-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, BR3aPeeh+BqKgp9UlonD9koEtB+ySo0ODngI3mgnaaI3oKXBAA6iVX1CX083Y14i lQMuarQlmZjobW7oWScLTQ== 0000912057-95-001747.txt : 199507120000912057-95-001747.hdr.sgml : 19950711 ACCESSION NUMBER: 0000912057-95-001747 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 17 CONFORMED PERIOD OF REPORT: 19941231 FILED AS OF DATE: 19950327 SROS: NYSE SROS: PSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: HEXCEL CORP /DE/ CENTRAL INDEX KEY: 0000717605 STANDARD INDUSTRIAL CLASSIFICATION: METAL FORGING & STAMPINGS [3460] IRS NUMBER: 941109521 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-08472 FILM NUMBER: 95523613 BUSINESS ADDRESS: STREET 1: 5794 W LAS POSITAS BLVD CITY: PLEASANTON STATE: CA ZIP: 94588 BUSINESS PHONE: 5108479500 MAIL ADDRESS: STREET 1: 5794 W LAS POSITAS BLVD CITY: PLEASANTON STATE: CA ZIP: 945888781 10-K 1 FORM 10-K - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 ------------------------------------------------ FORM 10-K /X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended December 31, 1994 or / / Transition Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 For the transition period from to ------------- -------------- Commission File Number 1-8472 -------------------------- HEXCEL CORPORATION (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) Delaware 94-1109521 (STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NO.) 5794 W. Las Positas Boulevard Pleasanton, California 94588-8781 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES AND ZIP CODE) Registrant's telephone number, including area code: (510) 847-9500 Securities registered pursuant to Section 12(b) of the Act: TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED ------------------- ----------------------------------------- COMMON STOCK NEW YORK STOCK EXCHANGE COMMON STOCK PACIFIC STOCK EXCHANGE Securities registered pursuant to Section 12(g) of the Act: 7% CONVERTIBLE SUBORDINATED DEBENTURES DUE 2011 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ------ ------ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value as of March 17, 1995 of voting stock held by nonaffiliates of the registrant: $30,073,961. Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan of reorganization confirmed by a U.S. Bankruptcy Court. Yes X No ---- ---- The number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date. CLASS OUTSTANDING AT MARCH 17, 1995 COMMON STOCK 9,246,947 Documents Incorporated by Reference: None - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- PART I ITEM 1. BUSINESS. GENERAL DEVELOPMENT OF BUSINESS Hexcel Corporation (herein referred to as "Hexcel"), founded in 1946, was initially incorporated in California in 1948, and reincorporated in Delaware in 1983. Hexcel Corporation and subsidiaries (herein referred to as the "Company") is an international developer and manufacturer of honeycomb, advanced composites and reinforcement fabrics. Hexcel materials are used in commercial aerospace, space and defense, general industrial and other markets. BANKRUPTCY REORGANIZATION PROCEEDINGS On February 9, 1995, the First Amended Plan of Reorganization (the "Reorganization Plan") proposed by Hexcel and the Official Committee of Equity Security Holders (the "Equity Committee") became effective, and Hexcel emerged from bankruptcy reorganization proceedings. Those proceedings had begun on December 6, 1993, when Hexcel filed a voluntary petition for relief under the provisions of Chapter 11 of the federal bankruptcy laws. The commencement of bankruptcy reorganization proceedings followed a series of events, including a general deterioration of aerospace markets and a deep economic recession in Europe, which adversely impacted the Company, depleted its sources of cash and left Hexcel without adequate financing to fund its operations and restructuring program. Further discussion of bankruptcy reorganization proceedings is included in "Management Discussion and Analysis" and in Note 2 to the Consolidated Financial Statements included in this Form 10-K. THE REORGANIZATION PLAN The Reorganization Plan which became effective on February 9, 1995 provided for (a) the replacement of the debtor-in-possession credit facility with a new revolving credit facility of up to $45.0 million; (b) the creation of an amended reimbursement agreement with respect to the letters of credit which support certain industrial development revenue bonds; and (c) the completion of the first closing under a standby purchase commitment whereby Mutual Series Fund, Inc. ("Mutual Series") purchased approximately 1.9 million shares of new common stock for $9.0 million and loaned the Company $41.0 million as an advance against the proceeds of a subscription rights offering for an additional 8.9 million shares of new common stock. The subscription rights became exercisable on February 24, 1995 and will expire on March 27, 1995. The Reorganization Plan also provided for the reinstatement or payment in full, with interest, of all allowed claims, including prepetition accounts payable and notes payable. The payment of claims and interest on February 9, 1995 was funded with the cash proceeds from certain asset sales discussed below, the $50.0 million in cash received from Mutual Series, and borrowings under the new revolving credit facility. Information as to the sources and uses of cash pursuant to the Reorganization Plan is included in Note 3 to the Consolidated Financial Statements included in this Form 10-K, which also sets forth the pro forma condensed consolidated financial position of the Company as of December 31, 1994 as if the consummation of the Reorganization Plan occurred on such date. Further discussion of the Reorganization Plan and Hexcel's emergence from bankruptcy reorganization proceedings is included in "Management Discussion and Analysis" and in the Notes to the Consolidated Financial Statements included in this Form 10-K. 1 ASSET SALES Hexcel sold its Chandler, Arizona manufacturing facility and certain related assets and technology to Northrop Grumman Corporation. During the fourth quarter of 1994, the Company recognized other income of $15.9 million relating to the sale. The transaction generated net cash proceeds of approximately $29.0 million, of which $2.3 million was received in 1994 and $26.7 million was received in the first quarter of 1995. The net cash proceeds were utilized to pay off the remaining balance of the debtor-in-possession credit facility and to partially fund distributions to creditors made on the effective date of the Reorganization Plan. Together with the closure of the Graham, Texas facility, the sale of the Chandler facility largely completes the reduction in the Company's honeycomb production capacity contemplated by the Company's restructuring program. During the fourth quarter of 1994, the Company sold its European resins business to Axson S.A., a French corporation. The sale and related settlement transactions generated net cash proceeds of approximately $8.7 million, of which $6.1 million was received in the fourth quarter of 1994 and $2.6 million was received in the first quarter of 1995. The net cash proceeds were utilized primarily to pay down borrowings under the debtor-in-possession credit facility. The European resins business was a substantial component of the Company's worldwide resins business, comprised of operations in Europe and the U.S. The Company is continuing discussions for the sale of its U.S. resins business, and believes that such a sale on acceptable terms can be arranged. Accordingly, the resins business is accounted for as a discontinued operation in the Consolidated Financial Statements included in this Form 10-K. Further discussion of the Chandler and European resins transactions is included in Note 4 to the Consolidated Financial Statements included in this Form 10-K. INDUSTRY SEGMENT Hexcel operates within a single industry segment, structural materials. The Company sells these materials throughout the world. The net sales, income (loss) before income taxes, identifiable assets, capital expenditures, and depreciation and amortization for each geographic area for the past three years are shown in Note 20 to the Consolidated Financial Statements included in this Form 10-K. BUSINESS HONEYCOMB Honeycomb is a unique, lightweight, cellular structure composed generally of hexagonal cells nested together, similar in appearance to a cross-sectional slice of a beehive. The hexagonal shape of the cells gives honeycomb a high strength-to-weight ratio when used in "sandwich" form, and a uniform resistance to crushing under pressure. These characteristics are combined with the physical properties of the material from which the honeycomb is made to meet various engineering requirements. The Company produces honeycomb from a number of metallic and non-metallic materials. Most metallic honeycomb is made of aluminum and is available in a selection of alloys, cell sizes and thicknesses. Non-metallic honeycomb materials include fiberglass; graphite; thermoplastics; Nomex[REGISTERED TRADEMARK], a non-flammable aramid fiber paper; Kevlar[REGISTERED TRADEMARK], an aramid fiber; and several other specialty materials. 2 The Company sells honeycomb in standard blocks and sheets of honeycomb core. The Company adds value to standard honeycomb core by contouring and machining it into complex shapes to meet customer specifications. In bonded panel construction, sheets of aluminum, stainless steel, resin-impregnated reinforcement fiber "skins" or other laminates are bonded with adhesives to each side of a honeycomb core. Use of an autoclave allows the Company to manufacture parts requiring the high temperature and pressure necessary to produce complex engineered bonded assemblies. In addition, the Company fabricates complex engineered panels containing honeycomb. The largest markets for the Company's honeycomb are the commercial and military aerospace markets. Advanced processing is used in the production of aircraft components such as wing flaps, ailerons and helicopter rotor blades. Specific applications include control surfaces (movable parts such as rudders, flaps, spoilers and speed brakes that control the direction or speed of an airplane); engine nacelles, cowlings, pylons and nozzles; fairings (flap track and wing-to-body); interiors (walls, floors, partitions and luggage bins); landing gear doors and access doors; wings, wing tips, wing leading edge and trailing edge panels; horizontal stabilizers; radomes; and satellite components. Non-aerospace general industrial honeycomb applications include high-speed trains and mass transit vehicles (doors, partitions, ceilings, floors and external structures); energy absorption products; athletic shoe components; automotive components (screens for mass air flow controllers in fuel injection systems, protective head and knee restraints); portable military shelters and military support equipment; marine vessel compartments (bulkheads, water closets, doors, floor panels, partitions, furniture and bunks); business machine cabinets; exterior building cladding and air conditioning systems. Hexcel has been the world leader in developing and manufacturing honeycomb for almost 50 years. Although the markets for honeycomb materials are highly competitive, management knows of no other manufacturer that has produced and sold as much structural grade honeycomb as the Company during the last five years. While industry statistics are not available, management believes on the basis of market research that the Company currently produces and sells the largest share of metallic and non-metallic honeycomb used in the world. In addition, the Company continues to develop new honeycomb materials for the markets it serves. ADVANCED COMPOSITES Advanced composites combine high performance reinforcement fibers with resins to form a composite material with exceptional structural properties not found in the fibers or resins alone. Hexcel impregnates reinforcement fabrics, and fibers aligned into unidirectional tapes, with resins to produce a "prepreg." In addition to standard S-2[REGISTERED TRADEMARK] and E-type fiberglass, Hexcel produces advanced composite materials from a variety of commercially available fibers. Graphite fiber exhibits high strength and stiffness relative to weight and is sold principally for aerospace and recreational uses. Aramid fiber is exceptionally resistant to impact and is used in aircraft and in various armor and protection applications. Quartz and ceramic fibers are resistant to extremely high temperatures and are used in various aerospace and general industrial applications. Electrically and thermally conductive Thorstrand[REGISTERED TRADEMARK] is used mainly by the aerospace industry. Resin systems include epoxy, polyester, bismaleimide, phenolic, cyanates and polyimide. Advanced composites are sold to several markets including transportation (commercial and private aircraft, mass transit, freight and passenger vehicles); space and defense (military aircraft, naval vessels, space vehicles, defense systems and military support equipment); recreation (athletic shoes, fishing rods, bicycles, tennis rackets, baseball bats, golf clubs, surfboards, snow skis and racing cars); general 3 industrial (utility surge arrestors, antennae and insulative rods for electrical repairs); and medical (orthotics and prosthetics). Net sales of honeycomb and advanced composites, sold separately and together as complex bonded structures, were $219.0 million in 1994, $217.6 million in 1993 and $253.8 million in 1992. The decline since 1992 has been due mainly to a significant drop in commercial and military aerospace business. REINFORCEMENT FABRICS Hexcel produces woven fabrics without resin impregnation from the same fibers the Company uses to make advanced composites. These fibers include S-2 and E- type fiberglass, high strength carbon fibers, impact resistant Kevlar, electrically conductive Thorstrand, temperature resistant ceramic and quartz fibers, and a variety of other specialty fibers. The Company sells reinforcement fabrics for use in numerous applications. These include aerospace, marine (commercial and pleasure boats), printed circuit boards, metal and fume filtration systems, ballistics protection, decorative window coverings, automotive, insulation, recreation, civil engineering (architectural wraps), and other general and industrial applications. The Company entered into a strategic alliance with Owens-Corning Fiberglas Corporation in July 1993. The Knytex joint venture combined the weaving and stitchbonding technology of Hexcel with the worldwide reinforcement glass fiber manufacturing, marketing and distribution capabilities of Owens-Corning. Knytex is a market leader in the design and manufacture of stitchbonded, multi-layer reinforcement fabrics which are stronger in all directions and generally lower cost than traditional woven fabrics. The stitchbonded materials may be multiple layers of fabrics or fibers with varying orientations. The Company entered into a joint venture with Fyfe Associates Corporation in October 1992. Hexcel-Fyfe sells and applies high-strength architectural wrap for the seismic retrofitting and strengthening of bridges, columns and other structures. Net sales of reinforcement fabrics were $94.8 million in 1994, $93.0 million in 1993 and $99.2 million in 1992. Sales of reinforcement fabrics were reduced by the transfer of the Company's stitchbonded business to a joint venture on June 30, 1993. The stitchbonded business accounted for sales of $7.0 million in the first six months of 1993 and $11.3 million in all of 1992. PRODUCTS AND PROCESSES, RESEARCH AND DEVELOPMENT The Company spent $8.2 million in 1994, $8.0 million in 1993 and $9.5 million in 1992 for research and development of products and markets. This represented 2.6% of net sales in each of 1994 and 1993, and 2.7% of sales in 1992. These expenditures were expensed as incurred. The Company's materials rely primarily upon technology derived from the field of polymer chemistry, as well as advanced engineering and assembly of composite structures and textiles. RAW MATERIALS The Company purchases all raw materials used in production. Several key raw materials are available from relatively few sources. If these materials were no longer available, which the Company does not anticipate, such an occurrence could have a material adverse effect on operations. 4 ENVIRONMENTAL MATTERS Environmental control regulations have not had a significant adverse effect on overall operations. A discussion of environmental matters is included in "Item 3. Legal Proceedings." beginning on page 9 of this Form 10-K. MARKETS AND CUSTOMERS The Company's materials are sold for a broad range of uses. The table on page 44 of this Form 10-K entitled "Market Summary" displays the percentage distribution of net sales by market since 1990. The Boeing Company and Boeing subcontractors accounted for approximately 22% of 1994 sales. The loss of this business, which the Company does not anticipate, could have a material adverse effect on sales and earnings. Sales to various U.S. government programs, including some of the sales to The Boeing Company and Boeing subcontractors noted above, were approximately 10% of sales in 1994. The Company's commercial aerospace and space and defense sales are substantially dependent upon the level of activity within each industry as well as the acceptance by each industry of the Company's aerospace materials and services. Demands for improved aircraft performance have led to the increased use of honeycomb and advanced composite materials in aircraft manufacture, particularly in newer models and development programs. However, the Company must continuously demonstrate the cost benefits of its products for aerospace applications. Commercial aerospace activity fluctuates in relation to two principal factors. First, the number of revenue passenger miles flown by the airlines affects the size of the airline fleets and generally follows the level of overall economic activity. The second factor, which is less sensitive to the general economy, is the replacement and retrofit rates for existing aircraft. These rates, resulting mainly from obsolescence, are determined in part by Federal Aviation Administration regulations as well as public concern regarding aircraft age, safety and noise. Also, these rates may be affected by the desire of airlines for higher payloads and more fuel efficient aircraft, which in turn is influenced by the price of fuel. Commercial aircraft build rates, based on the estimated number of aircraft delivered, declined by more than 30% from 1992 to 1994. Major aircraft builders have announced significant personnel reductions which began in 1993 and are expected to continue at least through 1995. Based on current projections of aircraft build rates, the commercial aerospace market will likely show little improvement at least until 1996. The Company believes activity within the military aerospace industry fluctuates in relation to world tensions and the attitudes of the current Administration and Congress toward defense spending. Since 1987, the aircraft procurement budget of the U.S. Department of Defense has declined by more than 40%. Political changes in Eastern Europe, the former Soviet Union, and the Middle East, combined with strong U.S. political sentiment toward reduced defense spending indicate that military procurement will continue to decline through 1995 and beyond. Company sales to space and defense markets, particularly military aerospace, continue to decline. In 1994, space and defense sales decreased to $34.9 million from $55.3 million in 1993 and $57.8 million in 1992. The Company believes that its participation in space and defense markets will continue to shrink. The B-2 aircraft program, which began in the mid - 1980s, has accounted for a significant portion of the 5 Company's recent space and defense sales, and the Company's involvement in this program is declining. During the fourth quarter of 1994, the Company sold its Chandler, Arizona facility, which was constructed in 1988 primarily to manufacture materials for the B-2 program, along with certain related assets and technology. Hexcel 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. The Company is subject to U.S. government cost accounting standards, which are applicable to companies with more than $25 million of government contract or subcontract awards each year. The Company has a facility security clearance from the United States Department of Defense. A portion of the Company's sales and other revenues in 1994 was derived from work requiring this clearance. Continuation of this clearance requires that the Company remain free from foreign ownership, control or influence (or "FOCI"). Management does not believe there is presently any substantial risk of FOCI that will cause the facility security clearance to be revoked. SALES AND MARKETING A staff of salaried market managers, product managers and salespeople market the Company's products directly to customers worldwide. The Company also uses independent distributors and/or manufacturer representatives for certain products and markets, including reinforcement fabrics. BACKLOG The backlog of orders for aerospace materials to be filled within 12 months was $65.6 million at December 31, 1994, $61.6 million at December 31, 1993 and $100.5 million at December 31, 1992. A major portion of the backlog is cancelable without penalty. The decline in aerospace backlog from 1992 levels is attributable to a number of reasons, primarily the shrinking commercial and military aerospace market. In addition, the aerospace industry is gradually moving toward "just-in-time" inventory delivery, shorter lead time requirements and reduced manufacturing cycle times to reduce investments in inventory. Orders for aerospace materials generally lag behind the award of orders for new aircraft by a considerable period. Thus, the level of new aircraft procurement normally will not have an impact on aerospace orders received by the Company for about one to three years, depending on the nature of the product, manufacturer and delivery schedules. Backlog for non-aerospace materials amounted to $40.7 million at December 31, 1994, compared with $29.1 million at December 31, 1993 and $16.8 million at December 31, 1992. Most of the Company's backlog is expected to be filled within six months. Markets for the Company's products outside of the aerospace industry are generally highly competitive requiring shorter lead times for delivery or stock for immediate sale. The backlog for non-aerospace orders increased as the Company developed new applications for existing products and the economies in both the U.S. and Europe continued to improve in 1994. 6 INTERNATIONAL OPERATIONS In addition to exporting from the United States, the Company serves international markets through three European operating subsidiaries located in Belgium, France and the United Kingdom. Each of these subsidiaries maintains manufacturing and marketing facilities. The Company also maintains sales offices in Australia, Brazil and Japan. Hexcel is a partner in a joint venture formed in 1990 with Dainippon Ink & Chemicals ("DIC") for the production and sale of Nomex honeycomb, advanced composites and decorative laminates for the Japanese market. (See Note 5 to the Consolidated Financial Statements included in this Form 10-K for additional information on this joint venture.) All Hexcel materials, with the exception of classified U.S. military materials, are marketed throughout the world. The table on page 44 of this Form 10-K entitled "Market Summary" displays the amount of international net sales and the percentage of international sales to total net sales since 1990. Note 20 to the Consolidated Financial Statements included in this Form 10-K shows various financial data for international operations since 1992. JOINT VENTURES The Company has entered into three joint ventures since 1990, including the one with DIC discussed above. Further discussion of these joint ventures is included in "Management Discussion and Analysis" and in Notes 5 and 8 to the Consolidated Financial Statements included in this Form 10-K. DISCONTINUED OPERATIONS Following a strategic review of its products and markets, the Company concluded that there is little interrelationship between its resins business and its core businesses of honeycomb, advanced composites and reinforcement fabrics. Consequently, the Company intensified its efforts to sell its resins business, comprised of operations in Europe and the U.S., during 1994. As a result of those efforts, the Company completed the sale of its European resins business on December 29, 1994, and now believes that the sale of its U.S. resins business on acceptable terms can be arranged. Accordingly, the resins business is accounted for as a discontinued operation. Financial data, employees and properties related to this business have been segregated, and the information in this report reflects continuing operations only. In November 1990, the Company announced plans to sell the fine chemicals business with operations in Zeeland, Michigan and Teesside, England. On March 31, 1992, the Company sold the Zeeland, Michigan fine chemicals business. On January 31, 1994, the Company sold its Teesside, England business. The fine chemicals business is accounted for as a discontinued operation. Financial data, employees and properties related to this business have been segregated, and the information in this report reflects continuing operations only. See Notes 4 and 17 to the Consolidated Financial Statements included in this Form 10-K for additional information on the Company's discontinued operations. COMPETITION In the production and sale of its materials, the Company competes with numerous U.S. and international companies on a worldwide basis, many of which are considerably larger than Hexcel in size 7 and financial resources. For example, the Company competes with one major international manufacturer of honeycomb, advanced composites and reinforcement fabrics, as well as several other major companies on specific products. The Company also competes with many smaller U.S. and international manufacturers. The broad markets for Hexcel products are highly competitive. The Company has focused on both specific markets and specialty products within markets to gain market share. Hexcel materials compete with substitute structural materials, including building materials such as structural foam, metal, wood and other engineered material. Depending upon the material and markets, relevant competitive factors include price, delivery, service, quality and product performance. PATENTS AND KNOW-HOW Management believes the ability to develop and manufacture materials is dependent upon the know-how and special skills within the Company. In addition, the Company has obtained and presently owns a number of patents, patent applications, and patent and technology licenses. It is Hexcel policy to enforce the proprietary rights of the Company. In 1992, the Company received a favorable judgment for patent infringement and misappropriation of trade secrets which resulted in a gain of $3.0 million. Management believes the patents and know-how rights currently owned are adequate for the conduct of business. In the opinion of management, however, no individual patent or license is of material importance. EMPLOYEES At December 31, 1994, the Company employed 2,189 full-time employees in its continuing operations, compared with 2,221 and 2,852 at December 31, 1993 and 1992, respectively. Of these employees, 1,712 were in manufacturing and the remainder were administrative, sales, engineering, marketing, research and clerical personnel. Approximately 160 employees at one European facility and 86 employees at one domestic facility have union affiliations. Management believes that labor relations in the Company are generally satisfactory. ITEM 2. PROPERTIES. Hexcel owns manufacturing facilities and sales offices located throughout the United States and in other countries as noted below. The corporate offices and principal corporate support activities for the Company are located in leased facilities in Pleasanton, California. The central research and development laboratories for the Company are located in Dublin, California. 8 The following table lists the manufacturing facilities by geographic location, approximate square footage and principal products. These facilities have sufficient production capacity to meet the Company's current manufacturing requirements. MANUFACTURING FACILITIES
Approximate Facility Location Square Footage Principal Products - ----------------- -------------- ------------------ United States: Casa Grande, Arizona 301,000 Metallic and non-metallic honeycomb, advanced honeycomb processing Pottsville, Pennsylvania 100,000 Advanced honeycomb processing Burlington, Washington 50,000 Advanced honeycomb processing Livermore, California 150,000 Advanced composites Lancaster, Ohio 42,000 Advanced composites Seguin, Texas 170,000 Woven reinforcement fabrics International: Welkenraedt, Belgium 223,000 Metallic and non-metallic honeycomb, advanced honeycomb processing, advanced composites Swindon, England 20,000 Non-metallic honeycomb processing Les Avenieres, France 373,000 Woven reinforcement fabrics, advanced composites
The Company leases the land on which the Burlington, Washington facility is located as well as the Swindon, England plant. The Company also leases portions of the Casa Grande, Arizona; Welkenraedt, Belgium; and Les Avenieres, France facilities. Certain of the properties secure loans made to the Company. In addition, substantially all U.S. properties, equipment and fixtures, along with other business property, secure the new U.S. revolving credit facility (see Note 9 to the Consolidated Financial Statements included in this Form 10-K). ITEM 3. LEGAL PROCEEDINGS. On January 10, 1995, the Bankruptcy Court for the Northern District of California, Oakland Division (the "Bankruptcy Court"), confirmed the First Amended Plan of Reorganization proposed by Hexcel and the Official Committee of Equity Security Holders dated as of November 7, 1994. The effective date of the Reorganization Plan was February 9, 1995. For further discussion, see "Item 1. Business." and "Management Discussion and Analysis" and Note 2 to the Consolidated Financial Statements included in this Form 10-K. In December 1988, Lockheed employees working with epoxy resins and composites on classified programs filed suit against Lockheed and its suppliers (including Hexcel) claiming various injuries as a result of exposure to these products. Plaintiffs have filed for punitive damages which are uninsured. The first trial of the cases of 15 pilot plaintiffs resulted in a mistrial and a retrial commenced in February 1994. Hexcel did not participate in the retrial due to the automatic stay resulting from the Chapter 11 filing. Some of these claims were discharged as a result of the plaintiffs' failure to file claims in Hexcel's Chapter 11 case. As to the claims which have not been discharged, the Company has objected to them and intends to proceed with those objections within the Bankruptcy Court. 9 In July 1992, the Company was joined in a lawsuit initiated in October 1990 in Alameda County Superior Court concerning a dispute over a real estate transaction between F&P Properties and Donald and Suzanne Smith (F&P PROPERTIES V. SMITH, ET AL.). This action concerns, in part, responsibility for clean-up and investigation costs associated with an abandoned waste disposal site located near the Company manufacturing facilities in Livermore, California. The Company sold this property to the Smiths in 1979, and the Smiths, in turn, sold it to F&P in 1985. A global settlement was negotiated during the Company's reorganization but has not been executed by the parties. The Company has objected to the claims filed in the Chapter 11 case and the matter is proceeding in the Bankruptcy Court. Hexcel / MCI, a business unit divested in 1991, performed brazing services in the manufacture of flexures under subcontract from Ormond which supplied the flexures to Thiokol. The flexures are used to support a rocket motor housing in a test stand during actual firing of the rocket. Several flexures cracked under the dead weight of a rocket motor prior to actual test firing, and Thiokol has sued Ormond and Hexcel for the costs of replacing all of the flexures purchased ($0.9 million) (THIOKOL CORPORATION V. ORMOND, HEXCEL, ET AL.). The automatic stay in bankruptcy will be lifted in April 1995 and the case will then resume in the state court in Utah. There is no insurance coverage available for an adverse court ruling or negotiated settlement. Hexcel Corporation has been named as a potentially responsible party ("PRP") with respect to several disposal sites that it does not own or possess and which are included on the Environmental Protection Agency's Superfund National Priority List ("NPL"). A total of 249 claims were filed in the Chapter 11 case with a face value of over $6.7 billion. These claims were, for the most part, duplicative as a result of the joint and several liability provisions of the applicable laws, and have been categorized into claims involving 12 sites. Claims involving 7 of the sites have been settled within the Chapter 11 case and the Company expects to settle claims with respect to one additional site. With respect to the claims relating to the remainder of these sites, Hexcel believes its responsibility to be de minimis and is negotiating to settle these claims; should no settlement be reached, the claims against Hexcel will be allowed to continue without the protection of the Chapter 11 case. The Company has been named a PRP with respect to 8 additional sites, for which no claims were filed in the Chapter 11 case; as a result, the Company believes any further claims to be barred. Also, pursuant to the New Jersey Environmental Responsibility and Clean-Up Act, Hexcel signed an administrative consent order to pay for clean-up of a manufacturing facility it formerly operated in Lodi, New Jersey. Hexcel has reserved $4.0 million to cover such remaining costs and believes that actual costs should not exceed the amount which has been reserved. Fine Organics Corporation, the current owner of the Lodi site and Hexcel's former chemicals business operated on that site, has asserted that the clean-up costs will be significantly in excess of that amount. The ultimate cost of remediation at the Lodi site will depend on developing circumstances. Fine Organics Corporation filed a proof of claim and an adversary proceeding in the Bankruptcy Court. The court has disallowed a significant portion of the claim by denying Fine Organics claim for treble damages and certain contingent claims. The remaining claims are for prior clean-up costs incurred by Fine Organics and alleged contractual and tort damages relating to the original sale of the business and site to Fine Organics totaling approximately $3.2 million. This matter is proceeding in the Bankruptcy Court. The Company, as a defense subcontractor, is subject to U.S. government audits and reviews of negotiations, performance, cost classifications, accounting and general practices relating to government contracts. The Defense Contract Audit Agency reviews cost accounting and business practices of government contractors and subcontractors including Hexcel. The Company has been engaged in discussions of a number of cost accounting issues which could result in claims by the government. Some 10 of these issues have already been resolved and management believes, based on available information and the Company's assertion of estoppel and a right of offset among individual issues, that it is unlikely the remaining items in the aggregate will have a material adverse effect on the financial position of the Company. In 1993, the Company became aware of an aluminum honeycomb sandwich panel delamination problem with panels produced by its wholly-owned Belgian subsidiary, Hexcel S.A., and installed in rail cars in France and Spain. Certain customers have alleged that Hexcel S.A. is responsible for the problem but the subsidiary has not been named in any lawsuits at this time. Hexcel S.A. is investigating these claims and the availability of any insurance coverage. Management believes, based on available information, that it is unlikely any of these items will have a material adverse effect on the consolidated operating results or financial position of the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None. 11 ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT. Listed below are the executive officers of the Company as of March 22, 1995, the positions held by them and a brief description of their business experience. There are no family relationships among any of the Company's executive officers:
OFFICER POSITIONS WITH COMPANY AND NAME AGE SINCE BUSINESS EXPERIENCE - ---- --- ----- ------------------- John J. Lee 58 1993 Chief Executive Officer since January 1994; Chairman of the Board of Directors and Chief Executive Officer from January 1994 to February 1995; Chairman and Co-Chief Executive Officer from July to December 1993; Director since May 1993, and currently a member of the Executive Compensation and Nominating Committees of the Board of Directors. Mr. Lee has served as the Chairman of the Executive Committee of XTRA Corporation, a transportation equipment leasing company, since 1990, and the Chairman of the Board, President and Chief Executive Officer of Lee Development Corporation, a merchant banking company, since 1987. Mr. Lee has been a Trustee of Yale University since 1993. From July 1989 through April 1993, Mr. Lee served as Chairman of the Board and Chief Executive Officer of Seminole Corporation, a manufacturer and distributor of fertilizer. From April 1988 through April 1993, Mr. Lee served as a Director of Tosco Corporation, a national refiner and marketer of petroleum products, and as President and Chief Operating Officer of Tosco from 1990 through April 1993. Mr. Lee is also a director of Playtex Products, Inc. and Aviva Petroleum Corporation. Donald J. O'Mara 57 1991 President and Chief Operating Officer since March 1993; Vice President - Honeycomb a and Advanced Products from 1991 to 1993. From 1987 to 1991, Mr. O'Mara served as managing director of Sprague-Brooks Associates. He was Vice President and Chief Operating Officer of Gates Learjet Corporation from 1984 to 1987. Stephen C. Forsyth 39 1994 Vice President, International Operations since October 1994; General Manager of Resins Business and Export Marketing from 1989 to 1994; other general management positions from 1980 to 1989. Mr. Forsyth joined the Company in 1980.
12
OFFICER POSITIONS WITH COMPANY AND NAME AGE SINCE BUSINESS EXPERIENCE - ---- --- ----- ------------------- Rodney P. Jenks, Jr. 44 1994 Vice President, General Counsel and Secretary of the Company since March 1994. Prior to joining the Company in 1994, Mr. Jenks was a partner in the law firm of Wendel, Rosen, Black, Dean & Levitan, from 1985. Thomas J. Lahey 54 1991 Vice President - Worldwide Sales since April 1993; Vice President - Advanced Composites from 1992 to 1993; General Manager of Advanced Composites from 1991 to 1992; General Manager of Advanced Products from 1989 to 1991. Prior to joining the company in 1989, Mr. Lahey held the position of Executive Assistant to the President of Kaman Aerospace Corporation in 1987 and 1988, and was a Vice President of Grumman Corporation from 1985 to 1987. William P. Meehan 59 1993 Vice President - Finance and Chief Financial Officer of the Company since September 1993, and Treasurer of the Company since April, 1994. Prior to joining the Company in 1993, Mr. Meehan served as President and Chief Executive Officer of Thousand Trails and NACO, a membership campground and resort business, from 1990 through 1992. From 1986 through 1989, Mr. Meehan served as Vice President-Finance and Chief Financial Officer of Hadco Corporation. Robert A. Petrisko 40 1993 Vice President - Technology since Ph.D. September 1993. From 1989 to 1993 he was manager of the signature technology group at the Chandler facility, then director of aerospace technology. Dr. Petrisko joined the Company in 1989, after serving as a Research Specialist with Dow Corning Corporation from 1985 to 1989. Gary L. Sandercock 53 1989 Vice President - Manufacturing since April 1993; Vice President - Reinforcement Fabrics from 1989 to 1993; General Manager of the Trevarno Division from 1985 to 1989; other manufacturing and general management positions from 1967 to 1985. Mr. Sandercock joined the Company in 1967.
13
OFFICER POSITIONS WITH COMPANY AND NAME AGE SINCE BUSINESS EXPERIENCE - ---- --- ----- ------------------- William K. Woodrow 47 1993 Vice President - Marketing and Business Development since March 1993. Prior to joining the Company in 1993, Mr. Woodrow served as Director of Corporate Marketing of Raychem Corporation from 1990 to 1992, and was Division Manager of Chemelex-Industrial Division from 1988 to 1990. Wayne C. Pensky 39 1993 Controller since July 1993. Prior to joining the Company in 1993, Mr. Pensky served as Service Line Director at Arthur Andersen & Co., where he was employed from 1979.
PART II ITEM 5. MARKET FOR COMMON STOCK OF REGISTRANT AND RELATED STOCKHOLDER MATTERS. Hexcel common stock is traded on the New York and Pacific Stock Exchanges. The range of high and low sales prices of Hexcel common stock on the New York Stock Exchange Composite Tape is contained in Note 21 to the Consolidated Financial Statements included in this Form 10-K and is incorporated herein by reference. The Company paid a quarterly dividend of 11 cents per share in 1992. Payments of future cash dividends were suspended effective with the first quarter of 1993, and are now prohibited by Hexcel's revolving credit agreements. On February 9, 1995, there were 2,448 holders of record of Hexcel common stock. ITEM 6. SELECTED FINANCIAL DATA. The information required by Item 6 is contained on page 32 of this Form 10-K under "Selected Financial Data" and is incorporated herein by reference. ITEM 7. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The information required by Item 7 is contained on pages 33 to 43 of this Form 10-K under "Management Discussion and Analysis" and is incorporated herein by reference. 14 ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The information required by Item 8 is contained on pages 48 to 76 of this Form 10-K under "Consolidated Financial Statements and Supplementary Data" and is incorporated herein by reference. The report of independent public accountants for the years ended December 31, 1994, 1993 and 1992 is contained on page 47 of this Form 10-K under "Independent Auditors' Report" and is incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. Not Applicable. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. The Company's Board of Directors was reconstituted as of February 9, 1995, the effective date under the Reorganization Plan, and consists of the following eight persons, all of whom were designated in accordance with the terms of the Reorganization Plan: John J. Lee and Peter A. Langerman, who were designated by Mutual Series Fund, Inc., Joseph L. Harrosh, Robert L. Witt and Peter D. Wolfson, who were designated by the Equity Committee, and Dr. George S. Springer, Franklin S. Wimer and Marshall S. Geller, who were designated by joint selection of the Equity Committee and Mutual Series. A ninth seat on the Board is reserved for the new Chief Executive Officer, who will join the Board immediately upon commencement of his or her employment. In addition, if upon the consummation of the rights offering pursuant to the Reorganization Plan, Mutual Series owns more than 50% of the shares of the common stock, Mutual Series will designate one additional director; if upon the consummation of the rights offering Mutual Series owns less than 25% of the shares of common stock, then one additional director will be designated by mutual agreement of those directors previously designated by the Equity Committee, on the one hand, and those directors previously designated by mutual agreement of the Equity Committee and Mutual Series, on the other hand. There are no family relationships among the Company's Board of Directors. The following biographies of the directors are based on information provided by them. John J. Lee, age 58, has been a director of the Company since May of 1993, Chairman of the Board and Co-Chief Executive Officer of the Company from July 1993 to December 1993, Chairman of the Board and Chief Executive Officer of the Company from January 1994 to February 9, 1995, and Chief Executive Officer since February 9, 1995. Mr. Lee has served as Chairman of the Executive Committee of XTRA Corporation, a transportation equipment leasing company, since 1990, and Chairman of the Board, President and Chief Executive Officer of Lee Development Corporation, a merchant banking company, since 1987. Mr. Lee has been a Trustee of Yale University since 1993. From July 1989 15 through April 1993, Mr. Lee served as Chairman of the Board and Chief Executive Officer of Seminole Corporation, a manufacturer and distributor of fertilizer. From April 1988 through April 1993, Mr. Lee served as a Director of Tosco Corporation, a national refiner and marketer of petroleum products and as President and Chief Operating Officer of Tosco from 1990 through April 1993. Mr. Lee is also a director of Playtex Products, Inc. and Aviva Petroleum Corp. Dr. George S. Springer, age 60, has been a director of the Company since January 1993. Dr. Springer is Professor and Chairman of the Department of Aeronautics and Astronautics and, by courtesy, Professor of Mechanical Engineering and Professor of Civil Engineering, at Stanford University. Dr. Springer joined Stanford University's faculty in 1983. Peter A. Langerman, age 39, became a director on February 9, 1995. He is also a director and the Executive Vice President of Mutual Series Fund, Inc., a diversified open-end management investment company registered under the Investment Company Act of 1940 and a research analyst with Heine Securities Corporation, an investment advisor. Mr. Langerman has been the Executive Vice President of Mutual Series since March 1988 and has been a research analyst at Heine Securities since 1986. Mr. Langerman has also been a director of Zenith Laboratories since 1989, and President and a director of S-O Equities Holding Company since 1993. Franklin S. Wimer, age 58, became a director on February 9, 1995. He is also the President and principal of UniRock Management Corporation ("UniRock"), a private merchant banking firm based in Denver, Colorado. Mr. Wimer has been with UniRock since January of 1987. UniRock has acted as the Company's strategic consultant since December 27, 1993. Mr. Wimer is currently Chairman of the Board of Vista Restaurants, Inc., a 12-unit Perkins Family Restaurant franchisee, and a director of RAMI, Inc., Denver Paralegal Institute, Stainless Fabrication Company, Inc., and Western Filter Company. Marshall S. Geller, age 56, has been a director of the Company since August of 1994. Mr. Geller is a Senior Managing Partner of Golenberg & Geller, Inc., a merchant banking firm. From 1988 to 1990, he was Vice Chairman of Gruntal & Company, an investment banking firm. From 1967 until 1988, he was a Senior Managing Director of Bear, Stearns & Co., Inc., an investment banking firm. Mr. Geller is currently Interim President and Chief Executive Officer and a director of Lottery Enterprises, and is a director of Players International, Sports-Tech, Inc., Amerihost Properties, Inc., Value Vision International, Inc., Las Vegas Major League Sports, Inc., and various privately-held corporations and charitable organizations. Joseph L. Harrosh, age 54, became a director on February 9, 1995. He is also a private investor. He has been the Chairman of the Equity Committee since its inception in December of 1993. He has also been the Chairman of the Board of Tri-City Sporting Goods Inc. since 1971. Robert L. Witt, age 54, became a director on February 9, 1995. He is a private investor and consultant. Mr. Witt is also a member of the Equity Committee. From 1985 to 1993, he served as a director of the Company, and from 1988 to 1993 he served as the Chairman of the Board of Directors. From 1986 to 1993, he was the Chief Executive Officer of the Company and held other offices with the Company dating back to 1969. He is a director of Bay View Federal Bank, World Air Holdings, Inc. and The Dentists Company. 16 Peter D. Wolfson, age 42, became a director on February 9, 1995. He is also an attorney and member of the firm of Marcus Montgomery Wolfson P.C., which was founded in 1993. From 1989 through 1993, Mr. Wolfson was a member of the law firm of Milgrim Thomajan & Lee P.C., which in 1992 changed its name to Varet Marcus & Fink P.C. Mr. Wolfson's law firm is counsel to the Equity Committee. Mr. Geller and Mr. Langerman have been elected Interim Co-Chairmen of the Board of Directors. The terms of the Co-Chairman expire on the later of the completion of the subscription rights offering pursuant to the Reorganization Plan or the appointment of a new chief executive officer of the Company. The following directors are members of the Standing Committees of the Board of Directors: Executive Compensation Committee -- Messrs. Langerman and Harrosh (Co-Chairmen) and Messrs. Lee and Witt; Audit Committee -- Mr. Wimer (Chairman) and Messrs. Geller, Langerman and Witt; Nominating Committee -- Messrs. Langerman and Wolfson (Co-Chairmen) and Messrs. Lee and Harrosh; and Advanced Programs Committee -- Mr. Springer (Chairman) and Mr. Witt. (a) Executive Officers Information concerning the executive officers of the Registrant is contained in "Item 4A. Executive officers of the Registrant" beginning on page 12 of this Form 10-K and is incorporated herein by reference. 17 ITEM 11. EXECUTIVE COMPENSATION. EXECUTIVE COMPENSATION SUMMARY COMPENSATION TABLE
Annual Compensation Long-Term Compensation (1) (2) ---------------------- -------------------------------------- Securities Restricted Underlying Stock Options / All Other Name & Principal Salary Bonuses Awards SARS Compensation Position Year ($) ($)(7) ($)(8) (#)(9) ($)(10) - ------------------------------------------------------------------------------------ J. J. Lee (3) 1994 453,333 350,000 -- -- 4,500 Chief Executive 1993 160,005 -- -- -- 51,675 Officer 1992 -- -- -- -- -- R. D. Krumme (4) 1994 240,000 125,000 -- -- 4,500 Vice Chairman 1993 100,000 -- -- -- -- 1992 -- -- -- -- -- W. P. Meehan (5) 1994 240,000 125,000 -- -- 3,000 VP - Chief 1993 86,461 -- -- -- -- Financial Officer 1992 -- -- -- -- -- D. J. O'Mara 1994 207,000 100,000 -- -- 4,500 President & Chief 1993 191,250 -- 49,619 33,500 6,000 Operating Officer 1992 163,731 -- 33,713 15,000 4,364 R. P. Jenks, Jr. (6) 1994 159,252 41,440 -- -- 3,877 VP - General 1993 -- -- -- -- -- Counsel & 1992 -- -- -- -- -- Corporate Secretary (1) Annual Compensation includes amounts earned in the fiscal year, whether or not deferred. (2) Aggregate perquisite values do not exceed the lesser of $50,000 or 10% of reported salary and bonuses for each year. (3) Mr. Lee served as a consultant in July and August 1993 and as an employee commencing September 1, 1993. Mr. Lee is also provided an office and administrative assistance in the New York metropolitan area. (4) Mr. Krumme's employment date was August 2, 1993. (5) Mr. Meehan's employment date was August 23, 1993. 18 (6) Mr. Jenks' employment date was February 2, 1994. (7) Bonuses includes consummation and employee retention bonuses earned during Hexcel's Chapter 11 case and approved by the Bankruptcy Court, and paid in 1995. (8) Restricted stock is subject to certain restrictions requiring that the executive remain in the Company's employ for a period of five years before being entitled to receive all of the shares issued. The executive does not pay cash for the shares issued. The shares are non-transferable while restricted; however, the holder is entitled to vote the shares and receive, without restrictions, all dividends and distributions, except dividends or distributions in stock or other shares which then become restricted stock. The restrictions all terminate upon the executive's retirement, death or disability. If employment terminates otherwise during the term of restrictions, the unvested shares are forfeited to the Company without payment of any consideration. The restrictions on the restricted stock will lapse in varying percentages between three and five years following issuance. In the above table, the restricted stock is valued as of the date of grant. The total number of restricted shares and the aggregate value at December 31, 1994 were as follows: Messrs. Lee, Krumme, Meehan and Jenks held no restricted shares; Mr. O'Mara held 7,836 shares valued at $34,322. Aggregate market value is based on December 30, 1994's closing price of $4.38 per share. (9) As of December 31, 1994, all options were at an exercise price above the fair market value of the common stock. No options were granted during 1994. (10) All Other Compensation consists of (i) contributions by the Company to the Salaried Employees' Retirement Plan, and (ii) in the case of Mr. Lee, director's fees of $8,175 for services as a director in 1993 prior to his employment and consulting fees of $43,500 during July and August 1993 prior to his employment. The Three-year Performance Incentive Plan was terminated in 1993.
AGGREGATED OPTION / SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION/SAR VALUES
Number of Value of Securities Unexercised Underlying In the Money Unexercised Options/SARS Options/SARS at Fiscal at Fiscal YEAR END ($) Year End (#) Exercisable / ------------- -------------- Shares Acquired Value Realized Exercisable / Unexercisable Name on Exercise(#) ($)(1)(2) Unexercisable (1)(2) - ----------- ---------------- --------------- ------------- --------------- J. J. Lee -- -- --/-- --/-- R. D. Krumme -- -- --/-- --/-- W. P. Meehan -- -- --/-- --/-- D. J. O'Mara -- -- 68,500/-- --/-- R. P. Jenks -- -- --/-- --/-- (1) Market value of underlying securities at December 30, 1994 close minus the exercise or base price. (2) All options are at an exercise price above the fair market value of the common stock.
19 EXECUTIVE DEFERRED COMPENSATION PLAN (a) ANNUAL RETIREMENT INCOME
REMUNERATION YEARS OF SERVICE (b)(c) -------------------------------------------------------- 10 15 20 25 - ---------------------------------------------------------------------- $125,000 $18,750 $28,125 $37,500 $46,875 150,000 22,500 33,750 45,000 56,250 175,000 26,250 39,375 52,500 65,625 200,000 30,000 45,000 60,000 75,000 250,000 37,500 56,250 75,000 93,750 300,000 45,000 67,500 90,000 112,500 350,000 52,500 78,750 105,000 131,250 400,000 60,000 90,000 120,000 150,000 450,000 67,500 101,250 135,000 168,750 500,000 75,000 112,500 150,000 187,500 (a) Executive Deferred Compensation Plan: This retirement plan consists of individual agreements between the Company and certain key executive employees designated by the Board of Directors. The agreements provide an annual retirement income to these key employees of 1.5% of their salary and bonuses for each year they are covered under the plan. (b) Benefits are payable annually for 10 years, beginning at age 65. At the end of 10 years, a residual amount is paid. This amount is equal to the present value of a 10-year certain and life annuity commencing at age 65 less the total annual payments paid through that date. (c) Estimated credited years of service are as follows: Mr. Lee -- 1/3 year; Mr. Krumme -- 1 year; Mr. Meehan -- 1 year; and Mr. O'Mara -- 3 years. Mr. Jenks does not participate in the plan.
EMPLOYMENT AND OTHER AGREEMENTS 1. EMPLOYMENT AGREEMENT WITH MR. LEE As of August 1, 1993, Mr. Lee was engaged to act as Co-Chief Executive Officer ("Co-CEO") of the Company. Mr. Lee's primary responsibility was managing and restructuring the Company's finances and capital structure. Mr. Lee was expected to expend at least 50% of his time in his role as the Co-CEO. During July and August, 1993, Mr. Lee was compensated in his capacity as a director and received consulting fees as noted above; he became an employee as of September 1, 1993. Mr. Lee became the sole Chief Executive Officer on January 1, 1994. The employment agreement for Mr. Lee (the "Old Employment Agreement") provided that he earn a base salary of $480,000 for services performed on behalf of Hexcel during the annual period September 1, 1993 through August 31, 1994 (the "Old Employment Term"). To conserve cash and facilitate the Company's reorganization, Mr. Lee offered to accept $200,000 under the Old Employment Agreement in cash, payable on the regular compensation schedule for Hexcel's other executives, and the balance of the base salary of $280,000 in deferred compensation. Under the Old Employment Agreement, the deferred compensation was payable in one lump sum at the 20 end of the Old Employment Term. Mr. Lee was also reimbursed expenses incurred on behalf of the Company, including expenses associated with maintaining an office in Stamford, Connecticut. To provide additional incentives to restructure Hexcel in the short term, certain substitute or additional incentives were provided, which are discussed below. Mr. Lee earned a PRO RATA portion of deferred and cash compensation for his four months of service as an employee during 1993. The amount of the deferred compensation earned prior to the filing of the Chapter 11 case ($73,644) was a pre-petition claim against the Company which was paid upon completion of the case. The Old Employment Agreement provided for the following additional incentives, none of which was awarded: * Had Hexcel completed a restructuring of its debt outside Chapter 11, Mr. Lee would have been eligible for a grant of 70,000 option shares in lieu of his deferred compensation. * If Hexcel completed a merger or sale during the Employment Term, Mr. Lee would be paid 1/2 of 1% of the value of the transaction in lieu of the deferred compensation. * If there occurred an equity investment in Hexcel, Mr. Lee would receive a cash bonus equal to 1% of such investment, in addition to the deferred compensation. During the Old Employment Term, Mr. Lee was not entitled to receive any Board of Director fees, but he remained eligible to participate in, and have his service during the Old Employment Term credited towards, Hexcel's Directors' Retirement Plan. Mr. Lee became a participant in Hexcel's Salaried Employee's Retirement Plan during 1994. 2. INTERIM EMPLOYMENT AGREEMENT AND CONSULTING AGREEMENT WITH MR. LEE By Stipulation and Order dated September 21, 1994, Hexcel was authorized to enter into an employment agreement with Mr. Lee dated as of September 1, 1994 providing for his continued employment as Chairman and Chief Executive Officer of the Company at an annual salary of $400,000. Mr. Lee also participates in certain specified benefit programs and is entitled to expense reimbursement, including a monthly stipend of $5,000 for office space. In addition, pursuant to the Stipulation and Order, the Company was authorized and directed to pay Mr. Lee's claim for deferred compensation under his Old Employment Agreement to the extent such deferred compensation accrued following Hexcel's Chapter 11 filing, or $206,356, as an administrative expense. The prepetition portion of Mr. Lee's claim for deferred compensation, or $73,644, was paid with other creditors' claims. During the term of the interim agreement, Mr. Lee is not entitled to receive any Board of Directors fees, but remains eligible to participate in, and have his service during the term credited towards, the Company's Directors' Retirement Plan. Following the selection of a new Chief Executive Officer, Mr. Lee will resign as an officer of the Company and be retained as a consultant to the Company for strategic planning pursuant to certain pre-negotiated terms for a period of two years. The consulting agreement will be subject to termination at the end of the first year by resolution of the Board of Directors of the Company delivered to Mr. Lee not earlier than 60 days and not later than 30 days prior to the end of the first year. 21 The compensation provided to Mr. Lee as a consultant will be as follows: base compensation (salary and fees) of $180,000 per year during the first year, and $230,000 during the second year, plus the same benefits provided to him in his interim employment agreement. In addition, there will be a bonus opportunity determined by the Board of Directors of the Company. Mr. Lee will receive stock options for approximately 0.625% of the Company's fully diluted common stock (without giving effect to the conversion of the Company's 7% Convertible Subordinated Debentures due 2011) at a price equal to the average of the daily average prices of common stock for the 20 trading days beginning 30 calendar days following expiration of the rights offering provided by the Company's Plan of Reorganization. Such options will vest in equal monthly installments over the two-year term of the consulting agreement, subject to being fully vested upon an early termination thereof (other than for cause or voluntary resignation) and will be exercisable until the later of three years following the date of grant or one year after expiration of the consulting agreement. 3. CONSULTING SERVICES AGREEMENT WITH MR. KRUMME As of February 9, 1995, Mr. Krumme resigned as Vice Chairman of the Company and his Consulting Services Agreement with the Company became effective. The Agreement provides that Mr. Krumme will perform such consulting services as are specified by the General Counsel or other senior officers of the Company until July 31, 1995. Services are compensated on an hourly basis, with reasonable expenses reimbursed. The Company also provides certain life and health insurance benefits during the term. The Agreement also provides for payment of $125,000 as a consummation bonus, which was paid on the effective date of the Reorganization Plan. 4. INTERIM EMPLOYMENT AGREEMENT WITH MR. MEEHAN The Company has entered into an Interim Employment Agreement with Mr. Meehan for the term commencing on February 9, 1995 and ending June 30, 1995. Mr. Meehan will receive compensation during the term based on an annual salary of $200,000, along with a consummation bonus of $125,000 which was paid on the effective date of the Reorganization Plan. Mr. Meehan also participates in the benefit plans available to other employees of the Company. 5. INTERIM EMPLOYMENT AND SEVERANCE AGREEMENT WITH MR. O'MARA Commencing on February 6, 1995, the Company agreed to employ Mr. O'Mara through June 30, 1995 subject to earlier termination by the Board of Directors. Mr. O'Mara is paid at an annual salary of $207,000, plus customary executive benefits. In addition, for a period of one year following the termination of his employment, Mr. O'Mara shall continue to be paid his salary and provided his benefits, provided that he may elect to receive his salary in one lump sum, discounted by the then prevailing prime interest rate, and upon payment of the lump sum, benefits will no longer be provided. Mr. O'Mara also shall receive additional compensation of $100,000, $50,000 of which was paid on the effective date of the Reorganization Plan and $50,000 of which will be paid upon the termination of the term of his agreement; included in the additional compensation is Mr. O'Mara's employee retention bonus, approved in the Chapter 11 case, of $27,600. 22 6. EXECUTIVE DEFERRED COMPENSATION AND CONSULTING AGREEMENTS This program consists of individual agreements between the Company and certain key executives designated by the Board. Messrs. Lee, Krumme, Meehan and O'Mara participate in this program. The agreements provide an annual retirement income to these key executives generally of 1.5% of their salary and bonuses for each year they are covered under the program. The retirement benefits are payable monthly, as a life annuity (with a minimum of 120 monthly payments); however, the Company has the right to consent to the executive's request for a different form of benefit payment including a lump sum payment. Each agreement also requires the Company to continue to cover the key executive under Hexcel's group medical and dental insurance plans and to provide life insurance for so long as the executive is receiving payments under the agreement and has not attained the age of 75. The retirement benefits generally commence upon the later of the executive's attainment of age 65 or retirement. Additional information about these agreements is contained in the Executive Deferred Compensation Plan table above. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION The following current or former directors were members of the Executive Compensation Committee of the Board of Directors during 1994: Gary Depolo (Chairman), Cyrus Holley and Marshall Geller (member from August 18, 1994). During 1994, Mr. Lee was also a member of the compensation committee of XTRA Corporation. Mr. Lewis Rubin, a director of the Company until February 9, 1995, also served as President and Chief Executive Officer of XTRA Corporation. Mr. Rubin has not served on the Executive Compensation Committee of the Company. COMPENSATION OF DIRECTORS Except for Mr. Lee, the only director who is a salaried employee of the Company, directors are compensated for services as directors in the amount of $13,500 per year ($14,500 per year for Committee chairmen). Directors are also paid $800 for each Board and Committee meeting they attend. The Company is currently reviewing its policies with respect to the compensation of directors. Mr. Lee, who was employed by the Company for a portion of 1993 and all of 1994, received the annual and meeting compensation for directors for the period during 1993 that he was a director but not an employee. In addition, directors may participate in the Directors' Retirement Plan. A director who has served as a director for at least 5 years, and during which period does not accrue other Company retirement benefits, is entitled, on retirement, to a total retirement benefit equal to 50% of his or her annual compensation as a director, averaged for the three years prior to retirement, multiplied by the number of years he or she served on the Board while not accruing other Company retirement benefits, payable over a period not to exceed 10 years. The amount and term of payment is subject to adjustment in certain events. None of the current directors are currently entitled to receive benefits under the Plan. Mr. Lee became Co-Chief Executive Officer on August 1, 1993 and an employee on September 1, 1993. During July and August, 1993, he was paid $43,500 in consulting fees by the Company, which amount is set forth in a footnote to the Summary Compensation Table. As an employee, he received 23 compensation in amounts set forth in the Summary Compensation Table, in accordance with the provisions of his Employment Agreement described above. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. PRINCIPAL STOCKHOLDERS As of March 17, the Company knows of no person (or "group" as contemplated by Section 13(d)(3) of the Securities Exchange Act of 1934) who beneficially owns more than 5% of the outstanding shares of any class of the Company's voting securities, except as follows:
CLASS ADDRESS NUMBER OF PERCENT OF OUTSTANDING SHARES (1) SHARES OF CLASS (1) - -------------------------------------------------------------------------------- Common Stock Mutual Series Fund, Inc.(2) 1,945,946 21.0% Heine Securities Corporation Michael Price 51 John F. Kennedy Parkway Short Hills, NJ 070708 Common Stock State of Wisconsin 708,000 7.7% Investment Board (3) Lake Terrace 121 East Wilson Street Madison, WI 53703 Common Stock Joseph L. Harrosh (4) 523,400 5.7% 40900 Grimmer Boulevard Fremont, CA 94538 (1) All information is presented before giving effect to and disregarding the impact of the Company's presently effective rights offering covering approximately 8.9 million shares of new common stock of the Company, the impact of which will not be ascertainable until after March 31, 1995. The number and percentage of outstanding shares after the rights offering may be materially different. (2) Information with respect to Mutual Series Fund, Inc., Heine Securities Corporation and Michael Price is based on information provided to the Company by Peter A. Langerman, a director of the Company and an affiliate of such persons. (3) All information with respect to the State of Wisconsin Investment Board is based on its Schedule 13G filed with the SEC on February 13, 1995. (4) Information with respect to Joseph L. Harrosh is based on information provided to the Company in his capacity as a director.
24 STOCK BENEFICIALLY OWNED Based on information supplied by those persons, beneficial ownership of shares of the Company's Common Stock by the individually named directors and executive officers, and by all directors and executive officers as a group, as of March 17, 1995, is as follows:
COMMON STOCK PERCENT OF NAME SHARES OWNED (1) CLASS (1) - ------------------------------------------------------------------------- Marshall S. Geller 48,500 (2) Joseph L. Harrosh 523,400 5.7% Peter A. Langerman (3) 1,945,946 21.0% John J. Lee (4) 162,308 1.7% George S. Springer 500 (2) Franklin S. Wimer 10,000 (2) Robert L. Witt (5) 20,597 (2) Peter D. Wolfson 400 (2) Robert D. Krumme -- (2) William P. Meehan -- (2) Donald J. O'Mara (6) 80,792 (2) Rodney P. Jenks, Jr. -- (2) All Officers and Directors as a group (17 persons) (6) 2,922,088 31.0% (1) All information is presented before giving effect to and disregarding the impact of the Company's presently effective rights offering and the standby purchase commitment of Mutual Series Fund, Inc. covering approximately 8.9 million shares of new common stock of the Company, the impact of which will not be ascertainable until after March 31, 1995. . The number and percentage of outstanding shares after the rights offering may be materially different. (2) Less than 1% (3) All of the shares shown as owned by Mr. Langerman are owned by Mutual Series Fund, Inc., of which Mr. Langerman is an Executive Vice President. (4) Mr. Lee will acquire 108,108 shares on the final closing of the offering of rights to purchase common stock pursuant to the Company's Reorganization Plan. Those shares are included in the above table as shares owned. (5) Mr. Witt has the right to acquire 1,619 shares of the Company's common stock within 60 days after March 17, 1995, by exercise of discounted stock options acquired by him while he was an employee of the Company. Those shares are included in the above table as shares owned. (6) Mr. O'Mara has the right to acquire 68,500 shares of the Company's common stock within 60 days after March 17, 1995, by exercise of stock options under one of the Company's stock option plans. Mr. O'Mara and all directors and executive officers as a group have the right to acquire 177,619 shares of the Company's common stock within 60 days after March 17, 1995, by exercise of stock options under one of the Company's stock option plans. Those shares are included in the above table as shares owned.
25 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. On February 2, 1994, Mr. Rodney P. Jenks, Jr. became an employee of the Company and on March 11, 1994 he became Vice President, General Counsel and Secretary of the Company. Prior to becoming an employee of the Company, Mr. Jenks was a partner in the law firm of Wendel, Rosen, Black, Dean & Levitan which, during 1993 and through January 1994, provided legal services to the Company for which the Company was invoiced $92,011. Upon becoming an employee of the Company, Mr. Jenks resigned as a partner and currently serves as counsel to the law firm. The law firm continues to provide limited legal services to the Company. UniRock Management Corporation ("UniRock") is a strategic planning consultant to the Company. Franklin S. Wimer, a director of the Company and chairman of the Audit Committee, is a principal of UniRock. During 1994 and to date, UniRock invoiced the Company $541,553 for services rendered. The Company has an agreement with UniRock for consulting services to be provided through March 31, 1995, for $93,214. In addition, UniRock has applied to the Bankruptcy Court for $941,553, including a performance bonus of $400,000 for its services performed during the Chapter 11 case. Marcus Montgomery Wolfson P.C. ("MMW") is counsel to the Equity Committee. Peter D. Wolfson is a member of MMW. Pursuant to the federal bankruptcy laws and by order of the Bankruptcy Court, the Company was invoiced $1,535,330 in 1994 and through the effective date of the Reorganization Plan, and has paid MMW $1,300,383 to date; the unpaid amount is retained by the Company, pursuant to a Bankruptcy Court order, pending the hearing on MMW's application for fees. MMW has filed an application with the Bankruptcy Court to be paid for legal services totaling $1,607,301, including amounts previously invoiced. The Company expects to be invoiced by MMW for certain services incurred after the effective date of the Reorganization Plan and through the completion of the subscription rights offering. There are no currently proposed related party transactions or any other related party transactions during the prior fiscal year that require disclosure in this Form 10-K report. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. A. FINANCIAL STATEMENTS The consolidated financial statements of the Company, notes thereto, and independent auditors' report are listed on page 45 of this Form 10-K and are incorporated herein by reference. 26 B. REPORTS ON FORM 8-K Current report on Form 8-K dated December 29, 1994 relating to the sale of the Company's European resins business to Axson S.A., a French corporation, through the sale of all of the Company's shares in the capital stock of its European resins subsidiaries. Current report on Form 8-K dated January 6, 1995 relating to (a) the sale of the Company's Chandler, Arizona manufacturing facility and certain related assets and technology to Northrop Grumman Corporation, and (b) the confirmation of Hexcel's First Amended Plan of Reorganization, dated as of November 7, 1994, by order entered by the Bankruptcy Court, dated as of January 10, 1995. Current report on Form 8-K dated February 9, 1995 relating to the effective date of Hexcel's First Amended Plan of Reorganization. C. EXHIBITS EXHIBIT NO. DESCRIPTION 3. 1. Certificate of Incorporation of Hexcel Corporation 2. Bylaws of Hexcel Corporation 3. First Amended Plan of Reorganization Proposed by the Debtor and the Official Committee of Equity Security Holders, dated as of November 7, 1994 (4) 4. Order Confirming First Amended Plan of Reorganization Proposed by the Debtor and the Official Committee of Equity Security Holders dated as of November 7, 1994 and entered on January 12, 1995 by the United States Bankruptcy Court for the Northern District of California (5) 5. Subscription Rights Plan (6) 4. 1. Certificate of Incorporation of Hexcel Corporation (See Exhibit 3-1) 2. Bylaws of Hexcel Corporation (See Exhibit 3-2) 3. First Amended Plan of Reorganization Proposed by the Debtor and the Official Committee of Equity Security Holders, dated as of November 7, 1994 (See Exhibit 3-3) 4. Order Confirming First Amended Plan of Reorganization Proposed by the Debtor and the Official Committee of Equity Security Holders dated as of November 7, 1994 and entered on January 12, 1995 by the United States Bankruptcy Court for the Northern District of California (See Exhibit 3-4) 5. Subscription Rights Plan (See Exhibit 3-5) 6. Exemplar of Indenture between Hexcel Corporation and The Bank of California, N.A., Trustee, dated October 1, 1988 (3) 27 EXHIBIT NO. DESCRIPTION - ----------- ----------- 7. Loan Agreement and Indentures-Industrial Development Bonds. These instruments are not filed herewith; the registrant agrees to furnish a copy of such instruments to the Commission upon request 10. Material Contracts 1. Credit Agreement, dated as of February 9, 1995, among the Registrant, Citicorp USA, Inc., Heller Financial, Inc., Transamerica Business Credit Corporation and Citibank N.A. (6) 2. Restated and Amended Reimbursement Agreement, dated as of February 1, 1995, between the Registrant and Banque Nationale de Paris (6) 3. Asset Purchase Agreement between Hexcel Corporation and Northrop Grumman Corporation (4) 4. Executive Compensation Plans and Arrangements A. Stock Plans (1) 1988 Management Stock Program (1) (2) Amendments to 1988 Management Stock Program (1) (3) 1988 Restricted Stock Agreement - Sample Agreement (1) (4) 1988 Discounted Stock Option Agreement - Sample Agreement (1) (5) 1988 Officers' Nonqualified Stock Option Agreement - Sample Agreement (1) (6) Long-Term Incentive Plan (5) B. Exemplar of Executive Deferred Compensation Agreement (3) C. Directors' Retirement Plan (2) D. Employment Agreement dated September 28, 1993 between Hexcel Corporation and John J. Lee (3) E. Interim Employment Agreement and Consulting Agreement between Registrant and John J. Lee F. Consulting Services Agreement between Registrant and Robert D. Krumme G. Interim Employment Agreement between Registrant and William P. Meehan 28 EXHIBIT No. DESCRIPTION - ----------- ----------- H. Interim Employment and Severance Agreement between Registrant and Donald J. O'Mara I. Agreement between Registrant and Gary L. Sandercock J. Agreement between Registrant and Thomas J. Lahey K. Agreement between Registrant and William K. Woodrow L. Agreement between Registrant and Stephen C. Forsyth M. Agreement between Registrant and Robert A. Petrisko 5. Letter Agreement between Registrant and UniRock Management Corporation 11. Statement Regarding Computation of Per Share Earnings 21. Subsidiaries of Registrant 23. Independent Auditors' Consent - Deloitte & Touche LLP 27. Financial Data Schedules (electronic filing only) - ---------------------- (1) Incorporated by reference to the Registration Statement of registrant on Post-Effective Amendment No. 1 to Form S-8 filed on May 11, 1988, No. 33-17025, pursuant to the Securities Act of 1933 (2) Incorporated by reference to the Annual Report of registrant on Form 10-K for the year ended December 31, 1992, filed pursuant to Section 13 of the Securities Exchange Act of 1934 (3) Incorporated by reference to the Annual Report of registrant on Form 10-K for the year ended December 31, 1993, filed pursuant to Section 13 of the Securities Exchange Act of 1934 (4) Incorporated by reference to the Quarterly Report on Form 10-Q for the quarter ended October 2, 1994, filed pursuant to Section 13 of the Securities Exchange Act of 1934 (5) Incorporated by reference to the Current Report on Form 8-K filed on January 23, 1995 pursuant to Section 13 of the Securities Exchange Act of 1934 (6) Incorporated by reference to the Current Report on Form 8-K filed on February 22, 1995 pursuant to Section 13 of the Securities Exchange Act of 1934 29 SIGNATURES PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF PLEASANTON, STATE OF CALIFORNIA. HEXCEL CORPORATION MARCH 23, 1995 By: JOHN J. LEE -------------------------------- John J. Lee, Chief Executive Officer PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE --------- ----- ---- JOHN J. LEE Chief Executive Officer March 23, 1995 - ---------------------- (PRINCIPAL EXECUTIVE OFFICER) (John J. Lee) WILLIAM P. MEEHAN Vice President and Chief March 23, 1995 - ---------------------- Financial Officer (William P. Meehan) (PRINCIPAL FINANCIAL OFFICER) WAYNE C. PENSKY Controller March 23, 1995 - ---------------------- (CONTROLLER AND PRINCIPAL (Wayne C. Pensky) ACCOUNTING OFFICER) MARSHALL S. GELLER Director March 23, 1995 - ---------------------- (Marshall S. Geller) JOSEPH L. HARROSH Director March 23, 1995 - ---------------------- (Joseph L. Harrosh) PETER A. LANGERMAN Director March 20, 1995 - ---------------------- (Peter A. Langerman) GEORGE S. SPRINGER Director March 23, 1995 - ---------------------- (George S. Springer) FRANKLIN S. WIMER Director March 23, 1995 - ---------------------- (Franklin S. Wimer) ROBERT L. WITT Director March 23, 1995 - ---------------------- (Robert L. Witt) PETER D. WOLFSON Director March 23, 1995 - ---------------------- (Peter D. Wolfson)
30 EXHIBIT 23 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference of our report dated February 24, 1995 (which report contains explanatory paragraphs regarding the confirmation of Hexcel Corporation's plan of reorganization, future compliance with certain financial ratio covenants of the revolving credit facility, and a change in accounting for postretirement benefits other than pensions and a change in accounting for income taxes) appearing in this Annual Report on Form 10-K for the year ended December 31, 1994, in Registration Statement No. 33- 49478 on Form S-8 regarding the 1988 Management Stock Program. DELOITTE & TOUCHE LLP Oakland, California March 24, 1995 31 SELECTED FINANCIAL DATA The following table summarizes selected financial data for continuing operations(a) as of, and for, the five years ended December 31.
(IN THOUSANDS, EXCEPT PER SHARE DATA) - ------------------------------------------------------------------------------------------------ 1994 1993 1992 1991 1990 - ------------------------------------------------------------------------------------------------ INCOME STATEMENT DATA: Net sales $ 313,795 $ 310,635 $ 352,987 $ 355,601 $ 350,493 Cost of sales (265,367) (263,090) (285,088) (284,875) (284,346) ------------------------------------------------------------------- Gross margin 48,428 47,545 67,899 70,726 66,147 Marketing, general & administrative expenses (45,785) (52,510) (62,053) (54,797) (55,444) Other income (expenses) 4,861 (12,780) 2,992 -- 2,317 Restructuring expenses -- (46,600) (23,000) -- -- ------------------------------------------------------------------- Operating income (loss) 7,504 (64,345) (14,162) 15,929 13,020 Interest expenses (11,846) (8,862) (8,196) (10,870) (9,779) Bankruptcy reorganization expenses (20,152) (641) -- -- -- ------------------------------------------------------------------- Income (loss) from continuing operations before income taxes (24,494) (73,848) (22,358) 5,059 3,241 Benefit (provision) for income taxes (3,586) (6,024) 6,375 54 (1,321) ------------------------------------------------------------------- Income (loss) from continuing operations $ (28,080) $ (79,872) $ (15,983) $ 5,113 $ 1,920 ------------------------------------------------------------------- ------------------------------------------------------------------- Income (loss) per share from continuing operations(b) $ (3.84) $ (10.89) $ (2.20) $ 0.72 $ 0.27 ------------------------------------------------------------------- ------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------ BALANCE SHEET DATA: Current assets $ 148,352 $ 134,710 $ 160,001 $ 213,699 $ 209,519 Non-current assets 95,105 128,532 150,659 146,275 142,745 ------------------------------------------------------------------- Total assets $ 243,457 $ 263,242 $ 310,660 $ 359,974 $ 352,264 ------------------------------------------------------------------- ------------------------------------------------------------------- Current liabilities $ 171,307 $ 72,965 $ 79,305 $ 78,545 $ 80,632 Long-term liabilities 78,035 169,524 125,206 137,106 128,454 Shareholders' equity (deficit) (5,885) 20,753 106,149 144,323 143,178 ------------------------------------------------------------------- Total liabilities and share- holders' equity (deficit) $ 243,457 $ 263,242 $ 310,660 $ 359,974 $ 352,264 ------------------------------------------------------------------- ------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------ OTHER DATA: Cash dividends per share -- -- 0.44 0.44 0.44 Shares outstanding at year-end 7,301 7,310 7,296 7,158 7,057 - ------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------ (A) THE DATA EXCLUDE DISCONTINUED OPERATIONS, THE EXTRAORDINARY ITEM AND THE CUMULATIVE EFFECTS OF ACCOUNTING CHANGES. SEE THE CONSOLIDATED FINANCIAL STATEMENTS AND NOTES FOR FINANCIAL INFORMATION RELATED TO THESE ITEMS. (B) PRIMARY AND FULLY DILUTED NET INCOME (LOSS) PER SHARE FOR ALL FIVE YEARS WERE THE SAME BECAUSE THE FULLY DILUTED COMPUTATION WAS ANTIDILUTIVE.
32 MANAGEMENT DISCUSSION AND ANALYSIS BANKRUPTCY REORGANIZATION BANKRUPTCY REORGANIZATION PROCEEDINGS On February 9, 1995, the Reorganization Plan proposed by Hexcel and the Equity Committee became effective, and Hexcel emerged from bankruptcy reorganization proceedings. Those proceedings had begun on December 6, 1993, when Hexcel filed a voluntary petition for relief under the provisions of Chapter 11 of the federal bankruptcy laws. Hexcel operated as a debtor-in- possession under the supervision of the Bankruptcy Court for the duration of those proceedings, utilizing a debtor-in-possession credit facility of up to $35.0 million to finance its operations over the course of the reorganization process. The joint ventures and European subsidiaries of Hexcel were not included in the bankruptcy proceedings and, as such, were not subject to the provisions of the federal bankruptcy laws or the supervision of the Bankruptcy Court. Beginning in 1992 and continuing through 1993, the Company experienced significant declines in sales and gross margins. These declines were primarily a result of the general deterioration in the aerospace industry, as well as the deep economic recession in Europe. In December 1992, the Company initiated a restructuring program in response to anticipated protracted weakness in the aerospace industry and the need to make aggressive cost reductions to operate profitably at lower sales levels, and recorded a $23.0 million charge. The restructuring program was designed to improve facility utilization and determine the proper workforce requirements to support expected levels of future business. Restructuring actions began in 1993 and included the commencement of the closure of the Graham, Texas plant, personnel reductions at all remaining manufacturing facilities, and a worldwide reorganization of sales, marketing and administration. During the third quarter of 1993, Hexcel conducted an evaluation of the adequacy of the restructuring program and existing reserves in light of further deterioration in the business conditions of the Company's primary markets, including commercial aerospace. As a result of this evaluation and the continuing decline in aerospace sales, the Company significantly expanded the original restructuring program and recorded an additional restructuring charge of $44.0 million in the third quarter of 1993. The expanded restructuring program was a response to deeper than anticipated declines in the aerospace market, and included additional staff reductions, further consolidation of facilities and write-downs of impaired assets. The Company recorded another $2.6 million charge in the fourth quarter of 1993 in connection with the expanded restructuring program. In order to finance its operations, fund the restructuring program and improve its capital structure, the Company needed substantial additional financing and a restructuring of its debt. Negotiations with senior U.S. lenders to obtain this financing and restructure the Company's domestic obligations were undertaken early in 1993 and continued throughout most of the year. Alternative sources of debt and equity financing were also pursued, and the Company began to renegotiate certain European credit facilities which were scheduled to expire in the first quarter of 1994. By the second quarter of 1993, the Company had become noncompliant with certain U.S. debt covenants, and was required to obtain a series of waivers from senior U.S. lenders while negotiations continued. However, efforts to persuade these lenders to consent to a restructuring of U.S. debt obligations, along with a proposed infusion of new equity, failed to produce an agreement. 33 During the second half of 1993, the Company's cash resources were nearly exhausted. Hexcel struggled to accelerate cash collections and extend payment terms to vendors, as overdue trade payables reached precarious levels. Suppliers became very anxious about Hexcel's financial condition, and a number of key suppliers began to demand cash on delivery or a reduction in outstanding account balances. At the same time, Hexcel attempted to reduce spending by cutting inventory levels, deferring certain restructuring actions and limiting capital expenditures to minimal levels. In spite of these efforts, the failure to obtain additional financing left Hexcel with almost no cash and no remaining credit availability, so that it was unable to finance its operations and fund the restructuring program. On December 6, 1993, Hexcel filed a voluntary petition for relief under the provisions of Chapter 11 of the federal bankruptcy laws. Substantially all of the U.S. assets and operations of the Company are directly owned and operated by Hexcel, and became subject to bankruptcy protection. However, the joint ventures and European subsidiaries of Hexcel were not included in the bankruptcy proceedings and, as such, were not subject to the provisions of the federal bankruptcy laws or the supervision of the Bankruptcy Court. Hexcel obtained a debtor-in-possession revolving line of credit of up to $35.0 million to finance operations and restructuring activities during bankruptcy reorganization, and this facility remained available for the duration of the reorganization process. Further discussion of the Company's restructuring program and bankruptcy reorganization proceedings is included in Notes 2 and 6 to the Consolidated Financial Statements included in this Form 10-K. THE REORGANIZATION PLAN On January 12, 1995, the Bankruptcy Court entered an order dated January 10, 1995 confirming the Reorganization Plan proposed by Hexcel and the Equity Committee. The Reorganization Plan, which became effective on February 9, 1995, provided for (a) the replacement of the debtor-in-possession credit facility with a new revolving credit facility of up to $45.0 million; (b) the creation of an amended reimbursement agreement with respect to the letters of credit which support certain industrial development revenue bonds ("IDRBs"); (c) the completion of the first closing under a standby purchase commitment whereby Mutual Series purchased approximately 1.9 million shares of new common stock for $9.0 million and loaned the Company $41.0 million as an advance against the proceeds of a subscription rights offering for an additional 8.9 million shares of new common stock; and (d) the reinstatement or payment in full, with interest, of all allowed claims, including prepetition accounts payable and notes payable. The new revolving credit facility is a three-year facility which is available to fund distributions to creditors under the Reorganization Plan as well as related transaction costs, and to provide for the ongoing working capital needs of the Company and other general corporate purposes. The amount available for borrowing is based primarily on eligible U.S. assets, as defined in the agreement, and is secured by substantially all of the U.S. assets of Hexcel, as well as the majority of its shares in the capital stock of the Company's European subsidiaries. In addition, the credit facility is subject to a number of financial covenants and other restrictions. The letters of credit which guarantee certain IDRBs were reinstated, in accordance with the terms of an amended reimbursement agreement with the issuing bank, and extended until December 31, 1998. The amended reimbursement agreement is subject to certain IDRB redemption requirements, as well as a number of financial covenants and other restrictions which are similar, although less restrictive, to those of the new revolving credit facility. 34 The sale of new common stock pursuant to the standby purchase commitment and the subscription rights offering will increase the number of outstanding common shares from approximately 7.3 million as of December 31, 1994 to approximately 18.2 million on or about March 27, 1995, when the subscription rights offering concludes. The proceeds from the standby purchase commitment and the subscription rights offering will be used to repay the $41.0 million advance from Mutual Series. The payment of claims and interest on February 9, 1995 was funded with the cash proceeds from certain asset sales discussed below, the $50.0 million in cash received from Mutual Series, and borrowings under the new revolving credit facility. Information as to the sources and uses of cash pursuant to the Reorganization Plan is included in Note 3 to the Consolidated Financial Statements included in this Form 10-K, which also sets forth the pro forma condensed consolidated financial position of the Company as of December 31, 1994 as if the consummation of the Reorganization Plan occurred on such date. Further discussion of the Reorganization Plan and Hexcel's emergence from bankruptcy reorganization proceedings is included in the Notes to the Consolidated Financial Statements included in this Form 10-K. ASSET SALES Hexcel sold its Chandler, Arizona manufacturing facility and certain related assets and technology to Northrop Grumman Corporation. During the fourth quarter of 1994, the Company recognized other income of $15.9 million relating to the sale. The transaction generated net cash proceeds of approximately $29.0 million, of which $2.3 million was received in 1994 and $26.7 million was received in the first quarter of 1995. The net cash proceeds were utilized to pay off the remaining balance of the debtor-in-possession credit facility and to partially fund distributions to creditors made on the effective date of the Reorganization Plan. During the fourth quarter of 1994, the Company sold its European resins business to Axson S.A., a French corporation. The sale and related settlement transactions generated net cash proceeds of approximately $8.7 million, of which $6.1 million was received in the fourth quarter of 1994 and $2.6 million was received in the first quarter of 1995. The net cash proceeds were utilized primarily to pay down borrowings under the debtor-in-possession credit facility. The European resins business was a substantial component of the Company's worldwide resins business, comprised of operations in Europe and the U.S. The Company is continuing discussions for the sale of its U.S. resins business, and believes that such a sale on acceptable terms can be arranged. Accordingly, the resins business is accounted for as a discontinued operation in the Consolidated Financial Statements included in this Form 10-K, and the discussion below refers only to the continuing operations of the Company unless otherwise indicated. Further discussion of the Chandler and European resins transactions is included in Note 4 to the Consolidated Financial Statements included in this Form 10-K. 35 RESULTS OF OPERATIONS The 1994 loss from continuing operations was $28.1 million or $3.84 per share. This compares with a loss from continuing operations of $79.9 million in 1993 and $16.0 million in 1992. The net loss for 1994, including discontinued operations, was $30.0 million or $4.10 per share. The net losses for 1993 and 1992 were $86.0 million and $29.3 million, respectively. The 1994 loss from continuing operations is net of $4.9 million in other income, which is largely comprised of the $15.9 million of income related to the sale of the Chandler, Arizona manufacturing facility and certain related assets and technology, less an $8.0 million provision to reflect the estimated cost of restructuring a joint venture and a $2.9 million provision for bankruptcy claim adjustments. The 1994 loss from continuing operations also includes bankruptcy reorganization expenses of $20.2 million, as well as interest expenses for bankruptcy claims and exit financing of $2.5 million and a provision for the settlement of various tax audits of $1.8 million. Bankruptcy reorganization expenses consist primarily of professional fees paid to legal and financial advisors of the Company, the Equity Committee and the Official Committee of Unsecured Creditors. In addition, these expenses include incentives for employees to remain with the Company for the duration of bankruptcy proceedings and the write-off of previously capitalized costs related to the issuance of prepetition debt. The 1993 loss from continuing operations includes restructuring charges of $46.6 million for a major expansion of the restructuring program begun in December 1992. The loss also includes other expenses of $12.8 million for the write-down of certain assets and increases in reserves for warranties and environmental matters on property previously owned. The impairment of assets was due primarily to the bankruptcy proceedings, continued changes in business conditions and depressed real estate prices on property held for sale. In addition, the Company recorded a $10.9 million provision in 1993 to reflect the adverse impact of the bankruptcy proceedings of Hexcel Corporation and ongoing operating losses on the potential realization of deferred income tax benefits. The 1992 loss from continuing operations includes a $23.0 million restructuring charge and other income of $3.0 million from the settlement of a patent infringement case, as well as a $1.4 million gain from the settlement of interest rate swap agreements. Losses from discontinued operations totaled $1.9 million, $10.6 million and $6.2 million in 1994, 1993 and 1992, respectively. These losses reflect the results of the Company's resins business for all three years, including provisions to write-down the net assets of this business by $2.8 million in 1994, $6.0 million in 1993 and $0.5 million in 1992. These losses also reflect the results of the Company's discontinued fine chemicals business for 1993 and 1992. The divestiture of the fine chemicals business has been completed. In 1993, the Company recorded a one-time, cumulative benefit of $4.5 million from the adoption of a new accounting standard for income taxes. In 1992, the Company recorded a one-time charge of $8.1 million to reflect the adoption of a new accounting standard for postretirement benefits. The 1992 results also include an extraordinary gain of $1.0 million on the redemption of $7.3 million of convertible subordinated debentures at a discount. SALES Sales from continuing operations were $313.8 million in 1994, compared with $310.6 million in 1993 and $353.0 million in 1992. The halt in the sales declines experienced in 1993 and 1992 reflects 36 improved sales to general industrial and other markets offset by further declines in commercial and military aerospace business. Increased sales of general industrial and other products are largely attributable to the end of a deep economic recession in Europe and continued improvement in the U.S. economy, as well as the Company's pursuit of additional business from customers in recreation, electrical and general manufacturing industries. The continuing decline in aerospace sales is due, in part, to lower build rates for commercial aircraft. The Company's commercial aerospace customers have responded to reduced build rates by canceling orders, delaying shipments and reducing inventories to match future operating levels. At the same time, sales to military aerospace customers continue to fall in response to the general reduction in military spending and the Company's declining involvement in the B- 2 aircraft program. U.S. sales were $171.5 million in 1994, compared with $185.3 million in 1993 and $204.1 million in 1992. The declines are mainly attributable to reduced sales of honeycomb and advanced composites to commercial and military aerospace markets, partially negated by improved sales of advanced composites to general industrial and other non-aerospace markets. Sales of reinforcement fabrics were reduced by the transfer of the Company's stitchbonded business to a joint venture on June 30, 1993. The stitchbonded business accounted for U.S. sales of $7.0 million in the first six months of 1993 and $11.3 million in all of 1992. International sales were $142.3 million in 1994, compared with $125.4 million in 1993 and $148.9 million in 1992. The 1994 increase is due to higher sales of advanced composites and reinforcement fabrics to general industrial and other markets, as well as increased sales of advanced composites to certain European aerospace customers. In addition, some of the sales increase is attributable to changes in currency exchange rates. During 1994, the U.S. dollar declined relative to the Belgian and French francs; accordingly, sales from the Company's primary international subsidiaries were increased when translated into U.S. dollars. Currency exchange rates moved in the opposite direction in 1993, which contributed to the decline in international sales during that year. An economic recession in Europe and the contraction of aerospace markets were the other major factors in the 1993 sales decline. COMMERCIAL AEROSPACE SALES Worldwide sales of $147.5 million in 1994 were up from 1993 sales of $131.4 million, but down from the 1992 total of $163.4 million. The improvement over 1993 is attributable to the improved economic environment in Europe as well as increased sales of selected products. Nonetheless, the overall downturn in the commercial aerospace market which began in 1992 continued in 1993 and 1994. Reacting to order cancellations from many airlines, major aircraft manufacturers have announced a series of build rate reductions worldwide. Additionally, most of these manufacturers have announced significant personnel reductions and initiated ongoing efforts to reduce inventories and shorten production lead times. Declining build rates and associated inventory reductions have resulted in the cancellation and delay of orders for several of the Company's aerospace products. While sales of individual products, such as graphite honeycomb and certain composites products, have increased in response to the production of new wide-bodied aircraft, the majority of products sold to the commercial aerospace market have declined. The shrinking commercial aerospace market has intensified competition among suppliers for remaining business. This has resulted in price pressure and margin declines on competitive products which the Company provides to this market. 37 SPACE AND DEFENSE SALES Worldwide sales in 1994 decreased to $34.9 million from $55.3 million in 1993 and $57.8 million in 1992. This decline continues a trend which began in 1988 when sales to the space and defense market exceeded $100.0 million. The Company expects this trend to continue, due to the general decline in military spending and the sale of the Company's Chandler, Arizona manufacturing facility and certain related assets and technology. The Chandler facility was originally constructed by the Company in 1988, primarily to manufacture materials for the B-2 aircraft program. Under the terms of the sale, the Company retained a royalty-free, non-exclusive license to use the technology sold in non-military applications and will receive royalties from Northrop on certain applications of that technology. GENERAL INDUSTRIAL AND OTHER SALES Worldwide sales were $131.4 million in 1994, compared with $123.9 million in 1993 and $131.8 million in 1992. Products provided to non-aerospace customers included honeycomb, advanced composites and reinforcement fabrics. Sales of new products introduced within the last few years continued to grow, and the Company benefited from the economic recovery in Europe and continued economic growth in the U.S. Much of that benefit was comprised of increased demand for products used in the recreation and electrical industries, as well as increased sales to ballistics customers. The Company continues to focus on the development of products for the general industrial, recreation, transportation, and other non-aerospace markets. Increased sales to these markets are needed to lessen the Company's dependence on commercial aerospace and space and defense markets. GROSS MARGIN Gross margin was $48.4 million, or 15.4% of sales, in 1994. This compares with gross margin of $47.5 million, or 15.3% of sales, in 1993 and $67.9 million, or 19.2% of sales, in 1992. The decrease in gross margin experienced in 1993 was halted during 1994, but the Company was unable to reverse the decline. Although the Company has reduced manufacturing overhead costs by closing the Graham, Texas plant and selling the Chandler, Arizona facility, the transfer of production processes to other plants has not been completed. Moving production processes is complicated by aerospace and other industry requirements to "qualify" specific equipment at specific locations for the manufacture of certain products. These qualification procedures increase the complexity, cost and time required to move equipment while continuing to serve existing customers. Consequently, the impact of facility reductions will not be fully realized until mid-1995, when the consolidation of honeycomb production activities is expected to be complete. In addition, many of the products developed for non-aerospace markets have not commanded premium prices due to strong competition. At the same time, shrinking aerospace markets have generated increased competition for remaining business which has created pricing pressures on competitive products. The Company expects that these pricing pressures will continue during 1995. The gross margin decline experienced in 1993 was attributable to the sales decrease from the prior year, as well as the pricing pressures noted above. 38 MARKETING, GENERAL AND ADMINISTRATIVE (M,G&A) EXPENSES M,G&A expenses decreased to $45.8 million in 1994, from $52.5 million in 1993 and $62.1 million in 1992. M,G&A expenses as a percentage of sales were 14.6% in 1994, 16.9% in 1993 and 17.6% in 1992. The two-year decline in MG&A expenses is the result of significant headcount reductions made during 1993 and the first quarter of 1994, in an effort to mitigate the effects of lower sales levels. These headcount reductions were achieved through a reorganization of sales, marketing and administrative functions to reduce redundancies and inefficiencies. M,G&A expenses include research and development expenses which were $8.2 million in 1994 or 2.6% of sales, approximately the same level as in 1993 and 1992. Successful research and development activities are critical to the Company's future, and the need to invest in effective research and development must be balanced against the need to control expenditures. INTEREST Interest expenses were $11.8 million in 1994, compared with $8.9 million in 1993 and $8.2 million in 1992. The 1994 total includes accrued interest on prepetition accounts payable as well as notes payable. It also includes interest on the debtor-in-possession credit facility. Part of the increase in interest expenses during 1994 is also attributable to higher interest rates on variable rate obligations, partially offset by reduced levels of borrowing by the Company's European subsidiaries. Excluding a $1.4 million gain in 1992 from the settlement of interest rate swap agreements, interest expenses declined from 1992 to 1993. This decline is attributable to lower average interest rates on variable rate debt, as well as the full-year benefit from the repurchase of $7.3 million of convertible subordinated debentures during the second quarter of 1992. In addition, borrowings under the U.S. revolving credit agreement were limited to $12.0 million throughout the year. Interest rate reductions were partially offset by additional borrowings by the Company's European subsidiaries. Capitalized interest was $0.2 million in 1993 and $0.3 million in 1992. The Company did not capitalize any interest in 1994, as there were no long-term capital projects undertaken by the Company during the year. INCOME TAXES As of December 31, 1994, the Company had net operating loss ("NOL") carryforwards for federal income tax purposes of approximately $26.0 million and net operating loss carryforwards for international income tax purposes of approximately $6.0 million. The federal NOL carryforwards, which are available to offset future taxable income, expire at various dates through the year 2009. However, because of the ownership change which is expected to occur as a result of the Reorganization Plan, the utilization of NOL carryforwards in the U.S. after February 9, 1995 will be affected. It is expected that the Company will make use of Section 382(l)(6) of the Internal Revenue Code, whereby the annual allowable NOL deduction will be limited to an amount equal to the product of the fair market value of the Hexcel stock immediately following the ownership change caused by the Reorganization Plan and the long-term federal tax-exempt rate (6.83% as of February 9, 1995). This deduction limitation is estimated to be approximately $5.0 million per year. The Company will not qualify for other rules permitting unlimited use of NOLs due to the makeup of the post- reorganization equity ownership. 39 Effective January 1, 1993, the Company adopted Statement of Financial Accounting Standards No. 109 ("SFAS 109"), "Accounting for Income Taxes." The cumulative effect of adopting this standard was the recognition of a deferred income tax benefit of $4.5 million, which was recorded in the first quarter of 1993. During 1993, substantial uncertainty developed as to the realization of the deferred income tax benefits recognized in connection with SFAS 109. As a result, the Company recorded a $10.9 million adjustment to the valuation allowance to reduce the recorded value of these benefits to zero as of December 31, 1993. The adjusted valuation allowance reflects the Company's assessment that the bankruptcy reorganization proceedings of Hexcel and ongoing operating losses have jeopardized the realization of deferred income tax benefits. In 1994, the Company continued to reserve for the income tax assets generated by Hexcel's pre-tax losses. The Company also recorded a provision for the settlement of various tax audits of $1.8 million. The 1994 and 1993 tax provisions were computed in accordance with SFAS 109. The recognition of a $3.6 million provision in 1994 on a $24.5 million loss from continuing operations before taxes, and a $6.0 million provision in 1993 on a $73.8 million loss from continuing operations before taxes, reflects the valuation allowances noted above, as well as the 1994 provision for tax audits. The 1992 tax benefit of $6.4 million was computed in accordance with Accounting Principles Board Opinion No. 11 ("APB 11"), which was superseded by SFAS 109. The effective rate of this tax benefit was 29% and reflects the impact of 1992 operating losses and international tax incentives and credits, to the extent allowable by APB 11. JOINT VENTURES The Company owns an equity interest in DIC-Hexcel Limited, a joint venture with DIC. The joint venture was formed in 1990 for the production and sale of Nomex honeycomb, advanced composites and decorative laminates for the Japanese market. The joint venture owns and operates a manufacturing facility in Komatsu, Japan which has begun to manufacture decorative laminates for sale and is now performing pre-qualification manufacturing trials of honeycomb and advanced composites. Under the terms of the original joint venture agreement, DIC agreed to guarantee all bank debt incurred by this joint venture. In turn, the Company provided an undertaking that in the event the venture went into liquidation the Company would reimburse DIC for 50% of all guaranteed bank loans, net of any proceeds from the sale of the venture's assets. As of December 31, 1994, the guaranteed bank debt of the venture totaled approximately $19.4 million. Due to the significant reduction in demand for commercial aircraft and other adverse changes in the competitive environment, the economic viability of this joint venture has become questionable. In addition, the cost of pre- qualification trials and the attendant lack of revenues has resulted in negative cash flows which are expected to continue for several years. During the third quarter of 1994, DIC proposed to liquidate the venture. The Company responded with a proposal to restructure the venture, subject to various conditions, which DIC agreed to consider. Under either proposal, the Company would retain responsibility for a portion of the venture's guaranteed bank debt. Accordingly, the Company recorded an $8.0 million provision in the third quarter of 1994 to reflect the estimated cost of restructuring or liquidating DIC-Hexcel Limited. On February 20, 1995, the Company and DIC signed an amendment to the original joint venture agreement which restructures DIC-Hexcel Limited and limits the Company's potential liability for the 40 venture's guaranteed bank debt to $9.0 million. Under the terms of the amendment, the Company is required to contribute $4.5 million in cash to the venture, payable in installments of approximately $1.4 million in the first quarter of 1995 and approximately $0.4 million in each of the next seven quarters. In addition, the Company may be required to contribute another $4.5 million in cash, under certain conditions, but such payment is not expected to be required, if at all, prior to January 1997. The amendment also reduces the Company's equity interest in the joint venture from 50% to approximately 42%, and provides for a corresponding increase in DIC's equity interest. Management believes that the $8.0 million provision recorded in 1994 remains the best estimate of the Company's probable liability under the amended joint venture agreement, based on the terms of that agreement and the projected future operating results of DIC-Hexcel Limited. The Company entered into a joint venture with Owens-Corning in June 1993. The venture combines the stitchbonding capability of Hexcel with the reinforcement glass manufacturing, marketing, and distribution expertise of Owens-Corning to produce and market stitchbonded fabrics worldwide. The venture began operations in July 1993 after the Company sold 50% of its stitchbonded business to Owens-Corning and contributed the remaining 50% to the joint venture. The Company received proceeds of $4.5 million and recorded a gain of approximately $1.5 million related to the sale. The Company owns 50% of the venture, which had net revenues of $18.8 million in 1994 and $6.8 million in the six months ended December 31, 1993. The Company entered into a joint venture with Fyfe Associates in October 1992. Hexcel-Fyfe sells and applies high strength architectural wrap for the seismic retrofitting and strengthening of bridges, columns and other structures. The Company owns 40% of the venture, and Fyfe Associates owns the remainder. Revenues of the venture were not significant in 1994, 1993 or 1992. FINANCIAL CONDITION AND LIQUIDITY FINANCIAL RESOURCES The Reorganization Plan which became effective on February 9, 1995 provided for the replacement of the debtor-in-possession credit facility (the "DIP Facility") with a new revolving credit facility (the "Revolving Credit Facility") of up to $45.0 million. The Revolving Credit Facility is a three- year facility which is available to fund distributions to creditors under the Reorganization Plan as well as related transaction costs, and to provide for the ongoing working capital needs of the Company and other general corporate purposes, including restructuring activities. The amount available for borrowing is based on the outstanding balance of eligible U.S. receivables and inventories, as defined in the credit agreement, and on specified values of certain machinery and equipment, real property, and shares in the capital stock of one of the Company's European subsidiaries. As of February 9, 1995, the amount available for borrowing was approximately $38.0 million. The Revolving Credit Facility is secured by substantially all of the U.S. assets of Hexcel, as well as the majority of the shares in the capital stock of the Company's European subsidiaries. In addition, the Revolving Credit Facility is subject to a number of financial covenants and other restrictions. Further discussion of the Revolving Credit Facility is included in Note 9 to the Consolidated Financial Statements included in this Form 10-K. The Revolving Credit Facility replaces the DIP Facility, which was approved for use by the Bankruptcy Court on January 28, 1994 and remained available for borrowing until February 9, 1995. Outstanding borrowings under the DIP Facility totaled $4.2 million as of December 31, 1994. 41 The Company's European subsidiaries also possess various credit facilities which are available to finance the activities of those subsidiaries but are generally not available to finance the Company's U.S. operations. These credit facilities totaled $28.4 million as of December 31, 1994, and outstanding borrowings under these facilities totaled $18.3 million at that time. Approximately $25.6 million of such credit facilities expire on or before June 30, 1996. Information as to the reinstatement or payment of other debt instruments pursuant to the Reorganization Plan is included in Notes 3 and 10 to the Consolidated Financial Statements included in this Form 10-K. In addition to the Revolving Credit Facility, the Reorganization Plan also provided for the completion of the first closing under the standby purchase commitment whereby Mutual Series purchased approximately 1.9 million shares of new common stock for $9.0 million and loaned the Company $41.0 million as an advance against the proceeds of a subscription rights offering for an additional 8.9 million shares of new common stock. The $50.0 million in cash provided by these transactions has been used to pay claims and interest pursuant to the Reorganization Plan. Management expects that the financial resources of the Company, including the Revolving Credit Facility, the proceeds from the offering of additional shares of common stock, and credit facilities available to European subsidiaries, will be sufficient to fund distributions under the Reorganization Plan and finance the Company's operations and restructuring activities through the end of 1995. However, in order to comply with certain financial ratio covenants of the Revolving Credit Facility the Company is required to achieve certain higher levels of financial performance. Management believes that such compliance will be achieved. In addition, the Revolving Credit Facility contains a "change in control" provision which enables the lenders to terminate the facility and accelerate the indebtedness thereunder. Whether or not such a "change in control" occurs is outside of the Company's control (see Note 9 to the Consolidated Financial Statements included in this Form 10-K). CASH FLOWS Information as to the sources and uses of cash pursuant to the Reorganization Plan is included in Note 3 to the Consolidated Financial Statements included in this Form 10-K, which also sets forth the pro forma condensed consolidated financial position of the Company as of December 31, 1994 as if the consummation of the Reorganization Plan occurred on such date. Continuing operating activities generated cash of $1.1 million in 1994, $10.8 million in 1993 and $29.4 million in 1992. The 1994 figure reflects the Company's loss from continuing operations for the year, including $20.2 million of bankruptcy reorganization expenses, offset by a comparable increase in accounts payable and accrued liabilities (including liabilities subject to disposition in bankruptcy reorganization). The increase in accounts payable and accrued liabilities is primarily attributable to the accrual of interest on prepetition obligations, adjustments to allowed claims and a return to payment terms with some vendors. Much of the net increase in cash in 1993 occurred shortly after the bankruptcy filing, as prepetition obligations were stayed by the Bankruptcy Court, while December 1993 accounts receivable collections were strong. The working capital improvements in 1993 were due to lower accounts receivable and inventory levels from declining sales and improved working capital controls, as well as the deferral of payments on U.S. accounts payable during the year. The cash generated from continuing operations in 1992 came primarily from substantial reductions in accounts receivable and inventories. 42 WORKING CAPITAL Current liabilities exceeded current assets by $23.0 million as of December 31, 1994, compared with net working capital of $61.7 million at the end of 1993 and $80.7 million at the end of 1992. The change which occurred in 1994 is attributable to the impact of the Reorganization Plan and the asset sales noted above. Liabilities subject to disposition in bankruptcy reorganization of $97.0 million were reclassified as current obligations during 1994, in accordance with the treatment of these obligations under the Reorganization Plan. However, the Company also recorded $29.3 million in receivables arising from the Chandler and Europeans resins transactions, which is partially offset by a $9.1 million reduction in the net assets of discontinued operations. The 1993 reduction in working capital is primarily attributable to the sales declines experienced during the year, working capital controls and asset write-downs. These factors were partially offset by the increase in cash and the reclassification of short-term prepetition obligations to non-current liabilities subject to disposition in bankruptcy reorganization. CAPITAL EXPENDITURES AND RESTRUCTURING ACTIVITIES Capital expenditures were $8.4 million in 1994, compared with $6.3 million in 1993 and $16.2 million in 1992. The substantial decline in capital spending during 1993 reflects the effort to conserve cash which began early in the year. The Company limited capital spending to outlays required by regulatory requirements and the replacement and upgrade of essential existing equipment, and those limits remained in place during 1994. Now that Hexcel has emerged from bankruptcy reorganization proceedings and secured new financing, capital spending will be somewhat less restricted. The Company expects capital expenditures to be higher in 1995 than in 1994. Cash expenditures on restructuring activities totaled approximately $10.1 million in 1994, compared with $17.2 million in 1993 and $0.7 million in 1992. Spending is expected to be somewhat lower in 1995, as the consolidation of honeycomb manufacturing operations should be completed near the middle of the year. 43 MARKET SUMMARY The following tables summarize net sales by market and by international operations for continuing operations(a) for the five years ended December 31.
Net Sales by Market - ------------------------------------------------------------------------------------------- 1994 1993 1992 1991 1990 - ------------------------------------------------------------------------------------------- Commercial aerospace 47% 42% 46% 47% 47% Space and defense 11% 18% 17% 19% 20% General industrial and other 42% 40% 37% 34% 33% - ------------------------------------------------------------------------------------------- 100% 100% 100% 100% 100% - ------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------- International Operations - ------------------------------------------------------------------------------------------- International net sales(b) $ 142.3 $ 125.4 $ 148.9 $ 153.2 $ 154.1 Percentage of net sales 45% 40% 42% 43% 44% - ------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------- (A) THE DATE EXCLUDE DISCONTINUED OPERATIONS. SEE THE CONSOLIDATED FINANCIAL STATEMENTS AND NOTES FOR FINANCIAL INFORMATION ON DISCONTINUED OPERATIONS. (B) NET SALES OF INTERNATIONAL SUBSIDIARIES AND U.S. EXPORTS, IN THOUSANDS.
44 CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Description Page - ---------------------------------------------------------------------------------------------- Management Responsibility for Financial Statements 46 Independent Auditors' Report 47 Consolidated Financial Statements: Consolidated Statements of Operations: Three years ended December 31, 1994 48 Consolidated Balance Sheets: December 31, 1994 and 1993 49 Consolidated Statements of Shareholders' Equity (Deficit): Three years ended December 31, 1994 50 Consolidated Statements of Cash Flows: Three years ended December 31, 1994 51 Notes to the Consolidated Financial Statements 52 - 76 Exhibit 11. Statement Regarding Computation of Per Share Earnings (Unaudited) 77 Financial statement schedules have been omitted because they are not applicable or the required information is included in the consolidated financial statements or notes thereto.
45 MANAGEMENT RESPONSIBILITY FOR FINANCIAL STATEMENTS Hexcel management has prepared and is responsible for the consolidated financial statements and the related financial data contained in this report. These financial statements, which include estimates, were prepared in accordance with generally accepted accounting principles. Management uses its best judgment to ensure that such statements reflect fairly the consolidated financial position, results of operations and cash flows of the Company. The Company maintains accounting and other control systems which management believes provide reasonable assurance that financial records are reliable for purposes of preparing financial statements and that assets are safeguarded and accounted for properly. Underlying this concept of reasonable assurance is the premise that the cost of control should not exceed benefits derived from control. The Audit Committee of the Board of Directors reviews and monitors the financial reports and accounting practices of the Company. These reports and practices are reviewed regularly by management and by the independent auditors, Deloitte & Touche LLP, in connection with the audit of the Company's financial statements. The Audit Committee, composed solely of outside directors, meets periodically, separately and jointly, with management and the independent auditors. JOHN J. LEE - ------------------------------- (John J. Lee) CHIEF EXECUTIVE OFFICER WILLIAM P. MEEHAN - ------------------------------- (William P. Meehan) CHIEF FINANCIAL OFFICER 46 INDEPENDENT AUDITORS' REPORT To the Board of Directors and Shareholders of Hexcel Corporation: We have audited the accompanying consolidated balance sheets of Hexcel Corporation and subsidiaries as of December 31, 1994 and 1993, and the related consolidated statements of operations, shareholders' equity (deficit) and cash flows for each of the three years in the period ended December 31, 1994. These financial statements are the responsibility of Hexcel's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards 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. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Hexcel Corporation and subsidiaries at December 31, 1994 and 1993, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1994 in conformity with generally accepted accounting principles. As discussed in Note 2 to the consolidated financial statements, on January 12, 1995, the U.S. Bankruptcy Court entered an order dated January 10, 1995 confirming Hexcel's plan of reorganization which became effective on February 9, 1995. The terms of the plan of reorganization are more fully described in Notes 2 and 3. As discussed in Note 9 to the consolidated financial statements, in order to comply with certain financial ratio covenants of the revolving credit facility Hexcel is required to achieve certain higher levels of financial performance. As discussed in Note 1 to the consolidated financial statements, in 1992 Hexcel changed its method of accounting for postretirement benefits other than pensions to conform with Statement of Financial Accounting Standards No. 106 and in 1993 changed its method of accounting for income taxes effective January 1, 1993 to conform with Statement of Financial Accounting Standards No. 109. DELOITTE & TOUCHE LLP Oakland, California February 24, 1995 47 HEXCEL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------------------------------- YEARS ENDED DECEMBER 31, (IN THOUSANDS, EXCEPT PER SHARE DATA) 1994 1993 1992 - --------------------------------------------------------------------------------------------------------- Net sales $ 313,795 $ 310,635 $ 352,987 Cost of sales (265,367) (263,090) (285,088) - --------------------------------------------------------------------------------------------------------- Gross margin 48,428 47,545 67,899 Other operating costs and expenses: Marketing, general and administrative expenses (45,785) (52,510) (62,053) Other income (expenses) 4,861 (12,780) 2,992 Restructuring expenses - (46,600) (23,000) - --------------------------------------------------------------------------------------------------------- Operating income (loss) 7,504 (64,345) (14,162) Interest expenses (11,846) (8,862) (8,196) Bankruptcy reorganization expenses (20,152) (641) - - --------------------------------------------------------------------------------------------------------- Loss from continuing operations before income taxes (24,494) (73,848) (22,358) Benefit (provision) for income taxes (3,586) (6,024) 6,375 - --------------------------------------------------------------------------------------------------------- Loss from continuing operations (28,080) (79,872) (15,983) Discontinued operations: Income (losses) from operations, net of (provision) for income taxes of ($441) in 1994, ($177) in 1993, and ($26) in 1992 989 (6,584) (1,723) Losses during phase-out period, net of benefit (provision) for income taxes of ($136) in 1994, $383 in 1993, and $1,139 in 1992 (2,879) (4,039) (4,472) - --------------------------------------------------------------------------------------------------------- Loss before extraordinary item and cumulative effects of accounting changes (29,970) (90,495) (22,178) Extraordinary item: Gain on redemption of convertible subordinated debentures, net of (provision) for income taxes of ($492) in 1992 - - 956 - --------------------------------------------------------------------------------------------------------- Loss before cumulative effects of accounting changes (29,970) (90,495) (21,222) Cumulative effects of accounting changes: Postretirement benefits other than pensions, net of benefit for income taxes of $4,148 in 1992 - - (8,052) Income taxes - 4,500 - - --------------------------------------------------------------------------------------------------------- Net loss $ (29,970) $ (85,995) $ (29,274) - --------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------- Net income (loss) per share and equivalent share: Primary and fully diluted: Continuing operations $ (3.84) $ (10.89) $ (2.20) Discontinued operations (0.26) (1.45) (0.85) Extraordinary item - - 0.13 Cumulative effects of accounting changes - 0.61 (1.11) - --------------------------------------------------------------------------------------------------------- Net loss $ (4.10) $ (11.73) $ (4.03) - --------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------- Weighted average shares and equivalent shares 7,310 7,330 7,272 - --------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS. 48 HEXCEL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------------------------------- 1994 UNAUDITED PRO FORMA BALANCES AT DECEMBER 31, (IN THOUSANDS, EXCEPT PER SHARE DATA) (SEE NOTE 3) 1994 1993 - --------------------------------------------------------------------------------------------------------- ASSETS Current assets: Cash and equivalents $ 4,082 $ 931 $ 11,348 Receivables from asset sales - 29,340 - Accounts receivable 64,136 64,136 64,847 Inventories 47,364 47,364 42,513 Prepaid expenses 3,581 3,581 3,915 Net assets of discontinued operations 3,000 3,000 12,087 - --------------------------------------------------------------------------------------------------------- Total current assets 122,163 148,352 134,710 - --------------------------------------------------------------------------------------------------------- Property, plant and equipment: Land 2,213 2,213 3,887 Buildings 36,913 36,913 49,341 Equipment 147,202 147,202 167,924 - --------------------------------------------------------------------------------------------------------- 186,328 186,328 221,152 Less accumulated depreciation 103,215 103,215 113,426 - --------------------------------------------------------------------------------------------------------- Net property, plant and equipment 83,113 83,113 107,726 - --------------------------------------------------------------------------------------------------------- Investments and other assets 13,642 11,992 20,806 - --------------------------------------------------------------------------------------------------------- Total assets $218,918 $243,457 $263,242 - --------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) Current liabilities: Notes payable and current maturities of long-term liabilities $ 24,672 $ 12,720 $ 24,596 Accounts payable 18,163 18,163 10,975 Accrued liabilities 45,017 32,234 21,384 Accrued restructuring liabilities 11,165 11,165 16,010 Liabilities subject to disposition in bankruptcy reorganization - 97,025 - - --------------------------------------------------------------------------------------------------------- Total current liabilities 99,017 171,307 72,965 - --------------------------------------------------------------------------------------------------------- Long-term notes payable and capital lease obligations 50,292 16,004 5,165 Deferred liabilities 27,743 21,279 44,427 Liabilities subject to disposition in bankruptcy reorganization - 40,752 119,932 - --------------------------------------------------------------------------------------------------------- Shareholders' equity (deficit): Common stock, $0.01 par value, authorized 20,000 shares, shares issued and outstanding of 7,301 in 1994 and 7,310 in 1993 182 73 73 Additional paid-in capital 111,417 62,626 62,562 Accumulated deficit (73,863) (72,714) (42,744) Minimum pension obligation adjustment (137) (137) (646) Cumulative currency translation adjustment 4,267 4,267 1,508 - --------------------------------------------------------------------------------------------------------- Total shareholders' equity (deficit) 41,866 (5,885) 20,753 - --------------------------------------------------------------------------------------------------------- Total liabilities and shareholders' equity (deficit) $218,918 $243,457 $263,242 - --------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS. 49 HEXCEL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
- ------------------------------------------------------------------------------------------------------------------------------------ YEARS ENDED COMMON STOCK RETAINED MINIMUM CUMULATIVE DECEMBER 31, ---------------------- ADDITIONAL EARNINGS PENSION CURRENCY TOTAL 1994, 1993 AND 1992 OUTSTANDING PAID-IN (ACCUMULATED OBLIGATION TRANSLATION SHAREHOLDERS' (IN THOUSANDS) SHARES AMOUNT CAPITAL DEFICIT) ADJUSTMENT ADJUSTMENT EQUITY (DEFICIT) - ------------------------------------------------------------------------------------------------------------------------------------ BALANCE, JANUARY 1, 1992 7,158 $ 72 $ 60,932 $ 75,680 - $ 7,639 $144,323 Net loss - - - (29,274) - - (29,274) Activity under stock plans 138 1 1,360 - - - 1,361 Cash dividends on common stock - - - (3,155) - - (3,155) Currency translation adjustment - - - - - (7,106) (7,106) - ------------------------------------------------------------------------------------------------------------------------------------ BALANCE, DECEMBER 31, 1992 7,296 73 62,292 43,251 - 533 106,149 Net loss - - - (85,995) - - (85,995) Activity under stock plans 14 - 270 - - - 270 Pension obligation adjustment - - - - $(646) - (646) Currency translation adjustment - - - - - 975 975 - ------------------------------------------------------------------------------------------------------------------------------------ BALANCE, DECEMBER 31, 1993 7,310 73 62,562 (42,744) (646) 1,508 20,753 Net loss - - - (29,970) - - (29,970) Activity under stock plans (9) - 64 - - - 64 Pension obligation adjustment - - - - 509 - 509 Currency translation adjustment - - - - - 2,759 2,759 - ------------------------------------------------------------------------------------------------------------------------------------ BALANCE, DECEMBER 31, 1994 7,301 73 62,626 (72,714) (137) 4,267 (5,885) - ------------------------------------------------------------------------------------------------------------------------------------ UNAUDITED PRO FORMA INFORMATION: Interest and other bankruptcy costs - - - (1,149) - - (1,149) Sale of new common stock under standby purchase commitment and subscription rights offering 10,908 109 48,791 - - - 48,900 - ------------------------------------------------------------------------------------------------------------------------------------ UNAUDITED PRO FORMA BALANCE, DECEMBER 31, 1994 (SEE NOTE 3) 18,209 $182 $111,417 $(73,863) $(137) $ 4,267 $ 41,866 - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS. 50 HEXCEL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------------------------------- YEARS ENDED DECEMBER 31, (IN THOUSANDS) 1994 1993 1992 - --------------------------------------------------------------------------------------------------------- Cash flows from operating activities: Cash flows from continuing operations: Loss from continuing operations $(28,080) $(79,872) $(15,983) Reconciliation to net cash provided by continuing operations: Depreciation and amortization 14,230 14,880 14,736 Provision (benefit) for deferred taxes 3,609 4,805 (6,071) Other income relating to the sale of Chandler, Arizona manufacturing facility and certain related assets and technology (15,900) - - Provision for DIC-Hexcel Limited 8,000 - - Restructuring expenses - 46,600 23,000 Changes in assets and liabilities: (Increase) decrease in accounts receivable (1,168) 9,157 18,422 (Increase) decrease in inventories (6,228) 3,336 12,041 (Increase) decrease in prepaid expenses (454) (1,775) 1,655 Increase (decrease) in accounts payable and accrued liabilities 33,957 20,828 (12,019) Decrease in restructuring accrual (10,138) (17,235) (665) Increase in accrued bankruptcy reorganization expenses 7,147 366 - Changes in other non-current assets and long-term liabilities (3,876) 9,736 (5,760) - --------------------------------------------------------------------------------------------------------- Net cash provided by continuing operations 1,099 10,826 29,356 Net cash provided (used) by discontinued operations (2,206) 624 (4,090) - --------------------------------------------------------------------------------------------------------- Net cash provided (used) by operating activities (1,107) 11,450 25,266 - --------------------------------------------------------------------------------------------------------- Cash flows from investing activities: Capital expenditures (8,362) (6,264) (16,220) Proceeds from property and equipment sold 229 764 733 Proceeds from sale of discontinued European resins business 6,125 - - Proceeds from sale of Chandler, Arizona manufacturing facility and certain related assets and technology 2,294 - - Proceeds from sale of stitchbonded fabrics business to joint venture - 4,500 - Investments in joint ventures - (1,750) (500) Proceeds from sale of discontinued fine chemicals business - 500 19,262 Proceeds from settlement of interest rate swap agreements - - 1,818 - --------------------------------------------------------------------------------------------------------- Net cash provided (used) by investing activities 286 (2,250) 5,093 - --------------------------------------------------------------------------------------------------------- Cash flows from financing activities: Proceeds from issuance of long-term debt 171 - 21,954 Payments of long-term debt, including current maturities (11,413) (4,801) (44,311) Repurchase of convertible subordinated debentures - - (5,487) Proceeds (payments) of short-term debt, net 1,687 6,847 (1,591) Proceeds from issuance of common stock for employee and shareholder stock plans - 270 1,361 Cash dividends paid - - (3,155) - ---------------------------------------------------------------------------------------------------------- Net cash provided (used) by financing activities (9,555) 2,316 (31,229) - --------------------------------------------------------------------------------------------------------- Effect of exchange rate changes on cash and equivalents (41) (535) 928 - --------------------------------------------------------------------------------------------------------- Net increase (decrease) in cash and equivalents (10,417) 10,981 58 Cash and equivalents at beginning of year 11,348 367 309 - --------------------------------------------------------------------------------------------------------- Cash and equivalents at end of year $ 931 $ 11,348 $ 367 - --------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS. 51 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES BASIS OF ACCOUNTING The consolidated financial statements include the accounts of Hexcel Corporation and subsidiaries (the "Company"), after elimination of intercompany transactions and accounts. As discussed in Note 2, Hexcel Corporation (a Delaware corporation, "Hexcel") operated as a debtor-in-possession under the provisions of Chapter 11 of the federal bankruptcy laws from December 6, 1993 until February 9, 1995, when the First Amended Plan of Reorganization (the "Reorganization Plan") proposed by Hexcel and the Official Committee of Equity Security Holders (the "Equity Committee") became effective. Consequently, the consolidated financial statements have been prepared in accordance with Statement of Position 90-7, "Financial Reporting by Entities in Reorganization Under the Bankruptcy Code," issued by the American Institute of Certified Public Accountants in November 1990 ("SOP 90-7"). As discussed in Notes 4 and 17, the Company intensified its efforts to sell its resins business, comprised of operations in Europe and the U.S., during 1994. As a result of those efforts, the Company completed the sale of its European resins business in December 1994 (see Note 4), and believes that the sale of its U.S. resins business on acceptable terms can be arranged. Accordingly, the resins business is accounted for as a discontinued operation in the accompanying consolidated financial statements for all periods presented. CASH AND EQUIVALENTS The Company invests excess cash in investments with original maturities of less than three months. The investments consist of Eurodollar time deposits and are stated at cost, which approximates market value. The Company considers such investments to be cash equivalents for purposes of the statements of cash flows. ACCOUNTS RECEIVABLE Accounts receivable were net of reserves for doubtful accounts of $1,249 and $1,490 at December 31, 1994 and 1993, respectively. INVENTORIES Inventories are valued at the lower of cost or market, with cost determined on a first-in, first-out basis. 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. Interest expense associated with major long-term construction projects is capitalized. Capitalized interest was $0 in 1994, $227 in 1993 and $298 in 1992. The Company depreciates property, plant and equipment over estimated useful lives. Accelerated and straight-line methods are used for financial statement purposes. The estimated useful lives range from 10 to 40 years for buildings and improvements and 3 to 20 years for machinery and equipment. RESEARCH AND DEVELOPMENT COSTS Research and development costs of $8,201 in 1994, $7,971 in 1993 and $9,543 in 1992 were expensed as incurred, and are included in "marketing, general and administrative expenses" in the consolidated statements of operations. 52 CURRENCY TRANSLATION The assets and liabilities of European 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 shareholders' equity. Realized gains and losses from currency exchange transactions were not material to the Company's consolidated results of operations in 1994, 1993 or 1992. EARNINGS PER SHARE Net income (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares and dilutive common share equivalents (stock options) outstanding during each year. The computation on the fully diluted basis, which considers the exercise of stock options and the conversion of the convertible subordinated debentures, was antidilutive in 1994, 1993 and 1992. ACCOUNTING CHANGES Effective January 1, 1993, the Company adopted Statement of Financial Accounting Standards No. 109 ("SFAS 109"), "Accounting for Income Taxes" (see Note 16). The cumulative effect of this accounting change has been reflected in the consolidated statement of operations for the year ended December 31, 1993. Effective January 1, 1992, the Company adopted Statement of Financial Accounting Standards No. 106 ("SFAS 106"), "Employers' Accounting for Postretirement Benefits Other than Pensions" (see Note 15). The cumulative effect of this accounting change has been reflected in the consolidated statement of operations for the year ended December 31, 1992. RECLASSIFICATIONS Certain prior year amounts in the consolidated financial statements and notes have been reclassified to conform to the 1994 presentation. NOTE 2 - BANKRUPTCY REORGANIZATION BANKRUPTCY REORGANIZATION PROCEEDINGS On January 12, 1995, the United States Bankruptcy Court for the Northern District of California (the "Bankruptcy Court") entered an order dated January 10, 1995 confirming the Reorganization Plan proposed by Hexcel and the Equity Committee. On February 9, 1995, the Reorganization Plan became effective and Hexcel emerged from bankruptcy reorganization proceedings. Those proceedings had begun on December 6, 1993, when Hexcel filed a voluntary petition for relief under the provisions of Chapter 11 of the federal bankruptcy laws. Hexcel operated as a debtor-in-possession under the supervision of the Bankruptcy Court for the duration of those proceedings and, as such, was prohibited from paying prepetition liabilities or engaging in transactions outside of the ordinary course of business without the approval of the Bankruptcy Court. The joint ventures and European subsidiaries of Hexcel were not included in the bankruptcy proceedings and were not subject to the provisions of the federal bankruptcy laws or the supervision of the Bankruptcy Court. Hexcel received the approval of the Bankruptcy Court to pay or otherwise honor certain prepetition obligations at various times during the course of bankruptcy proceedings. Accordingly, these obligations have been included in the appropriate liability captions of the consolidated balance sheets based on the dates that such approvals were received. Most other prepetition liabilities, including trade accounts and notes payable, have been reflected as "liabilities subject to disposition in bankruptcy reorganization" on the basis of the estimated amount of allowed claims. Liabilities arising from the accrual of interest on prepetition liabilities, the rejection of executory contracts, and the resolution of contingencies and other 53 disputed amounts have also been included in "liabilities subject to disposition in bankruptcy reorganization." Professional fees and other costs directly related to bankruptcy proceedings are expensed as incurred, and have been reflected in the consolidated statements of operations as "bankruptcy reorganization expenses." Bankruptcy reorganization expenses consist primarily of professional fees paid to legal and financial advisors of the Company, the Equity Committee and the Official Committee of Unsecured Creditors. In addition, these expenses include incentives for employees to remain with the Company for the duration of bankruptcy proceedings and the write-off of previously capitalized costs related to the issuance of prepetition debt, as required by SOP 90-7. Interest income earned by Hexcel during bankruptcy proceedings, which was not material to the Company's consolidated results of operations in 1994 or 1993, has been reported as a reduction of bankruptcy reorganization expenses. THE REORGANIZATION PLAN The Reorganization Plan which became effective on February 9, 1995 provided for (a) the replacement of the debtor-in-possession credit facility with a new revolving credit facility of up to $45,000 (see Note 9); (b) the creation of an amended reimbursement agreement with respect to the letters of credit which support certain industrial development revenue bonds (see Note 10); and (c) the completion of the first closing under a standby purchase commitment whereby Mutual Series Fund, Inc. ("Mutual Series") purchased 1,945,946 shares of new common stock for $9,000 and loaned the Company $41,000 as an advance against the proceeds of a subscription rights offering for an additional 8,854,143 shares of new common stock. The subscription rights became exercisable on February 24, 1995 and will expire on March 27, 1995. The sale of new common stock pursuant to the standby purchase commitment and the subscription rights offering will increase the number of outstanding common shares from 7,301,001 as of December 31, 1994 to approximately 18,209,000 on or about March 27, 1995, resulting in a dilution of existing equity interests. Furthermore, the Reorganization Plan provides for the settlement of certain claims by the issuance of an additional $200 worth of new common stock, valued at a price equal to the average of the daily average prices of the Company's common stock for the 20 trading days beginning April 26, 1995. The aggregate total number of such shares cannot be determined at this time. The Reorganization Plan also provided for the reinstatement or payment in full, with interest, of all allowed claims, including prepetition accounts payable and notes payable. The total of all claims reinstated or paid, less the portion representing accrued interest for the period from January 1 to February 9, 1995, has been reflected as "liabilities subject to disposition in bankruptcy reorganization" in the consolidated balance sheet as of December 31, 1994. Reinstated liabilities payable after December 31, 1995 have been classified as long-term. NOTE 3 - REORGANIZATION PLAN: PRO FORMA FINANCIAL INFORMATION (UNAUDITED) PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET The following unaudited pro forma condensed consolidated balance sheet as of December 31, 1994 sets forth the condensed consolidated financial position of the Company as if the consummation of the Reorganization Plan occurred on such date, in accordance with SOP 90-7. Hexcel does not meet the criteria set forth in SOP 90-7 for "fresh-start reporting" upon emerging from bankruptcy reorganization proceedings. 54 Hexcel Corporation and Subsidiaries Pro Forma Condensed Consolidated Balance Sheet As of December 31, 1994 (Unaudited)
Pre- (a) (b) Post- Reorganization Asset Sales Reorganization Reorganization Balances Proceeds Adjustments Balances ---------------------------------------------------------------------------- ASSETS Cash and equivalents $ 931 $23,651 $(20,500) $ 4,082 Receivables from asset sales 29,340 (27,840) (1,500) -- Accounts receivable 64,136 64,136 Inventories 47,364 47,364 Prepaid expenses and net assets of discontinued operations 6,581 6,581 ---------------------------------------------------------------------------- Total current assets 148,352 (4,189) (22,000) 122,163 Net fixed assets 83,113 81,113 Investments and other assets 11,992 1,650 13,642 ---------------------------------------------------------------------------- Total assets $243,457 $(4,189) $(20,350) $218,918 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- LIABILITIES & SHAREHOLDERS' EQUITY (DEFICIT) Notes payable and current maturities of long-term liabilities $ 8,531(c) $ 2,663(d) $ 11,194 U.S. revolving debt facility -- 13,478 13,478 Debtor-in-possession financing 4,189 $(4,189) -- Accounts payable and accrued liabilities 50,397(e) 12,783(e) 63,180 Accrued restructuring liabilities 11,165 11,165 Liabilities subject to disposition in bankruptcy reorganization 97,025 (97,025) -- ---------------------------------------------------------------------------- Total current liabilities 171,307 (4,189) (68,101) 99,017 Long-term notes payable and capital lease obligations 16,004(c) 34,288(d) 50,292 Deferred liabilities 21,279 6,464(e) 27,743 Liabilities subject to disposition in bankruptcy reorganization 40,752 (40,752) -- Common stock and additional paid-in capital 62,699 48,900 111,599 Accumulated deficit and minimum pension and cumulative currency translation adjustments (68,584) (1,149) (69,733) ---------------------------------------------------------------------------- Total shareholders' equity (deficit) (5,885) -- 47,751 41,866 ---------------------------------------------------------------------------- Total liabilities and shareholders' equity (deficit) $243,457 $(4,189) $(20,350) $218,918 ---------------------------------------------------------------------------- ----------------------------------------------------------------------------
55 NOTES TO PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET The following sets forth the adjustments used in preparing the unaudited pro forma condensed consolidated balance sheet as if the consummation of the Reorganization Plan occurred on December 31, 1994. The Company expenses bankruptcy reorganization costs as incurred. Pro forma amounts do not reflect bankruptcy reorganization expenses incurred after January 1, 1995 and the Company anticipates that such expenses will continue after the effective date of the Reorganization Plan. (a) Represents proceeds from asset sales that were received after December 31, 1994 but before the effective date of the Reorganization Plan. The receipt of these proceeds was an integral part of the Reorganization Plan. These proceeds include $26,546 received in January 1995 from the sale of the Chandler, Arizona manufacturing facility and certain related assets and technology (see Note 4). The monies were used to repay the remaining outstanding balance on the debtor-in-possession credit facility and the rest was held as cash. The remaining amount includes $936 from the sale of the European resins business (see Note 4), which was received as repayment of monies previously advanced by the Company to one of the European resins subsidiaries. (b) Sources and uses of cash on the effective date of the Reorganization Plan are as follows:
- --------------------------------------------------------------------------------------------------------- SOURCES USES - --------------------------------------------------------------------------------------------------------- Reinstated debt and other obligations $ 36,951 Reinstated debt and other obligations $ 36,951 U.S. revolving debt facility 13,478 Unsecured claims, including interest 78,554 Equity issued to creditors 200 Claims converted to equity 200 Rights offering and stock purchase, Environmental, legal, and other net of transaction costs 48,700 contingent claims 19,247 Accrued environmental, legal, Employee and management and other contingent claims 19,247 incentives 2,825 Escrow proceeds from sale of Liabilities subject to disposition in European resins business 1,500 bankruptcy reorganization 137,777 Excess domestic cash 20,500 Financing costs of reinstated debt 1,650 Interest and other costs from 1/1/95 to 2/9/95 1,149 - --------------------------------------------------------------------------------------------------------- Total sources $140,576 Total uses $140,576 - --------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------
(c) The $24,535 of long-term debt on the pre-reorganization condensed consolidated balance sheet, including the current portion of long-term debt, represents the debt of European subsidiaries and $3,725 of U.S. debt reinstated prior to the effective date of the Reorganization Plan. The $3,725 of reinstated U.S. debt includes $4,900 of bond obligations related to the City of Industry facility less $2,340 of such obligations assumed by the purchaser of that facility in November 1994 (see Note 4). Such debt was reclassified from "liabilities subject to disposition in bankruptcy reorganization" prior to December 31, 1994. 56 (d) The reorganization adjustments to long-term debt (including the current portion of long-term debt) consist of the following prepetition claims which are either reinstated debt instruments or new deferred payment obligations:
- -------------------------------------------------------------------------------- TOTAL CURRENT LONG-TERM OBLIGATION DEBT PORTION PORTION - -------------------------------------------------------------------------------- 7% convertible subordinated debentures $25,625 -- $25,625 Industrial development revenue bonds (IDRBs) 10,750 $2,400 8,350 Mortgages 576 263 313 - ------------------------------------------------------------------------------- Total obligations $36,951 $2,663 $34,288 - ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------
The above table does not reflect certain prepetition debt which was reinstated prior to the effective date of the Reorganization Plan, as discussed in (c) above. (e) Pre-reorganization payables and accruals consist of liabilities incurred by European subsidiaries and U.S. postpetition payables and accruals incurred during the normal course of business subsequent to December 6, 1993. Reorganization adjustments of $19,247 ($6,464 of which is in long-term liabilities) primarily represent the reinstatement of prepetition environmental and legal reserves, the reserve for the Dainippon Ink & Chemicals, Inc. contingent claim (see Note 5) and deferred priority tax payments. NOTE 4 - ASSET SALES SALE OF CHANDLER, ARIZONA MANUFACTURING FACILITY AND CERTAIN RELATED ASSETS AND TECHNOLOGY On November 3, 1994, Hexcel signed a definitive agreement (the "Chandler Agreement") to sell its Chandler, Arizona manufacturing facility and certain related assets and technology to Northrop Grumman Corporation ("Northrop"), subject to the approval of the Bankruptcy Court. The terms and conditions required to close the Chandler Agreement were substantially satisfied in the following month, and the Bankruptcy Court approved the sale by order entered on December 21, 1994. In connection with the disposition of the Chandler facility, the Company recognized other income of $15,900 which includes the effects of reversing $10,000 of a previously established restructuring reserve related to the Chandler facility and $5,900 which represents the excess of the sales price over the carrying value of the net assets sold. The transaction generated net cash proceeds of $28,988, of which $2,294 was received in 1994, $26,546 was received in January 1995 and $148 was received shortly thereafter. The net proceeds received in the first quarter of 1995 have been reflected in "receivables from asset sales" in the consolidated balance sheet as of December 31, 1994. The Chandler facility was originally constructed by the Company in 1988, primarily to manufacture materials for the B-2 aircraft program. Under the terms of the Chandler Agreement, the Company retained a royalty-free, non-exclusive license to use the technology sold in non-military applications and will receive royalties from Northrop on certain applications of that technology. In addition, the Company may receive up to an additional $2,300 pursuant to the Chandler Agreement, when certain conditions are satisfied. The payment of all or a portion of this amount will result in the recognition of additional income on the transaction, when such amount is received. The terms of the Chandler Agreement include the settlement of the Company's claim for equitable relief in connection with underutilized capacity at the Chandler facility. Accordingly, $4,428 of the net proceeds were applied to the long-term receivable which the Company had previously recognized in 1991 and 1992 in connection with that claim. 57 SALE OF EUROPEAN RESINS BUSINESS On December 29, 1994, the Company sold its European resins business to Axson S.A., a French corporation, through the sale of all of the Company's shares in the capital stock of its European resins subsidiaries. The sale and related settlement transactions generated net cash proceeds of approximately $8,727, of which $6,125 was received in the fourth quarter of 1994 and $2,602 was received in the first quarter of 1995. The net proceeds received in the first quarter of 1995 have been reflected in "receivables from asset sales" in the consolidated balance sheet as of December 31, 1994. The European resins business was a substantial component of the Company's worldwide resins business, which is accounted for as a discontinued operation in the accompanying consolidated financial statements for all periods presented (see Note 17). The Company recorded a $2,800 provision in the third quarter of 1994 to write down the net assets of the worldwide resins business to expected realizable value, following a $6,000 charge in the third quarter of 1993 and a $500 charge in the fourth quarter of 1992. The net proceeds from the sale of the European resins business approximated the adjusted net book value of the assets sold. The Company is continuing discussions for the sale of its U.S. resins business, the net assets of which are reflected as "net assets of discontinued operations" in the consolidated balance sheet as of December 31, 1994. SALE OF CITY OF INDUSTRY PROPERTY On November 1, 1994, Hexcel sold the property it owned in the City of Industry, California for $2,600, which approximated net book value. Under the terms of the sales agreement, which was approved by the Bankruptcy Court, the buyer paid the Company $260 in cash and assumed responsibility for $2,340 of the outstanding principal of a $4,900 bond obligation related to the property. The Company's net remaining obligation of $2,560 under the bond is reflected in "long-term notes payable and capital lease obligations" in the consolidated balance sheet as of December 31, 1994. The Company is also contingently liable for that portion of the bond assumed by the buyer, in the event the buyer should default on assumed payment obligations. NOTE 5 - DIC-HEXCEL LIMITED The Company owns an equity interest in DIC-Hexcel Limited, a joint venture with Dainippon Ink and Chemicals, Inc. ("DIC"). The joint venture was formed in 1990 for the production and sale of Nomex honeycomb, advanced composites and decorative laminates for the Japanese market. The joint venture owns and operates a manufacturing facility in Komatsu, Japan which has begun to manufacture decorative laminates for sale and is now performing pre- qualification manufacturing trials of honeycomb and advanced composites. Under the terms of the original joint venture agreement, DIC agreed to guarantee all bank debt incurred by this joint venture. In turn, the Company provided an undertaking that in the event the venture went into liquidation the Company would reimburse DIC for 50% of all guaranteed bank loans, net of any proceeds from the sale of the venture's assets. As of December 31, 1994, the guaranteed bank debt of the venture totaled approximately $19,400. Due to the significant reduction in demand for commercial aircraft and other adverse changes in the competitive environment, the economic viability of this joint venture has become questionable. In addition, the cost of pre- qualification trials and the attendant lack of revenues has resulted in negative cash flows which are expected to continue for several years. During the third quarter of 1994, DIC proposed to liquidate the venture. The Company responded with a proposal to restructure the venture, subject to various conditions, which DIC agreed to consider. Under either proposal, the Company would retain responsibility for a portion of the venture's guaranteed bank debt. Accordingly, the Company recorded an $8,000 provision in the third quarter of 1994 to reflect the estimated cost of restructuring or 58 liquidating DIC-Hexcel Limited. This provision has been included in "other income (expenses)" in the 1994 consolidated statement of operations. On February 20, 1995, the Company and DIC signed an amendment to the original joint venture agreement which restructures DIC-Hexcel Limited and limits the Company's potential liability for the venture's guaranteed bank debt to $9,000. Under the terms of the amendment, the Company is required to contribute $4,500 in cash to the venture, payable in installments of $1,438 in the first quarter of 1995 and $438 in each of the next seven quarters. In addition, the Company may be required to pay another $4,500 in cash if there is a decision to liquidate the joint venture, but such payment is not expected to be required, if at all, prior to January 1997. Alternatively, if no such decision is reached and DIC is subsequently required to make payments on account of guarantees of certain obligations related to the joint venture, the Company may be required to pay up to 50% of the amount DIC pays on account of its guarantees, up to a maximum of $4,500. The amendment also reduces the Company's equity interest in the joint venture from 50% to approximately 42%, and provides for a corresponding increase in DIC's equity interest. Management believes that the $8,000 provision recorded in the third quarter of 1994 remains the best estimate of the Company's probable liability under the amended joint venture agreement, based on the terms of that agreement and the projected future operating results of DIC-Hexcel Limited. The terms of the amended joint venture agreement were approved by the Bankruptcy Court in connection with the confirmation of Hexcel's Reorganization Plan, and the associated liability has been included in "liabilities subject to disposition in bankruptcy reorganization" in the consolidated balance sheet as of December 31, 1994. NOTE 6 - RESTRUCTURING AND OTHER EXPENSES RESTRUCTURING In December 1992, the Company initiated a worldwide restructuring program designed to improve facility utilization and determine the proper workforce requirements to support projected reduced levels of business in 1993 and beyond. The Company recorded a charge for this program of $23,000 in the fourth quarter of 1992. In April 1993, the Company announced the closing of the Graham, Texas facility and the consolidation of Graham operations into other plants. The estimated costs of this closure were included in the 1992 restructuring charge. The Graham closure was substantially completed in 1994. In September 1993, the Company announced plans to significantly expand the restructuring program in response to the expected further decline in the Company's principal markets, commercial and military aerospace. Accordingly, the Company recorded a charge of $44,000 in the third quarter of 1993. This expansion included deeper cuts in overhead and further consolidation of facilities in the United States and Europe. During the fourth quarter of 1993, an additional charge of $2,600 was recorded in connection with the expanded restructuring program. The 1993 and 1992 restructuring charges included approximately $34,000 of non-cash write-downs related to facility closures and the impairment of certain assets due to declining sales and the changed business environment. In the fourth quarter of 1994, the Company sold the Chandler, Arizona manufacturing facility and certain related assets and technology (see Note 4). Together with the closure of the Graham facility, this will complete the reduction in honeycomb production capacity contemplated by the expanded restructuring program. The Company has begun transferring certain assets and production processes located at the Chandler facility, which were not included in the sale, to the Company's facility in Casa 59 Grande, Arizona. The estimated costs associated with this transfer, which is not expected to be complete until the middle of 1995, were included in the restructuring charge recorded in the third quarter of 1993. The total of $69,600 in restructuring charges taken in 1992 and 1993 and the remaining balances of accrued restructuring charges as of December 31, 1994 and 1993 were:
- ------------------------------------------------------------------------------------------------------------- Accrued Accrued Total Restructuring Restructuring Restructuring Liabilities at Liabilities at Expenses 12/31/94 12/31/93 - ------------------------------------------------------------------------------------------------------------- Estimated costs to close and relocate facilities: Asset write-downs $19,500 $ 2,230 $17,500 Cash costs, net of expected sales proceeds 11,000 2,835 6,500 Estimated employee severance costs (excluding severance related to the closure of facilities) 15,900 1,100 5,700 Asset write-downs due to changed business conditions 14,700 -- 3,700 Estimated cash costs of various other restructuring actions 8,500 5,000 5,300 - ------------------------------------------------------------------------------------------------------------- $69,600 $11,165 $38,700 - ------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------
Accrued restructuring liabilities of $11,165 and $16,010 have been reflected as "accrued restructuring liabilities" in the consolidated balance sheets as of December 31, 1994 and 1993, respectively. In addition, accrued restructuring liabilities of $22,690 have been included in "deferred liabilities" in the consolidated balance sheet as of December 31, 1993. The decrease in accrued restructuring liabilities during 1994 is primarily attributable to the consolidation of honeycomb manufacturing operations in connection with the closure of the Graham facility and the disposal of the Chandler facility. In addition, the Company substantially completed personnel reductions in the U.S. and Europe and began the implementation of a new management information system to meet the needs of the restructured Company. The consolidation of honeycomb operations is expected to be completed by the middle of 1995, while implementation of the information system will continue in stages throughout the year. OTHER EXPENSES The Company recorded a $2,900 provision in the fourth quarter of 1994 for bankruptcy claim adjustments, which resulted from the reconciliation and settlement of certain claims as well as changes in the estimate of assumed liabilities. This provision has been reflected in "other income (expenses)" in the 1994 consolidated statement of operations, in addition to the $15,900 of other income related to the Chandler facility (see Note 4), the $8,000 provision for DIC-Hexcel Limited (see Note 5), and $139 of other expenses. The Company recorded $12,780 ($12,638 in the fourth quarter) of other expenses in 1993. The $12,638 includes write-downs of certain assets and increases in reserves for warranties and environmental matters on property previously owned. The impairment of assets was due primarily to bankruptcy proceedings, continued changes in business conditions and depressed real estate prices on property held for sale. Other income in 1992 consisted of $2,992 from the final settlement of a patent infringement lawsuit. 60 NOTE 7 - INVENTORIES Inventories as of December 31, 1994 and 1993 were:
- ------------------------------------------------------------------------------- 1994 1993 - ------------------------------------------------------------------------------- Raw materials $18,846 $13,187 Work in progress 11,182 10,937 Finished goods 16,270 17,448 Supplies 1,066 941 - ------------------------------------------------------------------------------- Total inventories $47,364 $42,513 - ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------
NOTE 8 - INVESTMENTS AND OTHER ASSETS Investments and other assets as of December 31, 1994 and 1993 were:
- ------------------------------------------------------------------------------- 1994 1993 - ------------------------------------------------------------------------------- Investments in joint ventures $ 6,287 $ 5,950 Long-term notes receivable, net of reserves 1,807 1,665 Intangibles, net of accumulated amortization 3,168 4,587 Other assets 730 8,604 - ------------------------------------------------------------------------------- Total investments and other assets $11,992 $20,806 - ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------
Investments in joint ventures consist of a 50% interest in Knytex Company, L.L.C. ("Knytex"), which is jointly owned and operated with Owens-Corning Fiberglas Corporation, and a 40% interest in Hexcel-Fyfe, L.L.C. ("Hexcel- Fyfe"), which is jointly owned and operated with Fyfe Associates Corporation. The Company's interest in DIC-Hexcel Limited had no recorded asset value as of December 31, 1994 or 1993 (see Note 5). Investments in joint ventures are accounted for by the equity method. Equity in the earnings of the Knytex and Hexcel-Fyfe joint ventures were not material to the Company's consolidated results of operations in 1994, 1993 or 1992. Knytex was formed on June 30, 1993 when the Company sold 50% of its stitchbonded business to Owens-Corning and contributed the remaining 50% to the joint venture. The Company received proceeds of $4,500 and recognized a gain of $1,541 from the sale. NOTE 9 - REVOLVING CREDIT FACILITY The Reorganization Plan which became effective on February 9, 1995 provided for the replacement of the debtor-in-possession credit facility (the "DIP Facility") with a new revolving credit facility (the "Revolving Credit Facility") of up to $45,000. The Revolving Credit Facility is a three-year facility which is available to fund distributions to creditors under the Reorganization Plan as well as related transaction costs, and to provide for the ongoing working capital needs of the Company and other general corporate purposes. The amount available for borrowing is based on the outstanding balance of eligible U.S. receivables and inventories, as defined in the credit agreement, and on specified values of certain machinery and equipment, real property, and shares in the capital stock of the Company's French subsidiary. As of February 9, 1995, the amount available for borrowing was approximately $38,000. Interest on outstanding borrowings is computed at an annual rate of 1.5% in excess of the prime rate of the lenders, subject to certain adjustments. At the Company's option, interest on borrowings in specified increments may be computed at an annual rate of approximately 2.5% in excess of the 61 applicable LIBOR rate of the lenders. In addition, the Revolving Credit Facility is subject to a commitment fee of 0.5% per annum on the unused portion of the facility, a letter of credit fee of 2.5% per annum on the outstanding face amount of any letters of credit, and an annual administrative fee of $150. The Company also paid a one-time arrangement and syndication fee of $900, as well as certain other costs and expenses related to the implementation of the Revolving Credit Facility. The Revolving Credit Facility is secured by substantially all of the U.S. assets of Hexcel, as well as the majority of the shares of the capital stock of the Company's European subsidiaries. In addition, the Revolving Credit Facility is subject to a number of financial covenants and other restrictions. Hexcel must maintain minimum levels of net worth, fixed charge coverage, interest coverage, and cash flows, all as defined in the credit agreement. In addition, Hexcel is subject to capital spending limitations, as well as limitations in incurring debt and lease obligations. Certain business activities, investments, and guarantees are also restricted, and the payment of dividends is prohibited. In order to comply with certain financial ratio covenants of the Revolving Credit Facility the Company is required to achieve certain higher levels of financial performance. Management believes that such compliance will be achieved. The terms of the Revolving Credit Facility also provide that a "change in control" will constitute an event of default, entitling the lenders to terminate the facility, accelerate the indebtedness thereunder and enforce their remedies as secured lenders with respect to the collateral. The credit agreement defines a "change in control" to mean (i) a person or entity or group of persons or entities (other than Mutual Series) acting in concert shall, as a result of a tender or exchange offer, open market purchases, privately negotiated purchases or otherwise, have become the beneficial owner (within the meaning of Rule 13d-3 under the Securities Exchange Act of 1934, as amended) of securities of the Company representing more than the greater of (a) 20% of the Company's voting stock and (b) the percentage of the Company's voting stock beneficially owned by Mutual Series after giving effect to such purchases; or (ii) the Company shall cease to own and control 100% of the outstanding capital stock of each domestic subsidiary of the Company which guaranteed the Company's obligations with respect to the Revolving Credit Facility. Depending on the results of the subscription rights offering, or based upon an accumulation of common stock through negotiated transactions among stockholders, open market purchases, a tender offer or some combination of the foregoing, it is possible that a stockholder could acquire more than 20% of the outstanding common stock and more shares of common stock than are beneficially owned by Mutual Series. If that were to occur, there is no assurance that the lenders under the Revolving Credit Facility would approve such a change in control or, if they did not, that the Company would be able to obtain a substitute credit facility before the Revolving Credit Facility became due. The Revolving Credit Facility replaces the DIP Facility, which was approved for use by the Bankruptcy Court on January 28, 1994 and remained available for borrowing until February 9, 1995. Outstanding borrowings under the DIP Facility totaled $4,189 as of December 31, 1994. NOTE 10 - NOTES PAYABLE All of the prepetition notes payable of Hexcel which were not previously reinstated by order of the Bankruptcy Court, were either reinstated or paid in full on February 9, 1995, pursuant to the Reorganization Plan. The notes payable of the Company's European subsidiaries were not subject to bankruptcy reorganization proceedings and were unaffected by the Reorganization Plan. 62 Notes payable and capital lease obligations as of December 31, 1994 and 1993 were:
- ---------------------------------------------------------------------------------------------------- 1994 UNAUDITED PRO FORMA (SEE NOTE 3) 1994 1993 - ---------------------------------------------------------------------------------------------------- Hexcel Corporation: Revolving Credit Facility (see Note 9) $13,478 -- -- DIP Facility -- $ 4,189 -- Prepetition revolving credit agreement -- 12,000 $ 12,000 10.12% senior notes originally due 1998 -- 30,000 30,000 7% convertible subordinated debentures due 2011 25,625 25,625 25,625 Obligations under IDRB variable rate demand notes due through 2024, net 13,310 13,310 15,650 Various notes payable due through 2007 1,019 2,883 3,171 Capital lease obligations (see Note 11) 1,413 1,413 929 - ---------------------------------------------------------------------------------------------------- 54,845 89,420 87,375 - ---------------------------------------------------------------------------------------------------- European subsidiaries: Various short-term notes payable 7,656 7,656 21,454 Various notes payable due through 1997 10,642 10,642 6,296 Capital lease obligations (see Note 11) 1,821 1,821 2,011 - ---------------------------------------------------------------------------------------------------- 20,119 20,119 29,761 - ---------------------------------------------------------------------------------------------------- Total notes payable and capital lease obligations 74,964 109,539 117,136 Less amount subject to disposition in bankruptcy reorganization -- (80,815) (87,375) - ---------------------------------------------------------------------------------------------------- Total notes payable and capital lease obligations, net $74,964 $ 28,724 $ 29,761 - ---------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------- Notes payable and current maturities of long-term liabilities, net $24,672 $ 12,720 $ 24,596 Long-term notes payable and capital lease obligations, net 50,292 16,004 5,165 - ---------------------------------------------------------------------------------------------------- Total notes payable and capital lease obligations, net $74,964 $ 28,724 $ 29,761 - ---------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------
The 7% convertible subordinated debentures were subject to disposition in bankruptcy reorganization, and were reinstated on February 9, 1995, pursuant to the Reorganization Plan. These debentures are redeemable by the Company under certain provisions, although such redemption is prohibited for the duration of the Revolving Credit Facility. Mandatory redemption is scheduled to begin in 2002 through annual sinking fund requirements. The debentures are convertible prior to maturity into common stock of the Company at $30.72 per share, subject to adjustment under certain conditions. During 1992, the Company repurchased $7,315 of the subordinated debentures on the open market. The repurchase resulted in an extraordinary gain of $956 after taxes. The Company has various industrial development revenue bonds ("IDRBs") outstanding, guaranteed by bank letters of credit for fees of 0.50% to 0.75%. These IDRBs were subject to disposition in bankruptcy reorganization, and were reinstated on February 9, 1995, pursuant to the Reorganization Plan. The letters of credit which guarantee the IDRBs were also reinstated, in accordance with the terms of an amended reimbursement agreement (the "Reimbursement Agreement") with the issuing bank, and extended until December 31, 1998. The Reimbursement Agreement provides that, commencing April 1, 1995 and every three months thereafter for the duration of the agreement, the Company will either redeem $600 of the guaranteed IDRBs, obtain a $600 backup letter of credit in favor of the issuing bank, or deposit $600 into a sinking fund in which the issuing bank and/or the trustees for the IDRBs will hold 63 a first priority security interest. The Reimbursement Agreement is subject to a number of financial covenants and other restrictions which are similar, although less restrictive, to those of the Revolving Credit Facility. The interest rates on the IDRBs are variable and averaged 3.9% in 1994, 2.5% in 1993 and 2.9% in 1992. Credit facilities available to the Company's European subsidiaries totaled $28,358 as of December 31, 1994, and outstanding borrowings under these facilities totaled $18,298 at that time. These credit facilities are available to finance the activities of the European subsidiaries, but are generally not available to finance the Company's U.S. operations. Approximately $25,552 of such credit facilities expire on or before June 30, 1996. The interest rates on the various notes payable of the Company's European subsidiaries ranged from 3.6% to 13.0% in 1994, 3.4% to 12.5% in 1993 and 4.2% to 14.1% in 1992. Excluding obligations paid in full on February 9, 1995, pursuant to the Reorganization Plan, installments due on long-term notes payable for the years 1995 through 1999 are $2,477, $9,978, $327, $53 and $24, respectively, and $34,609 thereafter. Interest payments were $3,909 in 1994, $8,802 in 1993 and $11,347 in 1992. Hexcel was legally prohibited from paying interest on most prepetition debt obligations in 1994. Management believes that the aggregate fair value of the Company's long- term debt, excluding the 7% convertible subordinated debentures, approximates the aggregate book value, as substantially all such debt is comprised of variable-rate obligations. However, there can be no assurance that the aggregate fair value of the Company's long-term debt will not materially vary from the aggregate book value. The fair value of the 7% convertible subordinated debentures is estimated on the basis of quoted market prices, although trading in the debentures is limited and may not reflect fair value. The estimated fair value of all of the outstanding debentures was $15,888 and $13,581 as of December 31, 1994 and 1993, respectively. NOTE 11 - LEASING ARRANGEMENTS Assets, accumulated depreciation and related liability balances under capital leasing arrangements as of December 31, 1994 and 1993 were:
- ------------------------------------------------------------------------------- 1994 1993 - ------------------------------------------------------------------------------- Property, plant and equipment $ 6,734 $ 6,640 Less accumulated depreciation (2,246) (2,710) - ------------------------------------------------------------------------------- Net property, plant and equipment $ 4,488 $ 3,930 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- Capital lease obligations $ 3,234 $ 2,940 Less current maturities (410) (516) - ------------------------------------------------------------------------------- Long-term capital lease obligations 2,824 2,424 Less amount subject to disposition in -- (781) bankruptcy reorganization - ------------------------------------------------------------------------------- Long-term capital lease obligations, net $ 2,824 $ 1,643 - ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------
Certain sales and administrative offices, data processing equipment and manufacturing facilities are leased under operating leases. 64 Rental expenses under operating leases were $3,675 in 1994, $3,530 in 1993 and $4,761 in 1992. Future minimum lease payments as of December 31, 1994, including leases subject to disposition in bankruptcy reorganization which were assumed by Hexcel pursuant to the Reorganization Plan, were:
- ------------------------------------------------------------------------------- Type of Lease ---------------------- Payable during years ending December 31: Capital Operating - ------------------------------------------------------------------------------- 1995 $ 666 $2,496 1996 535 2,016 1997 535 1,211 1998 535 543 1999 535 217 2000 and thereafter 3,021 834 - ------------------------------------------------------------------------------- Total minimum lease payments $5,827 $7,317 - ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------
Total minimum capital lease payments include $2,593 of imputed interest. NOTE 12 - LIABILITIES SUBJECT TO DISPOSITION IN BANKRUPTCY REORGANIZATION Liabilities subject to disposition in bankruptcy reorganization as of December 31, 1994 and 1993 were:
- ------------------------------------------------------------------------------ 1994 1993 - ------------------------------------------------------------------------------ Accounts payable $ 23,271 $ 21,676 Accrued liabilities, including interest 33,691 10,881 Notes payable and capital lease obligations (see Note 10) 80,815 87,375 - ------------------------------------------------------------------------------ Total liabilities subject to disposition in bankruptcy reorganization $137,777 $119,932 - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ Current liabilities subject to disposition in bankruptcy reorganization $ 97,025 -- Long-term liabilities subject to disposition in bankruptcy reorganization 40,752 $119,932 - ------------------------------------------------------------------------------ Total liabilities subject to disposition in bankruptcy reorganization $137,777 $119,932 - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------
The Reorganization Plan provided for the reinstatement or payment in full, with interest, of all allowed claims, including prepetition accounts payable and notes payable. The total of all claims reinstated or paid, less the portion representing accrued interest for the period from January 1 to February 9, 1995, has been reflected as "liabilities subject to disposition in bankruptcy reorganization" in the consolidated balance sheet as of December 31, 1994. The increase in the accrued liabilities component of liabilities subject to disposition in bankruptcy reorganization during 1994 is primarily attributable to the accrual of interest on prepetition obligations, an $8,000 provision to reflect the estimated cost of restructuring or liquidating DIC-Hexcel Limited (see Note 5), and adjustments to allowed claims. The decline in the notes payable and capital lease obligations component is attributable to the reinstatement of various prepetition notes payable and capital leases pursuant to orders entered by the Bankruptcy Court. 65 NOTE 13 - SHAREHOLDERS' EQUITY AND INCENTIVE STOCK PLANS SHAREHOLDERS' EQUITY Hexcel's Certificate of Incorporation and Bylaws were amended and restated on February 9, 1995, pursuant to the Reorganization Plan. The authorized capital stock of Hexcel was increased to 40,000,000 shares of common stock and 1,500,000 shares of preferred stock. The number of outstanding common shares, which was 7,301,001 as of December 31, 1994, will increase substantially as a result of the Reorganization Plan (see Note 2). There were no outstanding preferred shares as of December 31, 1994, and no such shares are to be issued in connection with the Reorganization Plan. The Company declared and paid cash dividends of $0.44 per common share in 1992. The Board of Directors suspended dividend payments beginning in 1993, and such payments are prohibited by the Revolving Credit Facility. INCENTIVE STOCK PLANS Prior to February 9, 1995, the Company maintained three separate stock incentive plans: a stock option plan, a discounted stock option plan and a restricted stock plan. The Reorganization Plan provided for the termination of all three of these plans, with the holders of all issued and vested options retaining their options and the restrictions with respect to the outstanding restricted stock remaining in place. These plans were replaced by a new long- term incentive plan whereby the Company may grant to eligible individuals stock options (with or without stock appreciation rights), dividend equivalent rights, stock awards, restricted share awards, or other awards. Stock option data for the two years ended December 31, 1994 were:
- ----------------------------------------------------------------------------------------- NUMBER OPTION PRICE EXPIRATION OF SHARES PER SHARE DATES - ----------------------------------------------------------------------------------------- Options outstanding at January 1, 1993 634,174 $ 7.56 - 32.06 1997 - 2002 Options granted 275,200 9.13 - 12.31 2003 Options exercised -- -- -- Options expired or canceled (375,899) 10.44 - 32.06 1997 - 2003 - ----------------------------------------------------------------------------------------- Options outstanding at December 31, 1993 533,475 7.56 - 32.06 1998 - 2003 Options granted -- -- -- Options exercised -- -- -- Options expired or canceled (65,653) 10.44 - 32.06 1998 - 2003 - ----------------------------------------------------------------------------------------- Options outstanding at December 31, 1994 467,822 $ 7.56 - 32.06 1998 - 2003 - ----------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------- Options exercisable at December 31, 1994 467,822 $ 7.56 - 32.06 1998 - 2003 - ----------------------------------------------------------------------------------------- - -----------------------------------------------------------------------------------------
Options issued under the terminated stock option plans vested one year from the date of grant and expire 10 years after such grant date. Restricted shares issued under the terminated restricted stock plan vest in three to seven years from date of grant. Holders of the restricted stock are entitled to vote and receive all dividends. As of December 31, 1994 and 1993, the Company had outstanding a total of 23,662 and 44,939 shares of restricted stock, respectively. NOTE 14 - RETIREMENT PLANS The Company has various retirement and profit sharing plans covering substantially all employees. The net cost of these plans was $2,443 in 1994, $2,330 in 1993 and $2,880 in 1992. 66 In the United States, the Company maintains a defined contribution plan comprised of a 401(k) plan covering essentially all domestic employees and a profit sharing plan covering all domestic salaried employees. The Company also has defined benefit pension plans for substantially all U.S. hourly employees and U.K. employees, and defined benefit retirement plans for senior executives and directors. The European subsidiaries, except for those in the United Kingdom, participate in government retirement plans which cover all employees of those subsidiaries. Under the 401(k) plan, the Company makes matching contributions equal to 50% of the contributions of the employees, not to exceed 3% of base wages. Contributions to the 401(k) plan were $1,039 for 1994, $1,130 for 1993 and $1,593 for 1992. There were no contributions to the salaried profit sharing plan for 1994, 1993 or 1992. The defined benefit pension plans are career average pension plans. Benefits are based on years of service and the annual compensation of the employee. The funding policy for the pension plans is to contribute the minimum amount required by applicable regulations. Benefits for the executive and director retirement plans are based on years of service and annual compensation, and the Company does not fund these plans. Net cost for the defined benefit pension and retirement plans for the years ended December 31, 1994, 1993 and 1992 consisted of:
- ------------------------------------------------------------------------------------------- 1994 1993 1992 - ------------------------------------------------------------------------------------------- Service cost - benefits earned during the year $ 753 $ 749 $ 832 Interest cost on projected benefit obligation 706 713 803 Return on assets - actual 33 (1,385) (157) Net amortization and deferral (88) 1,123 (191) - ------------------------------------------------------------------------------------------- Net cost $1,404 $1,200 $1,287 - ------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------
Assumptions used in the accounting were:
- ------------------------------------------------------------------------------------------- 1994 1993 1992 - ------------------------------------------------------------------------------------------- Discount rates 8.00% 7.00% 8.25% Rates of increase in compensation 4.00% 4.00% 4.50% Expected long-term return on assets 9.50% 9.50% 9.50% - ------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------
67 The funded status and amounts recognized for the defined benefit pension and retirement plans as of December 31, 1994 and 1993 were:
- ------------------------------------------------------------------------------ 1994 1993 - ------------------------------------------------------------------------------ Actuarial present value of benefit obligations: Vested benefits $ 6,688 $ 8,480 Non-vested benefits 1,022 1,530 - ------------------------------------------------------------------------------ Accumulated benefit obligations $ 7,710 $10,010 - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ Projected benefit obligation for service rendered to date $ 8,658 $11,056 Less plan assets at fair value, primarily listed stocks (3,128) (5,358) - ------------------------------------------------------------------------------ Projected benefit obligations in excess of plan assets 5,530 5,698 Unrecognized net loss (814) (1,693) Unrecognized prior service costs (285) (339) Unrecognized net transition obligation being recognized over 15 years (298) (352) Adjustment required to recognize minimum pension obligation 449 1,337 - ------------------------------------------------------------------------------ Defined benefit liability $ 4,582 $ 4,651 - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------
NOTE 15 - POSTRETIREMENT BENEFITS OTHER THAN PENSIONS The Company has various postretirement benefit plans covering substantially all U.S. employees retiring on or after age 58 who have rendered at least 15 years of service. The plans include health care and life insurance coverage for retirees and their dependents. The Company continues to fund benefit costs on a pay-as-you-go basis and, for 1994, 1993 and 1992, made benefit payments of $423, $576 and $352, respectively. Under the health care plan, annual coverage is provided up to a maximum of 50% of plan costs for each retiree and covered dependent. Under the life insurance plan, annual coverage is provided equal to 65% of the final base pay of the retiree until the age of 70. Upon reaching 70 years of age, life insurance coverage is reduced. Effective January 1, 1992, the Company adopted Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions." This statement requires the Company to accrue the expected cost of postretirement benefits as employees render service. This is a significant change from prior policy of recognizing these costs on the cash basis. The cumulative effect, as of January 1, 1992, of changing to the accrual basis was a noncash charge of $8,052 after taxes. The defined postretirement benefit obligations included in deferred liabilities as of December 31, 1994 and 1993 were:
- ------------------------------------------------------------------------------- 1994 1993 - ------------------------------------------------------------------------------- Accumulated postretirement benefit obligation: Retirees $ 7,661 $ 7,946 Fully eligible active plan participants 985 1,573 Other active plan participants 3,211 6,471 - ------------------------------------------------------------------------------- 11,857 15,990 Unrecognized net gain (loss) 2,402 (2,046) - ------------------------------------------------------------------------------- Defined postretirement benefit liability $14,259 $13,944 - ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------
68 Net defined postretirement benefit costs for the years ended December 31, 1994, 1993 and 1992 were:
- ------------------------------------------------------------------------------------------ 1994 1993 1992 - ------------------------------------------------------------------------------------------ Service cost - benefits earned during the year $ 389 $ 400 $ 367 Interest cost on accumulated postretirement benefit obligation 915 1,100 982 - ------------------------------------------------------------------------------------------ Net periodic postretirement benefit cost $1,304 $1,500 $1,349 - ------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------
Two health care cost trend rates were used in measuring the accumulated postretirement benefit obligation. The assumed indemnity health care cost trend in 1995 was 12.0% for participants less than 65 years of age and 8.0% for participants 65 years of age and older, gradually declining to 6.0% for both age groups in the year 2001. The assumed HMO health care cost trend in 1995 was 9.0% for participants less than 65 years of age and 6.0% for participants 65 years of age and older, gradually declining to 6.0% and 5.0%, respectively, in the year 2001. The weighted average discount rate used in determining the accumulated postretirement benefit obligation was 8% in 1994 and 7% in 1993. If the health care cost trend rate assumptions were increased by 1%, the accumulated postretirement benefit obligation as of December 31, 1994 would be increased by 4.7%. The effect of this change on the sum of the service cost and interest cost would be an increase of 3.8%. NOTE 16 - INCOME TAXES NET OPERATING LOSS CARRYFORWARDS As of December 31, 1994, the Company had net operating loss ("NOL") carryforwards for federal income tax purposes of approximately $26,000 and net operating loss carryforwards for international income tax purposes of approximately $6,000. The federal NOL carryforwards, which are available to offset future taxable income, expire at various dates through the year 2009. However, because of the ownership change which is expected to occur as a result of the Reorganization Plan (see Note 2), the utilization of NOL carryforwards in the U.S. after February 9, 1995 will be affected. It is expected that the Company will make use of Section 382(l)(6) of the Internal Revenue Code, whereby the annual allowable NOL deduction will be limited to an amount equal to the product of the fair market value of the Hexcel stock immediately following the ownership change caused by the Reorganization Plan and the long-term federal tax-exempt rate (6.83% as of February 9, 1995). This deduction limitation is estimated to be approximately $5,000 per year. The Company will not qualify for other rules permitting unlimited use of NOLs due to the makeup of the post- reorganization equity ownership. PROVISION FOR INCOME TAXES The Company adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes," effective January 1, 1993. The cumulative effect of adopting SFAS 109 was the recognition of $4,500 of income, which was recorded in the first quarter of 1993. In connection with the adoption of SFAS 109, the Company established a valuation allowance of $4,693 against its deferred income tax assets. During 1993, substantial uncertainty developed as to the realization of the Company's deferred income tax assets. As a result, the Company increased the valuation allowance against those assets to $41,313 as of December 31, 1993, which reduced the net deferred income tax assets to zero. The increase to the valuation allowance reflects the Company's assessment that the bankruptcy 69 reorganization proceedings of Hexcel and ongoing operating losses have jeopardized the realization of deferred income tax assets. In 1994, the Company continued to reserve for the income tax assets generated by Hexcel's pre-tax losses. As a result of settlements of various tax audits, state income taxes and taxable income for certain European subsidiaries, the Company recorded a provision for income taxes of $3,586 in 1994. Loss before income taxes and the tax benefit (provision) for income taxes from continuing operations for the years ended December 31, 1994, 1993 and 1992 were:
- ------------------------------------------------------------------------------------------- 1994 1993 1992 - ------------------------------------------------------------------------------------------- Income (loss) before income taxes: United States $(24,745) $(58,554) $(12,395) International 251 (15,294) (9,963) - ------------------------------------------------------------------------------------------- Total loss before income taxes $(24,494) $(73,848) $(22,358) - ------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------- Benefit (provision) for income taxes: Current: U.S. $ (85) $ (243) $ (64) International 108 (976) 368 - ------------------------------------------------------------------------------------------- Total current 23 (1,219) 304 - ------------------------------------------------------------------------------------------- Deferred: U.S. (2,226) (6,590) 5,233 International (1,383) 1,785 838 - ------------------------------------------------------------------------------------------- Total deferred (3,609) (4,805) 6,071 - ------------------------------------------------------------------------------------------- Total benefit (provision) for income taxes $ (3,586) $ (6,024) $ 6,375 - ------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------
A reconciliation of the tax benefit (provision) to the U.S. federal statutory income tax rate of 34% for the years ended December 31, 1994, 1993 and 1992 was:
- ------------------------------------------------------------------------------------------- 1994 1993 1992 - ------------------------------------------------------------------------------------------- Benefit at U.S. federal statutory rate $ 8,328 $ 25,108 $ 7,602 U.S. state taxes, less federal tax benefit (244) (104) (130) Impact on tax rates of international tax structure -- -- 1,154 Impact of different international tax rates, adjustments to income tax accruals and other 2,352 5,471 2,895 Limitation on recognition of tax benefits for operating losses -- -- (5,146) Valuation allowance (14,022) (36,499) -- - ------------------------------------------------------------------------------------------- Total benefit (provision) for income taxes $ (3,586) $ (6,024) $ 6,375 - ------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------
The Company paid income taxes of $253 in 1994, $203 in 1993 and $468 in 1992. The Company has made no U.S. income tax provision for $21,500 of undistributed earnings of international subsidiaries as of December 31, 1994. Such earnings are considered to be permanently reinvested. The additional U.S. income tax on these earnings, if repatriated, would be offset in part by foreign tax credits. 70 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, 1994 and 1993 were:
- ---------------------------------------------------------------------------- 1994 1993 - ---------------------------------------------------------------------------- Accelerated depreciation and amortization $(15,443) $(15,115) Accrued restructuring charges 14,382 18,040 Net operating loss carryforwards 10,880 9,520 Reserves and other, net 43,234 26,400 Valuation allowance (55,335) (41,313) - ---------------------------------------------------------------------------- Total deferred tax assets (liabilities) $ (2,282) $ (2,468) - ---------------------------------------------------------------------------- - ----------------------------------------------------------------------------
NOTE 17 - DISCONTINUED OPERATIONS The Company intensified its efforts to sell its resins business, comprised of operations in Europe and the U.S., during 1994. As a result of those efforts, the Company completed the sale of its European resins business on December 29, 1994 (see Note 4), and now believes that the sale of its U.S. resins business on acceptable terms can be arranged. Accordingly, the resins business is accounted for as a discontinued operation in the accompanying consolidated financial statements for all periods presented. In November 1990, the Company announced plans to sell the fine chemicals business. On March 31, 1992, the Company sold the U.S. fine chemicals business located in Zeeland, Michigan. The divestiture resulted in a loss of $798 after taxes. The Company used the proceeds of $19,262 from the sale to repay debt. On January 31, 1994, the Company sold the European fine chemicals business located in Teesside, England, completing the divestiture of discontinued operations. The sale generated net cash proceeds of approximately $500, which was received in 1993. The Company recorded a $2,800 provision in 1993 to write down the net assets of the fine chemicals business, and a $2,300 provision in 1992 for estimated future losses. Net sales of discontinued operations for the years ended December 31, 1994, 1993 and 1992 were:
- --------------------------------------------------------------------------- 1994 1993 1992 - --------------------------------------------------------------------------- Discontinued resins business $30,691 $27,933 $33,302 Discontinued fine chemicals business -- 5,704 14,608 - --------------------------------------------------------------------------- Total discontinued operations $30,691 $33,637 $47,910 - --------------------------------------------------------------------------- - ---------------------------------------------------------------------------
Net assets of the discontinued resins business as of December 31, 1994 and 1993 were:
- --------------------------------------------------------------------------- 1994 1993 - --------------------------------------------------------------------------- Current assets $ 3,970 $13,438 Current liabilities (4,591) (8,438) Non-current assets 3,621 7,511 Long-term liabilities -- (424) - --------------------------------------------------------------------------- Net assets $ 3,000 $12,087 - --------------------------------------------------------------------------- - ---------------------------------------------------------------------------
The discontinued fine chemicals business had no remaining net asset value as of December 31, 1993. 71 NOTE 18 - CONTINGENCIES The Company is involved in litigation arising from business activities. In addition, the Company is subject to certain U.S. Government inquiries related to sales under defense contracts, including reviews of business practices and cost classifications. The Company is cooperating with the U.S. Government in all such inquiries of which the Company has knowledge. However, management is unable to predict the legal proceedings that could result from these inquiries. During December 1992, three lawsuits alleging violations of federal securities laws by the Company and certain officers were filed. These three lawsuits were consolidated into one action. Although management believes there were meritorious defenses to the claims, Hexcel negotiated a settlement with the plaintiffs to avoid costly and unproductive litigation. This settlement became effective on February 9, 1995, pursuant to the Reorganization Plan, and provides for the issuance of $200 worth of new common stock, valued at a price equal to the average of the average daily prices of the Company's common stock for the 20 trading days beginning April 26, 1995. The aggregate total number of such shares cannot be determined at this time. Pursuant to the New Jersey Environmental Responsibility and Clean-Up Act, Hexcel signed an administrative consent order to pay for clean-up of a manufacturing facility it formerly operated in Lodi, New Jersey. Hexcel has reserved $4,000 to cover such remaining costs and believes that actual costs should not exceed the amount which has been reserved. Fine Organics Corporation, the current owner of the Lodi site and Hexcel's former chemicals business operated on that site, has asserted that the clean-up costs will be significantly in excess of that amount. The ultimate cost of remediation at the Lodi site will depend on developing circumstances. Fine Organics Corporation filed a proof of claim and an adversary proceeding in the Bankruptcy Court. The court has disallowed a significant portion of the claim by denying Fine Organics claim for treble damages and certain contingent claims. The remaining claims are for prior clean-up costs incurred by Fine Organics and alleged contractual and tort damages relating to the original sale of the business and site to Fine Organics totaling approximately $3,200. This matter is proceeding in the Bankruptcy Court. Various other lawsuits against the Company were also settled in connection with the Reorganization Plan. The outcome of these settlements was not material to the Company's consolidated financial position as of December 31, 1994. The Company is generally self-insured against claims associated with sudden and accidental environmental damage and environmental impairment damage. Certain current and former facilities are the subject of environmental investigations or claims, as well as remediation activities. In addition, the Company has been named as a potentially responsible party ("PRP") with respect to several disposal sites that it does not own or possess and which are included on the Environmental Protection Agency's Superfund National Priority List ("NPL"). A total of 249 claims were filed in Hexcel's Chapter 11 case with a face value of over $6.7 billion. These claims were, for the most part, duplicative as a result of the joint and several liability provisions of the applicable laws, and have been categorized into claims involving 12 sites. Claims involving 7 of the sites have been settled within the Chapter 11 case and the Company expects to settle claims with respect to one additional site. With respect to the claims relating to the remainder of these sites, the Company believes its responsibility to be de minimis and is negotiating to settle these claims; should no settlement be reached, the claims against Hexcel will be allowed to continue without the protection of the Chapter 11 case. The Company has been named a PRP with respect to 8 additional sites, for which no claims were filed in the Chapter 11 case; as a result, the Company believes any further claims with respect to these sites to be barred. 72 The Company estimates its legal and environmental liabilities 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 PRP liability and environmental remediation costs. Such estimates incorporate insignificant amounts for probable recoveries under applicable insurance policies but 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 and environmental matters with any degree of certainty, it is management's opinion, based on available information, that it is unlikely that any of these matters will have a material adverse effect on the consolidated results of operations or financial position of the Company. NOTE 19 - SIGNIFICANT CUSTOMERS The Boeing Company and Boeing subcontractors accounted for approximately 22% of 1994 sales, 21% of 1993 sales and 17% of 1992 sales. 73 NOTE 20 - BUSINESS SEGMENT REPORTING The Company operates within a single business segment, structural materials. The following table summarizes certain financial data for continuing operations by geographic area as of December 31, 1994, 1993, and 1992 and for the years then ended:
- --------------------------------------------------------------------------------- 1994 1993 1992 - --------------------------------------------------------------------------------- Net sales: United States $171,536 $185,261 $204,066 International 142,259 125,374 148,921 - --------------------------------------------------------------------------------- Consolidated $313,795 $310,635 $352,987 - --------------------------------------------------------------------------------- Loss before income taxes: United States $(21,462) $(55,660) $ (8,958) International (3,032) (18,188) (13,400) - --------------------------------------------------------------------------------- Consolidated $(24,494) $(73,848) $(22,358) - --------------------------------------------------------------------------------- Identifiable assets: United States $149,890 $166,201 $190,741 International 90,567 84,954 101,516 - --------------------------------------------------------------------------------- Consolidated $240,457 $251,155 $292,257 - --------------------------------------------------------------------------------- Capital expenditures: United States $ 6,022 $ 4,694 $ 10,651 International 2,340 1,570 5,569 - --------------------------------------------------------------------------------- Consolidated $ 8,362 $ 6,264 $ 16,220 - --------------------------------------------------------------------------------- Depreciation and amortization: United States $ 8,455 $ 9,607 $ 10,236 International 5,775 5,273 4,500 - --------------------------------------------------------------------------------- Consolidated $ 14,230 $ 14,880 $ 14,736 - ---------------------------------------------------------------------------------
The above data exclude discontinued operations, the extraordinary gain and the cumulative effects of accounting changes. International net sales consist of the net sales of international subsidiaries, sold primarily in Europe, and U.S. exports. To compute income (loss) before income taxes, the Company allocated administrative expenses to International of $3,283 in 1994, $2,894 in 1993 and $3,437 in 1992. 74 NOTE 21 - QUARTERLY DATA (UNAUDITED) Quarterly financial data for the years ended December 31, 1994 and 1993 were:
- ------------------------------------------------------------------------------------------------ FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER - ------------------------------------------------------------------------------------------------ 1994 Net sales $77,682 $84,964 $ 74,434 $ 76,715 Gross margin 11,683 14,165 11,601 10,979 Loss from continuing operations (5,325) (4,894) (15,319) (2,542) Income (loss) from discontinued operations 301 472 (2,620) (43) Net loss (5,024) (4,422) (17,939) (2,585) - ------------------------------------------------------------------------------------------------ Net income (loss) per share and equivalent share: Primary and fully diluted: Continuing operations $ (0.73) $ (0.67) $ (2.09) $ (0.34) Discontinued operations 0.04 0.06 (0.36) (0.01) Net loss (0.69) (0.61) (2.45) (0.35) - ------------------------------------------------------------------------------------------------ Dividends per share -- -- -- -- Market price: High $ 4.25 $ 4.00 $ 6.00 $ 5.75 Low 2.75 3.00 3.00 4.00 - ------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------ 1993 Net sales $81,587 $85,650 $ 69,763 $ 73,635 Gross margin 11,562 14,603 10,523 10,857 Loss from continuing operations (3,031) (2,148) (45,479) (29,214) Loss from discontinued operations (273) (341) (9,792) (217) Cumulative effect of accounting change 4,500 -- -- -- Net income (loss) 1,196 (2,489) (55,271) (29,431) - ------------------------------------------------------------------------------------------------ Net income (loss) per share and equivalent share: Primary and fully diluted: Continuing operations $ (0.41) $ (0.29) $ (6.19) $ (4.00) Discontinued operations (0.04) (0.05) (1.33) (0.03) Cumulative effect of accounting change 0.61 -- -- -- Net income (loss) 0.16 (0.34) (7.52) (4.03) - ------------------------------------------------------------------------------------------------ Dividends per share -- -- -- -- Market price: High $ 9.75 $ 11.25 $ 10.75 $ 8.25 Low 7.75 9.25 5.50 2.13 - ------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------
During the third quarter of 1994, the Company recorded an $8,000 provision to reflect the estimated cost of restructuring or liquidating DIC-Hexcel Limited (see Note 5), and a $2,800 provision to write down the net assets of the discontinued resins business to expected net realizable value (see Note 4). During the fourth quarter of 1994, the Company recognized other income of $15,900 relating to the sale of the Chandler facility and related assets and technology (see Note 4). In addition, the Company 75 recorded a total of approximately $10,800 in expenses for bankruptcy claim adjustments, additional interest on allowed claims, and the settlement of various tax audits. The Company adopted SFAS 109, "Accounting for Income Taxes," effective January 1, 1993 (see Note 16). The cumulative effect of adopting SFAS 109 was the recognition of income of $4,500 in the first quarter of 1993. During the third quarter of 1993, the Company recorded a $44,000 restructuring charge for the additional costs of the expanded restructuring program (see Note 6), a $6,000 charge for the discontinued resins business (see Note 4) and a $2,800 provision to write down the net assets of the fine chemicals business (see Note 17). During the fourth quarter of 1993, the Company recorded an additional restructuring charge of $2,600 and other expenses of $12,638 (see Note 6). Quarterly data for 1994 and 1993 reflect certain reclassifications made in 1994. 76 EXHIBIT 11 STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS - UNAUDITED The Company reports net income (loss) per share data on primary and fully diluted bases. Primary net income (loss) per share is based upon the weighted average number of outstanding common shares and common equivalent shares from stock options. Fully diluted net income (loss) per share is based upon (a) the weighted average number of outstanding common shares and common equivalent shares from stock options and adjusted for the assumed conversion of the 7% convertible subordinated debentures and (b) net income (loss) increased by the expenses on the debentures. Computations of net income (loss) per share on the primary and fully diluted bases for 1994, 1993 and 1992 were:
PRIMARY NET INCOME (LOSS) PER SHARE AND EQUIVALENT SHARE - ---------------------------------------------------------------------------------------------------------------------- (IN THOUSANDS, EXCEPT PER SHARE DATA) 1994 1993 1992 - ---------------------------------------------------------------------------------------------------------------------- Loss from continuing operations $ (28,080) $ (79,872) $ (15,983) Loss from discontinued operations (1,890) (10,623) (6,195) Extraordinary gain - - 956 Cumulative effects of accounting changes - 4,500 (8,052) - ---------------------------------------------------------------------------------------------------------------------- Net loss $ (29,970) $ (85,995) $ (29,274) - ---------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------- Weighted average common shares outstanding 7,310 7,330 7,254 Weighted average common equivalent shares from stock options - - 18 - ---------------------------------------------------------------------------------------------------------------------- Weighted average common shares and equivalent shares 7,310 7,330 7,272 - ---------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------- Primary net income (loss) per share and equivalent share from: Continuing operations $ (3.84) $ (10.89) $ (2.20) Discontinued operations (0.26) (1.45) (0.85) Extraordinary gain - - 0.13 Cumulative effects of accounting changes - 0.61 (1.11) - ---------------------------------------------------------------------------------------------------------------------- Primary net loss per share and equivalent share (1) $ (4.10) $ (11.73) $ (4.03) - ---------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------- FULLY DILUTED NET INCOME (LOSS) PER SHARE AND EQUIVALENT SHARE - ---------------------------------------------------------------------------------------------------------------------- Loss from continuing operations $ (28,080) $ (79,872) $ (15,983) Loss from discontinued operations (1,890) (10,623) (6,195) Extraordinary gain - - 956 Cumulative effects of accounting changes - 4,500 (8,052) - ---------------------------------------------------------------------------------------------------------------------- Net loss (29,970) (85,995) (29,274) Debenture interest and issuance costs 1,204 1,213 1,330 - ---------------------------------------------------------------------------------------------------------------------- Adjusted net loss $ (28,766) $ (84,782) $ (27,944) - ---------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------- Weighted average common shares outstanding 7,310 7,330 7,254 Weighted average common equivalent shares Stock options - - 18 7% convertible debentures 804 804 881 - ---------------------------------------------------------------------------------------------------------------------- Weighted average common shares and equivalent shares 8,114 8,134 8,153 - ---------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------- Fully diluted net income (loss) per share and equivalent share from: Continuing operations $ (3.84) $ (10.89) $ (2.20) Discontinued operations (0.26) (1.45) (0.85) Extraordinary gain 0.13 Cumulative effects of accounting changes - 0.61 (1.11) - ---------------------------------------------------------------------------------------------------------------------- Fully diluted net loss per share and equivalent share $ (4.10) $ (11.73) $ (4.03) - ---------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------- (1) For 1994, 1993 and 1992 the primary and fully diluted net loss per share were the same because the fully diluted computation was antidilutive.
77 EX-3.1 2 EXHIBIT 3.1 EXHIBIT 3.1 RESTATED CERTIFICATE OF INCORPORATION OF HEXCEL CORPORATION (FORMERLY HEXCEL MERGER CORPORATION) HEXCEL CORPORATION, a corporation organized and existing by virtue of the General Corporation Law of the State of Delaware, DOES HEREBY CERTIFY: FIRST: Hexcel Corporation was originally incorporated in the State of Delaware as HEXCEL MERGER CORPORATION on March 2, 1983. On May 2, 1983, an Agreement of Merger was filed with the State of Delaware, whereby Hexcel Corporation, a California corporation, was merged with and into Hexcel Merger Corporation, and the name of Hexcel Merger Corporation was changed to Hexcel Corporation. SECOND: This Restated Certificate of Incorporation of Hexcel Corporation attached hereto as Appendix A is made and filed pursuant to an order of the United States Bankruptcy Court, Northern District of California, dated January 10, 1995 in IN RE HEXCEL CORPORATION Case No. 93-48535-T under title 11 of the United States Code, a copy of which is attached hereto. THIRD: Among the changes from the previous Certificate of Incorporation are the following: 1) The initial number of directors has been set at nine. 2) The proportion of shares required to change the number of directors within the authorized range has been lowered from 75% to a majority of the voting power of the Corporation. 3) Section 6.2(a), which provided for classification of the directors, has been deleted. 4) Section 6.3 has been amended to provide that a director may be removed from office without cause by the affirmative vote of a majority of the voting power of the Corporation. 4) Section 6.5, which required a demand by a stockholder in order to vote for directors by a written ballot, has been deleted. 5) Section 8, which required a supermajority vote for certain business combinations and other transactions, has been deleted. 6) Section 9.1 (restated as Section 8.1), which required the affirmative vote of 75% of the voting power of the Corporation to adopt, amend, or repeal certain By-laws, has been amended to lower the proportion of shares required to effectuate such actions to a majority of the voting power of the Corporation. 7) The provisions of Section 9.2 (restated as Section 8.2) which required the affirmative vote of 75% of the voting power of the Corporation to adopt, amend or repeal certain provisions of the Certificate of Incorporation and to adopt any cumulative voting provisions, have been deleted. 8) The Series A Junior Participating Preferred, previously authorized pursuant to a Board of Director's resolution, is no longer authorized. FOURTH: As a result of the filing of this Certificate, the total number of shares which the Company is authorized to issue shall be changed in accordance with the attached plan of reorganization from 20,450,000, consisting of 450,000 shares of Preferred Stock without par value and 20,000,000 shares of Common Stock with par value of $.01 per share, into 41,500,000 authorized shares, consisting of 1,500,000 shares of Preferred Stock without par value and 40,000,000 shares of Common Stock with par value of $.01 per share. The Corporation shall not issue nonvoting equity securities; PROVIDED, HOWEVER, that any series of Preferred Stock having the right, voting separately as a class, to elect any directors of the Corporation if and when dividends payable on such shares of Preferred Stock shall have been in arrears and unpaid for a specified period of time shall not be deemed nonvoting equity securities. IN WITNESS WHEREOF, Hexcel Corporation has caused this Restated Certificate of Incorporation to be signed by John J. Lee, its Chairman of the Board of Directors, and attested by Rodney P. Jenks, Jr., its Secretary, this 9th day of February, 1995. HEXCEL CORPORATION, a Delaware corporation By /s/ John J. Lee --------------------------------- John J. Lee Chairman of the Board of Directors ATTEST: /s/ Rodney P. Jenks, Jr - ------------------------------- Rodney P. Jenks, Jr., Secretary APPENDIX A RESTATED CERTIFICATE OF INCORPORATION OF HEXCEL CORPORATION 1. NAME. The name of this Corporation is HEXCEL CORPORATION. 2. REGISTERED AGENT. The address in the State of Delaware of the registered office of the Corporation is Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County of New Castle, and the name of its registered agent at that address is The Corporation Trust Company. 3. PURPOSE. The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware. 4. CAPITALIZATION. The total number of shares which the Corporation is authorized to issue is 41,500,000, consisting of 1,500,000 shares of Preferred Stock without par value (hereinafter in this Certificate called the "Preferred Stock"), and 40,000,000 shares of Common Stock with par value of $.01 per share (hereinafter in this Certificate called the "Common Stock"). The rights, preferences, privileges and restrictions granted to or imposed on the Preferred Stock and the Common Stock, and the holders thereof, are set forth in Sections 5 through 8 hereof, inclusive. Notwithstanding anything to the contrary contained herein, the Corporation shall not issue nonvoting equity securities; PROVIDED, HOWEVER, that any series of Preferred Stock designated pursuant to Section 5 hereof as having the right, voting separately as a class, to elect any directors of the Corporation if and when dividends payable on such shares of Preferred Stock shall have been in arrears and unpaid for a specified period of time (such directors to be in addition to the number of directors constituting the Board of Directors immediately prior to the accrual of such right) shall not be nonvoting equity securities for purposes of this Section 4. 5. PREFERRED STOCK. The Preferred Stock may be issued from time to time in one or more series. The Board of Directors is hereby authorized to determine or alter the rights, preferences, privileges and restrictions granted to or imposed upon any wholly unissued series of Preferred Stock, including 1 without limiting the generality of the preceding clause, the authority to fix or alter the dividend rights, dividend rate, conversion rights, voting rights, rights and terms of redemption (including sinking fund provisions), the redemption price or prices, and the liquidation preference of said shares. The Board of Directors is further authorized to determine or alter the number of shares of Preferred Stock constituting any such series and the designation thereof, and to increase or decrease the number of any series subsequent to the issue of shares of that series, but not below the number of shares of such series then outstanding. In case the number of shares of any series shall be so decreased, the shares constituting such decrease shall resume the status which they had prior to the adoption of the resolution originally fixing the number of shares of such series. 6. DIRECTORS. 6.1 NUMBER OF DIRECTORS. Except as provided in any certificate filed pursuant to Section 151(g) of the General Corporation Law of Delaware 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, as permitted by Section 5 hereof, the authorized number of directors of the Corporation shall be not less than eight (8) nor more than fifteen (15). The initial number of directors is fixed at nine (9). Commencing after the first annual meeting of the stockholders of the Corporation held after the adoption of this Restated Certificate of Incorporation, the exact number of directors within such range may be changed from time to time by an amendment to the By-Laws duly adopted by the Board of Directors or by the holders of a majority of the outstanding shares authorized to vote, provided that the number of directors may be changed earlier only to the extent and as provided in the By-Laws. 6.2 PREFERRED STOCK TERMS. Notwithstanding any other provision of this Section 6, whenever the holder 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 an 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 this Certificate of Incorporation applicable thereto, and by the terms of any certificate filed pursuant to Section 151(g) of the General Corporation Law of Delaware designating the number of shares of Preferred Stock to be issued and the rights, preferences, privileges and restrictions granted to and imposed on the holder of such designated Preferred Stock, as permitted by Section 5 hereof. 6.3 REMOVAL OF DIRECTORS. Except as provided in Subsection 6.2 hereof, a director may be removed from office at 2 any time, with or without cause, and only 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. 6.4 VACANCIES. Except as provided in Subsection 6.2 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, although less than a quorum; and any directors so chosen shall hold office until the next election of directors, and until their successors shall be elected and qualified. 6.5 MANAGEMENT BY DIRECTORS. The following provisions are inserted for the management of the business and the conduct of the affairs of the Corporation, and for further definition, limitation and regulation of the powers of the Corporation and of its directors and stockholders: (a) The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors. (b) In addition to the powers and authority hereinbefore or by statute expressly conferred upon them, the directors are hereby empowered to exercise all such powers and do all such acts and things as may be exercised or done by the Corporation, subject, nevertheless, to the provisions of the statutes of Delaware, this Certificate of Incorporation, and any By-Laws duly adopted by the stockholders, provided, however, that no By-Laws hereafter adopted or amended by the stockholders shall invalidate any prior act of the directors which would have been valid if such By-Laws had not been adopted or amended. 7. ACTION BY STOCKHOLDERS; SPECIAL MEETINGS; VOTING. All action required or permitted to be taken by the Corporation's stockholders must be effected at a duly called annual or special meeting (and may not be effected by written consent in lieu thereof). Special meetings of the stockholders of the Corporation for any purpose or purposes may be called at any time by the Board of Directors, the Chairman of the Board of Directors, the Chief Executive Officer, the President, 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 the By-Laws of the Corporation, include the power to call such meetings, or by any stockholder or stockholders holding in the aggregate in excess of 25% of the outstanding common stock of the Corporation, and for any purpose or purposes; provided, however, that no such meeting may be held for the purpose of election or removal without cause of directors, and no amendment 3 of this Certificate of Incorporation or of the By-laws of the Corporation which would have the effect of modifying or permitting the circumvention of this proviso may be adopted, earlier than the expiration of the nine month period after the adoption of this Restated Certificate of Incorporation (except as authorized by Section 5 of the By-laws of the Corporation). If, and to the extent that any special meeting of stockholders may be called by any other person or persons specified in any provisions of the Certificate of Incorporation or any amendment thereto or in any certificate filed under Section 151(g) of the Delaware General Corporation Law (or its successor statute as in effect from time to time hereafter) 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 as provided in this Certificate of Incorporation or as otherwise provided in the By-laws or by law, 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 vote at a meeting or, if no such date is fixed, the date determined in accordance with law. If any share is entitled to more or less than one vote on 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 holders of shares entitled to vote on such matter. 8. AMENDMENT OF CERTIFICATE AND BY-LAWS. 8.1 BY-LAWS. New By-Laws of the Corporation may be adopted or the By-Laws of the Corporation may be amended or repealed by a vote of either a majority of the directors of the Corporation or the holders of a majority of the outstanding shares authorized to vote; PROVIDED, HOWEVER, that any By-Laws concerning the election or removal of directors, the range of the number of directors and the method of fixing such range, the filling of vacancies on the Board of Directors, the prohibition of action by the stockholders without a meeting, the calling of special meetings of the stockholders, and the method of adopting, amending or repealing of By-Laws may not be amended, adopted or repealed, nor shall any other By-Law be amended, adopted or repealed which will have the effect of modifying or permitting the circumvention of such By-Laws unless such adoption, amendment or repeal is approved by the affirmative vote of the holders of a majority of the outstanding shares authorized to vote. 8.2 CERTIFICATE. The Corporation reserves the right to amend, alter, change or repeal any provision contained in this Certificate of Incorporation, in the manner now or hereinafter prescribed by statute, and all rights conferred to stockholders herein are granted subject to this reservation. 4 9. DIRECTORS' LIABILITY; INDEMNIFICATION. 9.1 ELIMINATION OF CERTAIN LIABILITY OF DIRECTORS. A director of the Corporation shall not be personally liable to the Corporation or its stockholders, including for monetary damages for breach of fiduciary duty as a director, to the fullest extent authorized by the General Corporation Law of the State of Delaware, as the same exists or may hereafter be amended (but, with respect to any acts or omissions of such director occurring prior to such amendment, only to the extent that such amendment further limits or eliminates the liability of directors than said law permitted the Corporation to provide prior to such amendment). Notwithstanding the foregoing, a director's liability is not limited with respect to any of the following actions unless permitted by an amendment hereafter of either the General Corporation Law of the State of Delaware or this provision: (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 General Corporation Law of the State of Delaware (regarding unlawful dividends or redemptions) or (iv) for any transaction from which the director derived an improper personal benefit. No amendment to or repeal of any portion or all of these provisions shall have any effect to expand the liability or alleged liability of any director of the Corporation for or with respect to any acts or omissions of such director occurring prior to such amendment. 9.2 INDEMNIFICATION AND INSURANCE. (a) RIGHT TO INDEMNIFICATION OF DIRECTORS AND OFFICERS. Each person who was or is made a party or is threatened to be made a party to or is involved in any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (hereinafter a "proceeding"), by reason of the fact that he or she, or a person of whom he or she is the legal representative, (1) is or was a director or officer of the Corporation, or (2) is or was a director or officer of the Corporation and is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, whether the basis of such proceeding is alleged action in an official capacity as a director, officer, employee or agent or in any other capacity while serving as a director, officer, employee 5 or agent, shall be indemnified and held harmless by the Corporation to the fullest extent authorized by the General Corporation Law of the State of Delaware, as the same exists or may hereafter be amended (but, with respect to any acts or omissions occurring prior to such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than said law permitted the Corporation to provide prior to such amendment), against all expense, liability and loss (including attorneys' fees, judgments, fines, excise taxes or penalties under the Employee Retirement Income Security Act of 1974, as amended, and amounts paid or to be paid in settlement) actually and reasonably incurred or suffered by such person in connection therewith and such indemnification shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of his or her heirs, executors and administrators; PROVIDED, HOWEVER, that, except as provided in Subsection 9.2(c) hereof, the Corporation shall indemnify any such person seeking indemnification in connection with a proceeding (or part thereof) initiated by such person only if such proceeding (or part thereof) was authorized by the Board of Directors of the Corporation. The right to indemnification conferred in this Section 9.2 and the elimination of certain liability provided in Section 9.1 are intended to create contractual obligations of the Corporation which cannot be modified except with respect to actions, suits or proceedings accruing subsequent to any modification. This right to indemnification shall include the right to be paid by the Corporation the expenses incurred in defending any such proceeding in advance of its final disposition; PROVIDED, HOWEVER, that, if the General Corporation Law of the State of Delaware requires, the payment of such expenses incurred by a director or officer in his or her capacity as a director or officer (and not in any other capacity in which service was or is rendered by such person while a director or officer, including, without limitation, service to an employee benefit plan) in advance of the final disposition of a proceeding shall be made only upon delivery to the Corporation of an undertaking, by or on behalf of such director or officer, to repay all amounts so advanced if it shall ultimately be determined that such director or officer is not entitled to be indemnified under this Section 9.2 or otherwise. (b) RIGHT TO INDEMNIFICATION OF OTHER EMPLOYEES AND AGENTS. The Corporation shall provide indemnification, with the same scope and effect as the indemnification of directors and officers provided in Subsection 9.2(a), to other employees and agents of the Corporation or to a person who is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise, PROVIDED, HOWEVER, that such indemnification shall only be made upon a determination (in accordance with the General Corporation Law of the State of 6 Delaware) that the employee or agent has met the standard of conduct which makes such indemnification permissible under such Law and, if the Company so requires, only upon delivery of an undertaking, by or on behalf of such employee or agent, to repay all amounts so advanced if it shall ultimately be determined that such employee or agent is not entitled to be indemnified under this Section 9.2 or otherwise. (c) RIGHT OF CLAIMANT TO BRING SUIT. If a claim for indemnification under either Subsection 9.2(a) or 9.2(b) is not paid in full by the Corporation within thirty days after a written claim has been received by the Corporation, the director, officer, employee or agent so entitled may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim and, if successful in whole or in part, the claimant shall also be entitled to be paid the expense of prosecuting such claim. It shall be a defense to any such action (other than an action brought to enforce a claim under Section 9.2(a) for advancement of expenses incurred in defending any proceeding in advance of its final disposition where the required undertaking, if any is required, has been tendered to the Corporation) that the claimant has not met the standards of conduct which make it permissible under the General Corporation Law of the State of Delaware for the Corporation to indemnify the claimant for the amount claimed, but the burden of proving such defense shall be on the Corporation. Neither the failure of the Corporation (including its Board of Directors, independent legal counsel, or its stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because he or she has met the applicable standard of conduct set forth in the General Corporation Law of the State of Delaware, nor an actual determination by the Corporation (including its Board of Directors, independent legal counsel, or its stockholders) that the claimant has not met such applicable standard of conduct, shall be a defense to the action for advancement of expenses under Subsection 9.2(a) or create a presumption that such claimant has not met the applicable standard of conduct. (d) NON-EXCLUSIVITY OF RIGHTS. The right to indemnification and the payment of expenses incurred in defending a proceeding in advance of its final disposition conferred in this Section 9.2 shall not be exclusive of any other right which any person may have or hereafter acquire under any statute, provision of this Certificate of Incorporation, By-Law, agreement, vote of stockholders or disinterested directors or otherwise. (e) INSURANCE. The Corporation may maintain insurance, at its expense, to protect itself and any director, officer, employee or agent of the Corporation or other corporation, partnership, joint venture, trust or other 7 enterprise against any such expense, liability or loss, whether or not the Corporation would have the power to indemnify such person against such expense, liability or loss under the Delaware General Corporation Law. 8 EX-3.2 3 EXHIBIT 3.2 EXHIBIT 3.2 HEXCEL CORPORATION RESTATED BY-LAWS AS OF FEBRUARY 9, 1995 INDEX - ------------------------------------------------------------------------------- SECTION SUBJECT PAGE - ------------------------------------------------------------------------------- OFFICES 1. Principal Office . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 2. Other Offices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 STOCKHOLDERS 3. Place of Meetings. . . . . . . . . . . . . . . . . . . . . . . . . . . 1 4. Annual Meetings. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 5. Special Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 6. Adjourned Meetings and Notice Thereof. . . . . . . . . . . . . . . . . 3 7. Voting . . . . . . . . . . . . . . . . . . . . . . . . . 3 8. Quorum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 9. Action Without Meeting . . . . . . . . . . . . . . . . . . . . . . . . 4 10. Proxies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 11. List of Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . 4 11.1. Business of Annual Meetings. . . . . . . . . . . . . . . . . . . . . . 4 DIRECTORS 12. Powers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 13. Number of Directors. . . . . . . . . . . . . . . . . . . . . . . . . . 6 14. Election, Term of Office and Vacancies . . . . . . . . . . . . . . . . 6 15. Removal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 16. Resignation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 17. Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 18. Committees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 19. Time and Place of Meetings and Telephone Meetings. . . . . . . . . . . 8 20. Call . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 21. Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 22. Meeting Without Regular Call and Notice. . . . . . . . . . . . . . . . 9 23. Action Without Meeting . . . . . . . . . . . . . . . . . . . . . . . . 9 24. Quorum and Required Vote . . . . . . . . . . . . . . . . . . . . . . . 9 25. Committee Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . 9 26. Interested Directors . . . . . . . . . . . . . . . . . . . . . . . . . 9 - ------------------------------------------------------------------------------- SECTION SUBJECT PAGE - ------------------------------------------------------------------------------- 27. Honorary Advisors to the Board . . . . . . . . . . . . . . . . . . . .10 28. Employee Compensation Measures . . . . . . . . . . . . . . . . . . . .11 OFFICERS 29. Titles and Relation to Board of Directors. . . . . . . . . . . . . . .11 30. Election, Term of Office and Vacancies . . . . . . . . . . . . . . . .11 31. Resignation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11 32. Salaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12 33. Chairman of the Board. . . . . . . . . . . . . . . . . . . . . . . . .12 34. Chief Executive Officer. . . . . . . . . . . . . . . . . . . . . . . .12 35. President and Vice Presidents. . . . . . . . . . . . . . . . . . . . .12 36. Secretary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12 (a) Record of Corporate Proceedings . . . . . . . . . . . . . . . . .12 (b) Record of Shares. . . . . . . . . . . . . . . . . . . . . . . . .13 (c) Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13 (d) Additional Powers and Duties. . . . . . . . . . . . . . . . . . .13 37. Treasurer. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13 38. Other Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . .13 SHARES 39. Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13 40. Transfers of Shares of Capital Stock . . . . . . . . . . . . . . . . .13 41. Registered Shareholders. . . . . . . . . . . . . . . . . . . . . . . .14 42. Lost or Destroyed Certificates . . . . . . . . . . . . . . . . . . . .14 43. Record Date and Closing of Stock Books . . . . . . . . . . . . . . . .14 44. Transfer Agents and Registrars . . . . . . . . . . . . . . . . . . . .14 AMENDMENTS 45. Adoption of Amendments . . . . . . . . . . . . . . . . . . . . . . . .15 46. Record of Amendments . . . . . . . . . . . . . . . . . . . . . . . . .15 CORPORATE SEAL 47. Form of Seal . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15 - ------------------------------------------------------------------------------- SECTION SUBJECT PAGE - ------------------------------------------------------------------------------- MISCELLANEOUS 48. Checks, Drafts, Etc. . . . . . . . . . . . . . . . . . . . . . . . . .15 49. Contracts, Etc.; How Executed. . . . . . . . . . . . . . . . . . . . .15 50. Representation of Shares of Other Corporations . . . . . . . . . . . .16 51. Inspection of By-Laws. . . . . . . . . . . . . . . . . . . . . . . . .16 52. Dividends. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16 53. Fiscal Year. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16 54. Construction and Definitions . . . . . . . . . . . . . . . . . . . . .16 RESTATED BY-LAWS OF HEXCEL CORPORATION (FORMERLY HEXCEL MERGER CORPORATION) A DELAWARE CORPORATION AS OF FEBRUARY 9, 1994 OFFICES 1. PRINCIPAL OFFICE. The principal office for the transaction of the business of the Corporation is hereby fixed and located at 5794 W. Las Positas Boulevard, Pleasanton, California. The Board of Directors is hereby granted full power and authority to change the place of said principal office. 2. OTHER OFFICES. The registered office in the State of Delaware is hereby fixed and located at the Corporation Trust Company, 1209 Orange Street, Wilmington, Delaware. The Board of Directors is hereby granted full power and authority to change the place of said registered office within the State of Delaware. Branch or subordinate offices may at any time be established by the Board of Directors at any place or places where the Corporation is qualified to do business. STOCKHOLDERS 3. PLACE OF MEETINGS. Stockholders' meetings shall be held at the principal office for the transaction of the business of this Corporation, or at such other place, whether within or without the State of Delaware, as the Board of Directors shall, by resolution, appoint. 4. ANNUAL MEETINGS. The annual meetings of stockholders shall be held on such date and at such time as shall be designated from time to time by the Board of Directors and stated in the notice of the meeting, provided, however, that the first annual meeting of stockholders following adoption of these By-laws shall be held not earlier than nine months after the Effective Date of the Corporation's Plan of Reorganization pursuant to which these By-laws are adopted and to which these By-laws are an exhibit ("Plan of Reorganization"), unless otherwise determined by mutual agreement of the two or three (as the case may be) members of the Board designated by the Standby Purchaser (the "Standby Purchaser Directors"), on the one hand, and the three members of the Board designated by the Equity Committee (the "Equity Committee Directors"), on the other hand (as all such capitalized terms are defined in the Plan of Reorganization). At such annual meetings directors shall be elected, reports of the affairs of the Corporation shall be considered, and any other business may be transacted which is within the powers of the stockholders. Written notice of each annual meeting shall be mailed to (1) each stockholder entitled to vote, addressed to such stockholder at his address appearing on the books of the Corporation or given by him to the Corporation for the purpose of notice. If a stockholder gives no address, notice shall be deemed to have been given if sent by mail or other means of written communication addressed to the place where the principal executive office of the Corporation is situated, or if published at least once in some newspaper of general circulation in the county in which said office is located. All such notices shall be mailed, postage prepaid, to each stockholder entitled thereto not less than ten (10) days nor more than sixty (60) days before each annual meeting. Such notices shall specify the place, the day, and the hour of such meeting, the names of the nominees for election as directors if directors are to be elected at the meeting, and those matters which the Board of Directors intends to present for action by the stockholders, and shall state such other matters, if any, as may be expressly required by statute. 5. SPECIAL MEETINGS. Special meetings of the stockholders may be called at any time by the Board of Directors, the Chairman of the Board, the Chief Executive Officer, the President, 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 By- Laws of the Corporation, include the power to call such meetings, or by any stockholder or stockholders holding in the aggregate in excess of 25% of the outstanding common stock of the Corporation, and for any purpose or purposes, provided, however, that no such meeting may be held for the purpose of election or removal without cause of directors earlier than the expiration of the nine month period after the Effective Date unless otherwise determined by mutual agreement of the Standby Purchaser Directors, on the one hand, and the Equity Committee Directors, on the other hand. If and to the extent that any special meeting of stockholders may be called by any other person or persons specified in any provisions of the Certificate of Incorporation or any amendment thereto, or any certificate filed under Section 151(g) of the Delaware General Corporation Law 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, as permitted by Section 5 of the Certificate of Incorporation, then such special meeting may also be called by the 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. Said notice shall specify the general nature of the business to be transacted at the meeting. No business shall be transacted at a special meeting except as stated in the notice sent to stockholders, unless by the unanimous consent of all stockholders represented at the meeting, either in person or by proxy. Upon written request to the Chairman of the Board, the (2) Chief Executive Officer, the President or the Secretary by any person (but not the Board of Directors) entitled to call a special meeting of stockholders, the person receiving such request shall cause a notice to be given to the stockholders entitled to vote that a meeting will be held at a time requested by the person calling the meeting not less than thirty (30) nor more than sixty (60) days after the receipt of the request. 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 vote of a majority of the shares, the holders of which are either present in person or represented by proxy thereat, 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 in the case of an original meeting. 7. VOTING. Except as otherwise provided by law, the Certificate of Incorporation or these By-laws, 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 vote at a meeting or, if no such date is fixed, the date determined in accordance with law. If any share is entitled to more or less than one vote on 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. The holders of a majority of the outstanding shares entitled to vote, represented in person or by proxy, 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. If a quorum is present at a meeting, the affirmative vote of the holders of a majority of the shares represented 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 law, the Certificate of Incorporation or these By-Laws. If a quorum is present at the commencement of a meeting but the withdrawal of stockholders results in less than a quorum, the affirmative vote of the holders of the majority of shares required to constitute a quorum shall be the act of the stockholders unless the vote of a larger number is required by law, the Certificate of Incorporation or these By-Laws. Any meeting of stockholders, whether or not a quorum is present, (3) may be adjourned by the vote of the holders of a majority of the shares represented at the meeting. 9. ACTION BY CONSENT WITHOUT MEETING. Any action required or permitted to be taken at any meeting of stockholders may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken, shall be signed by the holders of the outstanding shares having not less thatn the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all holders of shares entitled to vote thereon were present and voting. Prompt notice of the taking of any such action shall be given to those stockholders who did not consent in writing. 10. 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. 11. 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. 11.1. BUSINESS OF ANNUAL MEETINGS. Except to the extent, if any, specifically provided to the contrary in the Certificate of Incorporation or these By-Laws, to be properly brought before the annual 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. In addition to any other applicable requirements, for business to be properly brought before any annual meeting by a stockholder, the stockholder must have given timely notice thereof in writing to the Secretary of the (4) Corporation. To be timely, a stockholder's notice must be delivered to or mailed and received at the principal executive offices of the Corporation by such date as is required by Delaware law and Rule 14a-8(a)(3)(i) under the Securities Exchange Act of 1934 (or any successor rule) in order for the matter covered by such notice to be included in the Company's proxy statement. A stockholder's notice to the Secretary shall set forth with respect to each matter the stockholder proposes to bring before the annual meeting (w) 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, (x) the name and record address of the stockholder proposing such business, (y) the class and number of shares of the Corporation that are beneficially owned by the stockholder, and (z) any material interest of the stockholder in such business. The Chairman of the annual meeting shall, if the facts warrant, determine and declare to the meeting that the business was not properly brought before the meeting in accordance with the provisions of this Section 11.1, and any such business not properly brought before the meeting shall not be transacted. DIRECTORS 12. POWERS. Subject to limitations of the Certificate of Incorporation, of these By-Laws, and of the General Corporation Law of Delaware as to action to be authorized or approved by the stockholders, and subject to the duties of directors as prescribed by these By-Laws, 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. Without prejudice to such general powers, but subject to the same limitations, it is hereby expressly declared that the directors shall have the following powers: (a) To select and remove all of the officers, and other agents and employees of the Corporation, prescribe such powers and duties for them as may not be inconsistent with law, with the Certificate of Incorporation or these By- Laws, fix their compensation and require from them security for faithful service. (b) To conduct, manage and control the affairs and business of the Corporation, and to make such rules and regulations therefor not inconsistent with law, or with the Certificate of Incorporation, or these By-Laws, as they may deem best. (c) To change the principal office for the transaction of the business of the Corporation from one location to another as provided in Section 1 hereof; to fix and locate from time to time one or more branch or subordinate offices of the Corporation as provided in Section 2 hereof; to designate any place for the (5) holding of any stockholders' meeting or meetings; and to prescribe the forms of certificates of stock, and to alter the form of such certificates from time to time, as in their judgment they may deem best, provided such certificates shall at all times comply with the provisions of law. (d) To authorize the issuance of shares of capital stock of the Corporation from time to time, upon such terms as may be lawful. (e) To borrow money and incur indebtedness for the purposes of the Corporation, and to cause to be executed and delivered therefor, in the corporate name, promissory notes, bonds, debentures, deeds of trust, mortgages, pledges, hypothecations, or other evidences of debt and securities therefor. 13. NUMBER OF DIRECTORS. (a) Except as provided in Subsection 6.1 of the Certificate of Incorporation and in any certificate filed pursuant to Section 151(g) of the General Corporation Law of Delaware designating the number of shares of Preferred Stock to be issued and the rights, preferences, privileges and restrictions granted to or imposed on the holders of such designated Preferred Stock, as permitted by Section 5 of the Certificate of Incorporation, the authorized number of directors of this Corporation shall be not less than eight (8) nor more than fifteen (15). Commencing on the date of the first annual meeting held after the Effective Date of the Plan of Reorganization, the exact number of directors shall be fixed from time to time by an amendment to Subsection (b) of this Section duly adopted by the Board of Directors or by the holders of a majority of the outstanding shares authorized to vote thereon; prior to that time the number of directors shall be changed to ten (10) if and only as required by the Plan of Reorganization. (b) Subsection (a) of this Section provides for an indefinite number of directors and requires this Subsection, from time to time, to specify the exact number. Pursuant thereto it is hereby specified that this Corporation shall have nine (9) directors, which number shall be automatically increased to ten (10) to the extent required by the Plan of Reorganization. 14. ELECTION, TERM OF OFFICE AND VACANCIES. (a) Directors shall hold office until the annual meeting next following their election and until their successors are respectively elected and qualified; subject, however, to prior resignation, death or removal as provided in these By-laws or applicable law. Any director may resign at any time in writing to that effect delivered to the Secretary, to be effective upon its acceptance or at the time specified in writing. (6) Except as provided in the Certificate of Incorporation and in Subsection 14(b) 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, although 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. (b) 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 General Corporation Law of Delaware designating such class or series and the rights, preferences, privileges and restrictions granted to and imposed on the holders of such designated Preferred Stock. 15. REMOVAL. Except as provided in the Certificate of Incorporation and in Subsection 14(b) hereof, a director may be removed from office at any time, with or without cause, and only 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. 16. RESIGNATION. Any director may resign by giving written notice to the Chairman of the Board, the Chief Executive Officer, the President, 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. 17. COMPENSATION. If the Board of Directors so resolves, the directors, including the Chairman of the Board, shall receive compensation and expenses of attendance for meetings of the Board of Directors and of committees of the Board. Nothing herein shall preclude any director from serving the Corporation in another capacity and receiving compensation for such service. 18. COMMITTEES. 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. In the absence or disqualification of any member of a committee of the Board, the other members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board to act in the place (7) of such absent or disqualified member. The Board may 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 to the extent permitted by Section 141(c) of the General Corporation Law of Delaware. If a new Chief Executive Officer has not succeeded John J. Lee before the Effective Date of the Plan of Reorganization, a special committee, which shall consist of the Standby Purchaser Directors and of the Equity Committee Directors, shall be authorized to appoint such a Chief Executive Officer by mutual agreement of such Directors. 19. TIME AND PLACE OF MEETINGS AND TELEPHONE MEETINGS. Immediately following each annual meeting of stockholders, the Board of Directors shall hold a regular meeting for the purposes of organizing the Board, election of officers and the transaction of other business. The Board may establish by resolution the times, if any, other regular meetings of the Board shall be held. All meetings of directors shall be held at the principal executive office of the Corporation or at such other place as shall be designated in the notice for the meeting or in a resolution of the Board of Directors, whether within or without the State of Delaware. 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. 20. 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 President, the Secretary, or any two directors. 21. NOTICE. Regular meetings of the Board of Directors may be held without notice if the time of such meetings has been fixed by the Board. Special meetings shall be held upon four days' notice by mail or 24 hours notice delivered personally or by telephone, telegraph or confirmed facsimile, and 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 or telegram shall be addressed to a director at his business or home address as shown upon the records of the Corporation, or at such other address as the director specifies in writing delivered to the Corporation, or if such an address is not so shown on such records and no written instructions have been received from the director, at the place in 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 (8) to the directors who were not present at the time of the adjournment. 22. MEETING WITHOUT REGULAR CALL AND NOTICE. The transactions of any meeting of the Board of Directors, however called and noticed or wherever held, are as valid as though had 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. 23. 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 individually or collectively consent in writing to such action. 24. 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 By-Laws, 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. 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. 25. COMMITTEE MEETINGS. The principles set forth in Sections 19 through 24 of these By-Laws shall apply to committees of the Board of Directors and to actions by such committees. 26. INTERESTED DIRECTORS. No contract or transaction between the Corporation and one or more of its directors or officers, or between the Corporation and any other corporation, partnership, association, or other organization in which one or more of its directors or officers are directors or officers or have a financial interest, shall be void or voidable solely for this reason, or solely because the director or officer is present at or participates in the meeting of the Board of Directors or committee thereof which authorizes the contract or transaction, or solely because his or their votes are counted for such purpose if (a) the material facts as to his or their relationship or interest and as to the contract or transaction are disclosed or are known to the (9) Board of Directors or the committee, and the Board of Directors or committee in good faith authorizes the contract or transaction by the affirmative votes of a majority of the disinterested directors, even though the disinterested directors may be less than a quorum; or (b) the material facts as to his or their relationship or interest and as to the contract or transaction are disclosed or are known to the stockholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the stockholders; or (c) the contract or transaction is fair as to the Corporation as of the time it is authorized, approved or ratified by the Board of Directors, a committee thereof or the stockholders; or (d) such other facts or circumstances exist as would make such contract or transaction not void or voidable solely for such reason under any applicable provision of the General Corporation Law of the State of Delaware with respect to contracts or transactions involving interested directors. Common or interested directors may be counted in determining the presence of a quorum at a meeting of the Board of Directors or of a committee which authorizes the contract or transaction. Subject to the provisions of the above paragraph, the Corporation may lend money to, or guarantee any obligation of, or otherwise assist any officer or other employee of the Corporation or of any of its subsidiaries, including any officer or employee who is a director of the Corporation or any of its subsidiaries, whenever, in the judgment of the directors, such loan, guaranty or assistance may reasonably be expected to benefit the Corporation. The loan, guaranty or other assistance may be with or without interest, and may be unsecured, or secured in such manner as the Board of Directors shall approve, including, without limitation, a pledge of shares of stock of the Corporation. Nothing in this Section contained shall be deemed to deny, limit or restrict the powers of guaranty or warranty of any corporation at common law or under any statute. 27. 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 shall not be a director for any purpose or with respect to any provision of these By-Laws or of the General Corporation Law of Delaware, and shall have no vote as a director. However, an Honorary Advisor to the Board shall receive the same compensation and expense reimbursement as a director for attendance at directors' meetings. 28. EMPLOYEE COMPENSATION MEASURES. No director shall vote upon any employee compensation measure in which he has a direct personal interest and any vote cast on such measures by such a director shall be nullified and deemed void. Directors having such an interest may be counted in determining the presence of a quorum (10) at a meeting of the Board of Directors or a committee thereof which authorizes, approves or ratifies such a measure. The term "employee compensation measures" shall include, without limitation, salary, bonus, stock options, stock purchase plans, retirement benefits, etc., but shall not include directors' fees and compensation as referred to in Section 17. OFFICERS 29. TITLES AND RELATION TO BOARD OF DIRECTORS. The officers of the Corporation shall include a Chief Executive Officer, a President, a Secretary and a Treasurer. The Board of Directors may also choose a Chairman of the Board, one or more Vice Chairmen of the Board, a Chief Financial Officer, a General Counsel, and one or more 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 Board of Directors. If there shall occur a vacancy, in the absence of appointment by the Board of Directors, the Chief Executive Officer shall have the right and power to appoint a Secretary, a Treasurer, a Chief Financial Officer, a General Counsel, an Executive Vice President, one or more additional 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, subject to the overriding direction of the Board of Directors. No Vice President, Assistant Secretary or Assistant Treasurer shall be appointed for a term of office exceeding the term of office of the President, Secretary or Treasurer, respectively. Any number of offices may be held by the same person. 30. ELECTION, TERM OF OFFICE AND VACANCIES. At its regular meeting after each annual meeting of stockholders, the Board of Directors shall choose the officers of the Corporation. No officer need be a member of the Board of Directors except the Chairman of the Board. 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 29 of these By-laws, if an office becomes vacant for any reason, the vacancy shall be filled by the Board. 31. 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. 32. SALARIES. The Board of Directors shall fix the salaries of the Chairman of the Board, any Vice Chairman and the Chief Executive Officer and may fix the salaries of other employees of (11) the Corporation including the other officers. If the Board does not fix the salaries of the other officers, the Chief Executive Officer shall fix such salaries. 33. 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 By-Laws. In the absence or disability of the Chief Executive Officer, the Chairman of the Board shall perform all the duties of the Chief Executive Officer, and when so acting shall have all the powers, and be subject to all restrictions upon, the Chief Executive Officer. 34. CHIEF EXECUTIVE OFFICER. Unless otherwise determined by the Board of Directors, the Chief Executive Officer shall be deemed general manager of the Corporation, and shall, in the absence of a Chairman of the Board, preside at all meetings of the Board of Directors and stockholders, shall be ex officio a member of any committees of the Board, shall effectuate orders and resolutions of the Board of Directors and shall exercise such other powers and perform such other duties as the Board of Directors shall prescribe. 35. PRESIDENT AND VICE PRESIDENTS. In the absence or disability of the Chief Executive Officer and of the Chairman of the Board, the President, and in the absence or disability of the President, the Vice President, if any, or if more than one, the Vice Presidents in order of their rank as fixed by the Board of Directors or, if not so ranked, the 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 shall have such other powers and perform such other duties as from time to time may be prescribed for them respectively by the Board of Directors or these By-Laws. 36. SECRETARY. The Secretary 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 By-Laws, as amended. (b) RECORD OF SHARES. Unless a transfer agent is appointed by the Board of Directors to keep a share register, the (12) 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 By-Laws. (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 prescribe. 37. 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, taking proper vouchers for such disbursements, shall render to the Chief Executive Officer and directors, at regular meetings of the Board of Directors or whenever the Board may require, 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 or the Chief Executive Officer shall prescribe. 38. OTHER OFFICERS. The other officers, if any, of this Corporation shall perform such duties as may be assigned to them by the Board of Directors, except as otherwise provided in Section 29. SHARES 39. CERTIFICATES. A certificate or certificates for shares of the capital stock of the Corporation shall be issued to each stockholder when any such shares are fully paid up. All such certificates shall be signed by the Chairman of the Board, any Vice Chairman, the Chief Executive Officer, the President or a Vice President and the Secretary or Assistant Secretary. Any signature on the certificate may be by facsimile. 40. TRANSFERS OF SHARES OF CAPITAL STOCK. Transfers of shares shall be made only upon the transfer books of this Corporation, kept at the office of the Corporation or transfer agents designated to transfer such shares, and before a new certificate is issued, the old certificate shall be surrendered for cancellation. 41. REGISTERED SHAREHOLDERS. Registered stockholders only 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 equitable or other (13) 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 the law of Delaware. 42. LOST 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. 43. RECORD DATE AND CLOSING OF STOCK BOOKS. The Board of Directors may fix a time, in the future, not more than sixty (60) nor less than ten (10) days prior to the date of any meeting of stockholders, nor more than sixty (60) days prior to the date fixed for the payment of any dividend or distribution, or for the allotment of rights, or when any change or conversion or exchange of shares shall go into effect, as a record date for the determination of the stockholders entitled to notice of and to vote at any such meeting, or entitled to receive any such dividend or distribution, or any such allotment of rights, or to exercise the rights in respect to any such change, conversion, or exchange of shares, and in such case except as provided by law, only stockholders of record on the date so fixed shall be entitled to notice of and to vote at such meeting or to receive such dividend, distribution, or allotment of rights, or to exercise such rights, as the case may be, notwithstanding any transfer of any shares on the books of the Corporation after any record date fixed as aforesaid. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting unless the Board of Directors fixes a new record date. The Board of Directors shall fix a new record date if the adjourned meeting takes place more than thirty (30) days from the date set for the original meeting. 44. TRANSFER AGENTS AND REGISTRARS. The Board of Directors may appoint one or more transfer agents or transfer clerks, and one or more registrars, who shall be appointed at such times and places as the requirements of the Corporation may necessitate and the Board of Directors may designate. AMENDMENTS 45. ADOPTION OF AMENDMENTS. New By-Laws of this Corporation may be adopted or these By-Laws may be amended or repealed by a vote of either a majority of directors of the Corporation or the holders of a majority of the outstanding shares of the Corporation (14) authorized to vote; provided, however, that, except as specifically provided in Section 13, the provisions set forth in Sections 5, 9, 13(a), 14, 15, and 45 shall not be adopted, amended or repealed, nor shall any other By-Law be adopted, amended or repealed which will have the effect of modifying or permitting the circumvention of such By-Laws unless such adoption, amendment or repeal is approved by the affirmative vote of the holders of a majority of the outstanding shares of the Corporation authorized to vote. 46. RECORD OF AMENDMENTS. Whenever an amendment or new By-Law 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 By-Laws or By-Law is amended, the fact of repeal with the date of the meeting at which the repeal was enacted or written assent was filed shall be stated in said book. CORPORATE SEAL 47. 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 48. 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 to the Corporation, shall be signed or endorsed by such person or persons and in such manner as, from time to time shall be determined by resolution of the Board of Directors. 49. CONTRACTS, ETC.; HOW EXECUTED. The Board of Directors, except as otherwise provided in these By-Laws, may authorize any 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; and unless so authorized by the Board of Directors, no officer, agent, or employee shall have any power or authority to bind the Corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or for any amount. 50. REPRESENTATION OF SHARES OF OTHER CORPORATIONS. The Chairman of the Board, the Chief Executive Officer, the President or any Vice President and the Secretary or Assistant Secretary of this Corporation are authorized to vote, represent, and exercise on behalf of this Corporation all rights incident to and all shares of any other corporation or corporations standing in the name of this Corporation. The authority herein granted to said officers to vote (15) or represent on behalf of this Corporation any and all shares held by this 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. 51. INSPECTION OF BY-LAWS. The Corporation shall keep in its principal office for the transaction of business the original or a copy of these By-Laws 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. 52. DIVIDENDS. Dividends upon the capital stock of the Corporation, subject to the provisions of the Certificate of Incorporation, if any, may be declared by the Board of Directors at any regular or special meeting, and may be paid in cash, in property, or in shares of the capital stock of the Corporation. Before payment of any dividend, there may be set aside out of any funds of the Corporation available for dividends such sum or sums as the Board of Directors, from time to time, in its absolute discretion, deems proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the Corporation, or for any proper purpose, and the Board of Directors may modify or abolish any such reserve. 53. FISCAL YEAR. The fiscal year of the Corporation shall be fixed by resolution of the Board of Directors. 54. CONSTRUCTION AND DEFINITIONS. Unless the context otherwise requires, the general provisions, rules and construction, and definitions contained in the General Corporation Law of Delaware shall govern the construction of these By- Laws. 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 as well as a natural person. (16) EX-10.4E 4 EXHIBIT 10.4E EXHIBIT 10.4.E EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT made as of this ___ day of September, 1994, between Hexcel Corporation, a Delaware corporation (the "Company"), and John J. Lee (the "Executive"). WHEREAS, in recognition of the Executive's experience and abilities, the Company desires to induce Executive to remain Chairman of the Board of Directors of the Company (the "Board") and Chief Executive Officer of the Company to ensure continued leadership and senior level experience to the Company's management team; and WHEREAS, Executive has agreed to accept such responsibility on the terms and conditions hereinafter set forth; NOW, THEREFORE, in consideration of the premises and of the mutual covenants herein contained, the parties agree as follows: 1. POSITION. During the New Employment Term (as hereinafter defined), Executive shall serve as Chairman of the Board and Chief Executive Officer of the Company with such functions, duties and responsibilities commensurate with such position including those set forth in the bylaws or otherwise determined by the Board from time to time. During the New Employment Term, the Executive is to serve, without additional compensation, as a director of the Company; provided that the Executive is indemnified for serving in such capacity on a basis no less favorable than is currently provided by the Company to any other director of the Company; and further provided that, the Executive shall be credited for service during the New Employment Term for purposes of the Salaried Employees Retirement Plan. 2. TERM OF EMPLOYMENT. Executive's term of employment under this Agreement (the "New Employment Term") shall begin as of September 1, 1994 and shall continue until the earlier of (i) the effective date of a plan of reorganization filed by the Company with the United States Bankruptcy Court in its Chapter 11 case commenced on December 6, 1993, or (ii) the date which is 10 days after an order is entered confirming any plan of reorganization other than a plan filed by the Company unless such order is stayed, pending appeal, PROVIDED, HOWEVER, that after November 30, 1994, the Executive and the Company each may terminate the New Employment Term at any time by giving 30 days' written notice. It is expressly understood and agreed by and between the parties that the term "New Employment Term" as used in this Employment Agreement is not an extension or continuation of the "Employment Term" as that term was used in that certain Employment Agreement between the Company and the Executive dated September 28, 1993, and no services provided hereunder by Executive shall give rise to any claim for compensation by Executive pursuant to any provision of the September 28, 1993 agreement, including but not limited to the provisions contained in section 3(b) of that agreement. 3. COMPENSATION AND RELATED MATTERS. (a) SALARY. During the New Employment Term, the Company shall pay to the Executive an annual base salary of $400,000 (the "Base Salary"). The Base Salary shall be paid in the form of cash compensation to be paid to the Executive periodically during the New Employment Term in conformity with the Company's payroll policies relating to senior executives. (b) BENEFITS. During the New Employment Term the Executive shall continue to be eligible to participate in the Salaried Employees Retirement Program (401(k) Plan), but shall not be entitled to participate in any other pension, profit-sharing, stock option, incentive or similar plan or program of the Company now existing or established hereafter. To the extent maintained in effect by the Company for its senior executives, the Executive shall also be entitled to participate in any group insurance, hospitalization, medical, dental, accident, disability or similar plan or program of the Company now existing or established hereafter to the extent that he is eligible under the general provisions thereof. (c) EXPENSE REIMBURSEMENT. The Company shall reimburse the Executive for all business expenses reasonably incurred by him in the performance of his duties under this Agreement upon presentation of expense statements or vouchers or such other supporting information as the Company may customarily require of its senior executives, provided that any expenses covered by section 4 hereof shall not be reimbursed under this subsection. 4. OFFICE SPACE. During the New Employment Term, the Company shall provide the Executive with a monthly stipend of $5,000 for executive office space in the greater New York metropolitan area. 5. NOTICE. For the purposes of this Agreement, notices, demands and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when delivered or (unless otherwise specified) mailed by United States certified or registered mail, return receipt requested, postage prepaid, addressed as follows: If to the Executive: John J. Lee 72 Cummings Point Road Stamford, CT 06902 2 If to the Company: Hexcel Corporation 5794 W. Las Positas Boulevard Pleasanton, CA 94588-8781 Attn: Corporate Secretary or to such other address as any party may have furnished to the others in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt. 6. MISCELLANEOUS. The provisions of this Agreement shall be deemed severable and the invalidity or unenforceability of any other provision shall not affect the validity or enforceability of any other provisions hereof. This Agreement constitutes the entire understanding between the parties with respect to the subject matter set forth herein, including all prior and contemporaneous written and verbal agreements. Except as otherwise provided herein, no provision of this Agreement may be modified, waived or discharged unless such modification, waiver or discharge is agreed to in writing and signed by both parties. No waiver by either party hereto at any time of any breach by the other party 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. The validity, interpretation, construction and performance of this Agreement shall be governed by laws of the State of California without reference to rules relating to conflicts of law. 7. BINDING AGREEMENT. This Agreement and all rights of the Executive hereunder shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Executive should die while any amounts would still be payable to him hereunder if he had continued to live, all such amounts unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the Executive's devisee, legatee, or other designee or, if there be no such designee, to the Executive's estate. 3 8. 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. IN WITNESS WHEREOF, the parties have executed this Agreement on the date and year first above written. HEXCEL CORPORATION By: -------------------------------- Name: Robert D. Krumme Title: Vice Chairman EXECUTIVE ---------------------------------------- John J. Lee 4 EX-10.4F 5 EXHIBIT 10.4F EXHIBIT 10.4.F CONSULTING SERVICES AGREEMENT BETWEEN HEXCEL CORPORATION AND ROBERT D. KRUMME CONSULTING SERVICES AGREEMENT, dated as of February ___, 1995 by and between HEXCEL CORPORATION ("Company") and ROBERT D. KRUMME ("Consultant"). In consideration of the promises and agreements set forth herein, the parties hereto agree to the retention of Consultant by the Company on the following terms and conditions; IT IS AGREED: 1. Consultant is presently employed by the Company as its Vice Chairman. Consultant shall continue serving as Vice Chairman until the effective date of the First Amended Plan of Reorganization proposed by the Company and the Official Equity Security Holders' Committee in the Company's Chapter 11 case (the "Effective Date"). 2. From and after the Effective Date, the Company shall retain Consultant as a consultant on the terms set forth herein. Consultant hereby agrees to the engagement as such a consultant from and after the Effective Date and agrees to perform such consulting services as are specified by the General Counsel or other senior officers of the Company to provide continuity relating to Consultant's responsibilities as Vice Chairman. Such services shall be performed at reasonable times and locations in light of Consultant's other commitments and schedule, and the Company undertakes to cooperate with Consultant in the planning and organization of such consulting matters. 3. The Company shall pay Consultant fees on a weekly basis equal to $200 per hour for consulting services rendered provided, however, that Consultant shall be paid fees equal to $100 per hour for travel time necessary to the performance of Consultant's responsibilities when Consultant is not otherwise performing compensable consulting services during such travel periods, and the Consultant shall continue to be covered for life and health insurance benefits during the term hereof on the same cost basis as charged to senior executives of the Company. Consultant shall render weekly invoices reflecting the services rendered as a condition to payment of consulting fees. The Company shall also reimburse Consultant for all business expenses reasonably incurred by him in the performance of his duties under this Agreement upon presentation of expense statements or vouchers or other supporting information as the Company may customarily require of its senior executives, and shall provide office support services at the Company's headquarters in furtherance of his consulting activities. 4. The term of Consultant's retention hereunder shall commence on the Effective Date and shall continue until July 31, 1995, unless extended by mutual consent of the parties. 5. The Company shall also pay to Consultant $125,000 on the Effective Date (the "Special Payment") in lieu of any confirmation bonus or severance to which Consultant may be entitled as a result of his employment as Vice Chairman of the Company. 2 6. The Company shall withhold all applicable state, federal and local tax withholdings from the Special Payment. 7. The Company's past practice for executive officers shall apply to Consultant with respect to any leased Company car. 8. Upon termination of his retention by the Company or any time the Company may so request, Consultant will promptly deliver to the Company all memoranda, notices, records, reports, and other documents (and all copies thereof) relating to the business of the Company and all property associated therewith which may then be in his possession or under his control. 9. Consultant acknowledges and agrees that upon receipt of the Special Payment provided for herein, any and all obligations of the Company to Consultant arising out of or in connection with his employment with the Company, including without limitation any and all claims for severance, shall have been satisfied in full and Consultant acknowledges and agrees that he shall have no other rights or claims against the Company for severance, whether in contract or in tort, except as expressly set forth in this Agreement. Notwithstanding the foregoing, this Agreement does not in any way effect (i) Consultant's rights under the Company's benefit plans and agreements applicable to Consultant, including the Executive Deferred Compensation and Consulting Agreement, which rights following any termination of employment shall be governed by the terms of such plans or agreements, (ii) Consultant's right to indemnification from the Company against third party claims as provided by law, by the Company's charter and by-laws and by any agreement between the Company and Consultant, (iii) any coverage of Consultant under the Company's directors' 3 and officers' liability insurance policy; (iv) and claim for salary and benefits and for reimbursement of expenses through the Effective Date; and (v) any claims set forth in proofs of claim filed by Consultant in the Company's chapter 11 case. The Company shall provide Consultant with indemnification to the fullest extent allowed by law for any acts or omissions to act while an employee of the Company or as a Consultant during the term of this Agreement. 10. The effectiveness of this Agreement is subject to the occurrence of the Effective Date. 11. When effective this Agreement shall supersede and replace any and all other agreements with respect to the subject matter hereof between the Company and Consultant. This Agreement contains the entire agreement of the parties hereto. It may not be changed orally but only by an agreement in writing signed by the party against whom enforcement of any waiver, change, modification, extension or discharge is sought. 12. Consultant shall execute and deliver such further documents, instruments and agreements and shall do such further acts and things as may be necessary or desirable and proper to effectuate the terms hereof, including without limitation, in consideration and as a condition to the payment of the Special Payment, a release of the Company in the form it then uses pursuant to its severance policy (except to the extent it is inconsistent with this Agreement). Consultant also agrees to execute and deliver documents effectuating his resignation as an officer and director of the Company, and at the time the Company requests, all subsidiaries of the Company and to surrender, relinquish and transfer to the Company or its designee any shares in any subsidiary of the Company. The Company 4 agrees that it will take all steps necessary to cause Consultant to be duly removed as an officer and director of the Company and, upon its own initiative or upon Consultant's request, all subsidiaries of the Company, and shall maintain directors and officers liability insurance covering the Consultant during such time as Consultant holds directorship or officership positions. 13. The Company and Consultant agree that any dispute as to the interpretation or enforcement of this Agreement shall be resolved by final and binding arbitration before a single arbitrator selected by mutual agreement or (failing agreement) selected in accordance with the rules of the American Arbitration Association then in effect (the "Arbitrator"). The award of the Arbitrator may include an award of the costs of arbitration. 14. The terms of this Agreement shall be regarded as severable. If any term is found by the Arbitrator to be unenforceable, that shall not affect the enforceability of the remainder of the terms of the Agreement. If any term as written should be interpreted by the Arbitrator to be so broad as to be unenforceable, then such term shall be restricted as necessary to make such term enforceable to the fullest extent permitted by law. 15. The Company and Consultant acknowledge that they have read this Agreement, that they are fully aware of its contents and of its legal effect, that the preceding paragraphs recite the sole consideration for this Agreement, that all agreements and understandings between the parties are embodied and expressed herein, that each party enters into this Agreement freely, without coercion, and based on the party's own judgment and not 5 in reliance upon any representations or promises made by the other party, other than those contained herein. 16. This Agreement shall be governed by and construed in accordance with the law of the State of California. 17. This Agreement shall inure to the benefit of and be binding upon the Company, its successors and assigns, including without limitation any person, partnership or corporation which may acquire all or substantially all of the Company's assets and business, or with or into which the Company may be consolidated or merged. IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement, as of the day and year first above written. HEXCEL CORPORATION By: ----------------------------- -------------------------------- ROBERT D. KRUMME 6 EX-10.4G 6 EXHIBIT 10.4G EXHIBIT 10.4.G INTERIM EMPLOYMENT AGREEMENT BETWEEN HEXCEL CORPORATION AND WILLIAM MEEHAN INTERIM EMPLOYMENT AGREEMENT, dated as of January ___, 1995 by and between HEXCEL CORPORATION ("Company") and WILLIAM MEEHAN ("Executive"). In consideration of the promises and agreements set forth herein, the parties hereto agree to the employment of Executive by the Company on the following terms and conditions; IT IS AGREED: 1. The Company hereby employs Executive as its Vice President -- Finance and Chief Financial Officer, to hold such offices and to perform such executive duties for the Company as are not inconsistent with such offices and as may be necessary or desirable and proper in connection with the transition to the Company's new management and as may otherwise be requested by the Company's Board of Directors (the "Board"). Executive hereby accepts such employment and agrees to perform such services. 2. Executive shall devote his best efforts and reasonable full time to the performance of his duties hereunder. 3. The term of Executive's employment hereunder shall commence on the effective date (the "Effective Date") of the First Amended Plan of Reorganization proposed by the Company and the Official Equity Security Holders' Committee in the Company's Chapter 11 case (the "Plan") and continue until June 30, 1995 (the "Termination Date"). 4. In consideration of Executive's services hereunder, the Company shall pay Executive, in accordance with the Company's customary payroll cycle, payments on the basis of an annual salary ("Salary") equal to $200,000 per year. 5. The Company shall also pay to Executive a one-time payment in the amount of $125,000 which shall be paid on the Effective Date ("Bonus Payment"). 6. The Company shall withhold all applicable state, federal and local tax withholdings from the Bonus Payment and any payments made on account of Salary hereunder. 7. Executive acknowledges and agrees that upon receipt of the payments provided for herein, all obligations of the Company to Executive arising out of or in connection with his employment with the Company shall have been satisfied in full and Executive acknowledges and agrees that he shall have no other right or claim against the Company, whether in contract or in tort, except as expressly set forth in this Agreement. Notwithstanding the foregoing, this Agreement does not in any way affect (i) Executive's rights under the Company's benefit plans or agreements applicable to Executive, including the Executive Deferred Compensation and Consulting Agreement, which rights following any termination of employment shall be governed by the terms of such plans or agreements or (ii) Executive's right to indemnification from the Company against third party claims as provided by law, by the Company's charter and by-laws and by any agreement between the Company 2 and Executive. The Company shall provide Executive with indemnification to the fullest extent allowed by law for any acts or omissions to act while an employee of the Company. 8. This agreement shall only become effective upon the satisfaction or waiver of all conditions precedent to the effectiveness of the Plan. 9. This Agreement supersedes and replaces any and all other agreements with respect to the subject matter hereof between the Company and Executive. This Agreement contains the entire agreement of the parties hereto. It may not be changed orally but only by an agreement in writing signed by the party against whom enforcement of any waiver, change, modification, extension or discharge is sought. 10. Upon termination of his employment with the Company or at any time the Company may so request, Executive will promptly deliver to the Company all memoranda, notices, records, reports, and other documents (and all copies thereof) relating to the business of the Company and all property associated therewith which may then be in his possession or under his control. 11. Executive shall execute and deliver such further documents, instruments and agreements and shall do such further acts and things as may be necessary or desirable and proper to effectuate the terms hereof, including without limitation, in consideration and as a condition to the payment of the Bonus Payment, a release of the Company in the form it then uses pursuant to its severance policy. 12. The Company and Executive agree that any dispute as to the interpretation or enforcement of this Agreement shall be resolved by final and binding arbitration before a single arbitrator selected by mutual agreement or (failing agreement) 3 selected in accordance with the rules of the American Arbitration Association then in effect (the "Arbitrator"). The award of the Arbitrator may include an award of the costs of arbitration. 13. The terms of this Agreement shall be regarded as severable. If any term is found by the Arbitrator to be unenforceable, that shall not affect the enforceability of the remainder of the terms of the Agreement. If any term as written should be interpreted by the Arbitrator to be so broad as to be unenforceable, then such term shall be restricted as necessary to make such term enforceable to the fullest extent permitted by law. 14. The Company and Executive acknowledge that they have read this Agreement, that they are fully aware of its contents and of its legal effect, that the preceding paragraphs recite the sole consideration for this Agreement, that all agreements and understandings between the parties are embodied and expressed herein, that each party enters into this Agreement freely, without coercion, and based on the party's own judgment and not in reliance upon any representations or promises made by the other party, other than those contained herein. 15. This Agreement shall be governed by and construed in accordance with the law of the State of California. 16. This Agreement shall inure to the benefit of and be binding upon the Company, its successors and assigns, including without limitation any person, partnership or 4 corporation which may acquire all or substantially all of the Company's assets and business, or with or into which the Company may be consolidated or merged. IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement, as of the day and year first above written. HEXCEL CORPORATION By: ---------------------------- -------------------------------- WILLIAM MEEHAN 5 EX-10.4H 7 EXHIBIT 10.4H EXHIBIT 10.4.H INTERIM EMPLOYMENT AND SEVERANCE AGREEMENT BETWEEN HEXCEL CORPORATION AND DONALD O'MARA EMPLOYMENT AND SEVERANCE AGREEMENT, dated as of February , 1995 by and between HEXCEL CORPORATION ("Company") and DONALD O'MARA ("Executive"). In consideration of the promises and agreements set forth herein, the parties hereto agree to the employment of Executive by the Company on the following terms and conditions; IT IS AGREED: 1. The Company hereby employs Executive as its President and Chief Operating Officer, to hold such office and to perform such executive duties for the Company as are not inconsistent with such office and as may be necessary or desirable and proper in connection with the Company's transition to its new management and as may otherwise be requested by the Company's Board of Directors (the "Board"). Executive hereby accepts such employment and agrees to perform such services. 2. Executive shall devote his best efforts and reasonable full time to the performance of his duties hereunder. 3. The term of Executive's employment hereunder shall continue until the earlier to occur (the "Termination Date") of (a) the termination of Executive's employment by the Board for any or no reason and (b) June 30, 1995. 4. In consideration of Executive's services hereunder, the Company shall pay Executive, in accordance with the Company's customary payroll cycle, on the basis of an annual salary ("Salary") equal to $207,000 per year. 5. The Company shall continue to pay Executive an amount equal to his Salary (the "Salary Continuation Payments") and all customary executive benefits for a period of one year after the Termination Date, payable in accordance with the Company's customary payroll cycle; provided, however, that at any time following the Termination Date, Executive may elect, at his option, to receive payment of the balance of the Salary Continuation Payments due to him hereunder in one lump sum equal to the net present value of the balance due using the then prevailing prime interest rate, and upon payment of said lump sum, the Company's obligation hereunder to provide Executive with customary executive benefits shall cease. 6. The Company shall also pay to Executive, as severance compensation hereunder, an amount equal to $100,000, of which $50,000 shall be paid on the effective date of the First Amended Plan of Reorganization proposed by the Company and the Official Equity Security Holders' Committee in the Company's Chapter 11 case (the "Plan") and $50,000 shall be paid on the Termination Date (each a "Severance Payment"). The first Severance Payment shall include the payment of all sums due to Executive under the Company's Employee Retention Bonus Plan. 7. The Company shall withhold all applicable state, federal and local tax withholdings from the Salary Continuation Payments, Severance Payments and any amounts paid on account of Salary hereunder. -2- 8. The Contingency Employment Agreement entered into between the Company and Executive, a copy of which is attached hereto as Exhibit A (the "Contingency Agreement") is hereby terminated and Executive hereby waives any and all rights Executive may have had under the Contingency Agreement, and any and all claims arising out of the Company's rejection or termination of the Contingency Agreement. 9. Upon termination of his employment with the Company or at any time the Company may so request, Executive will promptly deliver to the Company all memoranda, notices, records, reports, and other documents (and all copies thereof) relating to the business of the Company and all property associated therewith which may then be in his possession or under his control. Furthermore, the Executive's agreements with respect to confidentiality and secrecy shall remain in full force and effect. 10. Executive acknowledges and agrees that in the event of any violation of any of the provisions of Section 9 of this Agreement, the Company would have no adequate remedy at law and shall accordingly be entitled to enforce such provisions by temporary or permanent injunctive or mandatory relief obtained in an action or proceeding instituted in any appropriate tribunal. 11. Executive acknowledges and agrees that upon receipt of the payments provided for herein, any and all obligations of the Company to Executive with respect to any obligations of the Company arising out of or in connection with his employment with the Company, including without limitation any and all obligations under the Contingency Agreement and the Employee Retention Bonus Plan, shall have been satisfied in full. This Agreement does not in any way affect (i) rights under any other of the Company's benefit -3- plans and agreements applicable to Executive, including the Employee Deferred Compensation and Consulting Agreement, which rights following any termination of employment shall be governed by the terms of such plans or agreements or (ii) Executive's right to indemnification from the Company against third party claims as provided by law, by the Company's charter and by-laws and by any agreement between the Company and Executive. The Company shall provide Executive with indemnification to the fullest extent allowed by law for any acts or omissions to act while an employee of the Company. In the event Executive has leased an automobile which relates to the Company's car allowance policy, upon any termination of Executive's employment hereunder, at the election of Executive, Executive may either (i) terminate such lease in which case the Company will reimburse Executive for all lease termination costs, or (ii) elect to continue the lease in which case the Company shall be relieved of any obligation to continue car allowance payments. 12. This Agreement is subject to the satisfaction or waiver of all conditions precedent to the effectiveness of the Plan. 13. This Agreement supersedes and replaces any and all other agreements with respect to the subject matter hereof between the Company and Executive. This Agreement contains the entire agreement of the parties hereto. It may not be changed orally but only by an agreement in writing signed by the party against whom enforcement of any waiver, change, modification, extension or discharge is sought. 14. Executive shall execute and deliver such further documents, instruments and agreements and shall do such further acts and things as may be necessary or desirable -4- and proper to effectuate the terms hereof including without limitation in connection with the termination of the Contingency Agreement and the release of the Company with respect to any and all obligations under the Company's Employee Retention Bonus Plan, and, in consideration and as a condition to payment of the Severance Payments and Salary Continuation Payments, a release of the Company in the form it then uses pursuant to its severance policy. Executive also agrees to execute and deliver documents effectuating his resignation as an officer and director of the Company and all subsidiaries of the Company and to surrender, relinquish and transfer to the Company or its designee any shares in any subsidiary of the Company, and the Company agrees that it will take all steps necessary to cause Executive to be duly removed as an officer and director of the Company and all subsidiaries of the Company, and shall maintain directors and officers insurance covering the Executive until such time as Executive's removal from such positions is effectuated. 15. The Company and Executive agree that any dispute as to the interpretation or enforcement of this Agreement shall be resolved by final and binding arbitration before a single arbitrator selected by mutual agreement or (failing agreement) selected in accordance with the rules of the American Arbitration Association then in effect (the "Arbitrator"). The award of the Arbitrator may include an award of the costs of arbitration. 16. The terms of this Agreement shall be regarded as severable. If any term is found by the Arbitrator to be unenforceable, that shall not affect the enforceability of the remainder of the terms of the Agreement. If any term as written should be interpreted by -5- the Arbitrator to be so broad as to be unenforceable, then such term shall be restricted as necessary to make such term enforceable to the fullest extent permitted by law. 17. The Company and Executive acknowledge that they have read this Agreement, that they are fully aware of its contents and of its legal effect, that the preceding paragraphs recite the sole consideration for this Agreement, that all agreements and understandings between the parties are embodied and expressed herein and supersede the Contingency Agreement and that each party enters into this Agreement freely, without coercion, and based on such party's own judgment and not in reliance upon any representations or promises made by the other party, other than those contained herein. 18. This Agreement shall be governed by and construed in accordance with the law of the State of California. 19. This Agreement shall inure to the benefit of and be binding upon the Company, its successors and assigns, including without limitation any person, partnership or corporation which may acquire all or substantially all of the Company's assets and business, or with or into which the Company may be consolidated or merged. IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement, as of the day and year first above written. HEXCEL CORPORATION By: ----------------------------- ---------------------------------- DONALD O'MARA -6- EX-10.4I 8 EXHIBIT 10.4I EXHIBIT 10.4.I AGREEMENT BETWEEN HEXCEL CORPORATION AND GARY SANDERCOCK For and in consideration of the mutual promises made herein, Gary Sandercock ("Employee") and Hexcel Corporation, including its successors and assigns (collectively the "Company"), agree as follows: 1. In the event that Employee's employment by the Company is terminated (i) by the Company at any time for any reason other than Cause (as defined in Exhibit A hereto) or (ii) by Employee for Good Reason (as defined in Exhibit A), the Company shall pay Employee, within 30 days following the date of termination, severance equal to one year of salary based on the salary Employee is receiving on the last day of employment with the Company, plus an amount equal to any bonus paid to Employee within 12 months prior to the date of termination (other than the Additional Payment to be made pursuant to Section 2 hereof) ("Severance Pay"). The Company shall withhold from Severance Pay applicable state, federal and local tax withholdings. 2. On the effective date of the First Amended Plan of Reorganization proposed by the Company and the Official Equity Security Holders Committee in the Company's Chapter 11 case (the "Plan"), the Company shall pay Employee an amount equal to $50,000 in a single lump sum payment (the "Additional Payment"), which shall include a payment in the amount of all sums due to Employee in full and complete satisfaction of any and all obligations of the Company to Employee under the Company's Employee Retention Bonus Plan. The Company shall withhold from the Additional Payment applicable state, federal and local tax withholdings. 3. The Contingency Employment Agreement entered into between the Company and Employee, attached hereto as Exhibit B (the "Contingency Agreement") is hereby terminated, and Employee hereby waives any and all rights Employee may have had under the Contingency Agreement, and any and all claims arising out of the Company's rejection or termination of the Contingency Agreement. This Agreement does not in any way affect (i) rights under any of the Company's benefit plans and agreements applicable to Employee, including the Executive Deferred Compensation and Consulting Agreement, which rights following any termination of employment shall be governed by the terms of such plans or agreements or (ii) Employee's right to indemnification from the Company against third party claims as provided by law, by the Company's charter and by-laws and by any agreement between the Company and Employee. In the event Employee has leased an automobile which relates to the Company's car allowance policy, upon any termination of Employee's employment that results in Severance Pay, at the election of Employee, Employee may either (i) terminate such lease in which case the Company will reimburse Employee for all lease termination costs, or (ii) elect to continue the lease in which case the Company shall be relieved of any obligation to continue car allowance payments. 4. Upon termination of his employment with the Company or at any time the Company may so request, Employee will promptly deliver to the Company all memoranda, notices, records, reports, and other documents (and all copies thereof) relating to the business of the Company and all property associated therewith which may then be in his possession or under his control. Furthermore, the Employee's agreements with respect to confidentiality and secrecy shall remain in full force and effect. 5. The Company and Employee agree that any dispute as to the interpretation or enforcement of this Agreement shall be resolved by final and binding arbitration before a single arbitrator selected by mutual agreement or (failing agreement) selected in accordance with the rules of the American Arbitration Association then in effect (the "Arbitrator"). The award of the Arbitrator may include an award of the costs of arbitration. 6. The terms of this Agreement shall be regarded as severable. If any term is found by the Arbitrator to be unenforceable, that shall not affect the enforceability of the remainder of the terms of the Agreement. If any term as written should be interpreted by the Arbitrator to be so broad as to be unenforceable, then such term shall be restricted as necessary to make such term enforceable to the fullest extent permitted by law. 7. The Company and Employee acknowledge that they have read this Agreement, that they are fully aware of its contents and of its legal effect, that the preceding paragraphs recite the sole consideration for this Agreement, that all agreements and understandings between the parties are embodied and expressed herein and supersede the Contingency Agreement and that each party enters into this Agreement freely, without coercion, and based on the party's own judgment and not in reliance upon any representations or promises made by the other party, other than those contained herein. 8. This Agreement is subject to the satisfaction or waiver of all conditions precedent to the effectiveness of the Plan. 9. This Agreement shall be construed and governed by the laws of the State of California. 10. Employee shall execute and deliver such further documents, instruments and agreements and shall do such further acts and things as may be necessary or desirable and proper to effectuate the terms hereof including without limitation in connection with the termination of the Contingency Agreement and the release of the Company with respect to any and all of the Company's obligations under the Employee Retention Bonus Plan, and in consideration and as a condition to payment of severance pay, a release of the Company in the form it then uses pursuant to its severance policy. HEXCEL CORPORATION Dated: By: -------------------- --------------------------- EMPLOYEE Dated: -------------------- ------------------------------ GARY SANDERCOCK EXHIBIT A CAUSE DEFINED. "Cause" for termination of employment shall consist of the following: (a) Gross misconduct specifically intended to injure or cause financial loss to the Company, and failure to discontinue same immediately after written notice thereof; (b) Repeated disregard of or failure to perform duties and failure to cure such disregard or failure within thirty (30) days after written notice thereof; (c) Habitual drunkenness or habitual use of illegal drugs; (d) Conviction of a felony or the pleading of nolo contendere to a felony, provided such conviction or pleading results in incarceration in a state prison; (e) Conviction of, or the pleading of nolo contendere to, a crime involving dishonesty in dealing with Company property, such as theft, embezzlement, etc. GOOD REASON DEFINED. "Good Reason" for termination by Employee of Employee's employment shall mean the occurrence (without Employee's express written consent) during the Employment Period of any one of the following acts by the Company, or failures by the Company to act, unless, in the case of any act or failure to act described in paragraph (a) below, such act or failure to act is corrected within 30 days of receipt by the Company of written notice thereof from Employee: (a) A substantial adverse alteration, which is not justified by Employee's poor performance, in the nature or status of Employee's responsibilities from those in effect immediately prior to the date hereof; (b) Reduction by the Company in Employee's annual base salary as in effect on the date hereof or as the same may be increased from time to time, which is not justified by Employee's poor performance; (c) The Company's requiring Employee to be based anywhere other than the metropolitan area in which Employee was based immediately prior to the date hereof except for required travel on Hexcel's business; or (d) The failure by the Company without Employee's consent, to pay to Employee any portion of Employee's current compensation or to pay to Employee any portion of an installment of deferred compensation under any deferred compensation program of the Company, within seven (7) days of the date such compensation is due. EX-10.4J 9 EXHIBIT 10.4J EXHIBIT 10.4.J AGREEMENT BETWEEN HEXCEL CORPORATION AND TOM LAHEY For and in consideration of the mutual promises made herein, Tom Lahey ("Employee") and Hexcel Corporation, including its successors and assigns (collectively the "Company"), agree as follows: 1. In the event that Employee's employment by the Company is terminated (i) by the Company at any time for any reason other than Cause (as defined in Exhibit A hereto) or (ii) by Employee for Good Reason (as defined in Exhibit A), the Company shall pay Employee, within 30 days following the date of termination, severance equal to one year of salary based on the salary Employee is receiving on the last day of employment with the Company, plus an amount equal to any bonus paid to Employee within 12 months prior to the date of termination (other than the Additional Payment to be made pursuant to Section 2 hereof) ("Severance Pay"). The Company shall withhold from Severance Pay applicable state, federal and local tax withholdings. 2. On the effective date of the First Amended Plan of Reorganization proposed by the Company and the Official Equity Security Holders Committee in the Company's Chapter 11 case (the "Plan"), the Company shall pay Employee an amount equal to $50,000 in a single lump sum payment (the "Additional Payment"), which shall include a payment in the amount of all sums due to Employee in full and complete satisfaction of any and all obligations of the Company to Employee under the Company's Employee Retention Bonus Plan. The Company shall withhold from the Additional Payment applicable state, federal and local tax withholdings. 3. The Contingency Employment Agreement entered into between the Company and Employee, attached hereto as Exhibit B (the "Contingency Agreement") is hereby terminated, and Employee hereby waives any and all rights Employee may have had under the Contingency Agreement, and any and all claims arising out of the Company's rejection or termination of the Contingency Agreement. This Agreement does not in any way affect (i) rights under any other of the Company's benefit plans and agreements applicable to Employee, including the Executive Deferred Compensation and Consulting Agreement, which rights following any termination of employment shall be governed by the terms of such plans or agreements or (ii) Employee's right to indemnification from the Company against third party claims as provided by law, by the Company's charter and by-laws and by any agreement between the Company and Employee. In the event Employee has leased an automobile which relates to the Company's car allowance policy, upon any termination of Employee's employment that results in Severance Pay, at the election of Employee, Employee may either (i) terminate such lease in which case the Company will reimburse Employee for all lease termination costs, or (ii) elect to continue the lease in which case the Company shall be relieved of any obligation to continue car allowance payments. 4. Upon termination of his employment with the Company or at any time the Company may so request, Employee will promptly deliver to the Company all memoranda, notices, records, reports, and other documents (and all copies thereof) relating to the business of the Company and all property associated therewith which may then be in his possession or under his control. Further, the Employee's agreements with respect to confidentiality and secrecy shall remain in full force and effect. 5. The Company and Employee agree that any dispute as to the interpretation or enforcement of this Agreement shall be resolved by final and binding arbitration before a single arbitrator selected by mutual agreement or (failing agreement) selected in accordance with the rules of the American Arbitration Association then in effect (the "Arbitrator"). The award of the Arbitrator may include an award of the costs of arbitration. 6. The terms of this Agreement shall be regarded as severable. If any term is found by the Arbitrator to be unenforceable, that shall not affect the enforceability of the remainder of the terms of the Agreement. If any term as written should be interpreted by the Arbitrator to be so broad as to be unenforceable, then such term shall be restricted as necessary to make such term enforceable to the fullest extent permitted by law. 7. The Company and Employee acknowledge that they have read this Agreement, that they are fully aware of its contents and of its legal effect, that the preceding paragraphs recite the sole consideration for this Agreement, that all agreements and understandings between the parties are embodied and expressed herein and supersede the Contingency Agreement and that each party enters into this Agreement freely, without coercion, and based on the party's own judgment and not in reliance upon any representations or promises made by the other party, other than those contained herein. 8. This Agreement is subject to the satisfaction or waiver of all conditions precedent to the effectiveness of the Plan. 9. This Agreement shall be construed and governed by the laws of the State of California. 10. Employee shall execute and deliver such further documents, instruments and agreements and shall do such further acts and things as may be necessary or desirable and proper to effectuate the terms hereof including without limitation in connection with the termination of the Contingency Agreement and the release of the Company with respect to any and all of the Company's obligations under the Employee Retention Bonus Plan, and, in consideration and as a condition to payment of the Severance Pay, a release of the Company in the form it then uses pursuant to its severance policy. HEXCEL CORPORATION Dated: By: -------------------- --------------------------- EMPLOYEE Dated: -------------------- ------------------------------ TOM LAHEY EXHIBIT A CAUSE DEFINED. "Cause" for termination of employment shall consist of the following: (a) Gross misconduct specifically intended to injure or cause financial loss to the Company, and failure to discontinue same immediately after written notice thereof; (b) Repeated disregard of or failure to perform duties and failure to cure such disregard or failure within thirty (30) days after written notice thereof; (c) Habitual drunkenness or habitual use of illegal drugs; (d) Conviction of a felony or the pleading of nolo contendere to a felony, provided such conviction or pleading results in incarceration in a state prison; (e) Conviction of, or the pleading of nolo contendere to, a crime involving dishonesty in dealing with Company property, such as theft, embezzlement, etc. GOOD REASON DEFINED. "Good Reason" for termination by Employee of Employee's employment shall mean the occurrence (without Employee's express written consent) during the Employment Period of any one of the following acts by the Company, or failures by the Company to act, unless, in the case of any act or failure to act described in paragraph (a) below, such act or failure to act is corrected within 30 days of receipt by the Company of written notice thereof from Employee: (a) A substantial adverse alteration, which is not justified by Employee's poor performance, in the nature or status of Employee's responsibilities from those in effect immediately prior to the date hereof; (b) Reduction by the Company in Employee's annual base salary as in effect on the date hereof or as the same may be increased from time to time, which is not justified by Employee's poor performance; (c) The Company's requiring Employee to be based anywhere other than the metropolitan area in which Employee was based immediately prior to the date hereof except for required travel on Hexcel's business; or (d) The failure by the Company without Employee's consent, to pay to Employee any portion of Employee's current compensation or to pay to Employee any portion of an installment of deferred compensation under any deferred compensation program of the Company, within seven (7) days of the date such compensation is due. EX-10.4K 10 EXHIBIT 10.4K EXHIBIT 10.4.K AGREEMENT BETWEEN HEXCEL CORPORATION AND WILLIAM WOODROW For and in consideration of the mutual promises made herein, William Woodrow ("Employee") and Hexcel Corporation, including its successors and assigns (collectively the "Company"), agree as follows: 1. In the event that Employee's employment by the Company is terminated (i) by the Company at any time for any reason other than Cause (as defined in Exhibit A hereto) or (ii) by Employee for Good Reason (as defined in Exhibit A), the Company shall pay Employee, within 30 days following the date of termination, severance equal to one year of salary based on the salary Employee is receiving on the last day of employment with the Company, plus an amount equal to any bonus paid to Employee within 12 months prior to the date of termination (other than the Additional Payment to be made pursuant to Section 2 hereof) ("Severance Pay"). The Company shall withhold from Severance Pay applicable state, federal and local tax withholdings. 2. On the effective date of the First Amended Plan of Reorganization proposed by the Company and the Official Equity Security Holders Committee in the Company's Chapter 11 case (the "Plan"), the Company shall pay Employee an amount equal to $40,000 in a single lump sum payment (the "Additional Payment"), which shall include a payment in the amount of all sums due to Employee in full and complete satisfaction of any and all obligations of the Company to Employee under the Company's Employee Retention Bonus Plan. The Company shall withhold from the Additional Payment applicable state, federal and local tax withholdings. 3. The Contingency Employment Agreement entered into between the Company and Employee, attached hereto as Exhibit B (the "Contingency Agreement") is hereby terminated, and Employee hereby waives any and all rights Employee may have had under the Contingency Agreement, and any and all claims arising out of the Company's rejection or termination of the Contingency Agreement. This Agreement does not in any way affect (i) rights under any other of the Company's benefit plans and agreements applicable to Employee, including the Executive Deferred Compensation and Consulting Agreement, which rights following any termination of employment shall be governed by the terms of such plans or (ii) Employee's right to indemnification from the Company against third party claims as provided by law, by the Company's charter and by-laws and by any agreement between the Company and Employee. In the event Employee has leased an automobile which relates to the Company's car allowance policy, upon any termination of Employee's employment that results in Severance Pay, at the election of Employee, Employee may either (i) terminate such lease in which case the Company will reimburse Employee for all lease termination costs, or (ii) elect to continue the lease in which case the Company shall be relieved of any obligation to continue car allowance payments. 4. Upon termination of his employment with the Company or at any time the Company may so request, Employee will promptly deliver to the Company all memoranda, notices, records, reports, and other documents (and all copies thereof) relating to the business of the Company and all property associated therewith which may then be in his possession or under his control. Furthermore, the Employee's agreements with respect to confidentiality and secrecy shall remain in full force and effect. 5. The Company and Employee agree that any dispute as to the interpretation or enforcement of this Agreement shall be resolved by final and binding arbitration before a single arbitrator selected by mutual agreement or (failing agreement) selected in accordance with the rules of the American Arbitration Association then in effect (the "Arbitrator"). The award of the Arbitrator may include an award of the costs of arbitration. 6. The terms of this Agreement shall be regarded as severable. If any term is found by the Arbitrator to be unenforceable, that shall not affect the enforceability of the remainder of the terms of the Agreement. If any term as written should be interpreted by the Arbitrator to be so broad as to be unenforceable, then such term shall be restricted as necessary to make such term enforceable to the fullest extent permitted by law. 7. The Company and Employee acknowledge that they have read this Agreement, that they are fully aware of its contents and of its legal effect, that the preceding paragraphs recite the sole consideration for this Agreement, that all agreements and understandings between the parties are embodied and expressed herein and supersede the Contingency Agreement and that each party enters into this Agreement freely, without coercion, and based on the party's own judgment and not in reliance upon any representations or promises made by the other party, other than those contained herein. 8. This Agreement is subject to the satisfaction or waiver of all conditions precedent to the effectiveness of the Plan. 9. This Agreement shall be construed and governed by the laws of the State of California. 10. Employee shall execute and deliver such further documents, instruments and agreements and shall do such further acts and things as may be necessary or desirable and proper to effectuate the terms hereof including without limitation in connection with the termination of the Contingency Agreement and the release of the Company with respect to any and all of the Company's obligations under the Employee Retention Bonus Plan, and, in consideration and as a condition to payment of the Severance Pay, a release of the Company in the form it then uses pursuant to its severance policy. HEXCEL CORPORATION Dated: By: -------------------- --------------------------- EMPLOYEE Dated: -------------------- --------------------------- WILLIAM WOODROW EXHIBIT A CAUSE DEFINED. "Cause" for termination of employment shall consist of the following: (a) Gross misconduct specifically intended to injure or cause financial loss to the Company, and failure to discontinue same immediately after written notice thereof; (b) Repeated disregard of or failure to perform duties and failure to cure such disregard or failure within thirty (30) days after written notice thereof; (c) Habitual drunkenness or habitual use of illegal drugs; (d) Conviction of a felony or the pleading of nolo contendere to a felony, provided such conviction or pleading results in incarceration in a state prison; (e) Conviction of, or the pleading of nolo contendere to, a crime involving dishonesty in dealing with Company property, such as theft, embezzlement, etc. GOOD REASON DEFINED. "Good Reason" for termination by Employee of Employee's employment shall mean the occurrence (without Employee's express written consent) during the Employment Period of any one of the following acts by the Company, or failures by the Company to act, unless, in the case of any act or failure to act described in paragraph (a) below, such act or failure to act is corrected within 30 days of receipt by the Company of written notice thereof from Employee: (a) A substantial adverse alteration, which is not justified by Employee's poor performance, in the nature or status of Employee's responsibilities from those in effect immediately prior to the date hereof; (b) Reduction by the Company in Employee's annual base salary as in effect on the date hereof or as the same may be increased from time to time, which is not justified by Employee's poor performance; (c) The Company's requiring Employee to be based anywhere other than the metropolitan area in which Employee was based immediately prior to the date hereof except for required travel on Hexcel's business; or (d) The failure by the Company without Employee's consent, to pay to Employee any portion of Employee's current compensation or to pay to Employee any portion of an installment of deferred compensation under any deferred compensation program of the Company, within seven (7) days of the date such compensation is due. EX-10.4L 11 EXHIBIT 10.4L EXHIBIT 10.4.L AGREEMENT BETWEEN HEXCEL CORPORATION AND STEPHEN C. FORSYTH For and in consideration of the mutual promises made herein, the undersigned "Employee" and Hexcel Corporation, including its successors and assigns (collectively the "Company"), agree as follows: 1. In the event that Employee is terminated by the Company at any time, the Company shall pay Employee severance equal to one year of salary, exclusive of bonus, based on the salary Employee is receiving on the last day of employment with the Company ("Severance Pay"). Severance Pay shall be paid in 12 equal installments, less applicable state, federal and local tax withholdings, on or before the last day of the month beginning with the month following the month Employee is last employed by the Company. In addition, the Company shall also pay the premium or other costs of maintaining existing coverage under the applicable medical/dental plans, disability insurance program and life insurance program for the one-year during which Employee is entitled to severance payments as provided herein. 2. Employee waives any and all rights to which Employee may have been entitled in the Employment Separation Agreement entered into between the Company and Employee dated March 17, 1993, attached hereto as Exhibit A. Specifically, the Company and Employee agree that this Agreement Regarding Severance Pay constitutes a termination of the Employment Separation Agreement, and of any and all rights Employee may have had under the Employment Separation Agreement. 3. The Company and Employee agree that any dispute as to the interpretation or enforcement of this Agreement Regarding Severance Pay shall be resolved by final and binding arbitration before Arbitrator John Kagel ("the Arbitrator"), with the party that does not prevail to be responsible for the cost of arbitration. 4. The terms of this Agreement Regarding Severance Pay shall be regarded as severable. If any term is found by the Arbitrator to be unenforceable, that shall not affect the enforceability of the remainder of the terms of the Agreement. If any term as written should be interpreted by the Arbitrator to be so broad as to be unenforceable, then such term shall be restricted as necessary to make such term enforceable to the fullest extent permitted by law. 5. The Company and Employee acknowledge that they have read this Agreement Regarding Severance Pay, that they are fully aware of its contents and of its legal effect, that the preceding paragraphs recite the sole consideration for this Agreement Regarding Severance Pay, that all agreements and understandings between the parties are embodied and expressed herein and supersede their Employment Separation Agreement dated March 17, 1993, and that each party enters into this Agreement Regarding Severance Pay freely, without coercion, and based on the party's own judgment and not in reliance upon any representations or promises made by the other party, other than those contained herein. 6. This Agreement Regarding Severance Pay shall be construed and governed by the laws of the State of California. HEXCEL CORPORATION Dated: By: ------------------------ -------------------------------- EMPLOYEE Dated: By: ------------------------ -------------------------------- EX-10.4M 12 EXHIBIT 10.4M EXHIBIT 10.4.M AGREEMENT BETWEEN HEXCEL CORPORATION AND ROBERT A. PETRISKO For and in consideration of the mutual promises made herein, the undersigned "Employee" and Hexcel Corporation, including its successors and assigns (collectively the "Company"), agree as follows: 1. In the event that Employee is terminated by the Company at any time, the Company shall pay Employee severance equal to one year of salary, exclusive of bonus, based on the salary Employee is receiving on the last day of employment with the Company ("Severance Pay"). Severance Pay shall be paid in 12 equal installments, less applicable state, federal and local tax withholdings, on or before the last day of the month beginning with the month following the month Employee is last employed by the Company. In addition, the Company shall also pay the premium or other costs of maintaining existing coverage under the applicable medical/dental plans, disability insurance program and life insurance program for the one-year during which Employee is entitled to severance payments as provided herein. 2. The Company and Employee agree that this Agreement Regarding Severance Pay constitutes a termination of any and all rights Employee may have had under any plan or policy of the Company or any other agreement. 3. The Company and Employee agree that any dispute as to the interpretation or enforcement of this Agreement Regarding Severance Pay shall be resolved by final and binding arbitration before Arbitrator John Kagel ("the Arbitrator"), with the party that does not prevail to be responsible for the cost of arbitration. 4. The terms of this Agreement Regarding Severance Pay shall be regarded as severable. If any term is found by the Arbitrator to be unenforceable, that shall not affect the enforceability of the remainder of the terms of the Agreement. If any term as written should be interpreted by the Arbitrator to be so broad as to be unenforceable, then such term shall be restricted as necessary to make such term enforceable to the fullest extent permitted by law. 5. The Company and Employee acknowledge that they have read this Agreement Regarding Severance Pay, that they are fully aware of its contents and of its legal effect, that the preceding paragraphs recite the sole consideration for this Agreement Regarding Severance Pay, that all agreements and understandings between the parties are embodied and expressed herein and supersede any other plans, policies and agreements and that each party enters into this Agreement Regarding Severance Pay freely, without coercion, and based on the party's own judgment and not in reliance upon any representations or promises made by the other party, other than those contained herein. 6. This Agreement Regarding Severance Pay shall be construed and governed by the laws of the State of California. HEXCEL CORPORATION Dated: ---------------------------------- By: ------------------------------------- EMPLOYEE Dated: ---------------------------------- By: ------------------------------------- EX-10.5 13 EXHIBIT 10.5 EXHIBIT 10.5 February 1, 1995 Mr. John J. Lee Chairman and CEO 72 Cummings Point Road Stamford, CT 06902 Dear John: This letter will confirm our understanding regarding UniRock's current and future consulting relationship with Hexcel Corporation. The current consulting agreement will terminate upon the effective date of Hexcel's Plan of Reorganization. We have received Rob Feinstein's letter and agree to comply with Hexcel's request to pro-rate our $40,000 monthly retainer fee for the month of February to the effective date. Commencing with the effective date, UniRock agrees to continue to provide consulting services as required by the company. The term of this agreement will be from the effective date until March 31, 1995. For work performed during the month of February, we will receive $30,000 per month, pro-rated for the number of days post the effective date, and for the month of March, $20,000 per month. In addition, we will be reimbursed for all normal out-of-pocket business expenses incurred. If the time expended by UniRock is materially different than the above billing rates would support, then both parties will discuss an equitable adjustment. In addition, we agree that there will not be any contingent payment associated with our work during this period, including the consummation of the sale of the U.S. resin business. You have indicated that you believe UniRock has satisfied the requirements under the existing agreement to earn the $400,000 contingent payment related to the Chandler-Northrop transaction and the sale of the European resins. We understand that Hexcel will support the contingent payment application at the appropriate time. The scope of our work during the term of the new agreement will respond to the company's requirements that you have described, including the following: 1. Sale of the U.S. resin business (Chatsworth). Progress continues in this effort and we anticipate entering into a comprehensive Letter of Intent in February. 2. Continued supervision of the Chandler/Northrop transaction during the Hold- Back period. We will continue our supervision to ensure that the requisite events occur and that Hexcel receives the full value of the hold-backs provided for under the sale agreement. Mr. John J. Lee February 1, 1995 Page two 3. Composites consolidation strategy. We will work with you and your M&A team in the continued development and implementation of the consolidation strategy for the composites industry. If the above correctly reflects our understanding, please so indicate below. We look forward to our continued involvement with Hexcel during this important transition period. Sincerely yours, Franklin S. Wimer President /ck Agreed and Accepted ---------------------------------------------- Date ----------------------------------------------- EX-11 14 EXHIBIT 11 EXHIBIT 11 STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS - UNAUDITED The Company reports net income (loss) per share data on primary and fully diluted bases. Primary net income (loss) per share is based upon the weighted average number of outstanding common shares and common equivalent shares from stock options. Fully diluted net income (loss) per share is based upon (a) the weighted average number of outstanding common shares and common equivalent shares from stock options and adjusted for the assumed conversion of the 7% convertible subordinated debentures and (b) net income (loss) increased by the expenses on the debentures. Computations of net income (loss) per share on the primary and fully diluted bases for 1994, 1993 and 1992 were:
PRIMARY NET INCOME (LOSS) PER SHARE AND EQUIVALENT SHARE - ---------------------------------------------------------------------------------------------------------------------- (IN THOUSANDS, EXCEPT PER SHARE DATA) 1994 1993 1992 - ---------------------------------------------------------------------------------------------------------------------- Loss from continuing operations $ (28,080) $ (79,872) $ (15,983) Loss from discontinued operations (1,890) (10,623) (6,195) Extraordinary gain - - 956 Cumulative effects of accounting changes - 4,500 (8,052) - ---------------------------------------------------------------------------------------------------------------------- Net loss $ (29,970) $ (85,995) $ (29,274) - ---------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------- Weighted average common shares outstanding 7,310 7,330 7,254 Weighted average common equivalent shares from stock options - - 18 - ---------------------------------------------------------------------------------------------------------------------- Weighted average common shares and equivalent shares 7,310 7,330 7,272 - ---------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------- Primary net income (loss) per share and equivalent share from: Continuing operations $ (3.84) $ (10.89) $ (2.20) Discontinued operations (0.26) (1.45) (0.85) Extraordinary gain - - 0.13 Cumulative effects of accounting changes - 0.61 (1.11) - ---------------------------------------------------------------------------------------------------------------------- Primary net loss per share and equivalent share (1) $ (4.10) $ (11.73) $ (4.03) - ---------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------- FULLY DILUTED NET INCOME (LOSS) PER SHARE AND EQUIVALENT SHARE - ---------------------------------------------------------------------------------------------------------------------- Loss from continuing operations $ (28,080) $ (79,872) $ (15,983) Loss from discontinued operations (1,890) (10,623) (6,195) Extraordinary gain - - 956 Cumulative effects of accounting changes - 4,500 (8,052) - ---------------------------------------------------------------------------------------------------------------------- Net loss (29,970) (85,995) (29,274) Debenture interest and issuance costs 1,204 1,213 1,330 - ---------------------------------------------------------------------------------------------------------------------- Adjusted net loss $ (28,766) $ (84,782) $ (27,944) - ---------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------- Weighted average common shares outstanding 7,310 7,330 7,254 Weighted average common equivalent shares Stock options - - 18 7% convertible debentures 804 804 881 - ---------------------------------------------------------------------------------------------------------------------- Weighted average common shares and equivalent shares 8,114 8,134 8,153 - ---------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------- Fully diluted net income (loss) per share and equivalent share from: Continuing operations $ (3.84) $ (10.89) $ (2.20) Discontinued operations (0.26) (1.45) (0.85) Extraordinary gain 0.13 Cumulative effects of accounting changes - 0.61 (1.11) - ---------------------------------------------------------------------------------------------------------------------- Fully diluted net loss per share and equivalent share $ (4.10) $ (11.73) $ (4.03) - ---------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------- (1) For 1994, 1993 and 1992 the primary and fully diluted net loss per share were the same because the fully diluted computation was antidilutive.
EX-21 15 EXHIBIT 21 EXHIBIT 21 SUBSIDIARIES OF HEXCEL Hexcel Chemical Products Ltd. Hexcel do Brasil Servicos S/D Ltda. Hexcel Far East Hexcel Foreign Sales Corporation Hexcel International Hexcel S.A. Hexcel S.A. - Belgium Hexcel U.K., Ltd. EX-23 16 EXHIBIT 23 EXHIBIT 23 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation be reference of our report dated February 24, 1995 (which report contains explanatory paragraphs regarding the confirmation of Hexcel Corporation's plan of reorganization, future compliance with certain financial ratio covenants of the revolving credit facility, and a change in accounting for postretirement benefits other than pensions and a change in accounting for income taxes) appearing in this Annual Report on Form 10-K for the year ended December 31, 1994, in Registration Statement No. 33- 49478 on Form S-8 regarding the 1988 Management Stock Program. DELOITTE & TOUCHE LLP Oakland, California March 24, 1995 EX-27 17 EXHIBIT 27
5 1,000 12-MOS DEC-31-1994 JAN-01-1994 DEC-31-1994 931 0 94,725 1,249 47,364 148,352 186,328 103,215 243,457 171,307 51,020 73 0 0 (5,958) 243,457 313,795 313,795 265,367 311,152 15,291 0 11,846 (24,494) 3,586 (28,080) (1,890) 0 0 (29,970) (4.10) (4.10)
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