, L.L.C., its general partner By: GS Advisors 2000, L.L.C., its general partner By: /s/ Katherine L. Nissenbaum By: /s/ Katherine L. Nissenbaum ----------------------------- ----------------------------- Name: Katherine L. Nissenbaum Name: Katherine L. Nissenbaum Title: Vice President Tile: Vice President STONE STREET FUND 2000, L.P. HEXCEL CORPORATION By: Stone Street 2000, L.L.C., its general partner By: /s/ Katherine L. Nissenbaum By: /s/ Ira J. KraKower ----------------------------- ----------------------------- Name: Katherine L. Nissenbaum Name: Ira J. KraKower Title: Vice President Title: Senior Vice President
3 EX-12.1 15 a2055198zex-12_1.txt EXHIBIT 12.1 Exhibit 12.1 HEXCEL CORPORATION COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (DOLLARS IN MILLIONS)
FOR THE YEAR ENDED DECEMBER 31, ----------------------------------------------- HISTORICAL ----------------------------------------------- 1996 1997 1998 1999 2000 --------- -------- -------- ------- ------- Income before Taxes, Equity Earnings, and Extraordinary Loss $ (15.8) $ 50.7 $ 78.3 $ (5.0) $ 75.4 Interest Expense 21.6 25.8 38.7 73.9 68.3 Interest Portion of Rentals (1) 1.5 1.5 1.6 3.1 2.3 --------- -------- -------- ------- ------- EARNINGS BEFORE PROVISION FOR TAXES AND FIXED CHARGES $ 7.3 $ 78.0 $ 118.6 $ 72.0 $146.0 ========= ======== ======== ======= ======= Interest Expense $ 21.6 $ 25.8 $ 38.7 $ 73.9 $ 68.3 Interest Portion of Rentals (1) 1.5 1.5 1.6 3.1 2.3 --------- -------- -------- ------- ------- TOTAL FIXED CHARGES $ 23.1 $ 27.3 $ 40.3 $ 77.0 $ 70.6 ========= ======== ======== ======= ======= RATIO OF EARNINGS TO FIXED CHARGES (2) N/A 2.9 2.9 N/A 2.1 ========= ======== ======== ======= ======= FOR THE TWELVE MONTHS ENDED FOR THE THREE MONTHS ENDED MARCH 31, MARCH 31, -------------------------------------- ------------ SUPPLEMENTAL SUPPLEMENTAL HISTORICAL PRO FORMA PRO FORMA PRO FORMA --------------- --------- --------- ------------ 2000 2001 2000 2001 2001 ------ ------- ------ ------ ------- Income before Taxes, Equity Earnings, and Extraordinary Loss $ 3.4 $ 6.3 $ 4.0 $ 5.7 $ 76.9 Interest Expense 18.4 16.3 16.7 16.9 68.3 Interest Portion of Rentals (1) 0.6 0.6 0.6 0.6 2.3 ------ ------- ------- ------- -------- EARNINGS BEFORE PROVISION FOR TAXES AND FIXED CHARGES $22.4 $ 23.2 $ 21.3 $ 23.2 $ 147.5 ====== ======= ======= ======= ======== Interest Expense $18.4 $ 16.3 $ 16.7 $ 16.9 $ 68.3 Interest Portion of Rentals (1) 0.6 0.6 0.6 0.6 0.6 ------ ------- ------- ------- -------- TOTAL FIXED CHARGES $19.0 $ 16.9 $ 17.3 $ 17.5 $ 68.9 ====== ======= ======= ======= ======== RATIO OF EARNINGS TO FIXED CHARGES (2) 1.2 1.4 1.2 1.3 2.1 ====== ======= ======= ======= ========
(1) Calculated as one third of rentals, which is a reasonable approximation of the interest factor. (2) Earnings are inadequate to cover fixed charges for 1996 and 1999. The deficiency in earnings for the years ended December 31, 1996 and December 31, 1999 is ($15.8) and ($5.0), respectively. EX-21.1 16 a2055198zex-21_1.txt EXHIBIT 21.1 Exhibit 21.1 HEXCEL SUBSIDIARIES DOMESTIC: ACM Holdings Corporation (Delaware) Clark-Schwebel Corporation (Delaware) Clark-Schwebel Holding Corp. (Delaware) CS Tech-Fab Holding, Inc. (Delaware) Hexcel Beta Corp. (Delaware) Hexcel Far East (California) Hexcel Foundation (California) Hexcel International (California) Hexcel Omega Corporation (California) Hexcel Pacific Rim Corporation (California) Hexcel Pacific Rim Corporation (Delaware) Hexcel Pottsville Corporation (Delaware) Hexcel Technologies Inc. (Delaware) FOREIGN: Hexcel Chemical Products Limited (UK) Hexcel-China Holdings Corp. (Mauritius) Hexcel Composites GmbH (Austria) Hexcel Composites GmbH (Germany) Hexcel Composites Limited (UK) Hexcel Composites S.P.R.L. (Belgium) Hexcel Composites S.A. (France) Hexcel Composites S.L. (Spain) Hexcel Composites S.r.l. (Italy) Hexcel do Brasil Servicos S/C Ltda (Brazil) Hexcel Fabrics S.A. (France) Hexcel Foreign Sales Corporation (Barbados) Hexcel Holding B.V. (Netherlands) Hexcel Holdings (UK) Limited (UK) Hexcel Overseas Limited (UK) Hexcel S.A. (France) Hexcel Structures and Interiors GmbH (Germany) Hexcel (UK) Limited (UK) EX-23.1 17 a2055198zex-23_1.txt EXHIBIT 23.1 Exhibit 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the use in the Registration Statement on Form S-4 of Hexcel Corporation of our report dated January 18, 2001 relating to the financial statements of Hexcel Corporation, which appear in such Registration Statement. We also consent to the references to us under the heading "Experts" in such Registration Statement. PricewaterhouseCoopers LLP Stamford, Connecticut August 2, 2001 EX-25.1 18 a2055198zex-25_1.txt EXHIBIT 25.1 Exhibit 25.1 ================================================================================ FORM T-1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939 OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO SECTION 305(b)(2) |__| _____________ THE BANK OF NEW YORK (Exact name of trustee as specified in its charter) New York 13-5160382 (State of incorporation (I.R.S. employer if not a U.S. national bank) identification no.) One Wall Street, New York, N.Y. 10286 (Address of principal executive offices) (Zip code) _____________ HEXCEL CORPORATION (Exact name of obligor as specified in its charter) Delaware 94-1109521 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) Two Stamford Plaza 281 Tresser Boulevard Stamford, Connecticut 06901-3238 (Address of principal executive offices) (Zip code) _____________ 9-3/4% Senior Subordinated Notes due 2009 (Title of the indenture securities) ================================================================================ 1. GENERAL INFORMATION. FURNISH THE FOLLOWING INFORMATION AS TO THE TRUSTEE: (A) NAME AND ADDRESS OF EACH EXAMINING OR SUPERVISING AUTHORITY TO WHICH IT IS SUBJECT.
- -------------------------------------------------------------------------------- Name Address - -------------------------------------------------------------------------------- Superintendent of Banks of the State of 2 Rector Street, New York, New York N.Y. 10006, and Albany, N.Y. 12203 Federal Reserve Bank of New York 33 Liberty Plaza, New York, N.Y. 10045 Federal Deposit Insurance Corporation Washington, D.C. 20429 New York Clearing House Association New York, New York 10005
(B) WHETHER IT IS AUTHORIZED TO EXERCISE CORPORATE TRUST POWERS. Yes. 2. AFFILIATIONS WITH OBLIGOR. IF THE OBLIGOR IS AN AFFILIATE OF THE TRUSTEE, DESCRIBE EACH SUCH AFFILIATION. None. 16. LIST OF EXHIBITS. EXHIBITS IDENTIFIED IN PARENTHESES BELOW, ON FILE WITH THE COMMISSION, ARE INCORPORATED HEREIN BY REFERENCE AS AN EXHIBIT HERETO, PURSUANT TO RULE 7A-29 UNDER THE TRUST INDENTURE ACT OF 1939 (THE "ACT") AND 17 C.F.R. 229.10(D). 1. A copy of the Organization Certificate of The Bank of New York (formerly Irving Trust Company) as now in effect, which contains the authority to commence business and a grant of powers to exercise corporate trust powers. (Exhibit 1 to Amendment No. 1 to Form T-1 filed with Registration Statement No. 33-6215, Exhibits 1a and 1b to Form T-1 filed with Registration Statement No. 33-21672 and Exhibit 1 to Form T-1 filed with Registration Statement No. 33-29637.) 4. A copy of the existing By-laws of the Trustee. (Exhibit 4 to Form T-1 filed with Registration Statement No. 33-31019.) 6. The consent of the Trustee required by Section 321(b) of the Act. (Exhibit 6 to Form T-1 filed with Registration Statement No. 33-44051.) 7. A copy of the latest report of condition of the Trustee published pursuant to law or to the requirements of its supervising or examining authority. SIGNATURE Pursuant to the requirements of the Act, the Trustee, The Bank of New York, a corporation organized and existing under the laws of the State of New York, has duly caused this statement of eligibility to be signed on its behalf by the undersigned, thereunto duly authorized, all in The City of New York, and State of New York, on the 11th day of July, 2001. THE BANK OF NEW YORK By: /s/ MING SHIANG ------------------------------ Name: MING SHIANG Title: VICE PRESIDENT Exhibit 7 - -------------------------------------------------------------------------------- Consolidated Report of Condition of THE BANK OF NEW YORK of One Wall Street, New York, N.Y. 10286 And Foreign and Domestic Subsidiaries, a member of the Federal Reserve System, at the close of business March 31, 2001, published in accordance with a call made by the Federal Reserve Bank of this District pursuant to the provisions of the Federal Reserve Act.
Dollar Amounts In Thousands ASSETS Cash and balances due from depository institutions: Noninterest-bearing balances and currency and coin . $ 2,811,275 Interest-bearing balances .......................... 3,133,222 Securities: Held-to-maturity securities ........................ 147,185 Available-for-sale securities ...................... 5,403,923 Federal funds sold and Securities purchased under agreements to resell ............................... 3,378,526 Loans and lease financing receivables: Loans and leases held for sale ..................... 74,702 Loans and leases, net of unearned income ........................................... 37,471,621 LESS: Allowance for loan and lease losses ..................................... 599,061 Loans and leases, net of unearned income and allowance ............................. 36,872,560 Trading Assets ........................................ 11,757,036 Premises and fixed assets (including capitalized leases) ............................................ 768,795 Other real estate owned ............................... 1,078 Investments in unconsolidated subsidiaries and associated companies ............................... 193,126 Customers' liability to this bank on acceptances outstanding ........................................ 592,118 Intangible assets Goodwill ........................................... 1,300,295 Other intangible assets ............................ 122,143 Other assets .......................................... 3,676,375 ----------- Total assets .......................................... $70,232,359 =========== LIABILITIES Deposits: In domestic offices ................................ $25,962,242 Noninterest-bearing ................................ 10,586,346 Interest-bearing ................................... 15,395,896 In foreign offices, Edge and Agreement subsidiaries, and IBFs ........................... 24,862,377 Noninterest-bearing ................................ 373,085 Interest-bearing ................................... 24,489,292 Federal funds purchased and securities sold under agreements to repurchase ........................... 1,446,874 Trading liabilities ................................... 2,373,361 Other borrowed money: (includes mortgage indebtedness and obligations under capitalized leases) .......................... 1,381,512 Bank's liability on acceptances executed and outstanding ........................................ 592,804 Subordinated notes and debentures ..................... 1,646,000 Other liabilities ..................................... 5,373,065 ----------- Total liabilities ..................................... $63,658,235 ===========
EQUITY CAPITAL Common stock .......................................... 1,135,284 Surplus ............................................... 1,008,773 Retained earnings ..................................... 4,426,033 Accumulated other comprehensive income ................ 4,034 Other equity capital components ....................... 0 - -------------------------------------------------------------------------- Total equity capital .................................. 6,574,124 ----------- Total liabilities and equity capital .................. $70,232,359 ===========
I, Thomas J. Mastro, Senior Vice President and Comptroller of the above-named bank do hereby declare that this Report of Condition has been prepared in conformance with the instructions issued by the Board of Governors of the Federal Reserve System and is true to the best of my knowledge and belief. Thomas J. Mastro, Senior Vice President and Comptroller We, the undersigned directors, attest to the correctness of this Report of Condition and declare that it has been examined by us and to the best of our knowledge and belief has been prepared in conformance with the instructions issued by the Board of Governors of the Federal Reserve System and is true and correct. Thomas A. Renyi Gerald L. Hassell Directors Alan R. Griffith - -------------------------------------------------------------------------------- EX-99.1 19 a2055198zex-99_1.txt EXHIBIT 99.1 EXHIBIT 99.1 LETTER OF TRANSMITTAL HEXCEL CORPORATION OFFER FOR ALL OUTSTANDING 9 3/4% SENIOR SUBORDINATED NOTES DUE 2009 ISSUED ON JUNE 29, 2001 IN EXCHANGE FOR 9 3/4% SENIOR SUBORDINATED NOTES DUE 2009 WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, PURSUANT TO THE PROSPECTUS, DATED AUGUST , 2001 - -------------------------------------------------------------------------------- THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M. NEW YORK CITY TIME, ON , 2001, UNLESS EXTENDED (THE "EXPIRATION DATE"). TENDERS MAY BE WITHDRAWN BEFORE 5:00 P.M. NEW YORK CITY TIME, ON THE EXPIRATION DATE. - -------------------------------------------------------------------------------- THE EXCHANGE AGENT IS: The Bank of New York FOR OVERNIGHT DELIVERY, DELIVERY BY HAND OR DELIVERY BY REGISTERED OR CERTIFIED MAIL: The Bank of New York Reorganization Department 101 Barclay Street, 7E New York, NY 10286 ATTENTION: Duong Nguyen BY FACSIMILE TRANSMISSION (FOR ELIGIBLE INSTITUTIONS ONLY): (212) 815-6339 CONFIRM FACSIMILE BY TELEPHONE ONLY: (212) 815-3687 DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE, OR TRANSMISSION OF THIS LETTER OF TRANSMITTAL VIA FACSIMILE TO A NUMBER OTHER THAN AS SET FORTH ABOVE, DOES NOT CONSTITUTE A VALID DELIVERY. YOUR BANK OR BROKER CAN ASSIST YOU IN COMPLETING THIS FORM. THE INSTRUCTIONS INCLUDED WITH THIS LETTER OF TRANSMITTAL MUST BE FOLLOWED. QUESTIONS AND REQUESTS FOR ASSISTANCE OR FOR ADDITIONAL COPIES OF THE PROSPECTUS AND THIS LETTER OF TRANSMITTAL MAY BE DIRECTED TO THE EXCHANGE AGENT. PLEASE READ THE ENTIRE LETTER OF TRANSMITTAL AND THE PROSPECTUS CAREFULLY BEFORE CHECKING ANY BOX BELOW. The undersigned acknowledges receipt of the Prospectus dated , 2001 (the "Prospectus") of Hexcel Corporation, a Delaware corporation (the "Company"), and this Letter of Transmittal (the "Letter of Transmittal"), which together constitute the Company's offer (the "Exchange Offer") to exchange an aggregate principal amount of up to $100,000,000 of the Company's 9 3/4% Senior Subordinated Notes Due 2009 (the "Exchange Notes") which have been registered under the Securities Act of 1933, as amended (the "Securities Act"), for an equal aggregate principal amount of its issued and outstanding 9 3/4% Senior Subordinated Notes Due 2009 issued on June 29, 2001 (the "Original Notes") from the registered holders thereof (the "Holders"). For each Original Note accepted for exchange, the Holder of such Original Note will receive an Exchange Note having a principal amount equal to that of the surrendered Original Note. The Exchange Notes will bear interest from July 15, 2001. Accordingly, registered Holders of Exchange Notes on the relevant record date for the first interest payment date following the consummation of the Exchange Offer will receive interest accruing from July 15, 2001. Original Notes accepted for exchange will cease to accrue interest from and after the date of consummation of the Exchange Offer. Holders of Original Notes whose Original Notes are accepted for exchange will not receive any payment in respect of accrued interest on such Original Notes otherwise payable on any interest payment date the record date of which occurs on or after consummation of the Exchange Offer. This Letter is to be completed by holders of Original Notes either if certificates are to be forwarded herewith or if a tender of certificates for Original Notes, if available, is to be made by book-entry transfer to the account maintained by the Exchange Agent at the book-entry transfer facility, The Depository Trust Company ("DTC"), pursuant to the procedures set forth in "The Exchange Offer--Book-Entry Transfer" section of the Prospectus. Holders of Original Notes whose certificates are not immediately available, or who are unable to deliver their certificates or confirmation of the book-entry tender of their Original Notes into the Exchange Agent's account at DTC (a "Book-Entry Confirmation") and all other documents required by this Letter of Transmittal to the Exchange Agent on or prior to the Expiration Date, must tender their Original Notes according to the guaranteed delivery procedures set forth in "The Exchange Offer--Guaranteed Delivery Procedures" section of the Prospectus. See Instruction 1. Delivery of documents to DTC does not constitute delivery to the Exchange Agent. All capitalized terms used but not defined herein shall have the same meaning given them in the Prospectus. The undersigned has checked the appropriate boxes below and signed this Letter of Transmittal to indicate the action the undersigned desires to take with respect to the Exchange Offer. List below the Original Notes to which this Letter of Transmittal relates. If the space provided below is inadequate, list the certificate numbers and principal amounts on a separately executed schedule and affix the schedule to this Letter of Transmittal. The minimum permitted tender is $1,000 in principal amount. All other tenders must be in integral multiples of $1,000.
- ------------------------------------------------------------------------------------------------------------------ DESCRIPTION OF ORIGINAL NOTES - ------------------------------------------------------------------------------------------------------------------ (1) (2) (3) AGGREGATE PRICIPAL PRINCIPAL NAME(S) AND ADDRESS(S) OF REGISTERED HOLDER(S) CERTIFICATE AMOUNT OF AMOUNT (PLEASE FILL IN, IF BLANK) NUMBER(S)* ORIGINAL NOTE(S) TENDERED** - ------------------------------------------------------------------------------------------------------------------ ---------------------------------------- ---------------------------------------- ---------------------------------------- ---------------------------------------- TOTAL - ------------------------------------------------------------------------------------------------------------------ * Need not be completed if Original Notes are being tendered by book-entry transfer. ** Unless otherwise indicated, a holder will be deemed to have tendered ALL of the Original Notes represented by the Original Notes indicated in column 2. See Instruction 2. - ------------------------------------------------------------------------------------------------------------------
If the undersigned is not a broker-dealer, the undersigned represents that it is not engaged in, and does not intend to engage in, a distribution of Exchange Notes. If the undersigned is a broker-dealer that will receive Exchange Notes for its own account in exchange for Original Notes that were acquired as a result of market-making activities or other trading activities, it acknowledges that it will deliver a prospectus meeting the requirements of the Securities Act in connection with any resale of such Exchange Notes; however, by so acknowledging and by delivering such a prospectus, the undersigned will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. A broker-dealer may not participate in the Exchange Offer with respect to the Original Notes acquired other than as a result of market-making activities or other trading activities. Any Holder who is an "affiliate" of the Company or who has an arrangement or understanding with respect to the distribution of the Exchange Notes to be acquired pursuant to the Exchange Offer, or any broker-dealer who purchased Original Notes from the Company to resell pursuant to Rule 144A under the Securities Act or any other available exemption under the Securities Act must comply with the registration and prospectus delivery requirements under the Securities Act. / / CHECK HERE IF TENDERED ORIGINAL NOTES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH DTC AND COMPLETE THE FOLLOWING: Name of Tendering Institution ______________________________________________ DTC Account Number Transaction Code Number _________________________________ / / CHECK HERE IF TENDERED ORIGINAL NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED DELIVERY AND COMPLETE THE FOLLOWING: Name(s) of Registered Holder(s) ____________________________________________ Window Ticket Number (if any) ______________________________________________ Date of Execution of Notice of Guaranteed Delivery _________________________ Name of Institution Which Guaranteed Delivery ______________________________ IF DELIVERED BY BOOK-ENTRY TRANSFER, COMPLETE THE FOLLOWING: Name of Tendering Institution ______________________________________________ DTC Account Number _____________ Transaction Code Number ____________ / / CHECK HERE IF TENDERED BY BOOK-ENTRY TRANSFER AND NON-EXCHANGED ORIGINAL NOTES ARE TO BE RETURNED BY CREDITING THE DTC ACCOUNT NUMBER SET FORTH ABOVE. / / CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS THERETO AND COMPLETE THE FOLLOWING. Name: ______________________________________________________________________ Address: ___________________________________________________________________ ________________________________________ - ------------------------------------------------ SPECIAL ISSUANCE INSTRUCTIONS (SEE INSTRUCTIONS 3, 4 AND 6) To be completed ONLY if certificates for Original Notes not exchanged and/or Exchange Notes are to be issued in the name of someone other than the undersigned, or if Original Notes delivered by book-entry transfer which are not accepted for exchange are to be returned by credit to an account maintained at the book-entry transfer facility other than the account indicated above. Issue Exchange Notes and/or Original Notes to: Name(s) ____________________________________________________________________ (PLEASE TYPE OR PRINT) __________________________________________________________________________ Address ____________________________________________________________________ ____________________________________________________________________________ (ZIP CODE) __________________________________________________________________________ (TAX IDENTIFICATION OR SOCIAL SECURITY NUMBER) (COMPLETE SUBSTITUTE FORM W-9) / / Credit unexchanged Original Notes delivered by book-entry transfer to the Book-Entry Transfer Facility account set forth below. ____________________________________________________________________________ (BOOK-ENTRY TRANSFER FACILITY ACCOUNT NUMBER, IF APPLICABLE) - ------------------------------------------------------------ - ------------------------------------------------------------ SPECIAL DELIVERY INSTRUCTIONS (SEE INSTRUCTIONS 3, 4, AND 6) To be completed ONLY if certificates for Original Notes not exchanged and/or Exchange Notes are to be sent to someone other than the undersigned or to such person or persons at an address other than shown in the box entitled "Description of Original Notes" above. Mail Exchange Notes and/or Original Notes to: Name(s) ____________________________________________________________________ (PLEASE TYPE OR PRINT) __________________________________________________________________________ (PLEASE TYPE OR PRINT) Address ____________________________________________________________________ ____________________________________________________________________________ (ZIP CODE) __________________________________________________________________________ (TAX IDENTIFICATION OR SOCIAL SECURITY NUMBER) - ----------------------------------------------------- NOTE: SIGNATURES MUST BE PROVIDED BELOW. PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY Ladies and Gentlemen: Upon the terms and subject to the conditions of the Exchange Offer, the undersigned hereby tenders to the Company the aggregate principal amount of Original Notes indicated above. Subject to, and effective upon, the acceptance for exchange of the Original Notes tendered with this Letter of Transmittal in accordance with the terms and conditions of the Exchange Offer (including, if the Exchange Offer is extended or amended, the terms and conditions of any such extension or amendment), the undersigned hereby exchanges, assigns and transfers to, or upon the order of, the Company all right, title and interest in and to such Original Notes as are being tendered hereby. The undersigned hereby irrevocably constitutes and appoints the Exchange Agent as the undersigned's true and lawful agent and attorney-in-fact with respect to such tendered Original Notes, with full power of substitution, among other things, to cause the Original Notes to be assigned, transferred and exchanged. The undersigned hereby represents and warrants that it has full power and authority to tender, sell, assign and transfer the Original Notes, and to acquire Exchange Notes issuable upon the exchange of such tendered Original Notes, and that, when the same are accepted for exchange, the Company will acquire good and unencumbered title thereto, free and clear of all liens, restrictions, charges and encumbrances and not subject to any adverse claim when the same are accepted by the Company. The undersigned hereby further represents that any Exchange Notes acquired in exchange for Original Notes tendered hereby will have been acquired in the ordinary course of business of the person receiving such Exchange Notes, whether or not such person is the undersigned, that neither the Holder of such Original Notes nor any such other person is participating in, intends to participate in or has an arrangement or understanding with any person to participate in the distribution of such Exchange Notes and that neither the Holder of such Original Notes nor any such other person is an "affiliate," as defined in Rule 405 under the Securities Act, of the Company. The undersigned acknowledges that this Exchange Offer is being made in reliance on interpretations by the staff of the Securities and Exchange Commission (the "SEC"), as set forth in no-action letters issued to third parties, that the Exchange Notes issued pursuant to the Exchange Offer in exchange for the Original Notes may be offered for resale, resold and otherwise transferred by Holders thereof (other than any such Holder that is an "affiliate" of the Company within the meaning of Rule 405 under the Securities Act), without compliance with the registration and prospectus delivery provisions of the Securities Act, provided that such Exchange Notes are acquired in the ordinary course of such Holders' business and such Holders have no arrangement with any person to participate in the distribution of such Exchange Notes. However, the SEC has not considered the Exchange Offer in the context of a no-action letter and there can be no assurance that the staff of the SEC would make a similar determination with respect to the Exchange Offer as in other circumstances. If the undersigned is not a broker-dealer, the undersigned represents that it is not engaged in, and does not intend to engage in, a distribution of Exchange Notes and has no arrangement or understanding to participate in a distribution of Exchange Notes. If any Holder is an affiliate of the Company, is engaged in or intends to engage in or has any arrangement or understanding with respect to the distribution of the Exchange Notes to be acquired pursuant to the Exchange Offer, such Holder (i) could not rely on the applicable interpretations of the staff of the SEC and (ii) must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale transaction. The undersigned will, upon request, execute and deliver any additional documents deemed by the Company to be necessary or desirable to complete the sale, assignment and transfer of the Original Notes tendered hereby. All authority conferred or agreed to be conferred in this Letter of Transmittal and every obligation of the undersigned hereunder shall be binding upon the successors, assigns, heirs, executors, administrators, trustees in bankruptcy and legal representatives of the undersigned and shall not be affected by, and shall survive, the death or incapacity of the undersigned. This tender may be withdrawn only in accordance with the procedures set forth in "The Exchange Offer--Withdrawal Rights" section of the Prospectus. 1 Unless otherwise indicated herein in the box entitled "Special Issuance Instructions" above, please deliver the Exchange Notes (and, if applicable, substitute certificates representing Original Notes for any Original Notes not exchanged) in the name of the undersigned or, in the case of a book-entry delivery of Original Notes, please credit the account indicated above maintained at DTC. Similarly, unless otherwise indicated under the box entitled "Special Delivery Instructions" above, please send the Exchange Notes (and, if applicable, substitute certificates representing Original Notes for any Original Notes not exchanged) to the undersigned at the address shown above in the box entitled "Description of Original Notes." THE UNDERSIGNED, BY COMPLETING THE BOX ENTITLED "DESCRIPTION OF ORIGINAL NOTES" ABOVE AND SIGNING THIS LETTER OF TRANSMITTAL, WILL BE DEEMED TO HAVE TENDERED THE ORIGINAL NOTES AS SET FORTH IN SUCH BOX ABOVE. 2 TENDERING HOLDER(S) PLEASE SIGN HERE (COMPLETE ACCOMPANYING SUBSTITUTE FORM W-9 BELOW) - -------------------------------------------------------------------------------- ____________________________________________________________________________ ____________________________________________________________________________ (SIGNATURE(S) OF REGISTERED HOLDER(S) OR AUTHORIZED SIGNATORY) Date: ______________, 2001 Date: ______________, 2001 (Must be signed by registered holder(s) exactly as name(s) appear(s) on the certificate(s) for the Original Notes hereby tendered or in whose name Original Notes are registered on the books of DTC or one of its participants, or by any person(s) authorized to become registered holder(s) by endorsements and documents transmitted herewith. If signature is by a trustee, executor, administrator, guardian, officer or other person acting in a fiduciary or representative capacity, please set forth full title of such person. See Instruction 3.) Name(s): ___________________________________________________________________ ____________________________________________________________________________ (PLEASE TYPE OR PRINT) Capacity: __________________________________________________________________ Address: ___________________________________________________________________ ____________________________________________________________________________ ____________________________________________________________________________ ____________________________________________________________________________ (INCLUDING ZIP CODE) Area Code and Telephone No.: _______________________________________________ Taxpayer Identification No. or Social Security No.: ________________________ GUARANTEE OF SIGNATURE(S) (IF REQUIRED BY INSTRUCTION 3) Authorized Signature: ______________________________________________________ Name: ______________________________________________________________________ (PLEASE TYPE OR PRINT) Title: _____________________________________________________________________ Name of Firm: ______________________________________________________________ (Title) ____________________________________________________________________ Address: ___________________________________________________________________ (INCLUDING ZIP CODE Area Code and Telephone No.: _______________________________________________ Date.: _____________________________________________________________________ ---------------------------------------------------------------------------- 3 INSTRUCTIONS FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER 1. DELIVERY OF THIS LETTER OF TRANSMITTAL AND NOTES; GUARANTEED DELIVERY PROCEDURES. This Letter is to be completed by holders of Original Notes either if certificates are to be forwarded herewith or if tenders are to be made pursuant to the procedures for delivery by book-entry transfer set forth in "The Exchange Offer--Book-Entry Transfer" section of the Prospectus. Certificates for all physically tendered Original Notes, or Book-Entry Confirmation, as the case may be, as well as a properly completed and duly executed Letter (or manually signed facsimile hereof) and any other documents required by this Letter, must be received by the Exchange Agent at the address set forth herein on or prior to the Expiration Date, or the tendering holder must comply with the guaranteed delivery procedures set forth below. Original Notes tendered hereby must be in denominations of principal amount of $1,000 and any integral multiple thereof. Holders whose certificates for Original Notes are not immediately available or who cannot deliver their certificates and all other required documents to the Exchange Agent on or prior to the Expiration Date, or who cannot complete the procedure for book-entry transfer on a timely basis, may tender their Original Notes pursuant to the guaranteed delivery procedures set forth in "The Exchange Offer--Guaranteed Delivery Procedures" section of the Prospectus. Pursuant to such procedures, (i) such tender must be made through an Eligible Institution, (ii) prior to 5:00 P.M., New York City time, on the Expiration Date, the Exchange Agent must receive from such Eligible Institution a properly completed and duly executed Letter of Transmittal (or a facsimile thereof) and Notice of Guaranteed Delivery, substantially in the form provided by the Company (by facsimile transmission, mail or hand delivery), setting forth the name and address of the holder of Original Notes and the amount of Original Notes tendered, stating that the tender is being made thereby and guaranteeing that within three New York Stock Exchange ("NYSE") trading days after the Expiration Date, the certificates for all physically tendered Original Notes, in proper form for transfer, or a Book-Entry Confirmation, as the case may be, and any other documents required by this Letter of Transmittal will be deposited by the Eligible Institution with the Exchange Agent, and (iii) the certificates for all physically tendered Original Notes, in proper form for transfer, or a Book-Entry Confirmation, as the case may be, and all other documents required by this Letter of Transmittal, must be received by the Exchange Agent within three NYSE trading days after the Expiration Date. The method of delivery of this Letter of Transmittal, the Original Notes and all other required documents is at the election and risk of the tendering holders, but the delivery will be deemed made only when actually received or confirmed by the Exchange Agent. If Original Notes are sent by mail, it is suggested that the mailing be registered mail, properly insured, with return receipt requested, made sufficiently in advance of the Expiration Date to permit delivery to the Exchange Agent prior to 5:00 P.M., New York City time, on the Expiration Date. See "The Exchange Offer" section of the Prospectus. 2. PARTIAL TENDERS (NOT APPLICABLE TO NOTEHOLDERS WHO TENDER BY BOOK-ENTRY TRANSFER); WITHDRAWALS. If less than all of the Original Notes evidenced by a submitted certificate are to be tendered, the tendering holder(s) should fill in the aggregate principal amount of Original Notes to be tendered in the box above entitled "Description of Original Notes--Principal Amount Tendered." A reissued certificate representing the balance of nontendered Original Notes will be sent to such tendering holder, unless otherwise provided in the appropriate box on this Letter of Transmittal, promptly after the Expiration Date. ALL OF THE ORIGINAL NOTES DELIVERED TO THE EXCHANGE AGENT WILL BE DEEMED TO HAVE BEEN TENDERED UNLESS OTHERWISE INDICATED. Tenders of Original Notes may be withdrawn at any time prior to 5:00 P.M., New York City time, on the Expiration Date. For a withdrawal of a tender of Original Notes to be effective, a written notice of withdrawal must be received by the Exchange Agent at the address set forth above prior to 5:00 P.M., New York City time, on the Expiration Date. Any such notice of withdrawal must (i) specify the name of the person having tendered the Original Notes to be withdrawn (the "Depositor"), (ii) identify the Original Notes to be withdrawn (including certificate number or numbers and the principal amount of such Original Notes), (iii) contain a statement that such holder is withdrawing his election to have such Original Notes exchanged, (iv) be signed by the holder in the 4 same manner as the original signature on the Letter by which such Original Notes were tendered (including any required signature guarantees) or be accompanied by documents of transfer to have the Trustee with respect to the Original Notes register the transfer of such Original Notes in the name of the person withdrawing the tender and (v) specify the name in which such Original Notes are registered, if different from that of the Depositor. If Original Notes have been tendered pursuant to the procedure for book-entry transfer set forth in "The Exchange Offer--Book-Entry Transfer" section of the Prospectus, any notice of withdrawal must specify the name and number of the account at the Book-Entry Transfer Facility to be credited with the withdrawn Original Notes and otherwise comply with the procedures of such facility. All questions as to the validity, form and eligibility (including time of receipt) of such notices will be determined by the Company, whose determination shall be final and binding on all parties. Any Original Notes so withdrawn will be deemed not to have been validly tendered for exchange for purposes of the Exchange Offer and no Exchange Notes will be issued with respect thereto unless the Original Notes so withdrawn are validly retendered. Any Original Notes that have been tendered for exchange but which are not exchanged for any reason will be returned to the Holder thereof without cost to such Holder (or, in the case of Original Notes tendered by book-entry transfer into the Exchange Agent's account at the Book-Entry Transfer Facility pursuant to the book-entry transfer procedures set forth in "The Exchange Offer--Book-Entry Transfer" section of the Prospectus, such Original Notes will be credited to an account maintained with the Book-Entry Transfer Facility for the Original Notes) as soon as practicable after withdrawal, rejection of tender or termination of the Exchange Offer. Properly withdrawn Original Notes may be retendered by following the procedures described above at any time on or prior to 5:00 P.M., New York City time, on the Expiration Date. 3. SIGNATURES ON THIS LETTER OF TRANSMITTAL; BOND POWERS AND ENDORSEMENTS; GUARANTEE OF SIGNATURES. If this Letter of Transmittal is signed by the registered holder of the Original Notes tendered hereby, the signature must correspond exactly with the name as written on the face of the certificates without any change whatsoever. If any tendered Original Notes are owned of record by two or more joint owners, all of such owners must sign this Letter of Transmittal. If any tendered Original Notes are registered in different names on several certificates, it will be necessary to complete, sign and submit as many separate copies of this Letter of Transmittal as there are different registrations of certificates. When this Letter of Transmittal is signed by the registered holder or holders (which term, for the purposes described herein, shall include the book-entry transfer facility whose name appears on a security listing as the owner of the Original Notes) of the Original Notes specified herein and tendered hereby, no endorsements of certificates or separate bond powers are required, unless Exchange Notes issued in exchange therefor are to be issued, or Original Notes are not tendered or not exchanged are to be returned, in the name of any person other than the registered holder. Signatures on any such certificates or bond powers must be guaranteed by an Eligible Institution. If this Letter of Transmittal is signed by a person other than the registered holder or holders of any certificate(s) specified herein, such certificate(s) must be endorsed or accompanied by appropriate bond powers in form satisfactory to the Company and duly executed by the registered holder, in either case signed exactly as the name or names of the registered holder or holders appear(s) on the certificate(s). If this Letter of Transmittal or any certificates or bond powers are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, such persons should so indicate when signing, and, unless waived by the Company, proper evidence satisfactory to the Company of their authority to so act must be submitted with this Letter of Transmittal. Endorsements on certificates or signatures on bond powers required by this Instruction 3 must be guaranteed by an Eligible Institution. Signatures on this Letter of Transmittal must be guaranteed by an Eligible Institution, unless the Original Notes are tendered: (i) by a holder who has not completed the box entitled "Special Issuance Instructions" or "Special Delivery Instructions" on this Letter of Transmittal, or (ii) for the account of an Eligible Institution (as 5 defined below). In the event that the exhibit signatures in this Letter of Transmittal or a notice of withdrawal, as the case may be, are required to be guaranteed, such guarantees must be by an eligible guarantor institution which is a member of a firm of a registered national securities exchange or of the National Association of Securities Dealers, Inc. a commercial bank or trust company having an office or correspondence in the United States or another "eligible institutions" within the meaning of Rule 17 Ad-15 under the Securities and Exchange Act of 1934, as amended (an "Eligible Institution"). If Original Notes are registered in the name of a person other than the signer of the Letter of Transmittal, the Original Notes surrendered for exchange must be endorsed by, or be accompanied by a written instrument or instruments of transfer or exchange, in satisfactory form as determined by the Company, in its sole discretion, duly executed by the registered holder with the signature thereon guaranteed by an Eligible Institution. 4. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS. Tendering holders of Original Notes should indicate in the applicable box the name and address to which Exchange Notes issued pursuant to the Exchange Offer and or substitute certificates evidencing Original Notes not exchanged are to be issued or sent, if different from the name or address of the person signing this Letter of Transmittal. In the case of issuance in a different name, the employer identification or social security number of the person named must also be indicated. Noteholders tendering Original Notes by book-entry transfer may request that Original Notes not exchanged be credited to such account maintained at DTC as such noteholder may designate hereon. If no such instructions are given, such Original Notes not exchanged will be returned to the name and address of the person signing this Letter of Transmittal. 5. TAXPAYER IDENTIFICATION NUMBER. United States federal income tax law generally requires that a tendering holder whose Original Notes are accepted for exchange must provide the Exchange Agent with (i) such holder's correct taxpayer identification number ("TIN") on Substitute Form W-9, which is provided under "Important Tax Information" below, or (ii) in the case of certain exempt foreign persons, the appropriate Form W-8 as discussed below. If such tendering holder is an individual, the TIN is his or her social security number. If a tendering holder does not provide the Exchange Agent with its current TIN, such tendering holder may be subject to a $50 penalty imposed by the Internal Revenue Service (the "IRS"). In addition, the Exchange Agent may be required to withhold up to 30.5% of the amount of any reportable payment made after the exchange to such tendering holder (the general backup withholding tax will be imposed at a rate of 30.5% for any reportable payment made after August 6, 2001, but will be gradually reduced to 28% for reportable payments made in 2006 and thereafter). If withholding results in an overpayment of taxes, a refund may be obtained. Exempt holders of Original Notes (including, among others, all corporations and certain foreign individuals) are not subject to these backup withholding and reporting requirements. Certain foreign persons can qualify for this exemption by submitting properly completed Form W-8BEN CERTIFICATE OF FOREIGN STATUS OF BENEFICIAL OWNER FOR UNITED STATES TAX WITHHOLDING, or Form W-8ECI, CERTIFICATE OF FOREIGN PERSON'S CLAIM FOR EXEMPTION FROM WITHHOLDING ON INCOME EFFECTIVELY CONNECTED WITH THE CONDUCT OF A TRADE OR BUSINESS IN THE UNITED STATES. A Form W-8BEN or Form W-8ECI may be obtained from the Exchange Agent. To prevent backup withholding, each tendering holder of Original Notes must provide its correct TIN by completing the Substitute Form W-9 set forth below, certifying, under penalties of perjury, that the TIN provided is correct (or that such holder is awaiting a TIN) and that (i) the holder is exempt from backup withholding, (ii) the holder has not been notified by the IRS that such holder is subject to backup withholding as a result of a failure to report all interest or dividends or (iii) the IRS has notified the holder that such holder is no longer subject to backup withholding. If the Original Notes are in more than one name or are not in the name of the actual owner, such holder should consult the W-9 Guidelines for Information on which TIN to report. If the tendering holder does not have a TIN, such holder should consult the W-9 Guidelines for instructions on applying for a TIN and write "applied for" in lieu of its TIN in Part 1 of the Substitute Form W-9. Note: Writing "applied for" on the form means that such holder has already applied for a TIN or that such holder intends to apply for one in the near future. In such case, the Exchange Agent will retain 30.5% of any reportable payment made to a 6 holder during the sixty (60) day period following the date of the Substitute Form W-9. If the holder furnishes the Exchange Agent with its TIN within sixty (60) days of the Substitute Form W-9, the Exchange Agent will remit any such amount retained during such sixty (60) day period to such holder and no further amounts will be retained or withheld from payments made to the holder thereafter. If, however, such holder does not provide its TIN to the Exchange Agent within such sixty (60) day period, the Exchange Agent will remit such previously withheld amounts to the IRS as backup withholding and will withhold a portion (not to exceed 30.5%--see discussion above regarding reductions in the applicable backup withholding rates) of all reportable payments to the holder thereafter until such holder furnishes its TIN to the Exchange Agent. 6. TRANSFER TAXES. The Company will pay all transfer taxes, if any, applicable to the transfer and exchange of Original Notes to it or its order pursuant to the Exchange Offer. If, however, Exchange Notes and/or substitute Original Notes not exchanged are to be delivered to, or are to be registered or issued in the name of, any person other than the registered holder of the Original Notes tendered hereby, or if tendered Original Notes are registered in the name of any person other than the person signing this Letter, or if a transfer tax is imposed for any reason other than the transfer of Original Notes to the Company or its order pursuant to the Exchange Offer, the amount of any such transfer taxes (whether imposed on the registered holder or any other persons) will be payable by the tendering holder. If satisfactory evidence of payment of such taxes or exemption therefrom is not submitted herewith, the amount of such transfer taxes will be billed directly to such tendering holder. EXCEPT AS PROVIDED IN THIS INSTRUCTION 6, IT WILL NOT BE NECESSARY FOR TRANSFER TAX STAMPS TO BE AFFIXED TO THE ORIGINAL NOTES SPECIFIED IN THIS LETTER OF TRANSMITTAL. 7. WAIVER OF CONDITIONS. The Company reserves the absolute right to waive satisfaction of any or all conditions enumerated in the Prospectus. 8. IRREGULARITIES All questions as to the validity, form, eligibility (including time of receipt) and acceptance of Letters of Transmittal or Original Notes will be resolved by the Company, whose determination shall be final and binding. The Company reserves the absolute right to reject any or all Letters of Transmittal or tenders that are not in proper form or the acceptance of which would, in the opinion of the Company's counsel, be unlawful. The Company also reserves the right to waive any irregularities or conditions of tender as to the particular Original Notes covered by any Letter of Transmittal or tendered pursuant to such letter. None of the Company, the Exchange Agent or any other person will be under any duty to give notification of any defects or irregularities in tenders or incur any liability for failure to give any such notification. The Company's interpretation of the terms and conditions of the Exchange Offer shall be final and binding. 9. MUTILATED, LOST, STOLEN OR DESTROYED ORIGINAL NOTES. Any holder whose Original Notes have been mutilated, lost, stolen or destroyed should contact the Exchange Agent at the address indicated above for further instructions. 10. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions relating to the procedure for tendering, as well as requests for additional copies of the Prospectus and this Letter, and requests for Notices of Guaranteed Delivery and other related documents may be directed to the Exchange Agent, at the address and telephone number indicated above. IMPORTANT: THIS LETTER OF TRANSMITTAL OR A FACSIMILE OR COPY THEREOF (TOGETHER WITH THE CERTIFICATES FOR ORIGINAL NOTES OR A BOOK-ENTRY CONFIRMATION AND ALL OTHER REQUIRED DOCUMENTS) OR THE NOTICE OF GUARANTEED DELIVERY MUST BE RECEIVED BY THE EXCHANGE AGENT PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE. 7 IMPORTANT TAX INFORMATION The holder is required to give the Exchange Agent the social security number or employer identification number of the holder of the Original Notes. If the Original Notes are in more than one name or are not in the name of the actual owner, consult the enclosed Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9 for additional guidance on which number to report. PAYER'S NAME: THE BANK OF NEW YORK PART 1--Taxpayer Identification SOCIAL SECURITY NUMBER(S) Number--For all accounts enter Taxpayer Identification Number in the SUBSTITUTE box at right. (For most individuals, FORM W-9 this is your social security number. For OR DEPARTMENT OF THE TREASURY sole proprietors or resident aliens, see INTERNAL REVENUE SERVICE the W-9 Guidelines. For other entities, EMPLOYER IDENTIFICATION NUMBER it is your Employer Identification (IF AWAITING TIN, WRITE "APPLIED Number. If you do not have a number, see FOR") Obtaining a Number in the enclosed W-9 Guidelines). Certify by signing and dating below. NOTE: If the account is in more than one name, see chart in the enclosed W-9 Guidelines to determine which number to give the payer. PAYER'S REQUEST FOR TAXPAYER PART 2--For payees exempt from backup withholding, see the enclosed W-9 IDENTIFICATION NUMBER ("TIN") Guidelines and complete as instructed therein. AND CERTIFICATION Certifications--Under the penalties of perjury, I certify that: (1) the number shown on this form is my correct TIN (or I am waiting for a number to be issued to me), and (2) I am not subject to backup withholding either because: (i) I am exempt from backup withholding, (ii) I have not been notified by the Internal Revenue Service (the "IRS") that I am subject to backup withholding as a result of a failure to report all interest or dividends, or (iii) the IRS has notified me that I am no longer subject to backup withholding, and (3) I am a U.S. person (including a U.S. resident alien). CERTIFICATION INSTRUCTIONS--You must cross out item (2) in Part 2 above if you have been notified by the IRS that you are subject to backup withholding because of underreporting of interest or dividends on your tax returns. However, if after being notified by the IRS that you were subject to backup withholding you received another notification from the IRS that you are not longer subject to backup withholding, do not cross out item (2). The IRS does not require your consent to any provision of this document other than the certifications required to avoid backup withholding. Signature Date Name (Please Print)
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING OF UP TO 30.5 PERCENT OF ANY AMOUNT PAID TO YOU PURSUANT TO THE EXCHANGE OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS. YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU ARE AWAITING (OR WILL SOON APPLY FOR) A TAXPAYER IDENTIFICATION NUMBER. CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER I certify under penalties of perjury that a taxpayer identification number has not been issued to me, and either (a) I have mailed or delivered an application to receive a taxpayer identification number to the appropriate Internal Revenue Service Center or Social Security Administration Office or (b) I intend to mail or deliver an application in the near future. I understand that if I do not provide a taxpayer identification number by the time of the exchange, a portion (not to exceed 30.5%) of all reportable payments made to me on account of the Exchange Notes will be retained until I provide a taxpayer identification number to the Exchange Agent and that, if I do not provide my taxpayer identification number within 60 days, such retained amounts shall be remitted to the Internal Revenue Service as backup withholding and a portion (not to exceed 30.5%) of all reportable payments made to me thereafter will be withheld and remitted to the Internal Revenue Service until I provide a taxpayer identification number. Signature __________________________________ Date _________________ ___________________________________________ Name (Please Print) EX-99.2 20 a2055198zex-99_2.txt EXHIBIT 99.2 EXHIBIT 99.2 NOTICE OF GUARANTEED DELIVERY FOR HEXCEL CORPORATION This form or one substantially equivalent hereto must be used to accept the Exchange Offer of Hexcel Corporation (the "Company") made pursuant to the Prospectus, dated August , 2001 (the "Prospectus"), if certificates for the outstanding 9 3/4% Senior Subordinated Notes Due 2009 of the Company issued on June 29, 2001 (the "Original Notes") are not immediately available or if the procedure for book-entry transfer cannot be completed on a timely basis or time will not permit all required documents to reach The Bank of New York, as exchange agent (the "Exchange Agent") prior to 5:00 P.M., New York City time, on the Expiration Date of the Exchange Offer. Such form may be delivered or transmitted by facsimile transmission, mail or hand delivery to the Exchange Agent as set forth below. In addition, in order to utilize the guaranteed delivery procedure to tender Original Notes pursuant to the Exchange Offer, a completed, signed and dated Letter of Transmittal (or facsimile thereof) must also be received by the Exchange Agent prior to 5:00 P.M., New York City time, on the Expiration Date. Capitalized terms not defined herein are defined in the Prospectus. DELIVERY TO: The Bank of New York, EXCHANGE AGENT
BY REGISTERED OR CERTIFIED MAIL: BY HAND OR OVERNIGHT DELIVERY: The Bank of New York The Bank of New York Reorganization Department Reorganization Department 101 Barclay Street, 7E 101 Barclay Street, 7E New York, New York 10286 New York, New York 10286 Attention: Duong Nguyen Attention: Duong Nguyen
FOR INFORMATION CALL: (212) 815-3687 BY FACSIMILE TRANSMISSION (FOR ELIGIBLE INSTITUTIONS ONLY): (212) 815-6339 CONFIRM BY TELEPHONE: (212) 815-3687 DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE, OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE, WILL NOT CONSTITUTE A VALID DELIVERY. Ladies and Gentlemen: Upon the terms and conditions set forth in the Prospectus and the accompanying Letter of Transmittal, the undersigned hereby tenders to the Company the principal amount of Original Notes set forth below pursuant to the guaranteed delivery procedure described in "The Exchange Offer--Guaranteed Delivery Procedures" section of the Prospectus. Principal Amount of Original Notes Tendered:(*) Certificate Nos. (if available): If Original Notes will be delivered by book-entry transfer to The Depository Trust Company, provide account number. Total Principal Amount Represented by Original Notes Certificate(s): $ Account Number ALL AUTHORITY HEREIN CONFERRED OR AGREED TO BE CONFERRED SHALL SURVIVE THE DEATH OR INCAPACITY OF THE UNDERSIGNED AND EVERY OBLIGATION OF THE UNDERSIGNED HEREUNDER SHALL BE BINDING UPON THE HEIRS, PERSONAL REPRESENTATIVES, SUCCESSORS AND ASSIGNS OF THE UNDERSIGNED. PLEASE SIGN HERE SIGNATURE(S) OF OWNER(S) DATE OR AUTHORIZED SIGNATORY Area Code and Telephone Number: Must be signed by the holder(s) of Original Notes as their name(s) appear(s) on certificates for Original Notes or on a security position listing, or by person(s) authorized to become registered holder(s) by endorsement and documents transmitted with this Notice of Guaranteed Delivery. If signature is by a trustee, executor, administrator, guardian, attorney-in-fact, officer or other person acting in a fiduciary or representative capacity, such person must set forth his or her full title below. PLEASE PRINT NAME(S) AND ADDRESS(ES)
Name(s): Capacity: Address(es): - -------------------------------------------------------------------------- * Must be in denominations of principal amount of $1,000 and any integral multiple thereof.
GUARANTEE (Not to be used for signature guarantee) The undersigned, a financial institution (including most banks, savings and loan associations and brokerage houses) that is a participant in the Securities Transfer Agents Medallion Program, the New York Stock Exchange Medallion Signature Program or the Stock Exchanges Medallion Program, hereby guarantees that the certificates representing the principal amount of Original Notes tendered hereby in proper form for transfer, or timely confirmation of the book-entry transfer of such Original Notes into the Exchange Agent's account at The Depository Trust Company pursuant to the procedures set forth in "The Exchange Offer--Guaranteed Delivery Procedures" section of the Prospectus, together with any required signature guarantee and any other documents required by the Letter of Transmittal, will be received by the Exchange Agent at the address set forth above, no later than three New York Stock Exchange trading days after the Expiration Date. NAME OF FIRM AUTHORIZED SIGNATURE ADDRESS TITLE Name: ZIP CODE (PLEASE TYPE OR PRINT) Area Code and Tel. No. Dated:
NOTE: DO NOT SEND CERTIFICATES FOR ORIGINAL NOTES WITH THIS FORM. CERTIFICATES FOR ORIGINAL NOTES SHOULD BE SENT ONLY WITH A COPY OF YOUR PREVIOUSLY EXECUTED LETTER OF TRANSMITTAL. EX-99.3 21 a2055198zex-99_3.txt EXHIBIT 99.3 EXHIBIT 99.3 HEXCEL CORPORATION OFFER FOR ALL OUTSTANDING 9 3/4% SENIOR SUBORDINATED NOTES DUE 2009 ISSUED ON JUNE 29, 2001 IN EXCHANGE FOR 9 3/4% SENIOR SUBORDINATED NOTES DUE 2009, WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED TO OUR CLIENTS: Enclosed for your consideration is a Prospectus, dated August , 2001 (the "Prospectus"), and the related Letter of Transmittal (the "Letter of Transmittal"), relating to the offer (the "Exchange Offer") of Hexcel Corporation (the "Company") to exchange its 9 3/4% Senior Subordinated Notes Due 2009, which have been registered under the Securities Act of 1933, as amended (the "Exchange Notes"), for its outstanding 9 3/4% Senior Subordinated Notes Due 2009 issued on June 29, 2001 (the "Original Notes"), upon the terms and subject to the conditions described in the Prospectus and the Letter of Transmittal. The Exchange Offer is being made in order to satisfy certain obligations of the Company contained in the Registration Rights Agreement dated June 29, 2001, by and among the Company and the initial purchasers referred to therein. This material is being forwarded to you as the beneficial owner of the Original Notes held by us for your account but not registered in your name. A TENDER OF SUCH ORIGINAL NOTES MAY ONLY BE MADE BY US AS THE HOLDER OF RECORD AND PURSUANT TO YOUR INSTRUCTIONS. Accordingly, we request instructions as to whether you wish us to tender on your behalf the Original Notes held by us for your account, pursuant to the terms and conditions set forth in the enclosed Prospectus and Letter of Transmittal. Your instructions should be forwarded to us as promptly as possible in order to permit us to tender the Original Notes on your behalf in accordance with the provisions of the Exchange Offer. The Exchange Offer will expire at 5:00 P.M., New York City time, on , 2001, unless extended by the Company. Any Original Notes tendered pursuant to the Exchange Offer may be withdrawn at any time before the Expiration Date. Your attention is directed to the following: 1. The Exchange Offer is for any and all Original Notes. 2. The Exchange Offer is subject to certain conditions set forth in the Prospectus in the section captioned "The Exchange Offer--Certain Conditions to the Exchange Offer." 3. Any transfer taxes incident to the transfer of Original Notes from the holder to the Company will be paid by the Company, except as otherwise provided in the Instructions in the Letter of Transmittal. 4. The Exchange Offer expires at 5:00 P.M., New York City time, on , 2001, unless extended by the Company. If you wish to have us tender your Original Notes, please so instruct us by completing, executing and returning to us the instruction form on the back of this letter. THE LETTER OF TRANSMITTAL IS FURNISHED TO YOU FOR INFORMATION ONLY AND MAY NOT BE USED DIRECTLY BY YOU TO TENDER ORIGINAL NOTES. INSTRUCTIONS WITH RESPECT TO THE EXCHANGE OFFER The undersigned acknowledge(s) receipt of your letter and the enclosed material referred to therein relating to the Exchange Offer made by Hexcel Corporation with respect to its Original Notes. This will instruct you to tender the Original Notes held by you for the account of the undersigned, upon and subject to the terms and conditions set forth in the Prospectus and the related Letter of Transmittal. Please tender the Original Notes held by you for my account as indicated below: 9 3/4% Senior Subordinated Notes Due 2009 $ (Aggregate Principal Amount of Original Notes) / / Please do not tender any Original Notes held by you for my account. Dated: , 2001 Signature(s): __________________________________________________________________ Print Name(s) here: ____________________________________________________________ (Print Address(es)): ___________________________________________________________ (Area Code and Telephone Number(s)): ___________________________________________ (Tax Identification or Social Security Number(s)): _____________________________ None of the Original Notes held by us for your account will be tendered unless we receive written instructions from you to do so. Unless a specific contrary instruction is given in the space provided, your signature(s) hereon shall constitute an instruction to us to tender all the Original Notes held by us for your account. EX-99.4 22 a2055198zex-99_4.txt EXHIBIT 99.4 EXHIBIT 99.4 HEXCEL CORPORATION OFFER FOR ALL OUTSTANDING 9 3/4% SENIOR SUBORDINATED NOTES DUE 2009 ISSUED ON JUNE 29, 2001 IN EXCHANGE FOR 9 3/4% SENIOR SUBORDINATED NOTES DUE 2009, WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED To: BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES AND OTHER NOMINEES: Hexcel Corporation (the "Company") is offering, upon and subject to the terms and conditions set forth in the Prospectus, dated August , 2001 (the "Prospectus"), and the enclosed Letter of Transmittal (the "Letter of Transmittal"), to exchange (the "Exchange Offer") its 9 3/4% Senior Subordinated Notes Due 2009, which have been registered under the Securities Act of 1933, as amended, for its outstanding 9 3/4% Senior Subordinated Notes Due 2009 issued on June 29, 2001 (the "Original Notes"). The Exchange Offer is being made in order to satisfy certain obligations of the Company contained in the Registration Rights Agreement dated June 29, 2001, by and among the Company and the initial purchasers referred to therein. We are requesting that you contact your clients for whom you hold Original Notes regarding the Exchange Offer. For your information and for forwarding to your clients for whom you hold Original Notes registered in your name or in the name of your nominee, or who hold Original Notes registered in their own names, we are enclosing the following documents: 1. Prospectus dated August , 2001; 2. The Letter of Transmittal for your use and for the information of your clients; 3. A Notice of Guaranteed Delivery to be used to accept the Exchange Offer if certificates for Original Notes are not immediately available or time will not permit all required documents to reach the Exchange Agent prior to the Expiration Date (as defined below) or if the procedure for book-entry transfer cannot be completed on a timely basis; 4. A form of letter which may be sent to your clients for whose account you hold Original Notes registered in your name or the name of your nominee, with space provided for obtaining such clients' instructions with regard to the Exchange Offer; 5. Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9; and 6. Return envelopes addressed to The Bank of New York, the Exchange Agent for the Exchange Offer. YOUR PROMPT ACTION IS REQUESTED. THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON , 2001, UNLESS EXTENDED BY THE COMPANY (THE "EXPIRATION DATE"). ORIGINAL NOTES TENDERED PURSUANT TO THE EXCHANGE OFFER MAY BE WITHDRAWN AT ANY TIME BEFORE THE EXPIRATION DATE. To participate in the Exchange Offer, a duly executed and properly completed Letter of Transmittal (or facsimile thereof), with any required signature guarantees and any other required documents, should be sent to the Exchange Agent and certificates representing the Original Notes should be delivered to the Exchange Agent, all in accordance with the instructions set forth in the Letter of Transmittal and the Prospectus. If a registered holder of Original Notes desires to tender, but such Original Notes are not immediately available, or time will not permit such holder's Original Notes or other required documents to reach the Exchange Agent before the Expiration Date, or the procedure for book-entry transfer cannot be completed on a timely basis, a tender may be effected by following the guaranteed delivery procedures described in the Prospectus under the caption "The Exchange Offer--Guaranteed Delivery Procedures." The Company will, upon request, reimburse brokers, dealers, commercial banks and trust companies for reasonable and necessary costs and expenses incurred by them in forwarding the Prospectus and the related documents to the beneficial owners of Original Notes held by them as nominee or in a fiduciary capacity. The Company will pay or cause to be paid all stock transfer taxes applicable to the exchange of Original Notes pursuant to the Exchange Offer, except as set forth in Instruction 6 of the Letter of Transmittal. Any inquiries you may have with respect to the Exchange Offer, or requests for additional copies of the enclosed materials, should be directed to The Bank of New York, the Exchange Agent for the Exchange Offer, at its address and telephone number set forth on the front of the Letter of Transmittal. Very truly yours, HEXCEL CORPORATION NOTHING HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU OR ANY PERSON AS AN AGENT OF THE COMPANY OR THE EXCHANGE AGENT, OR AUTHORIZE YOU OR ANY OTHER PERSON TO USE ANY DOCUMENT OR MAKE ANY STATEMENTS ON BEHALF OF EITHER OF THEM WITH RESPECT TO THE EXCHANGE OFFER, EXCEPT FOR STATEMENTS EXPRESSLY MADE IN THE PROSPECTUS OR THE LETTER OF TRANSMITTAL. Enclosures EX-99.5 23 a2055198zex-99_5.txt EXHIBIT 99.5 Exhibit 99.5 August ___, 2001 EXCHANGE AGENCY AGREEMENT ------------------------- The Bank of New York Corporate Trust Trustee Administration 101 Barclay Street New York, New York 10286 Ladies and Gentlemen: Hexcel Corporation (the "Company") proposes to make an offer (the "Exchange Offer") to exchange its 9 3/4% Senior Subordinated Notes Due 2009 issued on June 29, 2001 (the "Original Notes") for its 9 3/4% Senior Subordinated Notes Due 2009 which have been registered under the Securities Act of 1933, as amended (the "Exchange Notes"). The terms and conditions of the Exchange Offer as currently contemplated are set forth in a prospectus, dated August ____, 2001 (the "Prospectus"), to be distributed to all record holders of the Original Notes. The Original Notes and the Exchange Notes are collectively referred to herein as the "Notes." The Company hereby appoints The Bank of New York to act as exchange agent (the "Exchange Agent") in connection with the Exchange Offer. References hereinafter to "you" shall refer to The Bank of New York. The Exchange Offer is expected to be commenced by the Company on or about August ___, 2001. The Letter of Transmittal accompanying the Prospectus is to be used by the holders of the Original Notes to accept the Exchange Offer and contains instructions with respect to the (i) delivery of certificates for Original Notes tendered in connection therewith and (ii) the book-entry transfer of Notes to the Exchange Agent's account. The Exchange Offer shall expire at 5:00 P.M., New York City time, on _______, 2001 or on such later date or time to which the Company may extend the Exchange Offer (the "Expiration Date"). Subject to the terms and conditions set forth in the Prospectus, the Company expressly reserves the right to extend the Exchange Offer from time to time and may extend the Exchange Offer by giving oral (confirmed in writing) or written notice to you before 9:00 A.M., New York City time, on the business day following the previously scheduled Expiration Date. The Company expressly reserves the right to amend or terminate the Exchange Offer, and not to accept for exchange any Original Notes not theretofore accepted for exchange, upon the occurrence of any of the conditions of the Exchange Offer specified in the Prospectus under the caption "The Exchange Offer-- Conditions to the Exchange Offer." The Company will give oral (confirmed in writing) or written notice of any amendment or termination of the Exchange Offer or nonacceptance of Original Notes to you promptly after any amendment, termination or nonacceptance. In carrying out your duties as Exchange Agent, you are to act in accordance with the following instructions: 1. You will perform such duties and only such duties as are specifically set forth in the section of the Prospectus captioned "The Exchange Offer" or as specifically set forth herein; PROVIDED, HOWEVER, that in no way will your general duty to act in good faith be discharged by the foregoing. 2. You will establish an account with respect to the Original Notes at The Depository Trust Company (the "Book-Entry Transfer Facility") for purposes of the Exchange Offer within two business days after the date of the Prospectus, and any financial institution that is a participant in the Book-Entry Transfer Facility's systems may make book-entry delivery of the Original Notes by causing the Book-Entry Transfer Facility to transfer such Original Notes into your account in accordance with the Book-Entry Transfer Facility's procedure for such transfer. You will maintain, during the Exchange Offer, an address in the Borough of Manhattan, The City of New York, in which tenders of the Original Notes may be made. 3. You are to examine each of the Letters of Transmittal and certificates for Original Notes (or confirmation of book-entry transfer into your account at the Book-Entry Transfer Facility) and any other documents delivered or mailed to you by or for holders of the Original Notes to ascertain whether: (i) the Letters of Transmittal and any such other documents are duly executed and properly completed in accordance with instructions set forth therein and (ii) the Original Notes have otherwise been properly tendered. In each 2 case where the Letter of Transmittal or any other document has been improperly completed or executed or any of the certificates for Original Notes are not in proper form for transfer or some other irregularity in connection with the acceptance of the Exchange Offer exists, you will endeavor to inform the presenters of the need for fulfillment of all requirements and to take any other action as may be necessary or advisable to cause such irregularity to be corrected. 4. With the approval of the President, Executive Vice President, Controller or any Vice President (each, a "Designated Officer") of the Company, or of counsel to the Company, (such approval, if given orally, to be confirmed in writing) or any other party designated by any Designated Officer in writing, you are authorized to waive any irregularities in connection with any tender of Original Notes pursuant to the Exchange Offer. 5. Tenders of Original Notes may be made only as set forth in the Letter of Transmittal and in the section of the Prospectus captioned "The Exchange Offer--Procedures for Tendering," and Original Notes shall be considered properly tendered to you only when tendered in accordance with the procedures set forth therein. Notwithstanding the provisions of this paragraph 5, Original Notes which a Designated Officer, or of counsel to the Company, shall approve as having been properly tendered shall be considered to be properly tendered (such approval, if given orally, shall be confirmed in writing). 6. You shall advise the Company with respect to any Original Notes received subsequent to the Expiration Date and accept its instructions with respect to disposition of such Original Notes. 7. You shall accept tenders: (a) in cases where the Original Notes are registered in two or more names only if signed by all named holders; (b) in cases where the signing person (as indicated on the Letter of Transmittal) is acting in a fiduciary or a representative capacity only when proper evidence of his or her authority so to act is submitted; and 3 (c) from persons other than the registered holder of Original Notes provided that customary transfer requirements, including any applicable transfer taxes, are fulfilled. You shall accept partial tenders of Original Notes where so indicated and as permitted in the Letter of Transmittal and deliver certificates for Original Notes to the transfer agent for split-up and return any untendered Original Notes to the holder (or such other person as may be designated in the Letter of Transmittal) as promptly as practicable after expiration or termination of the Exchange Offer. 8. Upon satisfaction or waiver of all of the conditions to the Exchange Offer, the Company will notify you (such notice, if given orally, to be confirmed in writing) of its acceptance, promptly after the Expiration Date, of all Original Notes properly tendered and you, on behalf of the Company, will exchange such Original Notes for Exchange Notes and cause such Original Notes to be cancelled. Delivery of Exchange Notes will be made on behalf of the Company by you at the rate of $1,000 principal amount of Exchange Notes for each $1,000 principal amount of Original Notes tendered promptly after notice (such notice if given orally, to be confirmed in writing) of acceptance of said Original Notes by the Company; PROVIDED, HOWEVER, that in all cases, Original Notes tendered pursuant to the Exchange Offer will be exchanged only after timely receipt by you of certificates for such Original Notes (or confirmation of book-entry transfer into your account at the Book-Entry Transfer Facility), a properly completed and duly executed Letter of Transmittal (or facsimile thereof) with any required signature guarantees and any other required documents. You shall issue Exchange Notes only in denominations of $1,000 or any integral multiple thereof. 9. Tenders pursuant to the Exchange Offer are irrevocable, except that, subject to the terms and upon the conditions set forth in the Prospectus and the Letter of Transmittal, Original Notes tendered pursuant to the Exchange Offer may be withdrawn at any time prior to the Expiration Date. 10. The Company shall not be required to exchange any Original Notes tendered if any of the conditions set forth in the Exchange Offer are not met. Notice of any decision by the Company not to exchange any Original Notes tendered shall be given (and confirmed in writing) by the Company to you. 11. If, pursuant to the Exchange Offer, the Company does not accept for exchange all or part of the Original Notes tendered because of an invalid tender, the 4 occurrence of certain other events set forth in the Prospectus under the caption "The Exchange Offer--Conditions to the Exchange Offer" or otherwise, you shall as soon as practicable after the expiration or termination of the Exchange Offer return those certificates for unaccepted Original Notes (or effect appropriate book-entry transfer), together with any related required documents and the Letters of Transmittal relating thereto that are in your possession, to the persons who deposited them. 12. All certificates for reissued Original Notes, unaccepted Original Notes or for Exchange Notes shall be forwarded by first-class mail or appropriate book- entry transfer. 13. You are not authorized to pay or offer to pay any concessions, commissions or solicitation fees to any broker, dealer, bank or other persons or to engage or utilize any person to solicit tenders. 14. As Exchange Agent hereunder you: (a) shall have no duties or obligations other than those specifically set forth herein or as may be subsequently agreed to in writing by you and the Company; (b) will be regarded as making no representations and having no responsibilities as to the validity, sufficiency, value or genuineness of any of the certificates or the Original Notes represented thereby deposited with you pursuant to the Exchange Offer, and will not be required to and will make no representation as to the validity, value or genuineness of the Exchange Offer; provided, however, that in no way will your general duty to act in good faith be discharged by the foregoing; (c) shall not be obligated to take any legal action hereunder which might in your reasonable judgment involve any expense or liability, unless you shall have been furnished with reasonable indemnity; (d) may reasonably rely on and shall be protected in acting in reliance upon any certificate, instrument, opinion, notice, letter or other document (whether in its original or facsimile form) or security delivered to you and reasonably believed by you to be genuine and to have been signed by the proper party or parties; 5 (e) may reasonably act upon any tender, statement, request, comment, agreement or other instrument whatsoever not only as to its due execution and validity and effectiveness of its provisions, but also as to the truth and accuracy of any information contained therein, which you shall in good faith believe to be genuine or to have been signed or represented by a proper person or persons; (f) may rely on and shall be protected in acting upon written or oral instructions from any Designated Officer of the Company; (g) may consult with your counsel with respect to any questions relating to your duties and responsibilities and the advice or opinion of such counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted to be taken by you hereunder in good faith and in accordance with the advice or opinion of such counsel; and (h) shall not advise any person tendering Original Notes pursuant to the Exchange Offer as to the wisdom of making such tender or as to the market value or decline or appreciation in market value of any Original Notes. 15. You shall take such action as may from time to time be requested by the Company or its counsel or any Designated Officer (and such other action as you may reasonably deem appropriate) to furnish copies of the Prospectus, Letter of Transmittal and the Notice of Guaranteed Delivery (as defined in the Prospectus) or such other forms as may be approved from time to time by the Company, to all persons requesting such documents and to accept and comply with telephone requests for information relating to the Exchange Offer, provided that such information shall relate only to the procedures for accepting (or withdrawing from) the Exchange Offer. The Company will furnish you with copies of such documents at your request. All other requests for information relating to the Exchange Offer shall be directed to the Company, Attention: Ira J. Krakower, Senior Vice President, General Counsel and Secretary. 16. You shall advise by facsimile transmission or telephone, and promptly thereafter confirm in writing to Ira J. Krakower, Senior Vice President, General Counsel and Secretary of the Company and such other person or persons as it may request, daily (and more frequently during the week immediately preceding the Expiration Date and if otherwise requested) up to and including the Expiration Date, as to the number of Original Notes which have been tendered pursuant to the Exchange Offer and the items received by you pursuant 6 to this Agreement, separately reporting and giving cumulative totals as to items properly received and items improperly received. In addition, you will also inform, and cooperate in making available to, the Company or any such other person or persons upon oral request made from time to time prior to the Expiration Date of such other information as it or he or she reasonably requests. Such cooperation shall include, without limitation, the granting by you to the Company and such person as the Company may request of access to those persons on your staff who are responsible for receiving tenders, in order to ensure that immediately prior to the Expiration Date the Company shall have received information in sufficient detail to enable it to decide whether to extend the Exchange Offer. You shall prepare a final list of all persons whose tenders were accepted, the aggregate principal amount of Original Notes tendered, the aggregate principal amount of Original Notes accepted and deliver said list to the Company. 17. Letters of Transmittal and Notices of Guaranteed Delivery shall be stamped by you as to the date and the time of receipt thereof and shall be preserved by you for a period of time at least equal to the period of time you preserve other records pertaining to the transfer of securities. You shall dispose of unused Letters of Transmittal and other surplus materials by returning them to the Company. 18. You hereby expressly waive any lien, encumbrance or right of set-off whatsoever that you may have with respect to funds deposited with you for the payment of transfer taxes by reasons of amounts, if any, borrowed by the Company, or any of its subsidiaries or affiliates pursuant to any loan or credit agreement with you or for compensation owed to you hereunder. 19. For services rendered as Exchange Agent hereunder, you shall be entitled to such compensation as set forth on Schedule I attached hereto. 20. You hereby acknowledge receipt of the Prospectus and the Letter of Transmittal and further acknowledge that you have examined each of them. Any inconsistency between this Agreement, on the one hand, and the Prospectus and the Letter of Transmittal (as they may be amended from time to time), on the other hand, shall be resolved in favor of the latter two documents, except with respect to the duties, liabilities and indemnification of you as Exchange Agent, which shall be controlled by this Agreement. 21. (a) The Company covenants and agrees to indemnify and hold you harmless in your capacity as Exchange Agent hereunder against any loss, liability, cost or 7 expense, including attorneys' fees and expenses, arising out of or in connection with any act, omission, delay or refusal made by you in reliance upon any signature, endorsement, assignment, certificate, order, request, notice, instruction or other in strument or document (whether in its original or facsimile form) reasonably believed by you to be valid, genuine and sufficient and in accepting any tender or effecting any trans fer of Original Notes reasonably believed by you in good faith to be authorized, and in delaying or refusing in good faith to accept any tenders or effect any transfer of Original Notes; provided, however, that the Company shall not be liable for indemnification or otherwise for any loss, liability, cost or expense to the extent arising out of your negligence, willful misconduct or bad faith. In no case shall the Company be liable under this indemnity with respect to any claim against you unless the Company shall be notified by you, by letter or by facsimile confirmed by letter, of the written assertion of a claim or notice of commencement of an action against you or of any other action com menced against you, promptly after you shall have received any such written assertion or notice of commencement of an action. The Company shall be entitled to participate at its own expense in the defense of any such claim or other action, and, if the Company so elects, the Company shall assume the defense of any suit brought to enforce any such claim. In the event that the Company shall assume the defense of any such suit or threatened action in respect of which indemnification may be sought hereunder, the Company shall not be liable for the fees and expenses of any additional counsel thereafter retained by you so long as the Company shall retain counsel reasonably satisfactory to you to defend such suit, and so long as you have not determined, in your reasonable judgment, that a conflict of interest exists between you and the Company. 22. You shall arrange to comply with all requirements under the tax laws of the United States, including those relating to missing Tax Identification Numbers, and shall file any appropriate reports with the Internal Revenue Service. The Company understands that you are required to deduct up to 30.5% on payments to holders who have not supplied their correct Taxpayer Identification Number or required certification. Such funds will be turned over to the Internal Revenue Service in accordance with applicable regulations. 23. At the Company's written direction, you shall deliver or cause to be delivered, in a timely manner to each governmental authority to which any transfer taxes are payable, if any, in respect of the exchange of Original Notes, the Company's check in the amount of all transfer taxes so payable; provided, however, that you shall reimburse the Company for any amounts refunded to you in respect of the payment of any such transfer taxes, at such time as such refund is received by you. 8 24. This Agreement and your appointment as Exchange Agent hereunder shall be construed and enforced in accordance with the laws of the State of New York applicable to agreements made and to be performed entirely within such state, and without regard to conflicts of law principles, and shall inure to the benefit of, and the obligations created hereby shall be binding upon, the successors and assigns of each of the parties hereto. 25. This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. 26. In case any provision of this Agreement shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. 27. This Agreement shall not be deemed or construed to be modified, amended, rescinded, cancelled or waived, in whole or in part, except by a written in strument signed by a duly authorized representative of the party to be charged. This Agreement may not be modified orally. 28. Unless otherwise provided herein, all notices, requests and other communications to any party hereunder shall be in writing (including facsimile or similar writing) and shall be given to such party, addressed to it, at its address or telecopy number set forth below: If to the Company: Hexcel Corporation Two Stamford Plaza 281 Tresser Boulevard Stamford, Connecticut 06901-3238 Facsimile: (203) 358-3993 Attention: Ira J. Krakower, Esq. If to the Exchange Agent: 9 The Bank of New York Corporate Trust Department 101 Barclay Street, 21W New York, New York 10286 Facsimile: (212) 815-5915 Attention: Geovanni Barris 29. Unless terminated earlier by the parties hereto, this Agreement shall terminate 90 days following the Expiration Date. Notwithstanding the foregoing, Paragraphs 19, 21 and 23 shall survive the termination of this Agreement. Upon any termination of this Agreement, you shall promptly deliver to the Company any certificates for Notes, funds or property then held by you as Exchange Agent under this Agreement. 30. This Agreement shall be binding and effective as of the date hereof. 10 Please acknowledge receipt of this Agreement and confirm the arrangements herein provided by signing and returning the enclosed copy. HEXCEL CORPORATION By: ----------------------------------- Name: Ira J. Krakower Title: Senior Vice President, General Counsel and Secretary Accepted as of the date first above written: THE BANK OF NEW YORK, as Exchange Agent By: ----------------------------- Name: Title: SCHEDULE I FEES EXCHANGE AGENT FEE: $[ ] OUT OF POCKET EXPENSES: Fees quoted do not include any out-of-pocket expenses including but not limited to facsimile, stationary, postage, telephone, overnight courier and messenger costs. These expenses will be billed at cost when incurred. OUTSIDE COUNSEL FEES AND EXPENSES: Fees quoted do not included the fees and expenses for services rendered by outside counsel. EX-99.6 24 a2055198zex-99_6.txt EXHIBIT 99.6 EXHIBIT 99.6 GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE PAYER.--Social Security numbers have nine digits separated by two hyphens: I.E. 000-00-0000. Employer identification numbers have nine digits separated by only one hyphen: 00-00000000. The table below will help determine the number to give the payer.
- -------------------------------------------------- GIVE THE SOCIAL SECURITY FOR THIS TYPE OF ACCOUNT NUMBER OF - -------------------------------------------------- 1. An individual's The individual account 2. Two or more The actual owner of the individuals (joint account or, if combined account) funds, the first individual on the account(1) 3. Husband and wife The actual owner of the (joint account) account or, if joint funds the first individual on the account(1) 4. Custodian account of The minor(2) a minor (Uniform Gift to Minors Act) 5. Adult and minor The adult or, if the (joint account) minor is the only contributor, the minor(1) 6. Account in the name The ward, minor, or of guardian or incompetent person(3) committee for a designated ward, minor, or incompetent person 7. a. The usual The actual owner(1) revocable savings trust account (grantor is also trustee b. So-called trust The actual owner(1) account that is not a legal or valid trust under State law 8. Sole proprietorship The owner(4) account - -------------------------------------------------- GIVE THE EMPLOYER IDENTIFICATION FOR THIS TYPE OF ACCOUNT NUMBER OF - -------------------------------------------------- 9. A valid trust, The legal entity (Do not estate or pension furnish the identifying trust number of the personal representative or trustee unless the legal entity itself is not designated in the account title.)(5) 10. Corporate account The corporation 11. Religious, The partnership charitable held in the name of the partnership 12. Partnership account The partnership held in the name of the partnership 13. Association, club, The organization or other tax-exempt organization 14. A broker or The broker or nominee registered nominee 15. Account with the The public entity Department of Agriculture in the name of a public entity (such as a State or local government, school district or prison) that receives agricultural program payments
- -------------------------------------------------------------------------------- (1) List first and circle the name of the person whose number you furnish. (2) Circle the minor's name and furnish the minor's social security number. (3) Circle the ward's, minor's or incompetent person's name and furnish such person's social security number. (4) You must show your individual name, but you may also enter your business or "doing business" name. You may use either your Social Security Number or Employer Identification Number. (5) List first and circle the name of the legal trust, estate, or pension trust. NOTE: If no name is circled when there is more than one name, the number will be considered to be that of the first name listed. NUMBER ON SUBSTITUTE FORM W-9 PAGE 2 OBTAINING A NUMBER If you do not have a taxpayer identification number, obtain Form SS-5, Application for Social Security Card, or Form SS-4, Application for Employer Identification Number, at the local office of the Social Security Administration or the Internal Revenue Service (the "IRS") and apply for a number. Payees specifically exempted from backup withholding on ALL payments by brokers include the following: - A corporation. - A financial institution. - An organization exempt from tax under Section 501(a), or an individual retirement plan or a custodial account under Section 403(b)(7) if the account satisfied the requirements of Section 401(f)(2). - The United States or any agency or instrumentality thereof. - A State, the District of Columbia, a possession of the United States, or any subdivision or instrumentality thereof. - A foreign government, a political subdivision of a foreign government, or any agency or instrumentality thereof. - An international organization or any agency or instrumentality thereof. - A registered dealer in securities or commodities registered in the U.S. or a possession of the U.S. - A real estate investment trust. - A common trust fund operated by a bank under Section 584(a). - An entity registered at all times under the Investment Company Act of 1940. - A foreign central bank or issue. - A futures commission merchant registered with the Commodity Futures Trading Commission. - A person registered under the Investment Advisors Act of 1940 who regularly acts as a broker. Payments of dividends and patronage dividends not generally subject to backup withholding include the following: - Payments to nonresident aliens subject to withholding under Section 1441. - Payments to partnerships not engaged in a trade or business in the U.S. and which have at least one nonresident partner. - Payments of patronage dividends where the amount received is not paid in money. - Payments made by certain foreign organizations. - Payments made to a nominee. Payments of interest not generally subject to backup withholding include the following: - Payments of interest on obligations issued by individuals. Note: You may be subject to backup withholding if this interest is $600 or more and is paid in the course of the payer's trade or business and you have not provided your correct taxpayer identification number to the payer. - Payees specifically exempted from backup withholding on ALL payments by brokers include the following: - Payments described in Section 6049(b)(5) to nonresident aliens. - Payments on tax-free covenant bonds under Section 1451. - Payments made by certain foreign corporations. - Payments made to a nominee. EXEMPT PAYEES DESCRIBED ABOVE SHOULD FILE FORM W-9 TO AVOID POSSIBLE ERRONEOUS BACKUP WITHHOLDING. FILE THIS FORM WITH THE PAYER, FURNISH YOUR TAXPAYER IDENTIFICATION NUMBER, CHECK "EXEMPT" IN PART II OF THE FORM, SIGN AND DATE THE FORM AND RETURN IT TO THE PAYER. Certain payments other than interest, dividends, and patronage dividends, which are not subject to information reporting are also not subject to backup withholding. For details, see the regulations under Section 6041, 6041(A)(a), 6045, and 6050A. PRIVACY ACT NOTICE.--Section 6109 requires most recipients of dividend, interest, or other payments to give taxpayer identification numbers to payers who must report the payments to IRS. IRS uses the numbers for identification purposes. Payers must be given the numbers whether or not recipients are required to file tax returns. Beginning January 1, 1993, payers must generally withhold 31% of taxable interest, dividend, and certain other payments to a payee who does not furnish a taxpayer identification number to a payer. Certain penalties may also apply. PENALTIES (1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER.--If you fail to furnish your taxpayer identification number to a payer, you are subject to a penalty of $50 for each such failure unless your failure is due to reasonable cause and not to willful neglect. (2) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING.--If you make a false statement with no reasonable basis that results in no imposition of backup withholding, you are subject to a penalty of $500. (3) CRIMINAL PENALTY FOR FALSIFYING INFORMATION.--Falsifying certifications or affirmations may subject you to criminal penalties including fines and/or imprisonment. FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE SERVICE. -----END PRIVACY-ENHANCED MESSAGE-----