-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IikTsoUzn7GC/cpJfbV/IoegQE1ZdqsJgN9TGHipluiBFQ6YehSSMgzYuoXP2LwN FDav7DCdVWbmBwtSpMgh1w== 0000912057-96-005837.txt : 19960402 0000912057-96-005837.hdr.sgml : 19960402 ACCESSION NUMBER: 0000912057-96-005837 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 20 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960401 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: 96543280 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 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, 1995 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 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. [ ] The aggregate market value as of March 15, 1996 of voting stock held by nonaffiliates of the registrant: $162,227,491. 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 15, 1996 ----- ----------------------------- COMMON STOCK 36,114,927 DOCUMENTS INCORPORATED BY REFERENCE: PROXY STATEMENT FOR ANNUAL MEETING OF STOCKHOLDERS (TO THE EXTENT SPECIFIED HEREIN) -- PART III. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PART I ITEM 1. BUSINESS. GENERAL DEVELOPMENT OF BUSINESS Hexcel Corporation, founded in 1946, was incorporated in California in 1948, and reincorporated in Delaware in 1983. Hexcel Corporation and subsidiaries (herein referred to as "Hexcel" or the "Company") is an international developer and manufacturer of lightweight, high-performance composite materials, parts and structures for use in the commercial aerospace, space and defense, recreation and general industrial markets. The Company serves international markets through manufacturing and marketing facilities located in the United States and Europe, as well as sales offices in Asia, Australia and South America. The Company is also a partner in three joint ventures that manufacture and sell composite materials in the U.S. and Asia. ACQUISITION OF THE CIBA COMPOSITES BUSINESS Hexcel acquired the worldwide composites division of Ciba-Geigy Limited, a Swiss corporation ("Ciba"), and Ciba-Geigy Corporation, a New York corporation ("CGC"), including Ciba's and CGC's composite materials, parts and structures businesses (the "Ciba Composites Business"), on February 29, 1996. The Ciba Composites Business is engaged in the manufacture and marketing of composite materials, parts and structures for aerospace, recreation and general industrial markets. Product lines include fabrics, prepregs, adhesives, honeycomb core, sandwich panels and fabricated components, as well as structures and interiors primarily for the commercial and military aerospace markets. The acquisition of the Ciba Composites Business was consummated pursuant to a Strategic Alliance Agreement dated as of September 29, 1995 among Ciba, CGC, and Hexcel, as amended (the "Strategic Alliance Agreement"). Under the Strategic Alliance Agreement, the Company acquired the assets (including the capital stock of certain of Ciba's non-U.S. subsidiaries) and assumed the liabilities of the Ciba Composites Business other than certain excluded assets and liabilities, in exchange for: (a) approximately 18.0 million newly issued shares of Hexcel common stock; (b) $25.0 million in cash; and (c) undertakings to deliver to Ciba and/or one or more of its subsidiaries, following completion of certain post-closing adjustment procedures contemplated by the Strategic Alliance Agreement, senior subordinated notes in an aggregate principal amount of approximately $43.0 million, subject to certain adjustments (the "Senior Subordinated Notes"), and senior demand notes in a principal amount equal to the cash on hand at certain of Ciba's non-U.S. subsidiaries (the "Senior Demand Notes"). (The pro forma aggregate principal amount of the Senior Subordinated Notes as of December 31, 1995 was $27.4 million. See Note 3 to the Consolidated Financial Statements included in this Annual Report on Form 10-K.) Pursuant to the Strategic Alliance Agreement, certain assets of the Ciba Composites Business and certain assets of Ciba affiliates that will continue to act as distributors for the Ciba Composites Business will be acquired by the Company from time to time prior to February 28, 1997. In connection with the acquisition of the Ciba Composites Business, Hexcel obtained a new three-year revolving credit facility of up to $175.0 million (the "Senior Secured Credit Facility") to: (a) fund the cash component of the purchase price; (b) refinance outstanding indebtedness under certain U.S. and European credit facilities; and (c) provide for the ongoing working capital and other financing requirements of the Company on a worldwide basis. Further discussion of the Senior Secured Credit 1 Facility is included in "Management Discussion and Analysis" and in the Notes to the Consolidated Financial Statements included in this Annual Report on Form 10- K. Management expects that significant costs will be incurred in connection with combining the operations of Hexcel and the Ciba Composites Business, including costs of eliminating excess manufacturing capacity and redundant administrative and research and development activities, as well as the various costs of consolidating the information systems and other business activities of the two companies. Some of the costs associated with combining the two businesses, including certain costs to eliminate redundant administrative and research and development activities, will be incurred during 1996. The anticipated resulting benefits are expected to be realized shortly thereafter. However, other costs, including many of the costs to eliminate excess manufacturing capacity, are expected to be incurred over a period of as much as three years. This is attributable, in part, to aerospace industry requirements to "qualify" specific equipment and manufacturing facilities for the manufacture of certain products. Based on the Company's experience with previous plant consolidations, these qualification requirements necessitate an approach to the consolidation of manufacturing facilities that will require two to three years to complete. Accordingly, the costs and anticipated future benefits of eliminating excess manufacturing capacity are long-term in nature. The Board of Directors of Hexcel has not yet approved the plan for combining the operations of Hexcel and the Ciba Composites Business, but is expected to do so in the second quarter of 1996. Subject to the approval of the consolidation plan by the Board of Directors, management currently estimates that the cash costs of combining the two businesses could range from $35 million to $45 million, net of expected proceeds from asset sales which are expected to be received at the end of the consolidation process. (This range includes the estimated net cash cost to close the Anaheim manufacturing facility acquired as part of the Ciba Composites Business. The decision to close this facility was announced in the first quarter of 1996.) Management notes, however, that the actual cash costs of combining the two businesses could vary from current estimates due to the fact that the nature, timing and extent of certain consolidation activities is dependent on numerous factors. Management expects to record one or more charges to earnings for the estimated costs of certain business consolidation activities. The estimated costs of specific consolidation activities will be accrued in accordance with generally accepted accounting principles as those activities are determined and announced. Although the aggregate amount of the resulting charges to earnings has not yet been determined, management currently estimates that the amount could range from $40 million to $50 million, including noncash charges. However, the actual aggregate amount of such charges could vary from current estimates. The nature, timing and extent of consolidation activities will be determined, in part, by the factors described above and management's resulting evaluation of the probable economic and competitive benefits to be gained from specific consolidation activities. Management anticipates that the benefits to be realized from planned consolidation activities will be sufficient to justify the level of associated costs. However, some of the anticipated benefits are long-term in nature, and there can be no assurance that such benefits will actually be realized. Further discussion of the acquisition of the Ciba Composites Business is included in "Management Discussion and Analysis" and in the Notes to the Consolidated Financial Statements included in this Annual Report on Form 10-K. 2 BANKRUPTCY REORGANIZATION 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 First Amended Plan of Reorganization (the "Reorganization Plan") proposed by Hexcel and the Official Committee of Equity Security Holders (the "Equity Committee"). On February 9, 1995, the Reorganization Plan became effective and Hexcel emerged from the bankruptcy reorganization proceedings which 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. 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 Annual Report on Form 10-K. INDUSTRY SEGMENT Hexcel operates within a single industry segment: composite materials, parts and structures. The Company sells these materials, parts, and structures 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 included in Note 21 to the Consolidated Financial Statements included in this Annual Report on Form 10-K. BUSINESS As discussed above, Hexcel acquired the Ciba Composites Business on February 29, 1996. Prior to the acquisition, the Company was organized around worldwide research, manufacturing, marketing and administrative functions with global responsibility for all of the Company's product groups. Those product groups, which have historically been manufactured and marketed primarily in the U.S. and Europe, were comprised of reinforcement fabrics, prepregs and adhesives, and honeycomb, including structural products made from honeycomb. In connection with the acquisition of the Ciba Composites Business, Hexcel has been reorganized into strategic business units according to specific product groups and/or geographic areas. The research, manufacturing and marketing activities of each of the strategic business units are supported by global administrative functions such as human resources, finance and information systems, legal affairs, and research and technology coordination. The acquisition of the Ciba Composites Business provides the Company with additional manufacturing and marketing capabilities in its reinforcement fabrics, prepregs and adhesives, and honeycomb product groups, in geographically complementary areas. In addition, the acquisition expands the Company's range of product offerings to include structural parts and interiors, primarily for the commercial and military aerospace markets. The following is a description of Hexcel's new strategic business units, including their respective product groups and geographic areas, and the integrated manufacturing capabilities of the Company. 3 FABRICS The Fabrics business unit has worldwide responsibility for manufacturing and marketing reinforcement fabrics. The business unit operates manufacturing facilities in Les Avenieres, France; Lyon, France; and Seguin, Texas; and is responsible for Hexcel's participation in a joint venture with Owens-Corning Fiberglas Corporation. The Fabrics business unit produces woven reinforcement fabrics, without resin impregnation, from the same fibers Hexcel uses in prepregs. These fibers include several types of fiberglass as well as carbon, aramid, Thorstrand - -Registered Trademark-, quartz, ceramic and other specialty reinforcements. Reinforcement fabrics are sold for use in numerous applications. These include aerospace, marine, automotive and recreation applications, as well as ballistics protection, printed circuit boards, metal and fume filtration systems, insulation, window coverings, and civil engineering and other general industrial applications. In addition, Hexcel owns a 50% interest in a joint venture with Owens- Corning Fiberglas Corporation. The Knytex joint venture, which was formed in June of 1993, sells multi-layer stitchbonded reinforcement fabrics which are stronger in all directions and generally lower cost than traditional woven fabrics. Knytex fabrics consist of multiple layers of reinforcement material, in varying orientations, which are stitched together to preserve the desired orientation of the various layers. Hexcel's net sales of reinforcement fabrics were $119.1 million in 1995, $94.8 million in 1994 and $93.0 million in 1993. As a result of the acquisition of the Ciba Composites Business on February 29, 1996, net sales of reinforcement fabrics are expected to increase in 1996. The Ciba Composites Business had net sales of reinforcement fabrics totaling approximately $23 million in 1995. COMPOSITE MATERIALS The Composite Materials business unit, which is organized around U.S. and European markets, has worldwide responsibility for manufacturing and marketing prepregs, adhesives and honeycomb. The business unit operates manufacturing facilities in Welkenraedt, Belgium; Duxford and Swindon, England; Lyon, France; Casa Grande, Arizona; Anaheim, Dublin, and Livermore, California; and Lancaster, Ohio. (In the first quarter of 1996, Hexcel announced its decision to close the Anaheim facility and relocate certain production activities from Anaheim to other manufacturing sites.) Subject to the Company's acquisition of an Austrian subsidiary of Ciba as contemplated by the Strategic Alliance Agreement, the Composite Materials business unit will also operate a manufacturing facility in Linz, Austria. This business unit is also responsible for Hexcel's participation in a joint venture with Fyfe Associates Corporation. The following is a description of the major product groups manufactured and marketed by the Composite Materials business unit. PREPREGS AND ADHESIVES Prepregs combine high performance reinforcement fibers with a resin matrix to form a composite material with exceptional structural properties not present in either of the constituent materials. Hexcel impregnates woven fabrics and non-woven fibers aligned in a single direction (unidirectional tape). 4 The Composite Materials business unit produces prepreg materials from a variety of reinforcements including S-2-Registered Trademark- and E-type fiberglass, carbon, aramid, quartz, ceramic, Thorstrand-Registered Trademark-, polyethylene and other specialty reinforcements. Hexcel offers a variety of resin matrices including bismaleimide, cyanates, epoxy, phenolic, polyester, polyimide and other specialty resins. Prepregs are sold to the commercial aerospace, space and defense, recreation and general industrial markets. Product applications include aircraft, mass transit and automotive components, as well as defense systems, military support equipment, athletic shoes, fishing rods, tennis rackets, golf clubs, surfboards, snow skis, snow boards and bicycles. As a result of the acquisition of the Ciba Composites Business, Hexcel designs and markets a comprehensive range of Redux-Registered Trademark- film adhesives. These adhesives, which bond a wide range of composite, metallic, and honeycomb surfaces, are used in aerospace, automotive, marine and other applications. HONEYCOMB Honeycomb is a unique, lightweight, cellular structure composed of generally hexagonal cells nested together. The product is similar in appearance to a cross-sectional slice of a beehive. The hexagonal cell design gives honeycomb a high strength-to-weight ratio when used in "sandwich" form and a uniform resistance to crushing. These basic characteristics are combined with the physical properties of the material from which the honeycomb is made to meet various engineering requirements. The Composite Materials business unit produces honeycomb from a number of metallic and non-metallic materials. Most metallic honeycomb is made from aluminum and is available in a selection of alloys, cell sizes and dimensions. Non-metallic honeycomb materials include fiberglass, carbon, thermoplastics, Nomex-Registered Trademark- (a non-flammable aramid paper), Kevlar-Registered Trademark- (an aramid fiber) and several other specialty materials. The Composite Materials business unit sells honeycomb core material in standard block and sheet form. In this construction, sheets of aluminum, stainless steel, prepreg or other laminates are bonded with adhesives to each side of a slice of honeycomb core, creating a "sandwich" structure. Hexcel possesses autoclave and other advanced processing capabilities which enable the Company to manufacture complex bonded assembly parts. The largest market for Hexcel's honeycomb products is the aerospace market. Non-aerospace honeycomb applications include high-speed trains and mass transit vehicles, automotive parts, energy absorption products, athletic shoe components, marine vessel compartments, portable shelters, business machine cabinets and other general industrial uses. Hexcel also owns a 40% interest in a joint venture with Fyfe Associates Corporation. Hexcel-Fyfe, which was formed in October 1992, sells and applies high-strength architectural wrap for seismic retrofitting and strengthening of bridges, columns and other structures. Hexcel's net sales of prepregs, adhesives and honeycomb (including machined and fabricated honeycomb parts), sold separately and together as complex bonded structures, were $231.1 million in 1995, $219.0 million in 1994 and $217.6 million in 1993. As a result of the acquisition of the Ciba 5 Composites Business on February 29, 1996, net sales of prepregs, adhesives and honeycomb are expected to increase in 1996. The Ciba Composites Business had net sales of prepregs, adhesives and honeycomb totaling approximately $195 million in 1995. SPECIAL PROCESS The Special Process business unit has worldwide responsibility for designing, manufacturing and marketing machined and fabricated honeycomb parts for use in commercial and military aerospace, automotive, and other applications. The business unit operates manufacturing facilities in Pottsville, Pennsylvania and Burlington, Washington, as well as special process activities in Hexcel's Welkenraedt, Belgium; Duxford and Swindon, England; Casa Grande, Arizona; and Bellingham, Washington facilities. The Special Process business unit adds value to standard honeycomb by contouring and machining it into complex shapes to meet customer specifications. Net sales of machined and fabricated honeycomb parts for 1995, 1994 and 1993 are included in the above sales totals for prepregs, adhesives and honeycomb. STRUCTURES AND INTERIORS Hexcel has acquired the structures and interiors businesses of the Ciba Composites Business, which operate under the Heath Tecna name. The Structures and Interiors business unit has worldwide responsibility for manufacturing and marketing structures and interiors, and operates manufacturing facilities in Brindisi, Italy; Bellingham, Washington; and Kent, Washington. The structures operations of this business unit produce a wide variety of lightweight, composite structures primarily for aerospace use. Structures include such items as wing-to-body and flap track fairings, radomes, engine cowls and inlet ducts, wing panels and other aircraft components. Structural products are manufactured from advanced composite materials using such manufacturing processes as resin transfer molding, autoclave processing, multi- axis numerically controlled machining, press laminating, heat forming and other composite manufacturing techniques. These products are utilized primarily by commercial and military aircraft manufacturers. However, the Company has recently begun to pursue several industrial applications for structural products. The interiors operations of this business unit design and produce innovative, light weight, high-strength composite interior systems for aircraft. Interior products include overhead stowage compartments and related interior components such as lavatories, sidewalls and ceilings for commercial jet and turboprop aircraft. These products are sold to airlines for replacement of existing interiors. In addition, stowage bins are provided for new production of Boeing 737 and 757 aircraft. Hexcel did not sell structures or interiors in 1995, 1994 or 1993. The Ciba Composites Business, which was acquired on February 29, 1996, had net sales of structures and interiors totaling approximately $113 million in 1995. PACIFIC RIM The Pacific Rim business unit is responsible for business development in the Asia-Pacific region. The business unit sells all Hexcel products within this region through distributors and sales offices in Pleasanton, California; Sydney, Australia; Taipei, Taiwan; and Tokyo, Japan. The Pacific Rim business unit is also responsible for the DIC-Hexcel joint venture, which was formed in 1990 with Dainippon Ink & Chemicals, Inc. for the production and sale of Nomex honeycomb, prepregs and decorative laminates for the Japanese market. The DIC- Hexcel joint venture operates a manufacturing facility in Komatsu, Japan. 6 Sales to the Asia-Pacific region, which are included in the above sales totals for the Fabrics and Composite Materials business units, were less than 10% of Hexcel's total sales in 1995, 1994 and 1993. INTEGRATED MANUFACTURING CAPABILITIES The Fabrics business unit weaves the majority of the carbon, aramid and fiberglass fabrics used in the manufacture of honeycomb and prepreg products by the Composite Materials business unit. This integrated manufacturing capability provides Hexcel with competitive advantages in developing woven reinforcements to optimize the performance of certain of its Composite Materials products, and a greater ability to control the cost, quality and delivery of its woven fabric requirements. The Special Process business unit utilizes honeycomb products manufactured by the Composite Materials business unit in the production of machined and fabricated honeycomb parts. Prior to the acquisition of the Ciba Composites Business, Hexcel was a supplier of honeycomb and prepreg products to the Heath Tecna structures and interiors businesses. Following the acquisition, the Company expects to continue to leverage its ability to supply Composite Materials to these businesses where it has, or can economically develop, qualified products that can be used in the fabrication of finished structural or interior components. Management believes that the integrated manufacturing capabilities of Hexcel, combined with the breadth of its product lines, strengthen the Company's competitive position in the markets it serves and enhance its ability to develop new product forms for new product applications. RESEARCH AND TECHNOLOGY; PATENTS AND KNOW-HOW Hexcel's Research and Technology function ("R&T") supports all of the Company's business units worldwide. R&T maintains expertise in chemical formulation and curatives, fabric forming and textile architectures, advanced composites structures, process engineering, analysis and testing of composite materials, computational design and prediction, and other scientific disciplines related to the Company's worldwide business base. Additionally, R&T performs a limited amount of contract research and development in the U.S. and Europe for strategically important customers in the areas of ceramics, higher temperature polymers, advanced textiles and composite structures manufacturing. Each strategic business unit maintains research and engineering staffs and facilities to support its business operations. Worldwide investment in research and technology is directed and coordinated by a committee consisting of the R&T managers within each of Hexcel's strategic business units. This committee is responsible for ensuring that research and technology investments are targeted towards maximizing the Company's long-term profitability and strengthening its competitive position in the marketplace. Additionally, the committee oversees the Company's portfolio of patents, technology licenses and other intellectual property. Hexcel spent $7.6 million for research and technology in 1995, $8.2 million in 1994 and $8.0 million in 1993. These expenditures were expensed as incurred. Following the acquisition of the Ciba Composites Business, the Company expects to spend more than twice the 1995 level in 1996 on new product development, process engineering and technical services for the strategic business units. 7 Hexcel's products rely primarily on the Company's expertise in materials science, engineering and polymer chemistry. Consistent with market demand, the Company has been placing more emphasis on cost effective product design and agile manufacturing in recent years. Towards this end, the Company has entered into formal and informal partnerships, as well as licensing and teaming arrangements, with several customers, suppliers, external agencies and laboratories. Management believes that the Company possesses unique capabilities to design, develop and manufacture composite materials and structures. The Company owns and maintains in excess of 100 patents worldwide, has licensed many key technologies, and has granted technology licenses and patent rights to several third parties in connection with joint ventures and joint development programs. It is the Company's policy to actively enforce its proprietary rights. Management believes that the patents and know-how rights currently owned or licensed by the Company are adequate for the conduct of its business. RAW MATERIALS AND PRODUCTION ACTIVITIES Hexcel purchases most of the raw materials used in production. Several key materials are available from relatively few sources, and in many cases the cost of product qualification makes it impractical to develop multiple sources of supply. The unavailability of these materials, which the Company does not anticipate, could have a material adverse effect on operations. The Company coordinates closely with key suppliers in an effort to avoid raw material shortages. Hexcel's production activities are generally based on a combination of "make to order" and "make to forecast" production requirements. The Company's Special Process and Structures and Interiors businesses are almost entirely "make to order" operations. MARKETS AND CUSTOMERS Hexcel's materials are sold for a broad range of uses. The following tables summarize net sales by market and by international operations for continuing operations for the five years ended December 31.
- -------------------------------------------------------------------------------- 1995 1994 1993 1992 1991 - -------------------------------------------------------------------------------- NET SALES BY MARKET: Commercial aerospace 45% 47% 42% 46% 47% Space and defense 11% 11% 18% 17% 19% Recreation, general industrial and other 44% 42% 40% 37% 34% - -------------------------------------------------------------------------------- 100% 100% 100% 100% 100% - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- INTERNATIONAL OPERATIONS: International net sales(a) $ 170.7 $ 142.3 $ 125.4 $ 148.9 $ 153.2 Percentage of net sales 49% 45% 40% 42% 43% - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
(a) Net sales of international subsidiaries and U.S. exports, in millions. The Boeing Company and Boeing subcontractors accounted for approximately 21% of Hexcel's 1995 sales. The loss of all or a significant portion of this business, which Hexcel does not anticipate, could 8 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 1995. The Boeing Company and Boeing subcontractors accounted for approximately 18% of the 1995 sales of the Ciba Composites Business, which was acquired by Hexcel on February 29, 1996. COMMERCIAL AEROSPACE 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. A recent document, published by The Boeing Company, projects that revenue passenger miles will increase an average of 5.5% per year through the year 2000, with the Asian market having the highest growth rate. 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. These rates may also be affected by the desire of the various airlines for higher payloads and more fuel efficient aircraft, which in turn is influenced by the price of fuel. Commercial aircraft build rates, based on the estimated number of aircraft delivered, declined by more than 30% from 1992 to 1994. Commercial aircraft production appears to be gradually recovering from this period of decline. In 1995, the build rates for certain commercial aircraft began to increase, and published industry data indicates that 1995 commercial aircraft orders were double the 1994 level. Industry analysis indicates that the demand for aircraft is expected to grow through the turn of the century. Hexcel's commercial aerospace business volume is expected to increase in 1996 in part due to this general industry improvement and in part due to expected build rate increases for specific commercial aircraft. In addition to build rate increases, demands for improved aircraft performance have led to increased use of certain honeycomb and prepreg materials in aircraft, particularly in newer models. Despite this preference for high performance products, the Company must continuously demonstrate the cost benefits of its products for aerospace applications. SPACE AND DEFENSE Hexcel's sales to space and defense markets increased slightly to $37.3 million in 1995 from $34.9 million in 1994. Sales in 1993 were $55.3 million. The 1995 growth was based primarily on increased volume associated with a few contracts. The current international and domestic political climate indicates that overall military spending will continue to decline in the foreseeable future. As a result, the Company believes that its participation in space and defense markets will shrink or remain relatively flat over the next several years. Contracts to supply materials for military and some commercial projects contain provisions for termination at the convenience of the U.S. government or the buyer. In the case of such a termination, Hexcel is entitled to recover reasonable incurred cost plus a provision for profit on the incurred cost. 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. 9 RECREATION, GENERAL INDUSTRIAL AND OTHER MARKETS Hexcel's sales to recreation, general industrial and other markets were $153.9 million in 1995, or approximately 44% of total sales. This compares with $131.4 million in 1994 and $123.9 million in 1993. The Company has focused its participation in recreation and general industrial markets in areas where the application of composites technology offers significant benefits to the end user. As a result, the Company has focused on select opportunities where high performance is the key product criterion. Accordingly, future opportunities and growth depend primarily upon the success of the individual programs and industries in which the Company has elected to participate. Key industry sectors and applications in which the Company is involved include printed circuit boards, ballistics protection, certain recreation products (primarily athletic shoes, golf clubs, fishing rods, snow skis and snow boards), wind energy and marine products, and automotive, truck and mass transit components. The Company's participation in these markets is also dependent on the Company's willingness to fund application development and the available capacity of manufacturing facilities. Further discussion of Hexcel's markets and customers is included in "Management Discussion and Analysis" included in this Annual Report on Form 10- K. SALES AND MARKETING A staff of salaried market managers, product managers and salespeople market Hexcel products directly to customers worldwide. The Company also uses independent distributors and manufacturer representatives for certain products, markets and regions. The Company's sales and marketing capabilities have been enhanced by the acquisition of the Ciba Composites Business, which possesses an existing sales and distribution network with offices in 19 countries throughout the world. BACKLOG The backlog of orders for aerospace materials to be filled within 12 months was $88.3 million as of December 31, 1995, $65.6 million as of December 31, 1994 and $61.6 million as of December 31, 1993. A major portion of the backlog is cancelable without penalty. 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 Hexcel for about one to three years, depending on the nature of the product, the manufacturer, and delivery schedules. Backlog for non-aerospace materials amounted to $33.5 million at December 31, 1995, compared with $40.7 million at December 31, 1994 and $29.1 million at December 31, 1993. Most of the non-aerospace backlog is expected to be filled within six months. Markets for Hexcel products outside of the aerospace industry are generally highly competitive requiring shorter lead times for delivery or stock for immediate sale. 10 COMPETITION In the production and sale of its materials, Hexcel competes with numerous U.S. and international companies on a worldwide basis. The broad markets for the Company's products are highly competitive, and the Company has focused on both specific markets and specialty products within markets to obtain market share. In addition to competing directly with companies offering similar products, Hexcel materials compete with substitute structural materials such as structural foam, wood, metal, and concrete. Depending upon the material and markets, relevant competitive factors include price, delivery, service, quality and product performance. The acquisition of the Ciba Composites Business enhances the Company's competitive position by broadening the Company's product portfolio and strengthening the Company's position in certain geographic regions. 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." and in Note 19 to the Consolidated Financial Statements included in this Annual Report on Form 10-K. EMPLOYEES As of December 31, 1995, Hexcel employed 2,127 full-time employees in its continuing operations, compared with 2,189 and 2,221 as of December 31, 1994 and 1993, respectively. Approximately 13% of these employees have union affiliations. Management believes that labor relations in the Company have been generally satisfactory. As a result of the acquisition of the Ciba Composites Business on February 29, 1996, Hexcel added approximately 2,150 employees to its workforce, some of whom have union affiliations. 11 ITEM 2. PROPERTIES Hexcel owns manufacturing 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 and Stamford, Connecticut. The central research and technology laboratories are located in Dublin, California. The following table lists the manufacturing facilities of Hexcel by geographic location, approximate square footage, and principal products, including the facilities acquired in connection with the acquisition of the Ciba Composites Business. In the first quarter of 1996, the Company announced its decision to close the acquired Anaheim facility. Following the closure of this facility, and the completion of certain other consolidation activities and capital projects required to combine the operations of the Company and the Ciba Composites Business, management believes that the Company will possess production capacity appropriate for the conduct of its business. The following table does not include the manufacturing facilities operated by the Company's joint ventures. MANUFACTURING FACILITIES Approximate Facility Location Square Footage Principal Products - ----------------- -------------- ------------------ United States: Seguin, Texas 189,000 Reinforcement Fabrics Anaheim, California 300,000 Prepregs; Honeycomb; Adhesives Casa Grande, Arizona 320,000 Honeycomb; Special Process Honeycomb Lancaster, Ohio 35,000 Prepregs Livermore, California 141,000 Prepregs Burlington, Washington 58,000 Special Process Honeycomb Pottsville, Pennsylvania 104,000 Special Process Honeycomb Bellingham, Washington 185,000 Interiors; Special Process Honeycomb Kent, Washington 910,000 Interiors; Structures International: Les Avenieres, France 462,000 Reinforcement Fabrics; Prepregs Lyon, France 230,000 Reinforcement Fabrics; Prepregs Linz, Austria 187,000 Prepregs Welkenraedt, Belgium 223,000 Prepregs; Honeycomb; Special Process Honeycomb Duxford, England 380,000 Prepregs; Honeycomb; Adhesives Swindon, England 20,000 Special Process Honeycomb Brindisi, Italy 110,000 Structures Hexcel leases the Swindon, England plant and the land on which the Burlington, Washington facility is located. The Company also leases portions of the Casa Grande, Arizona; Bellingham, Washington; Kent, Washington; Les Avenieres, France; and Welkenraedt, Belgium facilities. The facilities of the Ciba Composites Business acquired on February 29, 1996 were: Anaheim, California; Bellingham, Washington; Kent, Washington; Lyon, France; Duxford, England; and Brindisi, Italy. The acquisition of the Linz, Austria facility did not occur on February 29, 1996, but is expected to 12 be completed in connection with the Company's acquisition of an Austrian subsidiary of Ciba in accordance with the Strategic Alliance Agreement. A portion of the Linz, Austria facility is leased. ITEM 3. LEGAL PROCEEDINGS. On January 10, 1995, the Bankruptcy Court for the Northern District of California, Oakland Division, 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. 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 Annual Report on 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 may be uninsured. The first trial of the cases of 15 pilot plaintiffs resulted in a mistrial and a retrial resulted in the entry of judgment in favor of the plaintiffs. The Company did not participate in the trial 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. 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 the Company 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 was lifted in April 1995 and the case was resumed in the state court in Utah. Discovery is ongoing. There is no insurance coverage available for an adverse court ruling or negotiated settlement. Hexcel has been named as a potentially responsible party ("PRP") with respect to several hazardous waste disposal sites that it does not own or possess which are included on the Environmental Protection Agency's Superfund National Priority List and/or various state equivalent lists. With respect to its exposure relating to these sites, the Company believes its responsibility to be de minimis. 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 applicable laws and have been categorized into claims involving 19 sites. Claims involving 8 of the sites have been settled within the Chapter 11 case. The Company has been named a PRP with respect to 6 sites for which no claims were filed in the Chapter 11 case; as a result, the Company believes any further claims to be barred. The balance of the sites and their related claims have been passed through the bankruptcy. The Company's estimation of its exposure at these sites is de minimis. 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 approximately $2.8 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 of Hexcel's former chemicals business operated on that site, has asserted 13 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. Hexcel, 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 ("DCAA") reviews cost accounting and business practices of government contractors and subcontractors including the Company. The Company has been engaged in discussions on a number of cost accounting issues which could result in claims by the government. Some of these issues have already been resolved. As part of these reviews, the DCAA has alleged that Hexcel improperly included certain land lease costs in its indirect rates at the Chandler, Arizona facility (the "Chandler Land Lease") and that, as a result, the Company's subcontracts had been overpriced in an amount of approximately $1.0 million. The Company has formally responded to the DCAA that it strongly disagrees with these allegations. In February 1996, the Company received a letter from the United States Attorney's Office, stating that it was considering filing an action against the Company for violation of the civil False Claims Act ("FCA") based upon the inclusion in the indirect rates of the Chandler Land Lease costs. While the Company does not agree that there was any violation of the FCA, if the U.S. government elects to pursue such an action and were it to prevail, it would be entitled to three times the actual damages claimed plus penalties of between $5,000 and $10,000 for each false claim; the number of alleged false claims could be significant. In 1993, Hexcel became aware of an aluminum honeycomb sandwich panel delamination problem with panels produced by its wholly-owned Belgium 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. The Company and its insurer continue to investigate these claims. The Company is also working with the customers to repair or replace panels when necessary, with certain costs to be allocated upon determination of responsibility for the delamination. While no lawsuit has been filed, two customers in France requested that a court appoint experts to investigate the claims; to date, the experts have not reported any conclusions. The Company's primary insurer for this matter has agreed to fund legal representation and to provide coverage of the claim to the extent of the policy limit for one year. The Company is investigating additional insurance coverage. Even if additional insurance coverage is not available, management believes that, based on available information, it is unlikely that these claims will have a material adverse effect on the consolidated financial position or results of operations of the Company. In November, 1995, Hexcel was notified that Livermore Development Corporation ("LDC") was asserting a claim for damages arising from Hexcel's recent notification of its intent to exercise its option to purchase certain land in Livermore, California. LDC contends that the lease was a disguised partnership or joint venture agreement between Hexcel and LDC to develop the property for residential use. Hexcel disputes any such agreement and seeks to enforce its option to purchase under a written agreement. The parties are in ongoing negotiations to resolve this claim. 14 In September, 1995, Ciba was named as a potentially responsible party with respect to the removal of drums from a disposal site that it did not own or possess, known as the Omega Chemical Corporation ("Omega Site"). The Omega Site is a spent solvent recycling and treatment facility in Whittier, California. Ciba has previously notified the EPA that it intends to comply with the EPA's removal requirements and has paid its interim share of such removal costs to date. This responsibility was assumed by the Company as a result of its acquisition of the Ciba Composites Business, to the extent the Ciba waste delivered to the Omega site was from the operations of the Ciba Composites Business. This matter is under evaluation but is presently believed to be de minimis. In addition to the foregoing, Hexcel is from time to time involved in other legal proceedings incidental to the conduct of its business. In addition, as a result of the acquisition of the Ciba Composites Business, the Company assumed certain liabilities, including certain legal proceedings incidental to the conduct of the Ciba Composites Business. Management believes, based on available information, that it is unlikely these items, individually or in the aggregate, will have a material adverse effect on the consolidated financial position or results of operations of the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None. 15 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. Hexcel Common stock is traded on the New York and Pacific Stock Exchanges. The range of high and low sales prices of Hexcel common stock on the New York Stock Exchange Composite Tape is contained in Note 24 to the Consolidated Financial Statements included in this Annual Report on Form 10-K and is incorporated herein by reference. Hexcel did not declare or pay any dividends in 1995, 1994 or 1993, and the payment of dividends is generally prohibited under the terms of certain of the Company's credit agreements. On March 15, 1996, there were 2,253 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 Annual Report on 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 40 of this Annual Report on Form 10-K under "Management Discussion and Analysis" and is incorporated herein by reference. ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The information required by Item 8 is contained on pages 44 to 81 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, 1995, 1994 and 1993 is contained on page 43 of this Annual Report on 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. 16 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. (a) Listed below are the directors of Hexcel as of March 21, 1996, the positions with the Company held by them and a brief description of each director's prior business experience. DIRECTOR POSITIONS WITH HEXCEL AND NAME AGE SINCE BUSINESS EXPERIENCE - ---- --- ---- -------------------- John J. Lee 59 1993 Chairman of the Board of Directors since February 1996; Chief Executive Officer since January 1994; Chairman and Chief Executive Officer from January 1994 to February 1995; Chairman and Co-Chief Executive Officer from July to December 1993; Director since May 1993. Mr. Lee is chairman of the Nominating Committee and a member of the Finance Committee of the Board of Directors. Mr. Lee has served as a director 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 and an advisor to The Clipper Group, a private investment partnership, 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 Aviva Petroleum Corporation and various privately-held corporations. 17 DIRECTOR POSITIONS WITH HEXCEL AND NAME AGE SINCE BUSINESS EXPERIENCE - ---- --- ---- -------------------- Juergen Habermeier 54 1996 President, Chief Operating Officer, and a member of the Board of Directors since February 1996. Dr. Habermeier is a member of the Technology Committee of the Board of Directors. Dr. Habermeier has served as the President of the Ciba Composites Business and as a Vice President of Ciba-Geigy Corporation since 1989. Since 1994, Dr. Habermeier has served on the Board of Directors of RHR International. He is a member of the Advisory Committee of the Polymer Composites Laboratory of the University of Washington. John M. D. Cheesmond 46 1996 Director (Chairman of the Executive Compensation Committee and a member of the Finance Committee). Mr. Cheesmond has served as Senior Vice President and Head of Regional Finance and Control of Ciba-Geigy Limited since 1994. From 1991 through 1993, Mr. Cheesmond served as Vice President - Planning, Information and Control at Ciba Vision Corporation. Marshall S. Geller 57 1994 Director (Chairman of the Audit Committee and a member of the Executive Compensation and Nominating Committees); Co-Chairman of the Board of Directors from February 1995 to February 1996. Mr. Geller has been Chairman, Chief Executive Officer and founding partner at Geller & Friend Capital Partners, Inc., a merchant banking firm, since November 1995. From 1990 to November 1995, Mr. Geller was 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 a director of Ballantyne of Omaha, Inc., Dycam, Inc., Players International, Value Vision International, Inc., Styles on Video, Inc., and various privately-held corporations and charitable organizations. 18 DIRECTOR POSITIONS WITH HEXCEL AND NAME AGE SINCE BUSINESS EXPERIENCE - ---- --- ---- -------------------- Peter A. Langerman 40 1995 Director (Chairman of the Finance Committee and a member of the Audit and Executive Compensation Committees); Co- Chairman of the Board of Directors from February 1995 to February 1996. Mr. Langerman is 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 1988 and has been a research analyst at Heine Securities since 1986. Mr. Langerman is currently a director of Sunbeam Company, Inc. and various privately-held corporations. Stanley Sherman 57 1996 Director (Member of the Finance and Executive Compensation Committees). Mr. Sherman has served as a director and Vice President - Finance and Information Services of Ciba-Geigy Corporation since 1991. From 1986 through 1991, Mr. Sherman served as Vice President - Corporate Planning of Ciba-Geigy Corporation. Mr. Sherman is currently a member of the Finance Committee of Ciba- Geigy Corporation. George S. Springer 62 1993 Director (Chairman of the Technology Committee). 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. Frederick W. Stanske 37 1995 Director from August 1994 to February 1995, reappointed as a director in April 1995 (Member of the Audit Committee). Mr. Stanske is Vice President of Fisher Investments, Inc., an investment advisory firm. 19 DIRECTOR POSITIONS WITH HEXCEL AND NAME AGE SINCE BUSINESS EXPERIENCE - ---- --- ---- -------------------- Joseph T. Sullivan 55 1996 Director (Member of the Nominating Committee). Dr. Sullivan has served as a director and Senior Vice President of Ciba-Geigy Corporation since 1986. Dr. Sullivan is currently a member of the Corporate Governance and Finance Committees of Ciba-Geigy Corporation. Hermann Vodicka 53 1996 Director (Member of the Nominating and Technology Committees). Mr. Vodicka has served as President of the Polymers Division and a member of the Executive Committee of Ciba-Geigy Limited since 1993. Effective April 25, 1996, Mr. Vodicka will become Chairman of the Executive Committee of Ciba-Geigy Limited. Mr. Vodicka is currently the Chairman of the Board of METTLER-TOLEDO, a leading worldwide manufacturer of scales and balances and a wholly owned subsidiary of Ciba-Geigy Limited. From 1988 through 1993, Mr. Vodicka was President and Chief Executive Officer of METTLER-TOLEDO. 20 (b) Listed below are the executive officers of Hexcel as of March 21, 1996, the positions held by them and a brief description of their business experience. DIRECTOR POSITIONS WITH HEXCEL AND NAME AGE SINCE BUSINESS EXPERIENCE - ---- --- ---- -------------------- John J. Lee 59 1993 See Item 10(a) above for a brief description of Mr. Lee's positions with Hexcel and his business experience. Juergen Habermeier 54 1996 See Item 10(a) above for a brief description of Dr. Habermeier's positions with Hexcel and his business experience. Stephen C. Forsyth 40 1994 Senior Vice President of Finance and Administration since February 1996; Vice President of International Operations from October 1994 to February 1996; General Manager of Resins Business and Export Marketing from 1989 to 1994; other general management positions from 1980 to 1989. Mr. Forsyth joined Hexcel in 1980. Rodney P. Jenks, Jr. 45 1994 Vice President, General Counsel and Secretary since March 1994. Prior to joining Hexcel in 1994, Mr. Jenks was a partner in the law firm of Wendel, Rosen, Black & Dean, where he continues to serve as counsel. David M. Wong 51 1996 Vice President of Corporate Affairs since February 1996; Director of Special Projects from July 1993 to February 1996; Corporate Controller and Chief Accounting Officer from 1983 to 1993; other general management positions from 1979 to 1993. Mr. Wong joined Hexcel in 1979. William P. Meehan 60 1993 Vice President of Finance and Chief Financial Officer since September 1993, and Treasurer since April 1994. Prior to joining Hexcel 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 of Finance and Chief Financial Officer of Hadco Corporation. 21 DIRECTOR POSITIONS WITH HEXCEL AND NAME AGE SINCE BUSINESS EXPERIENCE - ---- --- ---- -------------------- Wayne C. Pensky 40 1993 Corporate Controller and Chief Accounting Officer since July 1993. Prior to joining Hexcel in 1993, Mr. Pensky was a partner at Arthur Andersen & Co., where he was employed from 1979. Michael Carpenter 39 1996 Vice President of Structures and Interiors Business Unit, responsible for the structures business, since February 1996. Mr. Carpenter served as the Vice President of Structures in the Heath Tecna division of the Ciba Composites Business prior the acquisition. Mr. Carpenter has held various technical and managerial positions with Heath Tecna since 1983. William Hunt 53 1996 President of the European Operations of the Composite Materials Business Unit since February 1996. Mr. Hunt served as the President of the EuroMaterials unit of the Ciba Composites Business from 1991 to February 1996, and as the Managing Director of Ciba-Geigy Plastics from 1990 to 1991. Prior to joining Ciba in 1990, Mr. Hunt held various other technical and managerial positions, including the position of Managing Director of Illford Limited (Photographic) Co. Claude Genin 60 1996 President of the Fabrics Business Unit since February 1996; Managing Director of Hexcel Lyon from 1977 to 1996. Hexcel Lyon was acquired by Hexcel in 1985. James A. Koshak 52 1996 President of the U.S. Operations of the Composite Materials Business Unit since February 1996. Mr. Koshak served as Vice President of the Ciba Composites Business and General Manager of the U.S. Materials unit from 1993 to February 1996, and as Vice President of the Polymers Division and General Manager of Formulated Systems from 1988 to 1993. Mr. Koshak held various other technical and managerial positions with Ciba from 1974 to 1988. 22 DIRECTOR POSITIONS WITH HEXCEL AND NAME AGE SINCE BUSINESS EXPERIENCE - ---- --- ---- -------------------- Thomas J. Lahey 55 1991 President of the Pacific Rim Business Unit since February 1996; Vice President of Worldwide Sales from April 1993 to February 1996; Vice President of 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 Hexcel 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. Robert A. Petrisko 41 1993 Vice President of Research and Technology since September 1993; Manager of the Signature Technology Group at the Chandler facility and Director of Aerospace Technology from 1989 to 1993. Dr. Petrisko joined Hexcel in 1989, after serving as a Research Specialist with Dow Corning Corporation from 1985 to 1989. Gary L. Sandercock 54 1989 President of the Special Process Business Unit since February 1996; Vice President of Manufacturing from April 1993 to February 1996; Vice President of 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 Hexcel in 1967. David Tanonis 39 1996 Vice President of the Structures and Interiors Business Unit, responsible for the interiors business, since February 1996. Mr. Tanonis served as the Vice President of Interiors in the Heath Tecna division of the Ciba Composites Business prior to the acquisition. Mr. Tanonis has held various technical and managerial positions with Heath Tecna since he joined the division in 1987. Mr. Tanonis held various management positions with Polymer Engineering, Inc. from 1978 to 1987. (c) There are no family relationships among any of Hexcel's directors or executive officers. 23 ITEM 11. EXECUTIVE COMPENSATION. The information required in Item 11 will be contained in Hexcel's definitive Proxy Statement for the 1996 Annual Meeting of Stockholders. Such information is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required in Item 12 will be contained in Hexcel's definitive Proxy Statement for the 1996 Annual Meeting of Stockholders. Such information is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The information required in Item 13 will be contained in Hexcel's definitive Proxy Statement for the 1996 Annual Meeting of Stockholders. Such information is incorporated herein by reference. 24 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 41 of this Annual Report on Form 10-K and are incorporated herein by reference. b. REPORTS ON FORM 8-K Current Report on Form 8-K dated as of October 13, 1995, relating to the proposed acquisition of the Ciba Composites Business. Current Report on Form 8-K dated as of March 15, 1996, relating to the consummation of the acquisition of the Ciba Composites Business. Current Report on Form 8-K/A dated as of April 1, 1996, relating to the consummation of the acquisition of the Ciba Composites Business. c. EXHIBITS EXHIBIT NO. DESCRIPTION - ----------- ----------- 2.1 Strategic Alliance Agreement dated as of September 29, 1995 among the Company, Ciba and CGC (filed as Exhibit 10.1 to the Company's Current Report on Form 8-K dated as of October 13, 1995 and incorporated herein by reference). 2.1(a) Amendment dated as of December 12, 1995 to the Strategic Alliance Agreement among the Company, Ciba and CGC (filed as Exhibit 2.1(a) to the Company's Current Report on Form 8-K dated as of March 15, 1996 and incorporated herein by reference). 2.1(b) Letter Agreement dated as of February 28, 1996 among the Company, Ciba and CGC (filed as Exhibit 2.1(b) to the Company's Current Report on Form 8-K dated as of March 15, 1996 and incorporated herein by reference). 2.1(c) Distribution Agreement dated as of February 29, 1996 among the Company, Brochier S.A., Composite Materials Limited, Salver S.r.l. and Ciba (filed as Exhibit 2.1(c) to the Company's Current Report on Form 8-K dated March 15, 1996 and incorporated herein by reference). 2.2 First Amended Plan of Reorganization Proposed by the Debtor and the Official Committee of Equity Security Holders, dated as of November 7, 1994 (filed as Exhibit 2 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended October 2, 1994 and incorporated herein by reference). 2.2(a) Order Confirming First Amended Plan of Reorganization Proposed by the Debtor and the Official Committee of Equity Security Holders, entered on January 12, 1995 by the 25 EXHIBIT NO. DESCRIPTION - ----------- ----------- United States Bankruptcy Court for the Northern District of California (filed as Exhibit 2.1 to the Company's Current Report on Form 8-K dated as of January 23, 1995 and incorporated herein by reference). 2.2(b) Subscription Rights Plan (filed as Exhibit 4.1 to the Company's Current Report on Form 8-K dated as of February 9, 1995 and incorporated herein by reference). 3.1 Certificate of Incorporation of the Company dated as of February 9, 1995 (filed as Exhibit 3.1 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994 and incorporated herein by reference). 3.1(a) Amendment dated as of February 21, 1996 to the Certificate of Incorporation of the Company (filed as Exhibit 3.1(a) to the Company's Registration Statement on Form S-8, Registration No. 333-1225, and incorporated herein by reference). 3.2 Bylaws of the Company dated as of February 9, 1995 (filed as Exhibit 3.2 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994 and incorporated herein by reference). 3.2(a) Amendment dated as of February 29, 1996 to the Bylaws of the Company. 4.1 Certificate of Incorporation of the Company dated as of February 9, 1995 (see Exhibit 3.1 above). 4.1(a) Amendment dated as of February 29, 1996 to the Certificate of Incorporation of the Company (see Exhibit 3.1(a) above). 4.2 Bylaws of the Company dated as of February 9, 1995 (see Exhibit 3.2 above). 4.2(a) Amendment dated as of February 29, 1996 to the Bylaws of the Company (see Exhibit 3.2(a) above). 4.3 Indenture dated as of October 1, 1988 between the Company and the Bank of California, N.A., as trustee (filed as Exhibit 4.10 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1993 and incorporated herein by reference). 4.4 Indenture dated as of February 29, 1996 between the Company and First Trust of California, National Association, as trustee (filed as Exhibit 4.1 to the Company's Current Report on Form 8-K dated as of March 15, 1996 and incorporated herein by reference). 10.1 Credit Agreement dated as of February 8, 1995 among the Company, Citicorp USA, Inc., Heller Financial, Inc., Transamerica Business Credit Corporation and Citibank N.A. (filed as Exhibit 99.1 to the Company's Current Report on Form 8-K dated as of February 22, 1995 and incorporated herein by reference). 26 EXHIBIT NO. DESCRIPTION - ----------- ----------- 10.2 Credit Agreement dated as of February 29, 1996 among the Company and certain subsidiaries of the Company, as borrowers, the lenders and issuing banks party thereto, Citibank, N.A., as U.S. administrative agent, Citibank International plc, as European administrative agent and Credit Suisse, as syndication agent (filed as Exhibit 99.1 to the Company's Current Report on Form 8- K dated as of March 15, 1996 and incorporated herein by reference). 10.3 Restated and Amended Reimbursement Agreement dated as of February 1, 1995 between the Company and Banque Nationale de Paris (filed as Exhibit 99.2 to the Company's Current Report on Form 8-K dated as of February 22, 1995 and incorporated herein by reference). 10.3(a) Second Restated and Amended Reimbursement Agreement dated as of February 29, 1996 between the Company and Banque Nationale de Paris. 10.4 Asset Purchase Agreement dated as of November 3, 1994 between the Company and Northrop Grumman Corporation (filed as Exhibit 10 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended October 2, 1994 and incorporated herein by reference). 10.5 Hexcel Corporation Incentive Stock Plan (filed as Exhibit 4.3 to the Company's Registration Statement on Form S-8, Registration No. 333-1225, and incorporated herein by reference). 10.6 Long-Term Incentive Plan (filed as Exhibit 99.2 to the Company's Current Report on Form 8-K dated as of January 23, 1995 and incorporated herein by reference). 10.7 1988 Management Stock Program (filed as Exhibit 28.1 to Post- Effective Amendment No. 1 to Form S-8, Registration No. 33-17025, and incorporated herein by reference). 10.7(a) Amendments to 1988 Management Stock Program (filed as Exhibit 28.2 to the Company's Registration Statement on Form S-8, Registration No. 33-28445, and incorporated herein by reference). 10.8 Form of 1988 Restricted Stock Agreement (filed as Exhibit 28.14 to Post-Effective Amendment No. 1 to the Company's Registration Statement on Form S-8, Registration No. 33-17025, and incorporated herein by reference). 10.9 Form of 1988 Discounted Stock Option Agreement (filed as Exhibit 28.16 to Post-Effective Amendment No. 1 to the Company's Registration Statement on Form S-8, Registration No. 33-17025, and incorporated herein by reference). 10.10 Form of 1988 Officers' Non-Qualified Stock Option Agreement (filed as Exhibit 28.9 to Post-Effective Amendment No. 1 to the Company's Registration Statement on Form S-8, Registration No. 33-17025, and incorporated herein by reference). 27 EXHIBIT NO. DESCRIPTION - ----------- ----------- 10.11 Form of Executive Deferred Compensation Agreement (filed as Exhibit 10.10.B to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1993 and incorporated herein by reference). 10.12 Directors' Retirement Plan (filed as Exhibit 11.14 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1992 and incorporated herein by reference). 10.13 Form of Option Agreement (Directors). 10.14 Employment Agreement dated as of February 29, 1996 between the Company and John J. Lee. 10.14(a) Employee Option Agreement dated as of February 29, 1996 between the Company and John J. Lee. 10.14(b) Bankruptcy Court Option Agreement dated as of February 29, 1996 between the Company and John J. Lee. 10.14(c) Performance Accelerated Restricted Stock Unit Agreement dated as of February 29, 1996 between the Company and John J. Lee. 10.14(d) Short-Term Option Agreement dated as of February 29, 1996 between the Company and John J. Lee. 10.14(e) Form of Reload Option Agreement between the Company and John J. Lee. 10.15 Interim Employment Agreement and Consulting Agreement between the Company and John J. Lee (filed as Exhibit 10.4.E to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994 and incorporated herein by reference). 10.16 Interim Employment Agreement between the Company and William P. Meehan (filed as Exhibit 10.4.G to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994 and incorporated herein by reference). 28 EXHIBIT NO. DESCRIPTION - ----------- ----------- 10.17 Agreement between the Company and Gary L. Sandercock (filed as Exhibit 10.4.I to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994 and incorporated herein by reference). 10.18 Agreement between the Company and Thomas J. Lahey (filed as Exhibit 10.4.J to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994 and incorporated herein by reference). 10.19 Memorandum Agreement dated as of January 31, 1996 between the Company and Rodney P. Jenks, Jr. 10.20 Letter Agreement dated as of February 1, 1995 between the Company and UniRock Management Corporation (filed as Exhibit 10.5 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994 and incorporated herein by reference). 10.20(a) Letter Agreement dated as of October 27, 1995 between the Company and UniRock Management Corporation. 10.21 Governance Agreement dated as of February 29, 1996 between the Company and Ciba. 10.22 Registration Rights Agreement dated as of February 29, 1996 between the Company and Ciba. 10.23 Agreement Governing United States Employment Matters dated as of September 29, 1995 between the Company and CGC (filed as Exhibit D to Exhibit 10.1 to the Company's Current Report on Form 8-K dated as of October 13, 1995 and incorporated herein by reference). 10.23(a) Amendment dated as of November 22, 1995 to the Agreement Governing United States Employment Matters between the Company and CGC. 10.24 Employment Matters Agreement dated as of February 29, 1996 among Ciba-Geigy plc, Composite Materials Limited and the Company. 11 Statement Regarding Computation of Per Share Earnings. 21 Subsidiaries of Registrant. 23 Independent Auditors' Consent -- Deloitte & Touche LLP 27 Financial Data Schedule (electronic filing only). 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 21, 1996 By: /s/ JOHN J. LEE -------------------------------------- John J. Lee, Chief Executive Officer PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED. SIGNATURE TITLE DATE --------- ----- ---- /s/ JOHN J. LEE Chairman of the March 21, 1996 - ----------------------- Board of Directors and (John J. Lee) Chief Executive Officer (PRINCIPAL EXECUTIVE OFFICER) /s/ WILLIAM P. MEEHAN Vice President and Chief March 21, 1996 - ----------------------- Financial Officer (William P. Meehan) (PRINCIPAL FINANCIAL OFFICER) /s/ WAYNE C. PENSKY Corporate Controller March 21, 1996 - ----------------------- (PRINCIPAL ACCOUNTING OFFICER) (Wayne C. Pensky) /s/ JOHN M. D. CHEESMOND Director March 21, 1996 - ------------------------ (John M. D. Cheesmond) /s/ MARSHALL S. GELLER Director March 21, 1996 - ----------------------- (Marshall S. Geller) /s/ JUERGEN HABERMEIER Director, President and March 21, 1996 - ----------------------- Chief Operating Officer (Juergen Habermeier) /s/ PETER A. LANGERMAN Director March 21, 1996 - ----------------------- (Peter A. Langerman) 30 SIGNATURE TITLE DATE --------- ----- ---- /s/ STANLEY SHERMAN Director March 21, 1996 - ----------------------- (Stanley Sherman) /s/ GEORGE S. SPRINGER Director March 21, 1996 - ----------------------- (George S. Springer) /s/ FREDERICK W. STANSKE Director March 21, 1996 - ------------------------ (Frederick W. Stanske) /s/ JOSEPH T. SULLIVAN Director March 21, 1996 - ----------------------- (Joseph T. Sullivan) Director March 21, 1996 - ----------------------- (Hermann Vodicka) 31 SELECTED FINANCIAL DATA The following table summarizes selected financial data for continuing operations as of, and for, the five years ended December 31.
(IN THOUSANDS, EXCEPT PER SHARE DATA) - --------------------------------------------------------------------------------------------------------- 1995 1994 1993 1992 1991 - --------------------------------------------------------------------------------------------------------- INCOME STATEMENT DATA: Net sales $ 350,238 $ 313,795 $ 310,635 $ 352,987 $ 355,601 Cost of sales (283,148) (265,367) (263,090) (285,088) (284,875) ----------------------------------------------------------------------- Gross margin 67,090 48,428 47,545 67,899 70,726 Marketing, general & administrative expenses (49,324) (45,785) (52,510) (62,053) (54,797) Other income (expenses), net 791 4,861 (12,780) 2,992 -- Restructuring expenses -- -- (46,600) (23,000) -- ----------------------------------------------------------------------- Operating income (loss) 18,557 7,504 (64,345) (14,162) 15,929 Interest expense (8,682) (11,846) (8,862) (8,196) (10,870) Bankruptcy reorganization expenses (3,361) (20,152) (641) -- -- ----------------------------------------------------------------------- Income (loss) from continuing operations before income taxes 6,514 (24,494) (73,848) (22,358) 5,059 Benefit (provision) for income taxes (3,313) (3,586) (6,024) 6,375 54 ----------------------------------------------------------------------- Income (loss) from continuing operations $ 3,201 $ (28,080) $ (79,872) $ (15,983) $ 5,113 ----------------------------------------------------------------------- ----------------------------------------------------------------------- Income (loss) per share from continuing operations(a) $ 0.20 $ (3.84) $ (10.89) $ (2.20) $ 0.72 ----------------------------------------------------------------------- ----------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------- BALANCE SHEET DATA: Current assets $ 128,055 $ 148,352 $ 134,710 $ 160,001 $ 213,699 Non-current assets 102,547 95,105 128,532 150,659 146,275 ----------------------------------------------------------------------- Total assets $ 230,602 $ 243,457 $ 263,242 $ 310,660 $ 359,974 ----------------------------------------------------------------------- ----------------------------------------------------------------------- Current liabilities $ 66,485 $ 171,307 $ 72,965 $ 79,305 $ 78,545 Long-term liabilities 115,743 78,035 169,524 125,206 137,106 Shareholders' equity (deficit) 48,374 (5,885) 20,753 106,149 144,323 ----------------------------------------------------------------------- Total liabilities and shareholders' equity (deficit) $ 230,602 $ 243,457 $ 263,242 $ 310,660 $ 359,974 ----------------------------------------------------------------------- ----------------------------------------------------------------------- OTHER DATA: Cash dividends per share -- -- -- $ 0.44 $ 0.44 Shares outstanding at year-end 18,091 7,301 7,310 7,296 7,158 - --------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------
(a) 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 ACQUISITION OF THE CIBA COMPOSITES BUSINESS Hexcel acquired the Ciba Composites Business of Ciba-Geigy Limited and Ciba-Geigy Corporation on February 29, 1996. The Ciba Composites Business is engaged in the manufacture and marketing of composite materials, parts and structures for aerospace, recreation and general industrial markets. Product lines include fabrics, prepregs, adhesives, honeycomb core, sandwich panels and fabricated components, as well as structures and interiors primarily for the commercial and military aerospace markets. The acquisition of the Ciba Composites Business was consummated pursuant to the Strategic Alliance Agreement. Under the Strategic Alliance Agreement, Hexcel acquired the assets (including the capital stock of certain of Ciba's non-U.S. subsidiaries) and assumed the liabilities of the Ciba Composites Business other than certain excluded assets and liabilities in exchange for: (a) approximately 18.0 million newly issued shares of Hexcel common stock; (b) $25.0 million in cash; and (c) undertakings to deliver to Ciba and/or one or more of its subsidiaries, following completion of certain post-closing adjustment procedures contemplated by the Strategic Alliance Agreement, the Senior Subordinated Notes and the Senior Demand Notes. Pursuant to the Strategic Alliance Agreement, certain assets of the Ciba Composites Business and certain assets of Ciba affiliates that will continue to act as distributors for the Ciba Composites Business will be acquired by the Company from time to time prior to February 28, 1997. In connection with the acquisition of the Ciba Composites Business, the Company obtained the Senior Secured Credit Facility to: (a) fund the cash component of the purchase price; (b) refinance outstanding indebtedness under certain U.S. and European credit facilities; and (c) provide for the ongoing working capital and other financing requirements of the Company, including consolidation activities, on a worldwide basis. Further discussion of the acquisition of the Ciba Composites Business and the Senior Secured Credit Facility is included in "Financial Condition and Liquidity" below, as well as in "Item 1. Business." and in the Notes to the Consolidated Financial Statements included in this Annual Report on Form 10-K. Hexcel acquired the Ciba Composites Business on February 29, 1996. Accordingly, the Company's results of operations for 1995, 1994 and 1993 do not include the results of the Ciba Composites Business, and unless the context otherwise indicates, the following discussion and analysis relates solely to the operations of the Company prior to the acquisition of the Ciba Composites Business. BANKRUPTCY REORGANIZATION 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. On February 9, 1995, the Reorganization Plan became effective and Hexcel emerged from the bankruptcy reorganization proceedings which 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. 33 The Reorganization Plan which became effective on February 9, 1995 provided for: (a) the replacement of a debtor-in-possession credit facility with a new revolving credit facility (the "Revolving Credit Facility") of up to $45.0 million; (b) the creation of an amended reimbursement agreement with respect to the letters of credit in support of certain industrial development revenue bonds; (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 Hexcel $41.0 million as an advance against the proceeds of a subscription rights offering for additional 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 Revolving Credit Facility was replaced by the Senior Secured Credit Facility on February 29, 1996. The subscription rights offering concluded on March 27, 1995, with the issuance of an additional 7.2 million shares of new common stock. The resulting cash proceeds of $33.1 million were used to reduce the outstanding balance of the loan from Mutual Series. The second closing under the standby purchase agreement was completed on April 6, 1995, with the issuance of an additional 1.6 million shares of new common stock to Mutual Series, the issuance of an additional 0.1 million shares of new common stock to John J. Lee, Hexcel's Chief Executive Officer, and the retirement of the remaining balance of the Mutual Series loan. Following the second closing under the standby purchase agreement on April 6, 1995, the Company had a total of 18.1 million shares of common stock issued and outstanding. On February 9, 1995, Hexcel paid $78.1 million in prepetition claims and interest, and reinstated another $60.6 million in prepetition liabilities. The payment of claims and interest on February 9, 1995 was financed with: (a) cash proceeds of $26.7 million received in the first quarter of 1995 from the sale of the Company's Chandler, Arizona manufacturing facility and certain related assets and technology; (b) cash proceeds of $2.6 million received in the first quarter of 1995 from the sale of the Company's European resins business; (c) the $50.0 million in cash received from Mutual Series in connection with the standby purchase agreement; and (d) borrowings under the Revolving Credit Facility. Further discussion of the Reorganization Plan, the Chandler and European resins transactions, and Hexcel's emergence from bankruptcy reorganization proceedings is included in the Notes to the Consolidated Financial Statements included in this Annual Report on Form 10-K. RESULTS OF OPERATIONS Hexcel generated income from continuing operations of $3.2 million in 1995, or $0.20 per share. This compares with losses from continuing operations of $28.1 million in 1994 and $79.9 million in 1993. The Company earned net income of $2.7 million in 1995, or $0.17 per share. The Company incurred net losses of $30.0 million and $86.0 million in 1994 and 1993, respectively. Operating results for 1995 include other income of $0.8 million and bankruptcy reorganization expenses of $3.4 million. Other income relates primarily to additional monies received in connection with the sale of the Chandler, Arizona manufacturing facility and certain related assets and technology in 1994. Operating results for 1994 include other income of $4.9 million, which is largely comprised of $15.9 million in income related to the Chandler transaction, less an $8.0 million provision to reflect the 34 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. Operating results for 1993 include restructuring charges of $46.6 million for a major expansion of the restructuring program begun in December 1992. The 1993 loss from continuing operations 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, changes in business conditions, and depressed real estate prices on property held for sale. In addition, Hexcel recorded a $10.9 million provision in 1993 to reflect the adverse impact of bankruptcy proceedings and substantial operating losses on the potential realization of deferred income tax benefits. Losses from discontinued operations totaled $0.5 million, $1.9 million and $10.6 million in 1995, 1994 and 1993, respectively. These losses reflect the results of the discontinued resins business, including provisions to write-down the net assets of this business by $2.8 million in 1994 and $6.0 million in 1993. The divestiture of the resins business was completed in October 1995. The 1993 losses from discontinued operations also reflect the results of the discontinued fine chemicals business, including a provision to write-down the net assets of this business by $2.8 million in 1993. The divestiture of the fine chemicals business was completed in January 1994. 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. SALES Net sales for 1995 totaled $350.2 million, compared with 1994 net sales of $313.8 million and 1993 net sales of $310.6 million. The improvement in 1995 sales over 1994 and 1993 levels is attributable to increased sales of prepregs and reinforcement fabrics, partially offset by decreased sales of honeycomb. Sales of prepregs to commercial aerospace and general industrial markets were higher, as were sales of reinforcement fabrics for use in the recreation, electrical (printed circuit boards) and ballistics industries. In addition, Hexcel benefited from a significant military contract for prepregs, and improved sales of honeycomb to the commercial aerospace market. The overall decrease in honeycomb sales is attributable to the divestiture of the Chandler facility and the related reduction in military aerospace sales. The Chandler facility and certain related assets and technology were sold to the Northrop Grumman Corporation in December 1994. The increase in sales from 1994 to 1995 reflects a modest increase in demand for certain products used in the commercial aerospace market, further penetration of selected recreation and general industrial markets, and continued improvement in the overall economic environment in both the U.S. and Europe. Changes in currency exchange rates were also a factor in the increase. During 1995, the U.S. dollar declined against most of the major European currencies, including the Belgian and French francs; accordingly, sales from Hexcel's primary international subsidiaries were increased when translated into U.S. dollars. Due to the highly competitive nature of most of the markets in which the Company competes, product price changes were not a significant factor in 1995 sales growth. U.S. sales were $179.5 million in 1995, compared with $171.5 million in 1994 and $185.2 million in 1993. The 1995 increase is primarily attributable to a significant military contract for prepregs and 35 improved sales of reinforcement fabrics to general industrial and other markets. The reduction in honeycomb sales attributable to the divestiture of the Chandler facility was partially offset by increased sales of honeycomb to commercial aerospace and other markets. The 1994 decrease in U.S. sales was mainly due to reduced sales of prepregs and honeycomb to commercial and military aerospace markets, partially negated by improved sales of prepregs to general industrial and other markets. International sales were $170.7 million in 1995, compared with $142.3 million in 1994 and $125.4 million in 1993. The 1995 and 1994 increases reflect higher sales of prepregs and reinforcement fabrics to recreation, electrical (printed circuit boards) and other industries, as well as increased sales of prepregs to certain European aerospace customers. A portion of each increase is also attributable to changes in currency exchange rates. The U.S. dollar declined relative to the Belgian and French francs in 1994 as well as in 1995. COMMERCIAL AEROSPACE SALES Worldwide sales were $159.0 million in 1995, compared with $147.5 million in 1994 and $131.4 million in 1993. Sales of prepregs and honeycomb to the commercial aerospace market increased in 1995 as a result of modest improvements in the build rates for certain commercial aircraft, as well as increased sales of selected products. In addition, Hexcel benefited from the improved economic environment in Europe, which also contributed to the 1994 sales increase. Nonetheless, while sales of individual products such as graphite honeycomb and certain prepreg products have increased during the past two years in response to the production of new wide-bodied aircraft, the Company continues to face intense competition for many of the products it sells to the commercial aerospace market. As a result, there is significant price pressure on several of these products. SPACE AND DEFENSE SALES Worldwide sales were $37.3 million in 1995, compared with $34.9 million in 1994 and $55.3 million in 1993. The slight increase in 1995 sales is attributable to a significant military contract for prepregs, partially negated by a decline in honeycomb sales. The decline in honeycomb sales reflects the divestiture of the Chandler facility and the related reduction in military aerospace sales. The reduction in space and defense sales from 1993 to 1994 continued a trend which began in 1988, when sales to this market exceeded $100 million, and reflects Hexcel's declining involvement in a major military aerospace program as well as the general decline in U.S. military spending. RECREATION, GENERAL INDUSTRIAL AND OTHER SALES Worldwide sales were $153.9 million in 1995, compared with $131.4 million in 1994 and $123.9 million in 1993. Sales of new products introduced within the past few years continued to grow, and Hexcel benefited from strong European demand for printed circuit boards. In addition, sales of lightweight, high- strength materials for use in athletic shoes, golf club shafts, energy absorption products, and certain automotive and mass transit components remained relatively strong. Continued growth in sales to recreation, general industrial and other markets has contributed to an increase of such sales as a percentage of the consolidated total from 34% in 1991 to 44% in 1995. GROSS MARGIN Gross margin was $67.1 million, or 19.2% of sales, in 1995. This compares with gross margin of $48.4 million, or 15.4% of sales, in 1994 and $47.5 million, or 15.3% of sales, in 1993. The increase in 1995 gross margin over 1994 and 1993 levels reflects the impact of higher sales, as well as certain 36 manufacturing cost reductions. Cost reductions include the closure of the Graham, Texas plant, the sale of the Chandler facility and the consolidation of selected honeycomb production activities into Hexcel's site at Casa Grande, Arizona. Although these measures were initially undertaken in 1993 and 1994, the transfer of certain production processes from Graham and Chandler to Casa Grande was not completed until the middle of 1995. Consequently, the beneficial impact of these facility reductions and the consolidation of honeycomb production activities began to be realized during 1995. Due to the highly competitive nature of most of the markets in which Hexcel competes, product price changes were not a significant factor in the growth of 1995 gross margin. MARKETING, GENERAL AND ADMINISTRATIVE (M,G&A) EXPENSES M,G&A expenses were $49.3 million in 1995, compared with $45.8 million in 1994 and $52.5 million in 1993. The increase in M,G&A expenses during 1995 is largely attributable to higher selling expenses, certain costs incurred in connection with the acquisition of the Ciba Composites Business and changes in currency exchange rates. The decrease in M,G&A expenses during 1994 was mainly due to significant headcount reductions made during 1993 and the first quarter of 1994. 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 technology expenses of $7.6 million in 1995, $8.2 million in 1994 and $8.0 million in 1993. INTEREST EXPENSE Interest expense was $8.7 million in 1995, compared with $11.8 million in 1994 and $8.9 million in 1993. The 1994 total includes accrued interest on prepetition accounts payable as well as notes payable. The decline in interest expense from 1994 to 1995 reflects the absence of interest on bankruptcy claims after February 9, 1995, as well as the elimination of various debt obligations with proceeds from the subscription rights offering and the Chandler transaction. Hexcel also benefited from slightly lower interest rates on certain variable rate debt. The increase in interest expense from 1993 to 1994 reflects the accrual of interest on bankruptcy claims beginning December 6, 1993, the cost of a debtor- in-possession credit facility and higher interest rates on certain variable rate obligations. These factors were only partially offset by reduced levels of borrowing by Hexcel's European subsidiaries. INCOME TAXES As of December 31, 1995, the Company had net operating loss ("NOL") carryforwards for U.S. federal income tax purposes of approximately $65 million and net operating loss carryforwards for international income tax purposes of approximately $5 million. The U.S. NOL carryforwards, which are available to offset future taxable income, expire at various dates through the year 2010. As a result of the ownership changes which occurred in connection with the Reorganization Plan and the acquisition of the Ciba Composites Business, utilization of the U.S. NOL carryforwards is subject to certain annual limitations, as described in Note 16 to the Consolidated Financial Statements included in this Annual Report on Form 10-K. The 1995 income tax provision of $3.3 million resulted primarily from state income taxes and taxable income for certain European subsidiaries. The 1994 and 1993 income tax provisions of $3.6 million and $6.0 million, respectively, were attributable to the same factors. In addition, the 1994 provision includes the impact of settling various tax audits. Hexcel fully reserved the income tax assets 37 generated by the pre-tax losses of certain subsidiaries in 1995, 1994 and 1993, due to uncertainty as to the realization of those assets. FINANCIAL CONDITION AND LIQUIDITY FINANCIAL RESOURCES In connection with the acquisition of the Ciba Composites Business on February 29, 1996, Hexcel obtained the Senior Secured Credit Facility. The Senior Secured Credit Facility is a three-year revolving credit facility of up to $175.0 million which is available to: (a) fund the $25.0 million cash component of the purchase price paid for the Ciba Composites Business; (b) refinance outstanding indebtedness under certain U.S. and European credit facilities; and (c) provide for the ongoing working capital and other financing requirements of the Company, including consolidation activities, on a worldwide basis. The Senior Secured Credit Facility replaces the Revolving Credit Facility which was obtained on February 9, 1995, in connection with Hexcel's Reorganization Plan, as well as certain European credit facilities. The Senior Secured Credit Facility is secured by a pledge of stock of certain of Hexcel's subsidiaries, and is also guaranteed by the Company and certain of its subsidiaries. In addition, the Company is subject to various financial covenants and restrictions under the Senior Secured Credit Facility, including minimum levels of tangible net worth and fixed charge coverage, and maximum levels of debt to earnings before interest, taxes, depreciation and amortization. The Senior Secured Credit Facility also imposes certain restrictions on incurring additional indebtedness, and generally prohibits the Company from paying dividends or redeeming capital stock. In addition to providing for typical events of default, including an event of default resulting from a "change in control" (as defined) of the Company, the Senior Secured Credit Facility provides that an event of default would occur if, under certain circumstances, Ciba: (a) ceases to hold, directly or indirectly through one or more wholly-owned subsidiaries, 100% of the outstanding principal amount of the Senior Subordinated Notes, or (b) ceases to beneficially own, directly or indirectly, at least 40% of Hexcel's voting stock. In light of the foregoing, the Company and Ciba entered into a Retention Agreement, dated as of February 29, 1996, pursuant to which Ciba agreed, subject to the limitations set forth therein, to: (a) hold directly or indirectly through one or more wholly- owned subsidiaries, 100% of the outstanding principal amount of the Senior Subordinated Notes, and (b) beneficially own, directly or indirectly, at least 40% of the Company's voting stock. Further discussion of the Senior Secured Credit Facility is included in the Notes to the Consolidated Financial Statements included in this Annual Report on Form 10-K. Management believes that the Senior Secured Credit Facility provides Hexcel with more borrowing capacity and imposes less restrictive conditions than the credit facilities which it has replaced. Management expects that the financial resources of Hexcel, including the Senior Secured Credit Facility, will be sufficient to fund the Company's worldwide operations, including the operations of the Ciba Composites Business. CASH FLOWS Unaudited pro forma financial information as to the acquisition of the Ciba Composites Business, including the financing of this acquisition, is included in Note 3 to the Consolidated Financial Statements included in this Annual Report on Form 10-K. 38 Income from continuing operations before interest expense, bankruptcy reorganization expenses, income taxes, and depreciation and amortization ("EBITDA") was $30.2 million in 1995, but continuing operations used $3.0 million of cash. Approximately $23.0 million of the difference between EBITDA and net cash flow used by continuing operations is attributable to the payment of prepetition accounts payable and accrued liabilities that had been reinstated on February 9, 1995, and another $6.5 million is attributable to the payment of accrued restructuring costs. In addition, Hexcel incurred $8.7 million of interest expense, $3.4 million of bankruptcy reorganization expenses, and financed a $9.9 million increase in accounts receivable and inventories resulting from higher sales levels. However, the Company benefited from a $19.4 million increase in postpetition accounts payable and accrued liabilities, reflecting both higher production levels and a return to normal credit terms with most vendors. EBITDA was $21.7 million in 1994, and net cash provided by continuing operations was $1.1 million. Interest and bankruptcy reorganization expenses totaled $32.0 million, but these expenditures were largely 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 was primarily attributable to the accrual of interest on prepetition obligations, adjustments to allowed claims, and a return to payment terms with some vendors. In addition, Hexcel paid approximately $10.1 million in restructuring costs and financed a $7.4 million increase in accounts receivable and inventories. EBITDA is presented for purposes of describing the significant components of Hexcel's cash flows from continuing operating activities, and is not presented as an alternative measure of those cash flows or of the Company's operating results as determined in accordance with generally accepted accounting principles. CAPITAL EXPENDITURES Capital expenditures were $12.1 million in 1995, compared with $8.4 million in 1994 and $6.3 million in 1993. The increase from 1994 and 1993 levels is due to purchases of equipment necessary to improve manufacturing processes, and to the deferral of expenditures during bankruptcy reorganization proceedings. Further increases in capital spending are expected in 1996, partially as a result of the acquisition of the Ciba Composites Business. The 1995 capital expenditures of the Ciba Composites Business were $13.2 million, and management expects that the Company's 1996 capital expenditures will exceed the $25.3 million spent in the aggregate by the Company and the Ciba Composites Business during 1995. Such expenditures will be financed with cash generated from operations and borrowings under the Senior Secured Credit Facility. RECENTLY ISSUED ACCOUNTING STANDARDS Hexcel is required to adopt Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("SFAS 121"), in 1996. SFAS 121 requires that the recoverability of long-lived assets to be held or used, including intangible assets, be assessed when events or circumstances indicate that the value of those assets may be impaired. That assessment, determined by reference to the estimated undiscounted future cash flows resulting from the use of the assets, will be based on each group of assets within each of the Company's strategic business units. Management has not yet determined the impact, if any, that the adoption of SFAS 121 will have on the Company's consolidated financial position or results of operations. 39 Hexcel is required to adopt Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"), in 1996. SFAS 123 establishes accounting and disclosure requirements using a fair value based method of accounting for stock based employee compensation plans. Under SFAS 123, the Company may either adopt the new fair value based accounting method or continue the intrinsic value based method and provide pro forma disclosures of net earnings and earnings per share as if the fair value method had been applied. The Company plans to adopt only the disclosure requirements of SFAS 123. Consequently, the adoption of SFAS 123 will have no effect on the Company's consolidated net earnings. 40 CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Description Page - -------------------------------------------------------------------------------------------------- Management Responsibility for Financial Statements 42 Independent Auditors' Report 43 Consolidated Financial Statements: Consolidated Statements of Operations: Three years ended December 31, 1995 44 Consolidated Balance Sheets: December 31, 1995 and 1994 45 Consolidated Statements of Cash Flows: Three years ended December 31, 1995 46 Consolidated Statements of Shareholders' Equity (Deficit): Three years ended December 31, 1995 47 Notes to the Consolidated Financial Statements 48 - 81 Statement Regarding Computation of Per Share Earnings (Unaudited) Exhibit 11
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. 41 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. Hexcel maintains accounting and other control systems which management believes provide reasonable assurance that financial records are reliable for purposes of preparing financial statements and that assets are safeguarded and accounted for properly. Underlying this concept of reasonable assurance is the premise that the cost of control should not exceed benefits derived from control. The Audit Committee of the Board of Directors reviews and monitors the financial reports and accounting practices of Hexcel. These reports and practices are reviewed regularly by management and by the 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. /s/ JOHN J. LEE - ------------------------------ (John J. Lee) CHIEF EXECUTIVE OFFICER /s/ WILLIAM P. MEEHAN - ------------------------------ (William P. Meehan) CHIEF FINANCIAL OFFICER /s/ WAYNE C. PENSKY - ------------------------------ (Wayne C. Pensky) CHIEF ACCOUNTING OFFICER 42 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, 1995 and 1994, 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, 1995. 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, 1995 and 1994, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1995 in conformity with generally accepted accounting principles. As discussed in Note 4 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 Note 4. As discussed in Notes 2 and 3 to the consolidated financial statements, on February 29, 1996, Hexcel acquired the Ciba Composites Business. As discussed in Note 1 to the consolidated financial statements, Hexcel changed its method of accounting for income taxes effective January 1, 1993 to conform with Statement of Financial Accounting Standards No. 109. /s/ DELOITTE & TOUCHE LLP DELOITTE & TOUCHE LLP Oakland, California March 1, 1996 43
HEXCEL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS - ------------------------------------------------------------------------------------------------------- (IN THOUSANDS, EXCEPT PER SHARE DATA) 1995 1994 1993 - ------------------------------------------------------------------------------------------------------- Net sales $ 350,238 $ 313,795 $ 310,635 Cost of sales (283,148) (265,367) (263,090) - ------------------------------------------------------------------------------------------------------- Gross margin 67,090 48,428 47,545 Marketing, general and administrative expenses (49,324) (45,785) (52,510) Other income (expenses), net 791 4,861 (12,780) Restructuring expenses - - (46,600) - ------------------------------------------------------------------------------------------------------- Operating income (loss) 18,557 7,504 (64,345) Interest expense (8,682) (11,846) (8,862) Bankruptcy reorganization expenses (3,361) (20,152) (641) - ------------------------------------------------------------------------------------------------------- Income (loss) from continuing operations before income taxes 6,514 (24,494) (73,848) Provision for income taxes (3,313) (3,586) (6,024) - ------------------------------------------------------------------------------------------------------- Income (loss) from continuing operations 3,201 (28,080) (79,872) Discontinued operations: Income (loss) from operations, net of (provision) for income taxes of ($441) in 1994 and ($177) in 1993 - 989 (6,584) Losses during phase-out period, net of benefit (provision) for income taxes of ($136) in 1994 and $383 in 1993 (468) (2,879) (4,039) - ------------------------------------------------------------------------------------------------------- Income (loss) before cumulative effect of accounting change 2,733 (29,970) (90,495) Cumulative effect of change in accounting for income taxes - - 4,500 - ------------------------------------------------------------------------------------------------------- Net income (loss) $ 2,733 $ (29,970) $ (85,995) - ------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------- Net income (loss) per share and equivalent share: Primary and fully diluted: Continuing operations $ 0.20 $ (3.84) $ (10.89) Discontinued operations (0.03) (0.26) (1.45) Cumulative effect of change in accounting for income taxes - - 0.61 - ------------------------------------------------------------------------------------------------------- Net income (loss) $ 0.17 $ (4.10) $ (11.73) - ------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------- Weighted average shares and equivalent shares 15,742 7,310 7,330 - ------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------
THE ACCOMPANING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS. 44 HEXCEL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------------------------------------- DECEMBER 31, December 31, (IN THOUSANDS, EXCEPT PER SHARE DATA) 1995 1994 - --------------------------------------------------------------------------------------------------------------- ASSETS Current assets: Cash and equivalents $ 3,829 $ 931 Receivables from asset sales - 29,340 Accounts receivable 65,888 64,136 Inventories 55,475 47,364 Prepaid expenses 2,863 3,581 Net assets of discontinued operations - 3,000 - --------------------------------------------------------------------------------------------------------------- Total current assets 128,055 148,352 - --------------------------------------------------------------------------------------------------------------- Property, plant and equipment 203,580 186,328 Less accumulated depreciation 117,625 103,215 - --------------------------------------------------------------------------------------------------------------- Net property, plant and equipment 85,955 83,113 - --------------------------------------------------------------------------------------------------------------- Investments and other assets 16,592 11,992 - --------------------------------------------------------------------------------------------------------------- Total assets $ 230,602 $ 243,457 - --------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) Current liabilities: Notes payable and current maturities of long-term liabilities $ 1,802 $ 12,720 Accounts payable 22,904 18,163 Accrued liabilities 38,892 32,234 Accrued restructuring liabilities 2,887 11,165 Liabilities subject to disposition in bankruptcy reorganization - 97,025 - --------------------------------------------------------------------------------------------------------------- Total current liabilities 66,485 171,307 - --------------------------------------------------------------------------------------------------------------- Long-term notes payable and capital lease obligations 88,342 16,004 Deferred liabilities 27,401 21,279 Liabilities subject to disposition in bankruptcy reorganization - 40,752 - --------------------------------------------------------------------------------------------------------------- Shareholders' equity (deficit): Common stock, $0.01 par value, authorized 40,000 shares, shares issued and outstanding of 18,091 in 1995 and 7,301 in 1994 181 73 Additional paid-in capital 111,259 62,626 Accumulated deficit (69,981) (72,714) Minimum pension obligation adjustment (535) (137) Cumulative currency translation adjustment 7,450 4,267 - --------------------------------------------------------------------------------------------------------------- Total shareholders' equity (deficit) 48,374 (5,885) - --------------------------------------------------------------------------------------------------------------- Total liabilities and shareholders' equity (deficit) $ 230,602 $ 243,457 - --------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS. 45 HEXCEL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
- ---------------------------------------------------------------------------------------------------------------------------------- (IN THOUSANDS) 1995 1994 1993 - ---------------------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES Income (loss) from continuing operations $ 3,201 $ (28,080) $ (79,872) Reconciliation to net cash provided (used) by continuing operations: Depreciation and amortization 11,623 14,230 14,880 Deferred provision (benefit) for income taxes (329) 3,609 4,805 Other income relating to sale of the Chandler, Arizona manufacturing facility and related assets and technology (600) (15,900) - Provision for DIC-Hexcel Limited - 8,000 - Restructuring expenses - - 46,600 Changes in assets and liabilities: (Increase) decrease in accounts receivable (1,752) (1,168) 9,157 (Increase) decrease in inventories (8,111) (6,228) 3,336 (Increase) decrease in prepaid expenses 718 (454) (1,775) Increase (decrease) in accounts payable and accrued liabilities (10,090) 30,966 3,959 Changes in other non-current assets and long-term liabilities 2,346 (3,876) 9,736 - ---------------------------------------------------------------------------------------------------------------------------------- Net cash provided (used) by continuing operations (2,994) 1,099 10,826 Net cash provided (used) by discontinued operations 486 (2,206) 624 - ---------------------------------------------------------------------------------------------------------------------------------- Net cash provided (used) by operating activities (2,508) (1,107) 11,450 - ---------------------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures (12,144) (8,362) (6,264) Proceeds from equipment sold 17 229 764 Deferred business acquisition costs, incurred in connection with the acquisition of the Ciba Composites Business (4,150) - - Proceeds from sale of discontinued resins business 4,648 6,125 - Proceeds from sale of the Chandler, Arizona manufacturing facility and certain related assets and technology 27,294 2,294 - Proceeds from sale of stitchbonded fabrics business to joint venture - - 4,500 Investments in joint ventures - - (1,750) Proceeds from sale of discontinued fine chemicals business - - 500 - ---------------------------------------------------------------------------------------------------------------------------------- Net cash provided (used) by investing activities 15,665 286 (2,250) - ---------------------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issuance of long-term debt 4,317 171 - Payments of long-term debt (5,402) (11,413) (4,801) Proceeds of short-term debt, net 20,923 1,687 6,847 Proceeds from issuance of common stock 48,741 - 270 Payments of allowed claims pursuant to the Reorganization Plan (78,144) - - - ---------------------------------------------------------------------------------------------------------------------------------- Net cash provided (used) by financing activities (9,565) (9,555) 2,316 - ---------------------------------------------------------------------------------------------------------------------------------- Effect of exchange rate changes on cash and equivalents (694) (41) (535) - ---------------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in cash and equivalents 2,898 (10,417) 10,981 Cash and equivalents at beginning of year 931 11,348 367 - ---------------------------------------------------------------------------------------------------------------------------------- Cash and equivalents at end of year $ 3,829 $ 931 $ 11,348 - ---------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS. 46 HEXCEL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
Common Stock Retained Minimum Cumulative Total ----------------------- Additional Earnings Pension Currency Shareholders' Outstanding Paid-in (Accumulated Obligation Translation Equity (In thousands) Shares Amount Capital Deficit) Adjustment Adjustment (Deficit) - ----------------------------------------------------------------------------------------------------------------------------------- BALANCE, JANUARY 1, 1993 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) Net income - - - 2,733 - - 2,733 Sale of new common stock under standby purchase commitment and subscription rights offering 10,800 108 48,631 - - - 48,739 Activity under stock plans (10) - 2 - - - 2 Pension obligation adjustment - - - - (398) - (398) Currency translation adjustment - - - - - 3,183 3,183 - ----------------------------------------------------------------------------------------------------------------------------------- BALANCE, DECEMBER 31, 1995 18,091 $ 181 $ 111,259 $ (69,981) $ (535) $ 7,450 $ 48,374 - ----------------------------------------------------------------------------------------------------------------------------------- - -----------------------------------------------------------------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS. 47 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT PER SHARE DATA) NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES NATURE OF OPERATIONS AND BASIS OF ACCOUNTING The consolidated financial statements include the accounts of Hexcel Corporation and subsidiaries ("Hexcel" or the "Company"), after elimination of intercompany transactions and accounts. Hexcel is an international developer and manufacturer of lightweight, high-performance composite materials, parts and structures for use in the commercial aerospace, space and defense, recreation and general industrial markets. The Company serves international markets through manufacturing and marketing facilities located in the United States and Europe, as well as sales offices in Asia, Australia and South America. The Company is also a partner in three joint ventures that manufacture and sell composite materials in the U.S. and Asia. As discussed in Notes 2 and 3, Hexcel acquired the worldwide composites division of Ciba-Geigy Limited, a Swiss corporation ("Ciba"), and Ciba-Geigy Corporation, a New York corporation ("CGC"), including Ciba's and CGC's composite materials, parts and structures businesses (the "Ciba Composites Business"), on February 29, 1996. The Company acquired the Ciba Composites Business in exchange for: (a) approximately 18,022 newly issued shares of Hexcel common stock; (b) $25,000 in cash; and (c) undertakings to deliver to Ciba and/or one or more of its subsidiaries, following completion of certain post- closing adjustment procedures, various senior subordinated notes and senior demand notes. In connection with the acquisition of the Ciba Composites Business, the Company obtained a new three-year revolving credit facility of up to $175,000 (the "Senior Secured Credit Facility") to: (a) fund the cash component of the purchase price; (b) refinance outstanding indebtedness under certain U.S. and European credit facilities; and (c) provide for the ongoing working capital and other financing requirements of the Company on a worldwide basis (see Note 10). The acquisition of the Ciba Composites Business and related financing activities occurred subsequent to December 31, 1995, and have not been reflected in the historical consolidated financial statements and accompanying notes presented herein. As discussed in Note 4, Hexcel Corporation (a Delaware corporation) 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 as of December 31, 1994, and for each of the three years in the period ended December 31, 1995, 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 ("SOP 90-7"). 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 $2,603 and $1,249 as of December 31, 1995 and 1994, respectively. 48 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. No interest was capitalized in 1995 or 1994; $227 of interest was capitalized in 1993. 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. 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 1995, 1994 or 1993. RESEARCH AND TECHNOLOGY COSTS Research and technology costs of $7,618 in 1995, $8,201 in 1994 and $7,971 in 1993 were expensed as incurred, and are included in "marketing, general and administrative expenses" in the consolidated statements of operations. ACCOUNTING CHANGE Effective January 1, 1993, the Company adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109") (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. 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 1995, 1994 and 1993. RECLASSIFICATIONS Certain prior year amounts in the consolidated financial statements and notes have been reclassified to conform to the 1995 presentation. ESTIMATES AND ASSUMPTIONS The consolidated financial statements and accompanying notes reflect numerous estimates and assumptions made by the management of Hexcel. These estimates and assumptions affect the reported amounts of assets and liabilities, the disclosures with respect to contingent assets and liabilities, and the reported amounts of revenues and expenses. Although management believes that the estimates and assumptions used in preparing the consolidated financial statements and accompanying notes are reasonable in light of known facts and circumstances, actual results could differ from the estimates used. 49 RECENTLY ISSUED ACCOUNTING STANDARDS Hexcel is required to adopt Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("SFAS 121"), in 1996. SFAS 121 requires that the recoverability of long-lived assets to be held or used, including intangible assets, be assessed when events or circumstances indicate that the value of those assets may be impaired. That assessment, determined by reference to the estimated undiscounted future cash flows resulting from the use of the assets, will be based on each group of assets within each of the Company's strategic business units. Management has not yet determined the impact, if any, that the adoption of SFAS 121 will have on the Company's consolidated financial position or results of operations. Hexcel is required to adopt Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"), in 1996. SFAS 123 establishes accounting and disclosure requirements using a fair value based method of accounting for stock based employee compensation plans. Under SFAS 123, the Company may either adopt the new fair value based accounting method or continue the intrinsic value based method and provide pro forma disclosures of net earnings and earnings per share as if the fair value method had been applied. The Company plans to adopt only the disclosure requirements of SFAS 123. Consequently, the adoption of SFAS 123 will have no effect on the Company's consolidated net earnings. NOTE 2 -- ACQUISITION OF THE CIBA COMPOSITES BUSINESS Hexcel acquired the Ciba Composites Business of Ciba-Geigy Limited and Ciba-Geigy Corporation on February 29, 1996. The Ciba Composites Business is engaged in the manufacture and marketing of composite materials, parts and structures for aerospace, recreation and general industrial markets. Product lines include fabrics, prepregs, adhesives, honeycomb core, sandwich panels and fabricated components, as well as structures and interiors primarily for the commercial and military aerospace markets. The acquisition of the Ciba Composites Business was consummated pursuant to a Strategic Alliance Agreement dated as of September 29, 1995 among Ciba, CGC, and Hexcel, as amended (the "Strategic Alliance Agreement"). Under the Strategic Alliance Agreement, the Company acquired the assets (including the capital stock of certain of Ciba's non-U.S. subsidiaries) and assumed the liabilities of the Ciba Composites Business other than certain excluded assets and liabilities in exchange for: (a) approximately 18,022 newly issued shares of Hexcel common stock; (b) $25,000 in cash; and (c) undertakings to deliver to Ciba and/or one or more of its subsidiaries, following completion of certain post-closing adjustment procedures contemplated by the Strategic Alliance Agreement, senior subordinated notes in an aggregate principal amount of approximately $43,000, subject to certain adjustments (the "Senior Subordinated Notes"), and senior demand notes in a principal amount equal to the cash on hand at certain of Ciba's non-U.S. subsidiaries (the "Senior Demand Notes"). (The pro forma aggregate principal amount of the Senior Subordinated Notes as of December 31, 1995 was $27,400. See Note 3.) In connection with the acquisition of the Ciba Composites Business, the Company obtained the Senior Secured Credit Facility to: (a) fund the cash component of the purchase price; (b) refinance outstanding indebtedness under certain U.S. and European credit facilities; and (c) provide for the ongoing working capital and other financing requirements of the Company on a worldwide basis (see Note 10). The acquisition of the Ciba Composites Business and related financing activities occurred subsequent to December 31, 1995, and have not been reflected in the historical consolidated financial statements and accompanying notes presented herein. 50 NOTE 3 -- ACQUISITION OF THE CIBA COMPOSITES BUSINESS: PRO FORMA FINANCIAL INFORMATION (UNAUDITED) The following unaudited pro forma financial information combines the condensed balance sheets and statements of operations of Hexcel and the Ciba Composites Business after giving effect to the acquisition of the Ciba Composites Business by the Company. The unaudited pro forma condensed combined balance sheet as of December 31, 1995 gives effect to the acquisition as if it had occurred on December 31, 1995. The unaudited pro forma condensed combined statement of operations for the year ended December 31, 1995 gives effect to the acquisition as if it had occurred on January 1, 1995. The pro forma adjustments account for the acquisition as a purchase of the Ciba Composites Business by the Company, and are based upon the assumptions set forth in the accompanying disclosures. The following unaudited pro forma financial information is not necessarily indicative of the financial position or operating results that would have occurred had the acquisition of the Ciba Composites Business been consummated on the dates indicated, nor is it necessarily indicative of future operating results or financial position. Management expects that significant costs will be incurred in connection with combining the operations of Hexcel and the Ciba Composites Business, including costs of eliminating excess manufacturing capacity and redundant administrative and research and development activities, as well as the various costs of consolidating the information systems and other business activities of the two companies. Some of the costs associated with combining the two businesses, including certain costs to eliminate redundant administrative and research and development activities, will be incurred during 1996. The anticipated resulting benefits are expected to be realized shortly thereafter. However, other costs, including many of the costs to eliminate excess manufacturing capacity, are expected to be incurred over a period of as much as three years. This is attributable, in part, to aerospace industry requirements to "qualify" specific equipment and manufacturing facilities for the manufacture of certain products. Based on the Company's experience with previous plant consolidations, these qualification requirements necessitate an approach to the consolidation of manufacturing facilities that will require two to three years to complete. Accordingly, the costs and anticipated future benefits of eliminating excess manufacturing capacity are long-term in nature. The Board of Directors of Hexcel has not yet approved the plan for combining the operations of Hexcel and the Ciba Composites Business, but is expected to do so in the second quarter of 1996. Subject to the approval of the consolidation plan by the Board of Directors, management currently estimates that the cash costs of combining the two businesses could range from $35,000 to $45,000, net of expected proceeds from asset sales which are expected to be received at the end of the consolidation process. (This range includes the estimated net cash cost to close the Anaheim manufacturing facility of the Ciba Composites Business. The decision to close this facility was announced in the first quarter of 1996.) Management notes, however, that the actual cash costs of combining the two businesses could vary from current estimates due to the fact that the nature, timing and extent of certain consolidation activities is dependent on numerous factors. Management expects to record one or more charges to earnings for the estimated costs of certain business consolidation activities. The estimated costs of specific consolidation activities will be accrued in accordance with generally accepted accounting principles as those activities are determined and announced. Although the aggregate amount of the resulting charges to earnings has not yet been determined, management currently estimates that the amount could range from $40,000 to $50,000, including noncash charges. However, the actual aggregate amount of such charges could vary from current estimates. The cash expenditures necessary to combine the Ciba Composites Business with Hexcel are expected to occur over a period of as much as three years. The nature, timing and extent of these expenditures will be determined, in part, by management's evaluation of the probable economic and competitive benefits to 51 be gained from specific consolidation activities. Management anticipates that the benefits to be realized from planned consolidation activities will be sufficient to justify the level of associated costs. However, some of the anticipated benefits are long-term in nature, and there can be no assurance that such benefits will actually be realized. Accordingly, no effect has been given to the costs of combining the two businesses, or to the operating, financial and other benefits that may be realized from the combination, in the accompanying pro forma financial information. 52 UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET THE YEAR ENDED DECEMBER 31, 1995
----------------------------------------------------- HISTORICAL PRO FORMA ----------------------- ----------------------- CIBA HEXCEL COMPOSITES ADJUSTMENTS COMBINED --------- ---------- ----------- -------- ASSETS Current assets: Cash and equivalents $ 3,829 $ 8,412 $ (8,412) (a) $ 3,829 Accounts receivable 65,888 58,799 (5,805) (b) 118,882 Inventories 55,475 60,337 (1,545) (c) 114,267 Prepaid expenses and other assets 2,863 9,957 (6,019) (d) 6,801 -------- -------- --------- -------- Total current assets 128,055 137,505 (21,781) 243,779 -------- -------- --------- -------- Net property, plant and equipment 85,955 156,364 (45,487) (e) 196,832 Excess of purchase price over net assets acquired 44,300 (f) 44,300 Investments and other assets 16,592 46,425 (47,069) (g) 15,948 -------- -------- --------- -------- Total assets $ 230,602 $ 340,294 $ (70,037) $ 500,859 -------- -------- --------- -------- -------- -------- --------- -------- LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Notes payable and current maturities of long-term liabilities $ 1,802 $ 10,469 $ (9,052) (h) $ 3,219 Accounts payable 22,904 29,611 (1,208) (i) 51,307 Accrued liabilities 41,779 27,574 69,353 -------- -------- --------- -------- Total current liabilities 66,485 67,654 (10,260) 123,879 -------- -------- --------- -------- Senior subordinated notes, payable to Ciba-Geigy 26,300 (j) 26,300 Other long-term liabilities, less current maturities 115,743 28,723 18,898 (k) 163,364 Minority interest 6,968 (6,968) (l) -------- -------- --------- -------- Shareholders' equity: Common stock & additional paid-in capital 111,440 140,600 (m) 252,040 Accumulated deficit (69,981) (1,658) (n) (71,639) Minimum pension obligation adjustment (535) (535) Cumulative currency translation adjustment 7,450 7,450 Invested capital 236,949 (236,949) (o) -------- -------- --------- -------- Total shareholders' equity 48,374 236,949 (98,007) 187,316 -------- -------- --------- -------- Total liabilities and shareholders' equity $ 230,602 $ 340,294 $ (70,037) $ 500,859 -------- -------- --------- -------- -------- -------- --------- --------
53 UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS THE YEAR ENDED DECEMBER 31, 1995
-------------------------------------------------------- HISTORICAL PRO FORMA ----------------------- --------------------------- CIBA HEXCEL COMPOSITES ADJUSTMENTS COMBINED --------- ---------- ----------- --------- Net sales $ 350,238 $ 331,073 $ (3,207) (p) $ 678,104 Cost of sales (283,148) (273,997) 6,860 (q) (550,285) ---------- ---------- --------- ---------- Gross margin 67,090 57,076 3,653 127,819 Marketing, general and administrative expenses (49,324) (57,966) (107,290) Amoritization and write-downs of intangible assets (6,930) 4,385 (r) (2,545) Other income (expenses), net 791 (1,102) (311) Restructuring expenses (2,362) (2,362) ---------- ---------- --------- ---------- Operating income (loss) 18,557 (11,284) 8,038 15,311 Interest expense (8,682) (668) (869) (s) (10,219) Bankruptcy reorganization expenses (3,361) (t) (3,361) (t) Minority interest (1,506) 1,506 (u) ---------- ---------- --------- ---------- Income (loss) from continuing operations before income taxes 6,514 (13,458) 8,675 1,731 Provision for income taxes (3,313) (5,085) (v) (8,398) ---------- ---------- --------- ---------- Income (loss) from continuing operations 3,201 (18,543) 8,675 6,667 Loss from discontinued operations (468) (468) ---------- ---------- --------- ---------- Net income (loss) $ 2,733 $ (18,543) $ 8,675 $ (7,135) ---------- ---------- --------- ---------- ---------- ---------- --------- ---------- Net income (loss) per share and equivalent share: Primary and fully diluted Continuing operations $ 0.20 $ (0.20) Discontinued operations (0.03) (0.01) ---------- ---------- Net income (loss) $ 0.17 $ (0.21) ---------- ---------- ---------- ---------- Weighted average shares and equivalent shares 15,742 33,764 ---------- ---------- ---------- ----------
The 1995 net loss for the Ciba Composites Business of $18,543 includes a fourth quarter net loss of $9,537. The fourth quarter net loss includes approximately $6,340 costs attibutable to write-downs of certain fixed and intangible assets, severance expenses, reserves for uncollectible receivables, and acquisition-related expenses. 54 PURCHASE PRICE SUMMARY AND RELATED ALLOCATION The purchase price paid by Hexcel for the Ciba Composites Business is comprised of the following components: 18,022 shares of Hexcel common stock, valued at $8.00 per share (1) $ 144,200 Senior Subordinated Notes payable to Ciba in 2003 (2) 26,300 Cash paid to Ciba (3) 25,000 Estimated fees and expenses in connection with the acquisition (3) 7,600 - -------------------------------------------------------------------------------- Total purchase price $ 203,100 - -------------------------------------------------------------------------------- The allocation of the total purchase price to the net assets of the Ciba Composites Business is based upon the estimated fair values of the net assets acquired, and is summarized as follows: Cash and equivalents (4) -- Accounts receivable (5) $ 53,285 Inventories (6) 58,792 Prepaid expenses (5) 3,938 Net property, plant & equipment (7) 110,877 Other assets, net (8) 1,000 Investments and other assets (5) 4,214 Current liabilities (9) (57,685) Other long-term liabilities, less current maturities (9) (19,221) Minority interest (10) -- Shareholders' equity (11) 3,600 Excess of purchase price over net assets acquired (12) 44,300 - -------------------------------------------------------------------------------- Total purchase price $ 203,100 - -------------------------------------------------------------------------------- (1) The aggregate value of the Hexcel common stock issued to Ciba is determined by multiplying the discounted market price per share by the number of shares issued. The market price per share is determined by reference to the prices at which Hexcel common stock was trading on the New York Stock Exchange during a reasonable period before and after December 12, 1995, the date upon which Hexcel and Ciba amended the aggregate amount of consideration to be paid by Hexcel for the Ciba Composites Business by agreeing to reduce the initial aggregate principal amount of the senior subordinated notes by $5,000. The market price is then discounted to reflect the illiquidity of the Hexcel common stock issued to Ciba caused by the size of Ciba's holding, the contractual restrictions on transferring such shares and, accordingly, limitations on the price Ciba could realize, the contractual limitation on the price per share Ciba could realize in certain types of transactions, the fact that such shares are "restricted securities" within the meaning of the Securities Act of 1933, and various other factors. For purposes of valuing the Hexcel common stock issued to Ciba, a discounted market price of $8.00 per share is used. The discounted market price is based on a market price of $10.00 per share during a reasonable period before and after December 12, 1995, and a discount rate of 20%. The discounted market price of the shares issued is used in determining the total purchase price because the discounted market price of Hexcel common stock is more reliably measurable than the fair value of the assets acquired and the liabilities assumed. (2) Based on the formula included in the Strategic Alliance Agreement, the pro forma aggregate principal amount of the Senior Subordinated Notes as of December 31, 1995 is approximately 55 $27,400. (Such amount is estimated as follows: $43,029 (a) increased by $9,000 for the price of acquiring a minority interest in an Austrian subsidiary of the Ciba Composites Business; (b) increased by $6,126 for the decline in the adjusted net working capital of Hexcel from July 2, 1995 to December 31, 1995; (c) decreased by $25,378 for the decline in the adjusted net working capital of the Ciba Composites Business from July 2, 1995 to December 31, 1995; and (d) decreased by $5,377 for certain net assets of the Ciba Composites Business retained by Ciba and other adjustments.) However, the actual aggregate principal amount of the Senior Subordinated Notes to be issued may be higher or lower, because the adjustments required under the Strategic Alliance Agreement to reflect changes in working capital and certain other items as of February 29, 1996 have not yet been determined. The fair value of the Senior Subordinated Notes as of December 31, 1995 is estimated to be $26,300, which is $1,100 lower than the pro forma aggregate principal amount. The $1,100 discount reflects the absence of certain call protection provisions from the terms of the Senior Subordinated Notes and the difference between the stated interest rate on the Senior Subordinated Notes and the estimated market rate for debt obligations of comparable quality and maturity (see Note 10). (3) The cash paid to Ciba and certain estimated fees and expenses in connection with the acquisition of the Ciba Composites Business have been financed with the proceeds from the Senior Secured Credit Facility (see Note 10). (4) Under the terms of the Strategic Alliance Agreement, the cash and cash equivalents of the Ciba Composites Business, except for cash on hand at certain of Ciba's non-U.S. subsidiaries, are retained by Ciba. The cash on hand at certain of Ciba's non-U.S. subsidiaries was acquired in exchange for the Senior Demand Notes. The amount of acquired cash and the corresponding principal amount of the Senior Demand Notes, which Hexcel expects will be presented for payment shortly after issuance, are equal and offset each other. Accordingly, the acquisition of such cash and the issuance of the Senior Demand Notes has not been reflected in the unaudited pro forma condensed combined balance sheet. (5) The fair values of accounts receivable, prepaid expenses and investments and other assets acquired in the purchase of the Ciba Composites Business are estimated to equal respective net book values. Under the terms of the Strategic Alliance Agreement, a portion of the Ciba Composites Business' accounts receivable and prepaid expenses are retained by Ciba. (6) The fair value of inventories acquired in the purchase of the Ciba Composites Business is estimated to equal aggregate current sales value less estimated selling costs. Under the terms of the Strategic Alliance Agreement, a portion of the Ciba Composites Business' inventories is retained by Ciba. (7) The fair value of the property, plant and equipment acquired in the purchase of the Ciba Composites Business is estimated to be $45,000 lower than the respective net book value. The estimated fair value, which is based on a preliminary review of the production facilities and equipment of the Ciba Composites Business, reflects the fact that certain of these assets are expected to: (a) duplicate capabilities or productive capacities already possessed by Hexcel; or (b) be in excess of the combined company's needs. This estimate is subject to modification in connection with further analysis. In addition, under the terms of the Strategic Alliance Agreement, a portion of the Ciba Composites Business' property, plant and equipment is retained by Ciba. 56 (8) The fair value assigned to other assets reflects the capitalization of estimated fees and expenses incurred to secure the Senior Secured Credit Facility in connection with the acquisition of the Ciba Composites Business. (9) The fair values of the current and long-term liabilities assumed by Hexcel in connection with the purchase of the Ciba Composites Business are estimated to equal the respective net book values. Under the terms of the Strategic Alliance Agreement, certain of the liabilities of the Ciba Composites Business are not assumed by Hexcel. (10) Prior to Hexcel's acquisition of the Ciba Composites Business, Ciba eliminated the minority interest in an Austrian subsidiary of the Ciba Composites Business ("Danutec") by purchasing that interest, subject to certain governmental approvals which were subsequently obtained. Accordingly, the estimated pro forma purchase price and purchase price allocation reflect the transfer of 100% of the capital stock of Danutec to the Company, and the minority interest in Danutec has been eliminated on a pro forma basis. (11) The estimated fees and expenses incurred in connection with issuing the Hexcel common stock to Ciba are deducted from shareholders' equity. (12) The excess of purchase price over net tangible assets acquired will be allocated to identifiable intangible assets and goodwill pursuant to an analysis and valuation of those assets in accordance with the provisions of Accounting Principles Board Opinion No. 16. Such analysis and valuation has not yet been performed. Accordingly, for purposes of the unaudited pro forma financial information, the excess of purchase price over net tangible assets acquired has been treated as a single intangible asset, with a 20- year life. While the values and estimated lives of various intangible assets resulting from the final purchase allocation will vary from these pro forma assumptions, management does not expect these variances to be material to the unaudited pro forma financial information contained herein. The purchase price allocation does not reflect any liabilities for the costs of consolidating the business operations of the Ciba Composites Business and Hexcel. Those costs, as discussed above, are expected to be significant (see pages 51 and 52). PRO FORMA ADJUSTMENTS -- UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET (a) Adjustment to eliminate the cash and cash equivalents of the Ciba Composites Business which are retained by Ciba $ (8,412) --------------------------------------------------------------------------- (b) Adjustment to eliminate accounts receivable of the Ciba Composites Business which are retained by Ciba, as well as trade account balances between the Ciba Composites Business and Hexcel $ (5,805) --------------------------------------------------------------------------- (c) Adjustment to eliminate inventories of the Ciba Composites Business which are retained by Ciba, and to record acquired inventories at estimated fair value $ (1,545) --------------------------------------------------------------------------- (d) Adjustment to eliminate prepaid expenses and other assets of the Ciba Composites Business which are retained by Ciba $ (6,019) --------------------------------------------------------------------------- 57 (e) Adjustment to eliminate property, plant and equipment of the Ciba Composites Business which is retained by Ciba, and to record acquired property, plant and equipment at estimated fair value $ (45,487) --------------------------------------------------------------------------- (f) Adjustment to record the excess of purchase price over net assets acquired $ 44,300 --------------------------------------------------------------------------- (g) Adjustment to reflect the following: Elimination of the intangible assets of the Ciba Composites Business $ (42,211) Capitalization and reclassification of certain fees and expenses incurred in connection with the acquisition (3,200) Write-off of capitalized debt issuance costs in connection with the extinguishment of certain existing debt obligations with proceeds from the Senior Secured Credit Facility (1,658) --------------------------------------------------------------------------- Net adjustment $ (47,069) --------------------------------------------------------------------------- (h) Adjustment to eliminate notes payable of the Ciba Composites Business which are not assumed by Hexcel $ (9,052) --------------------------------------------------------------------------- (i) Adjustment to eliminate current liabilities of the Ciba Composites Business which are not assumed by Hexcel, as well as trade balances between the the Ciba Composites Business and Hexcel $ (1,208) --------------------------------------------------------------------------- (j) Adjustment to reflect the issuance of the Senior Subordinated Notes payable to Ciba $ 26,300 --------------------------------------------------------------------------- (k) Adjustment to reflect the following: Elimination of long-term liabilities of the Ciba Composites Business which are not assumed by Hexcel $ (9,502) Net borrowings under the Senior Secured Credit Facility to finance the cash payment to Ciba and certain fees and expenses incurred in connection with the acquisition 28,400 --------------------------------------------------------------------------- Net adjustment $ 18,898 --------------------------------------------------------------------------- (l) Adjustment to reflect the elimination of the minority interest in Danutec $ (6,968) --------------------------------------------------------------------------- (m) Adjustment to reflect the issuance of Hexcel common stock to Ciba, net of certain fees and expenses incurred in connection with issuing such stock $ 140,600 --------------------------------------------------------------------------- (n) Adjustment to reflect the write-off of capitalized debt issuance costs in connection with the extinguishment of certain existing debt obligations with proceeds from the Senior Secured Credit Facility $ (1,658) --------------------------------------------------------------------------- (o) Adjustment to eliminate Ciba's investment in the Ciba Composites Business $ (236,949) --------------------------------------------------------------------------- 58 PRO FORMA ADJUSTMENTS -- UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS (p) Adjustment to eliminate sales between the Ciba Composites Business and Hexcel $ (3,207) --------------------------------------------------------------------------- (q) Adjustment to reflect the following: Elimination of cost of sales between the Ciba Composites Business and Hexcel $ 2,708 Reduction in depreciation costs resulting from the purchase price adjustment to the net property, plant and equipment of the Ciba Composites Business 4,152 --------------------------------------------------------------------------- Net adjustment $ 6,860 --------------------------------------------------------------------------- (r) Adjustment to reflect the following: Reduction in amortization expense and write-downs of intangible assets resulting from the elimination of the intangible assets of the Ciba Composites Business in connection with the purchase price allocation $ 6,930 Amortization of the excess of purchase price over net assets acquired (20 year amortization period) (2,215) Amortization of capitalized fees and expenses incurred in connection with securing the Senior Secured Credit Facility (3 year amortization period) (330) --------------------------------------------------------------------------- Net adjustment $ 4,385 --------------------------------------------------------------------------- (s) Adjustment to reflect the following: Elimination of interest expense on liabilities of the Ciba Composites Business which are not assumed by Hexcel $ 1,032 Net reduction in interest expense resulting from the refinancing of certain credit facilities with the Senior Secured Credit Facility 992 Estimated interest expense on the Senior Subordinated Notes payable to Ciba (2,893) --------------------------------------------------------------------------- Net adjustment $ (869) --------------------------------------------------------------------------- (t) On February 9, 1995, Hexcel emerged from bankruptcy reorganization proceedings which had begun on December 6, 1993. In connection with those proceedings, Hexcel incurred bankruptcy reorganization expenses of $3,361 during the year ended December 31, 1995. Although the resolution of certain bankruptcy-related issues, including the final settlement of disputed claims and professional fees, resulted in expenses being incurred after February 9, 1995, Hexcel has not incurred any significant bankruptcy- related expenses since October 1, 1995. (u) Adjustment to eliminate the minority interest in the operating results of the Ciba Composites Business $ 1,506 --------------------------------------------------------------------------- (v) The income tax consequences of the cumulative pro forma adjustments are estimated to be zero. This is due to the fact that the pro forma combined company incurred losses from continuing operations before income taxes for the year ended December 31, 1995, and no income tax benefits relating to these losses have been recognized. Furthermore, the pro forma combined company has sufficient net operating loss carryforwards for income tax purposes to substantially eliminate any tax liabilities arising from pro forma adjustments. 59 NOTE 4 -- BANKRUPTCY REORGANIZATION 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 the bankruptcy reorganization proceedings which 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 Reorganization Plan which became effective on February 9, 1995 provided for: (a) the replacement of a debtor-in-possession credit facility with a new revolving credit facility (the "Revolving Credit Facility") of up to $45,000; (b) the creation of an amended reimbursement agreement with respect to the letters of credit in support of certain industrial development revenue bonds; (c) the completion of the first closing under a standby purchase commitment whereby Mutual Series Fund Inc. ("Mutual Series") purchased 1,946 shares of new common stock for $9,000 and loaned Hexcel $41,000 as an advance against the proceeds of a subscription rights offering for additional 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 Revolving Credit Facility was replaced by the Senior Secured Credit Facility on February 29, 1996 (see Note 10). The subscription rights offering concluded on March 27, 1995, with the issuance of an additional 7,156 shares of new common stock. The resulting cash proceeds of $33,098 were used to reduce the outstanding balance of the loan from Mutual Series. The second closing under the standby purchase agreement was completed on April 6, 1995, with the issuance of an additional 1,590 shares of new common stock to Mutual Series, the issuance of an additional 108 shares of new common stock to John J. Lee, Hexcel's Chief Executive Officer, and the retirement of the remaining balance of the Mutual Series loan. Following the second closing under the standby purchase agreement on April 6, 1995, the Company had a total of 18,101 shares of common stock issued and outstanding. 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. On February 9, 1995, Hexcel paid $78,144 in prepetition claims and interest, and reinstated another $60,575 in prepetition liabilities. Reinstated liabilities were reclassified from "liabilities subject to disposition in bankruptcy reorganization" to the appropriate liability captions of the consolidated balance sheet on February 9, 1995. The payment of claims and interest on February 9, 1995 was financed with: (a) cash proceeds of $26,694 received in the first quarter of 1995 from the sale of the Company's Chandler, Arizona manufacturing facility and certain related assets and technology (see Note 5); (b) cash proceeds of $2,602 received in the first quarter of 1995 from the sale of the Company's European resins business (see Note 5); (c) the $50,000 in cash received from Mutual Series in connection with the standby purchase agreement; and (d) borrowings under the Revolving Credit Facility. Professional fees and other costs directly related to bankruptcy proceedings were expensed as incurred, and have been reflected in the consolidated statements of operations as "bankruptcy reorganization expenses." Bankruptcy reorganization expenses have consisted primarily of professional fees paid to legal and financial advisors of Hexcel, the Equity Committee and the Official Committee of Unsecured Creditors. In addition, these expenses included incentives for employees to remain with the Company for the duration of bankruptcy proceedings and the write-off of previously capitalized costs 60 related to the issuance of prepetition debt, as required by SOP 90-7. The resolution of certain bankruptcy-related issues, including the final settlement of disputed claims and professional fees, resulted in expenses being incurred after the effective date of the Reorganization Plan. However, the Company has not incurred any significant bankruptcy-related expenses since October 1, 1995. NOTE 5 -- RECEIVABLES FROM ASSET SALES SALE OF CHANDLER, ARIZONA MANUFACTURING FACILITY AND CERTAIN RELATED ASSETS AND TECHNOLOGY Hexcel sold its Chandler, Arizona manufacturing facility and certain related assets and technology to Northrop Grumman Corporation ("Northrop") in the fourth quarter of 1994. In connection with the sale, 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 and $26,694 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. Under the terms of the Chandler transaction, Hexcel 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 terms of the transaction, when certain conditions are satisfied. Of this amount, $600 was received in the third quarter of 1995 and has been reflected in "other income (expense), net" in the 1995 consolidated statement of operations. An additional $1,560 was received in February 1996; the resulting income will be recognized in the first quarter of 1996. SALE OF RESINS BUSINESS On December 29, 1994, Hexcel sold its European resins operations 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. Hexcel sold its U.S. resins operations to Fiber-Resin Corporation, a wholly-owned subsidiary of H.B. Fuller Company, on October 30, 1995. The estimated net proceeds from the sale approximated the net book value of the assets sold. The sale of the Company's U.S. resins operations completed the divestiture of the resins business, which has been accounted for as a discontinued operation in the consolidated financial statements for all periods presented (see Note 23). 61 NOTE 6 -- INVENTORIES
Inventories as of December 31, 1995 and 1994 were: - ----------------------------------------------------------------------------- 1995 1994 - ----------------------------------------------------------------------------- Raw materials $ 22,257 $ 18,846 Work in progress 13,688 12,518 Finished goods 17,778 14,934 Supplies 1,752 1,066 - ----------------------------------------------------------------------------- Inventories $ 55,475 $ 47,364 - ----------------------------------------------------------------------------- - ----------------------------------------------------------------------------- NOTE 7 -- PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment as of December 31, 1995 and 1994 were: - ----------------------------------------------------------------------------- 1995 1994 - ----------------------------------------------------------------------------- Land $ 2,349 $ 2,213 Buildings 46,560 36,913 Equipment 154,671 147,202 - ----------------------------------------------------------------------------- Property, plant and equipment 203,580 186,328 Less accumulated depreciation (117,625) (103,215) - ----------------------------------------------------------------------------- Net property, plant and equipment $ 85,955 $ 83,113 - ----------------------------------------------------------------------------- - ----------------------------------------------------------------------------- NOTE 8 -- INVESTMENTS AND OTHER ASSETS Investments and other assets as of December 31, 1995 and 1994 were: - ----------------------------------------------------------------------------- 1995 1994 - ----------------------------------------------------------------------------- Investments in joint ventures $ 6,615 $ 6,287 Deferred business acquisition costs 4,150 -- Debt financing costs, net of accumulated amortization of $529 as of December 31, 1995 1,658 -- Other assets 4,169 5,705 - ----------------------------------------------------------------------------- Investments and other assets $ 16,592 $ 11,992 - ----------------------------------------------------------------------------- - -----------------------------------------------------------------------------
Investments in joint ventures consist of a 50% equity interest in Knytex Company, L.L.C. ("Knytex"), which is jointly owned and operated with Owens- Corning Fiberglas Corporation, and a 40% equity interest in Hexcel-Fyfe, L.L.C. ("Hexcel-Fyfe"), which is jointly owned and operated with Fyfe Associates Corporation. The Company also owns an equity interest in DIC-Hexcel Limited, a joint venture with Dainippon Ink and Chemicals, Inc. ("DIC"), for which there was no recorded asset value as of December 31, 1995 or 1994 (see Note 9). Investments in joint ventures are accounted for by the equity method. Equity in the earnings of joint ventures were not material to the Company's consolidated results of operations in 1995, 1994 or 1993. 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. 62 Deferred business acquisition costs consists of certain transaction-related costs incurred in connection with the acquisition of the Ciba Composites Business through December 31, 1995. Such costs will be included in the allocation of the total purchase price to the net assets acquired as of the acquisition date, in accordance with the provisions of Accounting Principles Board Opinion No. 16. Debt financing costs are deferred and amortized over the life of the related debt. All debt financing costs as of December 31, 1995 relate to debt obligations that were extinguished on February 29, 1996 with proceeds from the Senior Secured Credit Facility. Accordingly, the unamortized balance of such costs will be written off by a charge to "interest expense" during the first quarter of 1996. NOTE 9 -- 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. Under the terms of the original joint venture agreement, DIC agreed to guarantee all bank debt incurred by this venture. In turn, the Company provided an undertaking that in the event the joint 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. During 1994, the economic viability of this joint venture became questionable, and the cost of product qualification efforts and the attendant lack of revenues were resulting in negative cash flows. During the third quarter of 1994, DIC proposed to liquidate the joint venture. The Company responded with a proposal to restructure the joint venture, subject to various conditions, which DIC agreed to consider. Under either proposal, the Company would retain responsibility for a portion of the joint 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 liquidating DIC-Hexcel Limited. This provision has been included in "other income (expenses), net" in the 1994 consolidated statement of operations, and the corresponding liability has been included in "liabilities subject to disposition in bankruptcy reorganization" in the consolidated balance sheet as of December 31, 1994. On February 20, 1995, Hexcel and DIC entered into an amendment to the original joint venture agreements which provided additional funding to permit DIC-Hexcel Limited to complete its product qualification efforts and limited the Company's potential liability for the venture's bank debt guaranteed by DIC to $9,000. Under the terms of the amendment, the Company and DIC each agreed 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. It was agreed that such cash contributions by the Company would reduce pro-rata its potential liability of $9,000. The amendment also provided, after taking account to the transactions contemplated thereunder, for a reduction in the Company's equity interest in DIC-Hexcel Limited to approximately 42% with a corresponding increase in DIC's equity interest. After December 31, 1996, should demand be made under the loans made to DIC-Hexcel Limited guaranteed by DIC, the Company will be required to pay 50% of any amount DIC pays on account of its guarantees, up to a cumulative amount of $4,500. Furthermore, the Company and DIC agreed that they would discuss and review the prospects of the venture and its future financing during the second half of 1996. During this period both DIC and the Company each have the right to request the liquidation of DIC-Hexcel Limited. If such right is exercised, the Company will be required to make payment of the remaining contingent liability of up to $4,500. If such liquidation right is exercise by either party, it is not anticipated that payment would be required prior to January 1997. 63 Management believes that the $8,000 provision recorded in the third quarter of 1994 remains the best estimate of the Company's total 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 contributed $2,750 of cash to the joint venture during 1995, reducing the remaining probable liability to $5,250 as of December 31, 1995. Of this amount, $1,750 has been included in "accrued liabilities" and $3,500 has been included in "deferred liabilities" in the consolidated balance sheet as of December 31, 1995 (see Note 17). NOTE 10 -- NOTES PAYABLE Notes payable and capital lease obligations as of December 31, 1995 and 1994 were:
1995 UNAUDITED PRO FORMA (SEE NOTE 3) 1995 1994 - ----------------------------------------------------------------------------------------------------------------- Senior Secured Credit Facility $ 74,605 -- -- Revolving Credit Facility -- $ 30,091 -- European credit facilities 1,692 17,806 $ 18,128 Debtor-in-possession credit facility -- -- 4,189 Prepetition credit facility -- -- 12,000 Senior Subordinated Notes payable to Ciba-Geigy 26,300 -- -- 10.12% senior notes, originally due 1998 -- -- 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 11,990 11,990 13,310 Capital lease obligations (see Note 11) 3,217 3,217 3,234 Various notes payable, due through 2007 1,715 1,715 3,053 - ----------------------------------------------------------------------------------------------------------------- Total notes payable and capital lease obligations 145,144 90,144 109,539 Less amount subject to disposition in bankruptcy reorganization -- -- (80,815) - ----------------------------------------------------------------------------------------------------------------- Total notes payable and capital lease obligations, net $ 145,144 $ 90,144 $ 28,724 - ----------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------- Notes payable and current maturities of long-term liabilities, net $ 1,802 $ 1,802 $ 12,720 Long-term notes payable and capital lease obligations, net 143,342 88,342 16,004 - ----------------------------------------------------------------------------------------------------------------- Total notes payable and capital lease obligations, net $ 145,144 $ 90,144 $ 28,724 - ----------------------------------------------------------------------------------------------------------------- - -----------------------------------------------------------------------------------------------------------------
SENIOR SECURED CREDIT FACILITY In connection with the acquisition of the Ciba Composites Business, Hexcel obtained the Senior Secured Credit Facility on February 29, 1996. The Senior Secured Credit Facility is a three-year revolving credit facility of up to $175,000 which is available to: (a) fund the $25,000 cash component of the purchase price paid for the Ciba Composites Business; (b) refinance outstanding indebtedness under certain U.S. and European credit facilities; and (c) provide for the ongoing working capital and other financing requirements of the Company, including consolidation activities, on a worldwide basis. The Senior Secured Credit Facility replaces the Revolving Credit Facility which was obtained on February 9, 1995, in connection with Hexcel's Reorganization Plan, as well as certain European credit facilities. 64 Interest on outstanding borrowings under the Senior Secured Credit Facility is computed at an annual rate of 0.4% in excess of the applicable London interbank rate or, at the option of Hexcel, the base rate of the administrative agent for the lenders. In addition, the Senior Secured Credit Facility is subject to a commitment fee of approximately 0.2% per annum on the unused portion of the facility and a letter of credit fee of up to 0.5% per annum on the outstanding face amount of letters of credit. The Company also paid one- time arrangement, syndication and closing fees totaling $869, as well as certain other costs and expenses related to the implementation of the Senior Secured Credit Facility. The Senior Secured Credit Facility is secured by a pledge of stock of certain of Hexcel's subsidiaries, and is also guaranteed by the Company and certain of its subsidiaries. In addition, the Company is subject to various financial covenants and restrictions under the Senior Secured Credit Facility, including minimum levels of tangible net worth and fixed charge coverage, and maximum levels of debt to earnings before interest, taxes, depreciation and amortization. The Senior Secured Credit Facility also imposes certain restrictions on incurring additional indebtedness, and generally prohibits the Company from paying dividends or redeeming capital stock. In addition to providing for typical events of default, including an event of default resulting from a "change in control" (as defined) of the Company, the Senior Secured Credit Facility provides that an event of default would occur if, under certain circumstances, Ciba: (a) ceases to hold, directly or indirectly through one or more wholly-owned subsidiaries, 100% of the outstanding principal amount of the Senior Subordinated Notes, or (b) ceases to beneficially own, directly or indirectly, at least 40% of Hexcel's voting stock. In light of the foregoing, the Company and Ciba entered into a Retention Agreement, dated as of February 29, 1996, pursuant to which Ciba agreed, subject to the limitations set forth therein, to: (a) hold directly or indirectly through one or more wholly- owned subsidiaries, 100% of the outstanding principal amount of the Senior Subordinated Notes, and (b) beneficially own, directly or indirectly, at least 40% of the Company's voting stock. REVOLVING CREDIT FACILITY The Revolving Credit Facility, which replaced the Debtor-in-possession credit facility on February 9, 1995, was replaced by the Senior Secured Credit Facility on February 29, 1996. EUROPEAN CREDIT FACILITIES Certain European credit facilities were replaced by the Senior Secured Credit Facility on February 29, 1996. SENIOR SUBORDINATED NOTES PAYABLE TO CIBA-GEIGY In connection with the acquisition of the Ciba Composites Business, Hexcel has undertaken to deliver to Ciba and/or one or more of its subsidiaries the Senior Subordinated Notes. The Senior Subordinated Notes, which will be issued following the completion of certain post-closing adjustment procedures contemplated by the Strategic Alliance Agreement, will be general unsecured obligations of the Company in an aggregate principal amount of approximately $43,000, subject to certain adjustments. The actual aggregate principal amount of the Senior Subordinated Notes to be issued may be higher or lower than $43,000, because the adjustments required under the Strategic Alliance Agreement to reflect changes in working capital and certain other items as of February 29, 1996 have not yet been determined. (The pro forma aggregate principal amount of the Senior Subordinated Notes as of December 31, 1995 was $27,400, and the pro forma estimated fair value of the Senior Subordinated Notes on that date was $26,300. See Note 3.) The Senior Subordinated Notes will bear interest for three years at a rate of 7.5% per annum, payable semiannually, from February 29, 1996. The interest rate will increase to 10.5% per annum on the third anniversary of the acquisition of the Ciba Composites Business, and by an additional 0.5% per year 65 thereafter until the Senior Subordinated Notes mature in the year 2003. The payment of principal and interest on the Senior Subordinated Notes will be subordinate to the Senior Secured Credit Facility. The Senior Subordinated Notes will be callable, in whole or in part, at the option of Hexcel at any time without penalty, and the Company will not be required to make mandatory redemption or sinking fund payments. Under certain circumstances, upon a "change of control" of the Company, as defined in the indenture governing the Senior Subordinated Notes, the holders of the Senior Subordinated Notes (except, under certain circumstances, Ciba) will have the right to cause the Company to repurchase all or any part of the Senior Subordinated Notes at a price equal to 101% of the principal amount to be repurchased plus accrued interest. Under such indenture, the Company will be subject to various restrictions, including restrictions on incurring additional indebtedness, paying dividends and redeeming capital stock. 7% CONVERTIBLE SUBORDINATED DEBENTURES 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 any such redemption is restricted by the terms of the Senior Secured 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. OBLIGATIONS UNDER IDRB VARIABLE RATE DEMAND NOTES Hexcel has various industrial development revenue bonds ("IDRBs") outstanding, guaranteed by bank letters of credit for fees of 0.5%. 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 originally provided that, commencing April 1, 1995 and every three months thereafter for the duration of the agreement, the Company would either redeem $600 of the guaranteed IDRBs, obtain a $600 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 a first priority security interest. However, these provisions were eliminated by an amendment to the Reimbursement Agreement dated February 29, 1996. This amendment, which was agreed to by the issuing bank in connection with the Company's acquisition of the Ciba Composites Business, also eliminated certain financial covenants and other restrictions previously contained in the Reimbursement Agreement. The interest rates on the IDRBs are variable and averaged 6.2% in 1995, 3.9% in 1994 and 2.5% in 1993. 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, the buyer paid the Company $260 in cash and assumed responsibility for $2,340 of the outstanding principal of a $4,900 IDRB related to the property. As of December 31, 1995, the outstanding balance of the IDRB had been reduced to $4,700, of which $2,160 was an assumed obligation of the buyer. The Company is contingently liable for that portion of the IDRB assumed by the buyer, in the event the buyer should default on assumed payment obligations. INSTALLMENTS DUE ON NOTES PAYABLE Excluding obligations extinguished with proceeds from the Senior Secured Credit Facility, installments due on long-term notes payable are $1,489 in 1996, $267 in 1997 and $38,966 in years after 66 the year 2000. The Senior Secured Credit Facility, which was used to refinance long-term debt obligations totaling $46,205 as of December 31, 1995, expires in 1999. AGGREGATE FAIR VALUE OF LONG-TERM DEBT Management believes that the aggregate fair value of Hexcel'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 $21,781 and $15,888 as of December 31, 1995 and 1994, respectively. INTEREST PAYMENTS Interest payments were $8,345 in 1995, $3,909 in 1994 and $8,802 in 1993. Hexcel was legally prohibited from paying interest on most prepetition debt obligations in 1994. NOTE 11 -- LEASING ARRANGEMENTS Assets, accumulated depreciation and related liability balances under capital leasing arrangements as of December 31, 1995 and 1994 were:
- -------------------------------------------------------------------------------- 1995 1994 - -------------------------------------------------------------------------------- Property, plant and equipment $ 7,205 $ 6,734 Less accumulated depreciation (2,611) (2,246) - -------------------------------------------------------------------------------- Net property, plant and equipment $ 4,594 $ 4,488 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Capital lease obligations $ 3,217 $ 3,234 Less current maturities (313) (410) - -------------------------------------------------------------------------------- Long-term capital lease obligations, net $ 2,904 $ 2,824 - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
Certain sales and administrative offices, data processing equipment, and manufacturing facilities are leased under operating leases. Rental expenses under operating leases were $2,871 in 1995, $3,675 in 1994 and $3,530 in 1993. Future minimum lease payments as of December 31, 1995 were:
- -------------------------------------------------------------------------------- Type of Lease --------------------------- Payable during years ending December 31: Capital Operating - -------------------------------------------------------------------------------- 1996 $ 675 $ 2,520 1997 675 1,975 1998 675 1,327 1999 675 1,078 2000 582 737 2001 and thereafter 2,267 2,147 - -------------------------------------------------------------------------------- Total minimum lease payments $ 5,549 $ 9,784 - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
Total minimum capital lease payments include $2,332 of imputed interest. 67 NOTE 12 -- ACCRUED RESTRUCTURING LIABILITIES In December 1992, Hexcel 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, Hexcel announced the closing of the Graham, Texas manufacturing 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, Hexcel announced plans to significantly expand the restructuring program in response to the expected further decline in commercial and military aerospace markets. 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, Hexcel sold the Chandler, Arizona manufacturing facility and certain related assets and technology (see Note 5). Together with the closure of the Graham facility, this completed the reduction in honeycomb production capacity contemplated by the expanded restructuring program. The Company transferred certain assets and production processes located at the Chandler facility, which were not included in the sale, to the Company's facility in Casa Grande, Arizona. The estimated costs associated with this transfer 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, 1995 and 1994 were:
- ------------------------------------------------------------------------------------------------------------------------------ Accrued Accrued 1992 & 1993 Restructuring Restructuring Restructuring Liabilities at Liabilities at Expenses 12/31/95 12/31/94 - ------------------------------------------------------------------------------------------------------------------------------ Estimated costs to close and relocate facilities: Asset write-downs $ 19,500 $ 500 $ 2,230 Cash costs, net of expected sales proceeds 11,000 1,190 2,835 Estimated employee severance costs (excluding severance related to the closure of facilities) 15,900 260 1,100 Asset write-downs due to changed business conditions 14,700 -- -- Estimated cash costs of various other restructuring actions 8,500 937 5,000 - ------------------------------------------------------------------------------------------------------------------------------ $ 69,600 $ 2,887 $ 11,165 - ------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------
The decrease in accrued restructuring liabilities during 1995 is primarily attributable to the consolidation of honeycomb manufacturing operations in connection with the disposal of the Chandler facility, as well as severance payments and implementation of a new management information system. The consolidation of honeycomb operations reflected in the 1992 and 1993 restructuring charges is substantially complete, while implementation of the information system will continue through 1996. 68 NOTE 13 -- LIABILITIES SUBJECT TO DISPOSITION IN BANKRUPTCY REORGANIZATION Liabilities subject to disposition in bankruptcy reorganization as of December 31, 1994 were:
- -------------------------------------------------------------------------------- 1994 - -------------------------------------------------------------------------------- Accounts payable $ 23,271 Accrued liabilities, including interest 33,691 Notes payable and capital lease obligations (see Note 10) 80,815 - -------------------------------------------------------------------------------- Total liabilities subject to disposition in bankruptcy reorganization $ 137,777 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Current liabilities subject to disposition in bankruptcy reorganization $ 97,025 Long-term liabilities subject to disposition in bankruptcy reorganization 40,752 - -------------------------------------------------------------------------------- Total liabilities subject to disposition in bankruptcy reorganization $ 137,777 - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
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. NOTE 14 -- RETIREMENT PLANS The Company has various retirement and profit sharing plans covering substantially all U.S. employees and certain European employees. The net cost of these plans was $2,768 in 1995, $2,443 in 1994 and $2,330 in 1993. In the United States, the Company maintains a defined contribution plan and a defined benefit pension plan. The defined contribution plan is available to substantially all U.S. employees, and is comprised of a 401(k) savings plan and a profit sharing plan. Under the 401(k) savings plan, the Company makes matching contributions equal to 50% of the contributions of the employees, not to exceed 3% of employee compensation. The defined benefit pension plan is a career average pension plan covering substantially all U.S. hourly employees. Effective January 1, 1996, participation in the defined benefit pension plan was extended to U.S. salaried employees as well. Benefits are based on years of service and the annual compensation of the employee, and the Company's funding policy is to contribute the minimum amount required by applicable regulations. The Company also maintains a defined benefit pension plan for employees in the United Kingdom, and defined benefit retirement plans for certain senior executives and directors. The Company's European subsidiaries, except for those in the United Kingdom, participate in government retirement plans which cover all employees of those subsidiaries. 69 Contributions to the 401(k) savings plan were $1,290 for 1995, $1,039 for 1994 and $1,130 for 1993. There were no contributions to the profit sharing plan for 1995, 1994 or 1993. The net cost of the Company's defined benefit pension and retirement plans for the years ended December 31, 1995, 1994 and 1993 consisted of:
- -------------------------------------------------------------------------------- 1995 1994 1993 - -------------------------------------------------------------------------------- Service cost - benefits earned during the year $ 661 $ 753 $ 749 Interest cost on projected benefit obligation 660 706 713 Return on assets - actual (1,103) 33 (1,385) Net amortization and deferral 1,260 (88) 1,123 - -------------------------------------------------------------------------------- Net periodic pension cost $ 1,478 $1,404 $ 1,200 - --------------------------------------------------------------------------------
Assumptions used in the accounting for these defined benefit and retirement plans were:
- -------------------------------------------------------------------------------- 1995 1994 1993 - -------------------------------------------------------------------------------- Discount rate 7.0% 8.0% 7.0% Rate of increase in compensation 4.0% 4.0% 4.0% Expected long-term rate of return on plan assets 9.5% 9.5% 9.5% - --------------------------------------------------------------------------------
The funded status and amounts recognized for the defined benefit pension and retirement plans as of December 31, 1995 and 1994 were:
- -------------------------------------------------------------------------------- 1995 1994 - -------------------------------------------------------------------------------- Actuarial present value of benefit obligation: Vested benefit obligation $ 8,047 $ 6,688 Non-vested benefit obligation 1,281 1,022 - -------------------------------------------------------------------------------- Accumulated benefit obligation $ 9,328 $ 7,710 - -------------------------------------------------------------------------------- Projected benefit obligation for service rendered to date $10,985 $ 8,658 Less plan assets at fair value, primarily listed stocks and insurance contracts (5,117) (3,128) - -------------------------------------------------------------------------------- Projected benefit obligation in excess of plan assets 5,868 5,530 Unrecognized net loss (2,176) (814) Unrecognized prior service costs (240) (285) Unrecognized net transition obligation being recognized over 15 years (255) (298) Adjustment required to recognize minimum pension liability 1,014 449 - -------------------------------------------------------------------------------- Defined benefit pension and retirement liability 4,211 4,582 Less current portion of pension and retirement liability (1,780) (1,762) - -------------------------------------------------------------------------------- Deferred pension and retirement liability (see Note 17) $ 2,431 $ 2,820 - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
NOTE 15 -- POSTRETIREMENT HEALTH CARE AND LIFE INSURANCE BENEFITS The Company provides certain postretirement health care and life insurance benefits to eligible retirees. Substantially all U.S. employees hired on or before December 31, 1995 who retire on or after age 58 after rendering at least 15 years of service are eligible for benefits. Benefits consist of coverage of up to 50% of the annual cost of certain health insurance plans, as well as annual life insurance coverage 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. 70 The Company funds postretirement health care and life insurance benefit costs on a pay-as-you-go basis and, for 1995, 1994 and 1993, made benefit payments of $583, $423 and $576, respectively. Net defined postretirement benefit costs for the years ended December 31, 1995, 1994 and 1993 were:
- -------------------------------------------------------------------------------- 1995 1994 1993 - -------------------------------------------------------------------------------- Service cost - benefits earned during the year $ 279 $ 389 $ 400 Interest cost on accumulated postretirement benefit obligation 780 915 1,100 Net amortization and deferral (201) -- -- - -------------------------------------------------------------------------------- Net periodic postretirement benefit cost $ 858 $1,304 $1,500 - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
Defined postretirement benefit liabilities as of December 31, 1995 and 1994 were:
- -------------------------------------------------------------------------------- 1995 1994 - -------------------------------------------------------------------------------- Accumulated postretirement benefit obligation: Retirees $ 6,766 $ 7,661 Fully eligible active plan participants 1,264 985 Other active plan participants 3,726 3,211 - -------------------------------------------------------------------------------- 11,756 11,857 Unrecognized net gain 2,778 2,402 - -------------------------------------------------------------------------------- Defined postretirement benefit liability 14,534 14,259 Less current portion of postretirement benefit liability (583) (651) - -------------------------------------------------------------------------------- Deferred postretirement benefit liability (see Note 17) $13,951 $13,608 - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
Two health care cost trend rates were used in measuring the accumulated postretirement benefit obligation. The assumed indemnity health care cost trend in 1996 was 11.0% for participants less than 65 years of age and 7.0% 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 1996 was 8.0% for participants less than 65 years of age and 5.0% for participants 65 years of age and older, gradually declining to 6.0% and 5.0%, respectively, in the year 1998. The weighted average discount rate used in determining the accumulated postretirement benefit obligation was 7.0% in 1995 and 8.0% in 1994. The rate of increase in compensation used in determining the obligation was 4.0% in both 1995 and 1994. If the health care cost trend rate assumptions were increased by 1.0%, the accumulated postretirement benefit obligation as of December 31, 1995 would be increased by 3.6%. The effect of this change on the sum of the service cost and interest cost would be an increase of 3.0%. Effective January 1, 1996, Hexcel amended its postretirement benefit program to eliminate any benefits for employees hired after December 31, 1995 (other than certain former employees of the Ciba Composites Business hired on February 29, 1996), and to limit health care benefit coverage to selected health insurance plans for the majority of active employees hired on or before December 31, 1995. These amendments are expected to reduce the Company's accumulated postretirement benefit obligation by approximately $1,600, which will be recognized as a reduction in future benefit expense on a straight line basis over 14 years. 71 NOTE 16 -- INCOME TAXES NET OPERATING LOSS CARRYFORWARDS As of December 31, 1995, the Company had net operating loss ("NOL") carryforwards for U.S. federal income tax purposes of approximately $65,000 and net operating loss carryforwards for international income tax purposes of approximately $5,000. The U.S. NOL carryforwards, which are available to offset future taxable income, expire at various dates through the year 2010. As a result of the ownership change which occurred in connection with the Reorganization Plan (see Note 4), a limitation on the utilization of NOL carryforwards in the U.S. was created. This utilization limitation, which applies to loss carryforwards generated prior to February 9, 1995, is estimated to be approximately $5,000 per year. As a result of the acquisition of the Ciba Composites Business (see Notes 2 and 3), a second successive limitation on the utilization of NOL carryforwards in the U.S. has been created. This utilization limitation, which applies to loss carryforwards generated between February 9, 1995 and February 29, 1996, is estimated to be approximately $12,000 per year. Under U.S. federal tax law, NOL carryforwards are utilized in the order of successive limitations. Consequently, the NOL carryforwards subject to the first annual limitation may be utilized to reduce future taxable income of up to $5,000 per year, and the NOL carryforwards subject to the second annual limitation may then be utilized to reduce future taxable income of up to $12,000 per year. The aggregate utilization of NOL carryforwards subject to both limitations may not exceed $12,000 annually. 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 Hexcel's deferred income tax assets. As a result, the Company increased the valuation allowance against its deferred income tax assets, reducing the recorded value of those assets to zero. The increase to the valuation allowance reflected the Company's assessment that the bankruptcy reorganization proceedings of Hexcel and substantial operating losses had jeopardized the realization of deferred income tax assets. In 1994 and 1995, Hexcel continued to reserve for the income tax assets generated by the pre-tax losses of certain subsidiaries. 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. As a result of state income taxes and taxable income for certain European subsidiaries, the Company recorded a provision for income taxes of $3,313 in 1995. 72 Income (loss) before income taxes and the tax provision for income taxes from continuing operations for the years ended December 31, 1995, 1994 and 1993 were:
- -------------------------------------------------------------------------------- 1995 1994 1993 - -------------------------------------------------------------------------------- Income (loss) before income taxes: United States $(1,027) $(24,745) $(58,554) International 7,541 251 (15,294) - -------------------------------------------------------------------------------- Total income (loss) before income taxes $ 6,514 $(24,494) $(73,848) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Benefit (provision) for income taxes: Current: U.S. $ (197) $ (85) $ (243) International (3,445) 108 (976) - -------------------------------------------------------------------------------- Current benefit (provision) for income taxes (3,642) 23 (1,219) - -------------------------------------------------------------------------------- Deferred: U.S. -- (2,226) (6,590) International 329 (1,383) 1,785 - -------------------------------------------------------------------------------- Deferred benefit (provision) for income taxes 329 (3,609) (4,805) - -------------------------------------------------------------------------------- Total provision for income taxes $ (3,313) $ (3,586) $ (6,024) - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
A reconciliation of the tax provision to the U.S. federal statutory income tax rate of 34% for the years ended December 31, 1995, 1994 and 1993 was:
- -------------------------------------------------------------------------------- 1995 1994 1993 - -------------------------------------------------------------------------------- Benefit (provision) at U.S. federal statutory rate $(2,215) $ 8,328 $25,108 U.S. state taxes, less federal tax benefit 254 (244) (104) Impact of different international tax rates, adjustments to income tax accruals and other (492) (3,837) 5,471 Valuation allowance (860) (7,833) (36,499) - -------------------------------------------------------------------------------- Total provision for income taxes $(3,313) $(3,586) $(6,024) - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
The Company paid income taxes of $3,864 in 1995, $253 in 1994 and $203 in 1993. The Company has made no U.S. income tax provision for approximately $27,000 of undistributed earnings of international subsidiaries as of December 31, 1995. Such earnings are considered to be permanently reinvested. The additional U.S. income tax on these earnings, if repatriated, would be offset in part by foreign tax credits. DEFERRED INCOME TAXES Deferred income taxes result from temporary differences between the recognition of items for income tax purposes and financial reporting purposes. Principal temporary differences as of December 31, 1995 and 1994 were:
- -------------------------------------------------------------------------------- 1995 1994 - -------------------------------------------------------------------------------- Accelerated depreciation and amortization $ 10,473 $ 15,443 Accrued restructuring charges (655) (14,382) Net operating loss carryforwards (27,562) (10,880) Reserves and other, net (30,309) (37,045) Valuation allowance 50,006 49,146 - -------------------------------------------------------------------------------- Deferred tax liability (see Note 17) $ 1,953 $ 2,282 - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
73 NOTE 17 -- DEFERRED LIABILITIES Deferred liabilities as of December 31, 1995 and 1994 were:
- -------------------------------------------------------------------------------- 1995 1994 - -------------------------------------------------------------------------------- Deferred DIC-Hexcel liability (see Note 9) $ 3,500 -- Deferred pension and retirement liability (see Note 14) 2,431 $ 2,820 Deferred postretirement benefit liability (see Note 15) 13,951 13,608 Deferred tax liability (see Note 16) 1,953 2,282 Other 5,566 2,569 - -------------------------------------------------------------------------------- Deferred liabilities $27,401 $21,279 - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
NOTE 18 -- SHAREHOLDERS' EQUITY AND INCENTIVE STOCK PLAN SHAREHOLDERS' EQUITY On February 21, 1996, Hexcel's shareholders approved an amendment to the Company's Certificate of Incorporation increasing the number of authorized shares of Hexcel common stock from 40,000 to 100,000. On February 29, 1996, the Company issued 18,022 shares of Hexcel common stock to Ciba in connection with the acquisition of the Ciba Composites Business. As a result, Ciba owned 49.9% of the total number of shares of Hexcel common stock issued and outstanding as of that date. There are 1,500 shares of Hexcel preferred stock authorized for issuance, but no such shares have been issued. Hexcel did not declare or pay any dividends in 1995, 1994 or 1993. The Board of Directors suspended dividend payments beginning in 1993, and such payments are generally prohibited by the Senior Secured Credit Facility. INCENTIVE STOCK PLAN On February 21, 1996, Hexcel's shareholders approved the Incentive Stock Plan. The Incentive Stock Plan authorizes an aggregate of 3,000 shares of Hexcel common stock for use by the Company in providing a variety of stock-based awards to eligible employees, officers, directors and consultants. The Incentive Stock Plan provides for grants of stock options, stock appreciation rights, restricted shares, and other stock-based awards. 74 Stock option data for the two years ended December 31, 1995 were:
- --------------------------------------------------------------------------------------------------------------------- NUMBER OPTION PRICE EXPIRATION OF SHARES PER SHARE DATES - --------------------------------------------------------------------------------------------------------------------- Options outstanding at January 1, 1994 534 $ 7.56 - 32.06 1998 - 2003 Options granted -- -- -- Options exercised -- -- -- Options expired or canceled (66) $ 10.44 - 32.06 1998 - 2003 - --------------------------------------------------------------------------------------------------------------------- Options outstanding at December 31, 1994 468 $ 7.56 - 32.06 1998 - 2003 Options granted 787 $ 4.75 - 6.38 2000 - 2005 Options exercised (1) $ 7.56 2000 Options expired or canceled (240) $ 6.38 - 32.06 1998 - 2003 - --------------------------------------------------------------------------------------------------------------------- Options outstanding at December 31, 1995 1,014 $ 4.75 - 32.06 1998 - 2005 - --------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------- Options exercisable at December 31, 1995 251 $ 9.13 - 32.06 1998 - 2003 - --------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------
The options granted during 1995 become exercisable in increments in 1996 and 1997. An additional 1,115 options primarily at exercise prices of $12.50 per share were granted on February 29 and March 1, 1996. Included in this total are 228 short-term options which expire 90 days after the grant date. The holders of the short-term options are entitled to receive two additional "reload" options for each short-term option exercised. Consequently, as many as 456 additional options could be granted during the 90 day period beginning March 1, 1996, in connection with the exercise of short-term options. Except for the short-term options, the options granted on February 29 and March 1, 1996 become exercisable in increments through 1999, and expire between 2001 and 2006. As of December 31, 1995 and 1994, the Company had outstanding a total of 10 and 24 shares of restricted stock, respectively, which vest in increments through 1997. The holders of these shares are entitled to vote. An additional 269 shares of performance accelerated restricted stock ("PARS") were granted in March 1996. The PARS vest in increments through 2003, subject to accelerated vesting under certain circumstances. NOTE 19 -- CONTINGENCIES Hexcel is involved in litigation, investigations and claims arising out of the conduct of its business, including those relating to government contracts, commercial transactions, and environmental, health and safety matters. The Company estimates its liabilities resulting from such matters based on a variety of factors, including outstanding legal claims and proposed settlements, assessments by internal and external counsel of pending or threatened litigation, and assessments by environmental engineers and consultants of potential environmental liabilities and remediation costs. Such estimates 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, environmental and related matters with any degree of certainty, it is management's opinion, based on available information, that it is unlikely that these matters, individually or in the aggregate, will have a material adverse effect on the consolidated financial position or results of operations of the Company. U.S. GOVERNMENT CLAIMS Hexcel, 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 ("DCAA") reviews cost accounting and business practices of government 75 contractors and subcontractors including the Company. The Company has been engaged in discussions on a number of cost accounting issues which could result in claims by the government. Some of these issues have already been resolved. As part of these reviews, the DCAA has alleged that Hexcel improperly included certain land lease costs in its indirect rates at the Chandler, Arizona facility (the "Chandler Land Lease") and that, as a result, the Company's subcontracts had been overpriced in an amount of approximately $1,000. The Company has formally responded to the DCAA that it strongly disagrees with these allegations. In February 1996, the Company received a letter from the United States Attorney's Office, stating that it was considering filing an action against the Company for violation of the civil False Claims Act ("FCA") based upon the inclusion in the indirect rates of the Chandler Land Lease costs. While the Company does not agree that there was any violation of the FCA, if the U.S. government elects to pursue such an action and were it to prevail, it would be entitled to three times the actual damages claimed plus penalties of between $5 and $10 for each false claim; the number of alleged false claims could be significant. LEGAL CLAIMS AND PROCEEDINGS 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 may be uninsured. The first trial of the cases of 15 pilot plaintiffs resulted in a mistrial and a retrial resulted in the entry of judgment in favor of the plaintiffs. The Company did not participate in the trial 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. 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 the Company for the costs of replacing all of the flexures purchased ($900) (Thiokol Corporation v. Ormond, Hexcel, et al.). The automatic stay in bankruptcy was lifted in April 1995 and the case was resumed in the state court in Utah. Discovery is ongoing. There is no insurance coverage available for an adverse court ruling or negotiated settlement. In November 1995, Hexcel was notified that Livermore Development Corporation ("LDC") was asserting a claim for damages arising from Hexcel's recent notification of its intent to exercise its option to purchase certain land in Livermore, California. LDC contends that the lease was a disguised partnership or joint venture agreement between Hexcel and LDC to develop the property for residential use. Hexcel disputes any such agreement and seeks to enforce its option to purchase under a written agreement. The parties are in ongoing negotiations to resolve this claim. As the result of the acquisition of the Ciba Composites Business in February 1996, Hexcel assumed certain liabilities including certain legal proceedings. ENVIRONMENTAL CLAIMS AND PROCEEDINGS Hexcel has been named as a potentially responsible party ("PRP") with respect to several hazardous waste disposal sites that it does not own or possess which are included on the Environmental Protection Agency's Superfund National Priority List and/or various state equivalent lists. With respect to its exposure relating to these sites, the Company believes its responsibility to be de minimis. 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 applicable laws and have 76 been categorized into claims involving 19 sites. Claims involving 8 of the sites have been settled within the Chapter 11 case. The Company has been named a PRP with respect to 6 sites for which no claims were filed in the Chapter 11 case; as a result, the Company believes any further claims to be barred. The balance of the sites and their related claims have been passed through the bankruptcy. The Company's estimation of its exposure at these sites is de minimis. 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 approximately $2,800 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. In September 1995, Ciba was named as a potentially responsible party with respect to the removal of drums from a disposal site that it did not own or possess, known as the Omega Chemical Corporation ("Omega Site"). The Omega Site is a spent solvent recycling and treatment facility in Whittier, California. Ciba has previously notified the EPA that it intends to comply with the EPA's removal requirements and has paid its interim share of such removal costs to date. This responsibility was assumed by the Company as a result of its acquisition of the Ciba Composites Business, to the extent the Ciba waste delivered to the Omega site was from the operations of the Ciba Composites Business. This matter is under evaluation but is presently believed to be de minimis. PRODUCT CLAIMS In 1993, Hexcel became aware of an aluminum honeycomb sandwich panel delamination problem with panels produced by its wholly-owned Belgium 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. The Company and its insurer continue to investigate these claims. The Company is also working with the customers to repair or replace panels when necessary, with certain costs to be allocated upon determination of responsibility for the delamination. While no lawsuit has been filed, two customers in France requested that a court appoint experts to investigate the claims; to date, the experts have not reported any conclusions. The Company's primary insurer for this matter has agreed to fund legal representation and to provide coverage of the claim to the extent of the policy limit for one year. The Company is investigating additional insurance coverage. Even if additional insurance coverage is not available, management believes that, based on available information, it is unlikely that these claims will have a material adverse effect on the consolidated financial position or results of operations of the Company. NOTE 20 -- RAW MATERIALS; SIGNIFICANT CUSTOMERS; MARKETS Hexcel purchases most of the raw materials used in production. Several key materials are available from relatively few sources, and in many cases the cost of product qualification makes it impractical to develop multiple sources of supply. The unavailability of these materials, which the Company does not anticipate, could have a material adverse effect on sales and earnings. 77 The Boeing Company and Boeing subcontractors accounted for approximately 21% of 1995 sales, 22% of 1994 sales and 21% of 1993 sales. The loss of all or a significant portion of this business, which Hexcel does not anticipate, could have a material adverse effect on sales and earnings. Net sales by market for the years ended December 31, 1995, 1994 and 1993 were: - -------------------------------------------------------------------------------- 1995 1994 1993 - -------------------------------------------------------------------------------- Commercial aerospace 45% 47% 42% Space and defense 11% 11% 18% Recreation, general industrial and other 44% 42% 40% - -------------------------------------------------------------------------------- Net sales 100% 100% 100% - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- NOTE 21 -- BUSINESS SEGMENT DATA The Company operates within a single business segment: composite materials, parts and structures. The following table summarizes certain financial data for continuing operations by geographic area as of December 31, 1995, 1994, and 1993 and for the years then ended:
- -------------------------------------------------------------------------------- 1995 1994 1993 - -------------------------------------------------------------------------------- Net sales: United States $ 179,573 $ 171,536 $ 185,261 International 170,665 142,259 125,374 - -------------------------------------------------------------------------------- Consolidated $ 350,238 $ 313,795 $ 310,635 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Income (loss) before income taxes: United States $ 2,912 $ (21,462) $ (55,660) International 3,602 (3,032) (18,188) - -------------------------------------------------------------------------------- Consolidated $ 6,514 $ (24,494) $ (73,848) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Identifiable assets: United States $ 134,972 $ 149,890 $166,201 International 95,630 90,567 84,954 - -------------------------------------------------------------------------------- Consolidated $ 230,602 $ 240,457 $ 251,155 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Capital expenditures: United States $ 7,729 $ 6,022 $ 4,694 International 4,415 2,340 1,570 - -------------------------------------------------------------------------------- Consolidated $ 12,144 $ 8,362 $ 6,264 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Depreciation and amortization: United States $ 6,528 $ 8,455 $ 9,607 International 5,095 5,775 5,273 - -------------------------------------------------------------------------------- Consolidated $ 11,623 $ 14,230 $ 14,880 - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
International net sales consist of the net sales of international subsidiaries, sold primarily in Europe, and U.S. exports. U.S. exports were $18,902 in 1995, $14,008 in 1994 and $11,889 in 1993. To compute income (loss) before income taxes, the Company allocated administrative expenses to International of $3,939 in 1995, $3,283 in 1994 and $2,894 in 1993. 78 NOTE 22 -- OTHER INCOME AND EXPENSES, NET The Company recognized $791 of other income in 1995, including $600 of income relating to the sale of the Chandler facility and related assets and technology (see Note 5). The Company recognized $4,861 of other income in 1994, including $15,900 of income relating to the Chandler transaction (see Note 5), partially offset by an $8,000 provision for the estimated cost of restructuring or liquidating DIC- Hexcel Limited (see Note 9) and a $2,900 provision for bankruptcy claim adjustments. The provision for bankruptcy claim adjustments resulted from the reconciliation and settlement of certain claims as well as changes in the estimate of assumed liabilities. The Company incurred $12,780 of other expenses in 1993, primarily as a result of write-downs of certain assets and increases in reserves for warranties and environmental matters on property previously owned. The impairment of assets was attributable to bankruptcy reorganization proceedings, changes in business conditions, and depressed real estate prices on property held for sale. NOTE 23 -- DISCONTINUED OPERATIONS The divestiture of Hexcel's discontinued resins business was completed on October 30, 1995 (see Note 5). The Company recorded a $2,800 provision in 1994 to write down the net assets of the resins business to expected realizable value, following a $6,000 charge in 1993. The divestiture of Hexcel's discontinued fine chemicals business was completed in 1994. The Company recorded a $2,800 provision in 1993 to write down the net assets of the fine chemicals business to expected realizable value. Net sales of discontinued operations for the years ended December 31, 1995, 1994 and 1993 were:
- -------------------------------------------------------------------------------- 1995 1994 1993 - -------------------------------------------------------------------------------- Resins business $ 6,944 $ 30,691 $ 27,933 Fine chemicals business -- -- 5,704 - -------------------------------------------------------------------------------- Total discontinued operations $ 6,944 $ 30,691 $ 33,637 - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
Net assets of the discontinued resins business as of December 31, 1994 were:
- -------------------------------------------------------------------------------- 1994 - -------------------------------------------------------------------------------- Current assets $ 3,970 Current liabilities (4,591) Non-current assets 3,621 - -------------------------------------------------------------------------------- Net assets $ 3,000 - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
79 NOTE 24 -- QUARTERLY FINANCIAL DATA (UNAUDITED) Quarterly financial data for the years ended December 31, 1995 and 1994 were:
- -------------------------------------------------------------------------------- FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER - -------------------------------------------------------------------------------- 1995 Net sales $ 85,155 $ 91,023 $ 81,366 $ 92,694 Gross margin 14,795 18,055 15,888 18,352 Income (loss) from continuing operations (2,369) 1,950 1,561 2,059 Loss from discontinued operations (112) (185) (171) -- Net income (loss) (2,481) 1,765 1,390 2,059 - -------------------------------------------------------------------------------- Net income (loss) per share and equivalent share: Primary and fully diluted: Continuing operations $ (0.27) $ 0.11 $ 0.09 $ 0.11 Discontinued operations (0.01) (0.01) (0.01) -- Net income (loss) (0.28) 0.10 0.08 0.11 - -------------------------------------------------------------------------------- Dividends per share -- -- -- -- Market price: High $ 6.63 $ 7.25 $ 12.25 $ 11.25 Low 4.25 4.50 7.25 8.25 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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 - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
During the third quarter of 1995, the Company recognized other income of $600 relating to the sale of the Chandler facility and related assets and technology (see Notes 5 and 22). During the third quarter of 1994, the Company recorded an $8,000 provision for the estimated cost of restructuring or liquidating DIC-Hexcel Limited (see Note 9), and a $2,800 provision to write down the net assets of the discontinued resins business to expected net realizable value (see Note 23). During the fourth quarter of 1994, the Company recognized other income of $15,900 relating to the Chandler transaction (see Notes 5 and 22). In addition, the Company recorded a total of approximately 80 $10,800 in expenses for bankruptcy claim adjustments, additional interest on allowed claims, and the settlement of various tax audits. 81 EX-3.2(A) 2 EXH 3.2(A) Exhibit 3.2(a) AMENDMENT TO THE BYLAWS OF HEXCEL CORPORATION February 29, 1996 RESOLVED, that the second sentence of Section 13(b) of the Bylaws of the Company be, and it hereby is, amended and restated to read as follows: "Pursuant thereto it is hereby specified that this Corporation shall have ten (10) directors." EX-10.3(A) 3 EXH 10.3(A) Exhibit 10.3(a) SECOND RESTATED AND AMENDED REIMBURSEMENT AGREEMENT This SECOND RESTATED AND AMENDED REIMBURSEMENT AGREEMENT (this "Agreement") dated as of February 29, 1996, is made by and between HEXCEL CORPORATION, a Delaware corporation (the "Company"), and BANQUE NATIONALE DE PARIS, a banking corporation organized and existing under the laws of The Republic of France, acting through its San Francisco Branch (the "Bank"). RECITALS WHEREAS, the Bank has issued those certain Irrevocable Standby Letters of Credit listed on Exhibit B to this Agreement (the "Bond Letters of Credit") pursuant to that certain Restated and Amended Reimbursement Agreement, dated as of February 1, 1995, between the Bank and the Company (the "Prior Reimbursement Agreement"); WHEREAS, the Company, Hexcel S.A. (Belgium), Hexcel S.A. (Lyon), Brochier S.A., Hexcel U.K. Ltd. and Composite Materials Limited United Kingdom, as "Borrowers", the institutions from time to time party thereto as "Lenders" including the Bank, the institutions from time to time party thereto as "Issuing Banks" including the Bank, Citibank, N.A., New York Branch, as "U.S. Administrative Agent", Citibank, N.A., London Branch, as "European Administrative Agent" and Credit Suisse as "Syndication Agent" have entered into that certain Credit Agreement, dated as of February 29, 1996 (as amended from time to time, the "Credit Agreement"), which provides, inter alia, for issuance by "Issuing Banks" of letters of credit pursuant to the terms of the Credit Agreement; WHEREAS, the parties to the Credit Agreement, including the Bank and the Company, agree that the Bond Letters of Credit shall be deemed issued under and in accordance with Section 2.04 of the Credit Agreement; and WHEREAS, the Bank and the Company wish to modify the Prior Reimbursement Agreement and the obligations of Hexcel thereunder to be consistent with the terms of the Credit Agreement, except as otherwise expressly provided in this Agreement; 1 NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: Section 1. CERTAIN DEFINED TERMS. As used in this Agreement, including the preceding recitals, terms defined in Exhibit A hereto shall have the meanings assigned to such terms in such exhibit. Capitalized terms used in this Agreement and not defined herein, shall have the meanings assigned to such terms in the Credit Agreement. SECTION 2. CREDIT AGREEMENT. Subject to satisfaction of the conditions precedent to the effectiveness of this Agreement, the Bond Letters of Credit shall be deemed issued and outstanding pursuant to the Credit Agreement and the Bank shall be entitled to the rights and benefits of an Issuing Bank under the Credit Agreement. In case of any conflict or discrepancy between the terms and provisions of any Bond Letter of Credit, on the one hand, and terms and provisions of this Agreement or the Credit Agreement, on the other hand, the terms of the Bond Letter of Credit shall determine the actual meaning of such Letter of Credit, this Agreement and the Credit Agreement. Section 3. AMOUNTS AND TERMS OF BOND LETTERS OF CREDIT. The Stated Amount, Principal Component and Interest Component of each Bond Letter of Credit as of the Effective Date is as set forth in Exhibit B. The Stated Amount, Principal Component and Interest Component of each Bond Letter of Credit shall be reduced and reinstated pursuant to and in accordance with the provisions of such Bond Letter of Credit. Drawings will be permitted to the extent and as provided in each Bond Letter of Credit. No Drawing under any Bond Letter of Credit shall be permitted for the payment of principal (whether due at maturity or upon redemption or acceleration), interest or the purchase price of Pledged Bonds unless such Pledged Bonds have been remarketed and the Stated Amount of such Bond Letter of Credit has been consequently reinstated as provided in such Bond Letter of Credit. The Bond Letters of Credit shall expire on December 31, 1998. The Bank agrees that all Drawings honored by the Bank shall be paid from Bank funds. Section 4. FEES. Fees in connection with the Bond Letters of Credit shall be paid in accordance with the provisions of the Credit Agreement and, with respect to matters referred to in Section 2.04(g) of the Credit Agreement, as agreed from time to time by the Bank and the Company. 2 Pursuant to Section 2.3.1 of the Prior Reimbursement Agreement, the Company has prepaid the LOC Commission through March 31, 1996. The Bank will apply a portion of such prepaid fee in an amount equal to the Letter of Credit Fee described in Section 4.03(a) of the Credit Agreement applicable to the Bond Letters of Credit for the period from the Effective Date to and including March 31, 1996, to the payment of such fee to the Administrative Agent for the benefit of the Lenders, including the Bank. The Bank will retain all other prepaid fees. Section 5. CONDITION TO OPTIONAL REDEMPTION DRAWINGS. The Bank shall not be required to make any payment to an LOC Beneficiary in connection with an Optional Redemption Drawing unless the Company shall have notified the Bank of the intended optional redemption at least 30 days in advance of the date on which the Company wishes to cause the Optional Redemption Drawing to occur. SECTION 6. REIMBURSEMENT FOR DEBT SERVICE DRAWINGS. Anything to the contrary in Section 2.04(d)(i) of the Credit Agreement notwithstanding, each Debt Service Drawing paid by the Bank shall constitute a Debt Service Reimbursement Obligation which obligation shall be due and payable by the Company in the amount of each such Debt Service Drawing on the date on which such Debt Service Drawing is paid by the Bank to the LOC Beneficiary and shall bear interest from the date such obligation becomes due until paid in full at the per annum rate of interest equal to the Base Rate (applicable to Dollar denominated Base Rate Loans) plus two percent (2.0%) until paid in full, which interest shall be payable on demand. SECTION 7. REIMBURSEMENT FOR LIQUIDITY DRAWINGS. Anything to the contrary in Section 2.04(d)(i) of the Credit Agreement notwithstanding, each Liquidity Drawing paid by the Bank (a) during the existence of a Default or an Event of Default or (b) pursuant to a mandatory tender of any Hexcel Bonds (i) in connection with conversion of the interest rate payable on any Hexcel Bonds to a Fixed Rate, (ii) pursuant to Section 2.04(e) of the Indenture/Standard Terms of any Indenture other than the Skagit Indenture, (iii) pursuant to Section 2.06(h) of the Indenture/Standard Terms of any Indenture other than the Skagit Indenture, or (iv) pursuant to Section 4.02 of the Skagit Indenture, shall constitute a Debt Service Reimbursement Obligation which obligation shall be due and payable in the amount of each such Liquidity Drawing on the date on which such Liquidity Drawing is paid by the Bank to the LOC Beneficiary and shall bear interest from the date such obligation becomes due until paid in full at the per annum rate of interest equal to the Base Rate (applicable to Dollar denominated Base Rate Loans) plus two percent (2.0%) until paid in full, which interest shall be payable on demand. Each other 3 Liquidity Drawing paid by the Bank under a Bond Letter of Credit shall constitute a Liquidity Reimbursement Obligation. Anything to the contrary in Section 2.04(d)(i) of the Credit Agreement notwithstanding, the principal amount of each Liquidity Reimbursement Obligation incurred pursuant to this Section shall be due and payable to the Bank in full not later than the earliest of (a) the remarketing of the Pledged Bonds purchased with the proceeds of an unreimbursed Liquidity Drawing (see Section 8), (b) six months following the date on which the Liquidity Drawing which resulted in such Liquidity Reimbursement Obligation was paid by the Bank, (c) the earliest date on which the Pledged Bonds purchased with the proceeds of an unreimbursed Liquidity Drawing can be redeemed, other than by an optional redemption, (d) the maturity date of the Pledged Bonds purchased with the proceeds of an unreimbursed Liquidity Drawing, and (e) expiration or termination of the Bond Letter of Credit relating to such Pledged Bonds. Each Liquidity Reimbursement Obligation shall bear interest at the Base Rate for Dollar denominated Base Rate Loans from the date of the Liquidity Drawing resulting in such Liquidity Reimbursement Obligation until paid in full, which interest shall be payable at the times and in the manner provided in Section 4.01(b) of the Credit Agreement; PROVIDED, HOWEVER, that if a Liquidity Reimbursement Obligation is not paid when due, such Liquidity Reimbursement Obligation together with any accrued but unpaid interest thereon shall thereafter bear interest at the per annum rate of interest equal to the Base Rate (applicable to Dollar denominated Base Rate Loans) plus two percent (2.0%) until paid in full, which interest shall be payable on demand. The LOC Beneficiary for the purposes of making Liquidity Drawings shall use the proceeds of Liquidity Drawings only for the purpose of purchasing Hexcel Bonds tendered or deemed tendered for purchase pursuant to Section 2.06 of the Indenture/Standard Terms of any Indenture other than the Skagit Indenture, or Section 4.01 or 4.02 of the Skagit Indenture. Until remarketed in accordance with the terms of the applicable Indenture, Pledged Bonds shall be registered in the name of the Bank as holder of a pledge and security interest therein. Pledged Bonds shall be entitled to all of the rights and privileges of Hexcel Bonds outstanding under the applicable Indenture and shall be governed by all of the terms and conditions of such Indenture; PROVIDED, HOWEVER, that Pledged Bonds: (1) may not be tendered for purchase pursuant to Section 2.06 of the Indenture/Standard Terms of any Indenture other than the Skagit Indenture or Section 4.01 of the Skagit Indenture; (2) shall be redeemed, in the event of a redemption pursuant to Section 2.18 of the Indenture/Standard Terms of any Indenture other than the Skagit Indenture or 4 Section 3.01 of the Skagit Indenture or any other redemption thereunder, prior to redemption of other Hexcel Bonds issued in connection with such Indenture; and (3) shall not be entitled to payment of any premium upon redemption. SECTION 8. PAYMENT OF LIQUIDITY REIMBURSEMENT OBLIGATIONS FOLLOWING THE REMARKETING OF PLEDGED BONDS. Prior to or simultaneously with the remarketing of Pledged Bonds by the Placement Agent (as provided in Section 2.07 of the Indenture/Standard Terms of any Indenture other than the Skagit Indenture or Section 4.04 of the Skagit Indenture), the Company shall prepay the then outstanding Liquidity Reimbursement Obligations incurred in connection with the purchase of such Pledged Bonds by (1) causing the Trustee or Agent, as applicable, to pay directly to the Bank the entire purchase price for the remarketed Pledged Bonds, consisting of: (a) the aggregate principal amount of the remarketed Pledged Bonds, PLUS (b) the aggregate amount of accrued and unpaid interest on such Pledged Bonds received by the Trustee or Agent, as applicable, upon placement of the Pledged Bonds in the form of due bills or otherwise, calculated to the date of placement of such Pledged Bonds; and (2) paying to the Bank the difference between interest accrued to the date of such payment on the Liquidity Reimbursement Obligation (calculated at the Base Rate for Dollar denominated Base Rate Loans) and the amount of interest received by the Bank from the Trustee or Agent pursuant to clause (b) of this Section 8. Payments received by the Bank from the Trustee or Agent when accompanied by a certificate completed and signed by the Agent or Trustee, as applicable, in substantially the form of Annex G to each Bond Letter of Credit shall be applied by the Bank in reimbursement of Liquidity Reimbursement Obligations in the manner described above. The Company irrevocably authorizes the Bank to rely on such certificates and to reinstate the Bond Letter of Credit relating to such Pledged Bonds in accordance therewith. SECTION 9. PREPAYMENTS. The Company may, upon at least five Business Day's written notice to the Bank, prepay the outstanding amount of any Liquidity 5 Reimbursement Obligation in whole or in part (but not in sums of less than $50,000 per prepayment) with accrued interest to the date of such prepayment on the amount prepaid; PROVIDED, HOWEVER, that prepayments shall be credited first to interest due and owing on any Debt Service Reimbursement Obligation, then to principal due and owing on any Debt Service Reimbursement Obligation, then to interest due and owing on any Liquidity Reimbursement Obligation, and finally to principal due and owing on any Liquidity Reimbursement Obligation. The provisions of this Section 9 shall not apply to prepayments made from the proceeds of the placement of Pledged Bonds as provided in Section 8, or as a result of the redemption or maturity of Pledged Bonds. SECTION 10. CONDITIONS PRECEDENT. This Agreement shall become effective when and only when each of the following conditions shall have been satisfied in a manner acceptable to the Bank or shall have been waived in writing by the Bank: (a) the Bank shall have received from the Company this Agreement, duly executed on behalf of the Company; (b) the conditions precedent set forth in Section 5.01 of the Credit Agreement shall have been satisfied or waived on behalf of the Lenders and the Administrative Agent shall have so notified the Bank in writing; (c) the Bank shall have received an opinion addressed to the Bank from Bond Counsel acceptable to the Bank to the effect that the transactions contemplated by this Agreement and the Credit Agreement will not adversely affect the exclusion of interest received in connection with the Hexcel Bonds from gross income for federal income tax purposes; (d) the Bank shall have received from the Company the reasonable legal fees and expenses of counsel to the Bank incurred in connection with this Agreement and the Bond Letters of Credit; and (e) the Bank and the Company shall have entered into a written agreement satisfactory to the Bank with respect to fees and 6 expenses which may be paid directly to the Bank for the sole account of the Bank pursuant to Section 2.04(g) of the Credit Agreement. SECTION 11. TERMINATION OF THE PRIOR REIMBURSEMENT AGREEMENT AND RELEASE OF CERTAIN COLLATERAL. Upon this Agreement becoming effective as provided in Section 10 of this Agreement, (a) the Prior Reimbursement Agreement shall automatically terminate, (b) the Collateral Agreement dated as of February 1, 1995, between the Bank and the Company shall automatically terminate, and (c) the Bank shall return to Citibank N.A., without making any draw or claim thereon, (i) that certain irrevocable letter of credit no. NY-20511-30018324 issued by Citibank N.A. on December 28, 1995, to the Bank for the account of the Company in the face amount of $600,000, and (ii) that certain irrevocable letter of credit no. NY-20511-30017761 issued by Citibank N.A. on September 28, 1995, to the Bank for the account of the Company in the face amount of $300,000, each pursuant to Section 2 of the aforementioned Collateral Agreement. SECTION 12. PLEDGE AGREEMENTS. The Pledge Agreements shall remain in full force and effect without interruption following the effectiveness of this Agreement. SECTION 13. EVENTS OF DEFAULT. The occurrence of any of the following events shall be a "Reimbursement Agreement Event of Default" under this Agreement: (a) the Company shall fail to reimburse the Bank for any Interest Drawing when due and such failure continues for a period of five Business Days after the due date thereof; or (b) the Company shall fail to pay when due any amount payable under any provision of this Agreement (other than reimbursement for Interest Drawings and for expenses the payment of which is being contested in good faith by the Company) or any Loan Agreement and such failure continues for a period of 30 days after the due date thereof; or (c) an Event of Default shall exist and be continuing under the Credit Agreement; or 7 (d) an Event of Default shall exist and be continuing under any Related Document which event of default may, in the reasonable judgment of the Bank, have a Material Adverse Effect, and such situation continues for a period of 60 days; or (e) any material provision of this Agreement or any Related Document shall at any time for any reason cease to be valid and binding on the Company, or shall be declared to be null and void, or the validity or enforceability thereof shall be contested by the Company or any Governmental Authority or the Company shall deny that it has any or further liability or obligation under this Agreement or such Related Document, and, in any such instance, such circumstance shall have a Material Adverse Effect. SECTION 14. REMEDIES UPON A REIMBURSEMENT AGREEMENT EVENT OF DEFAULT. If any Event of Default shall have occurred and be continuing, the Bank shall, if so directed in writing by the Administrative Agent or the Requisite Banks: (a) by notice to the Company, declare any or all Liquidity Reimbursement Obligations to be immediately due and payable, without presentment, demand, protest or further notice of any kind, all of which are hereby expressly waived by the Company; (b) take such action with respect to the Pledged Bonds pursuant to any Pledge Agreement as may be permitted under that agreement or at law; (c) notify any or all of the Trustees (with a copy to the appropriate Agent or Agents) of such Event of Default and instruct such Trustee or Trustees to declare the appropriate Hexcel Bonds to be immediately due and payable in accordance with the terms of the applicable Indenture; and (d) exercise any rights and remedies available to the Bank at law or in equity or under any other Related Document. 8 Nothing herein shall be deemed or construed to limit the rights and remedies available pursuant to the Credit Agreement, which rights and remedies shall be cumulative with the rights and remedies of the Bank hereunder. SECTION 15. AMENDMENTS, ETC. No amendment or waiver of any provision of this Agreement or any Related Document, nor consent to any departure by the Company therefrom, shall in any event be effective unless the same shall be in writing and signed by the Bank and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. No amendment to this Agreement affecting the obligations of the Company hereunder or the rights of the Bank with respect to the Pledged Bonds or any additional collateral and no amendment to any Bond Letter of Credit (except for substitution of a successor beneficiary of such Bond Letter of Credit or extension of the term of such Bond Letter of Credit as provided in paragraph 2 of such Bond Letter of Credit) shall be entered into or approved by the parties unless the parties shall have obtained an opinion of counsel experienced in bankruptcy matters to the effect that such amendment will not subject the Trustee or holders of Hexcel Bonds in connection with such Bond Letter of Credit to claims that the proceeds of the Bond Letter of Credit may be recoverable from the Trustee or the holders of Hexcel Bonds as voidable preferences of the Company under Section 547(b) of the Bankruptcy Code. SECTION 16. NOTICES, ETC. All notices, requests and other communications to any party hereunder shall be in writing (including bank wire, telex, facsimile transmission or similar writing) and shall be given to such party at its address, telecopy or telex number set forth below or such other address or telecopy number as such party may hereafter specify for the purpose of notice to the other party. Each such notice, request or other communication shall be effective (a) if given by mail, 72 hours after such communication is deposited in the mails with first class air mail postage prepaid, addressed as aforesaid or (b) if given by any other means, when delivered at the address specified in this Section. 9 Company: Hexcel Corporation 5794 West Las Positas Boulevard Post Office Box 8181 Pleasanton, CA 94588 Attn: Treasurer Telephone: (510) 734-9676 Telecopy: (510) 734-9285 Bank: Banque Nationale de Paris San Francisco Branch 180 Montgomery Street, 3rd Floor San Francisco, California 94104 Attn: Katherine Wolfe Telephone: (415) 956-0707 Telecopy: (415) 296-8954 SECTION 17. NO WAIVER; REMEDIES. No failure on the part of the Bank to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right hereunder preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedies provided by law. SECTION 18. RIGHT OF SET OFF. (a) Upon the occurrence and during the continuance of any Event of Default, the Bank is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all indebtedness at any time owing by the Bank to or for the credit or the account of the Company against any and all of the obligations of the Company now or hereafter existing under this Agreement. Any amount received by the Bank by way of set off shall be subject to sharing with the Lenders as provided in the Credit Agreement. (b) Anything in clause (a) of this Section to the contrary notwithstanding but without modifying any other provision of this Agreement, the Bank waives any such right referred to in clause (a), and any other right which it may have at law or otherwise to set off and apply such deposits or indebtedness referred to in clause (a), if, when and after there shall be a Drawing under a Bond Letter of Credit during the pendency of any proceeding by or against the Company seeking to adjudicate it a 10 bankrupt or insolvent, or seeking liquidation, winding up, reorganization, arrangement, adjustment, protection, relief, or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking the entry of an order for relief or the appointment of a receiver, trustee, or other similar official for it or for any substantial part of its property; PROVIDED, HOWEVER, that such waiver shall terminate and be of no force and effect either (i) when and to the extent the exercise of such right would not result in the Bank's being released, prevented or restrained from or delayed in fulfilling the Bank's obligations under any Bond Letter of Credit or (ii) when and if the absence of such waiver would not result in the lowering or suspension by the Rating Agency of its rating of the Hexcel Bonds. (c) The Bank agrees promptly to notify the Company after any such setoff and application referred to in clause (a) of this Section; PROVIDED, HOWEVER, that the failure to give such notice shall not affect the validity of such setoff and application. Subject to the provisions of clause (b) of this Section, the rights of the Bank under this Section are in addition to other rights and remedies (including, without limitation, other rights of setoff or banker's Lien) which the Bank may have. SECTION 19. INDEMNIFICATION. In addition to such indemnifications as are contained in the Credit Agreement, the Company hereby indemnifies and holds the Bank harmless from and against any and all claims, damages, losses, liabilities, costs or expenses which the Bank may incur or which may be claimed against the Bank by any person or entity: (a) by reason of any inaccuracy or alleged inaccuracy in any material respect, or any untrue statement or alleged untrue statement of any material fact, contained in any official statement, placement memorandum, or any amendment or supplement thereto, or by reason of the omission or alleged omission to provide notice or to state therein a material fact necessary to make such statements, in the light of the circumstances under which they were made, not misleading; PROVIDED, HOWEVER, that, in the case of any action or proceeding alleging an inaccuracy in a material respect, or an untrue statement, with respect to information supplied by and describing the 11 Bank in any official statement, placement memorandum or any supplement or amendment thereto (the "Bank Information") (i) indemnification by the Company pursuant to clause (a) of this Section shall be limited to the costs and expenses of the Bank (including fees and expenses of the Bank's counsel) of defending itself against such allegation, (ii) if in any such action or proceeding it is finally determined that the Bank Information contained an untrue statement in a material respect, then the Company shall not be required to indemnify the Bank pursuant to clause (a) of this Section for any claims, damages, losses, liabilities, costs or expenses to the extent caused by such inaccuracy or untrue statement, and (iii) if any such action or proceeding shall be settled by the Bank without there being a final determination to the effect described in the preceding sub- clause (ii), then the Company shall be required to indemnify the Bank pursuant to clause (a) of this Section only if such action or proceeding is settled with the Company's consent; and (b) by reason of or in connection with the execution, delivery or performance of the Hexcel Bonds, any Remarketing Agreement, or any transactions contemplated thereby; and (c) by reason of or in connection with the execution and delivery or transfer of, or payment or failure to make payment under, any Bond Letter of Credit; PROVIDED, HOWEVER, that the Company shall not be required to indemnify the Bank pursuant to clause (c) of this Section for any claims, damages, losses, liabilities, costs or expenses to the extent caused by 12 (i) the Bank's willful misconduct or gross negligence in determining whether documents presented under a Bond Letter of Credit comply with the terms of such Bond Letter of Credit; or (ii) the Bank's willful failure to make lawful payment under a Bond Letter of Credit after the presentation to it by the LOC Beneficiary or a transferee beneficiary under such Bond Letter of Credit of a draft and certificate complying with the terms and conditions of such Bond Letter of Credit; and (d) by reason of or in connection with any claims, damages, losses, liabilities, costs or expenses asserted against the Bank by or on behalf of J.P. Morgan Securities, Inc., relating in any way to Hexcel Bonds, including, without limitation, claims asserted in connection with that certain letter agreement between J.P. Morgan Securities, Inc., and the Bank dated December 30, 1993. Nothing in this Section is intended to limit the Company's reimbursement obligations contained herein. Without prejudice to the survival of any other obligation of the Company hereunder, the indemnities and obligations of the Company contained in this Section shall survive payment in full of reimbursement amounts and fees payable pursuant to this Agreement and the termination of the Bond Letters of Credit. SECTION 20. COSTS AND EXPENSES. The Company agrees to pay on demand all costs and expenses in connection with the administration of this Agreement, the Pledge Agreements, and any other documents which may be delivered in connection therewith, including, without limitation, the reasonable fees and out-of-pocket expenses of counsel for the Bank with respect thereto and with respect to advising the Bank as to its rights and responsibilities under this Agreement, the Pledge Agreements and the Related Documents. The Company shall also pay on demand all costs and expenses (including counsel fees and expenses) in connection with: (a) amendments to this Agreement, any Related Document, any Bond Letter of Credit, or consents to or waivers of any provision thereof requested by the Company, (b) enforcement of this Agreement, the Pledge Agreement, or such other documents as may be delivered in connection therewith, or (c) any action or proceeding relating 13 to a court order, injunction, or other process or decree restraining or seeking to restrain the Bank from paying any amount under any Bond Letter of Credit. SECTION 21. BINDING EFFECT. This Agreement shall become effective when it shall have been executed by the Company and the Bank and thereafter shall be binding upon and inure to the benefit of the Company and the Bank and their respective successors and assigns, except that the Company shall not have the right to assign its rights hereunder or any interest herein without the prior written consent of the Bank. SECTION 22. SEVERABILITY. Any provision of this Agreement which is prohibited, unenforceable or not authorized in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition, unenforceability or non-authorization without invalidating the remaining provisions hereof or affecting the validity, enforceability or legality of such provision in any other jurisdiction. SECTION 23. GOVERNING LAW AND JURISDICTION. This Agreement shall be governed by, and construed in accordance with, the laws of the State of California. Any legal action or proceeding with respect to this Agreement or any Related Document may be brought in the courts of the State of California or of the United States of America for the Northern District of California, and, by execution and delivery of this Agreement, the Company and the Bank each accepts, for itself and in respect of its property, generally and unconditionally, the jurisdiction of the aforesaid courts. Nothing herein shall prevent either party from commencing legal proceedings or from otherwise proceeding against the other party or its property in any other jurisdiction. SECTION 24. CURRENT RATING. The Bank makes no promise, representation or warranty that its current long and short term debt ratings with any Rating Agency shall continue until the Expiration Date. SECTION 25. COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by their respective officers thereunto duly authorized as of the date first above written. 14 Hexcel Corporation /s/ WILLIAM P. MEEHAN --------------------------- By: William P. Meehan Title: Vice President Banque Nationale de Paris, acting through its San Francisco Branch /s/ KATHERINE WOLFE --------------------------- By: Katherine Wolfe Title: Vice President /s/ DEBRA HERMSMEYER --------------------------- By: Debra Hermsmeyer Title: Vice President 15 EXHIBIT A to Second Restated and Amended Reimbursement Agreement CERTAIN DEFINED TERMS "AGENT", as used in connection with any Indenture or any Hexcel Bonds, shall have the meaning given to that Indenture; PROVIDED, that in connection with the Skagit Indenture the term "Agent" shall refer to the "Tender Agent" as that term is used in the Skagit Indenture. "AGREEMENT" means this Second Restated and Amended Reimbursement Agreement, dated as of February 29, 1996, between the Company and the Bank, as amended from time to time in accordance with its terms. "BANK" means Banque Nationale de Paris, a banking corporation organized under the laws of the Republic of France, acting through its San Francisco Branch, its successors and assigns. "BANK INFORMATION" has the meaning assigned to that term in Section 19 of this Agreement. "BANKRUPTCY CODE" means the Federal Bankruptcy Code, 11 U.S.C. Sections 101 ET SEQ., as amended from time to time, and any other successor federal legislation hereafter enacted serving substantially similar purposes. "BOND LETTERS OF CREDIT" means those letters of credit issued by the Bank in support of Hexcel Bonds, each as amended from time to time in accordance with its terms. The Bond Letters of Credit are described in Exhibit B attached to this Agreement. "BUSINESS DAY" means a day of the year which is not a Saturday or Sunday or a day on which banking institutions located in New York or California are required or authorized to remain closed or on which any applicable Placement Agent or the New York Stock Exchange is closed. 16 "CODE" means the United States Internal Revenue Code of 1986 (or any successor statute containing the United States income tax law), as amended, and the rulings and regulations (including temporary and proposed regulations) promulgated thereunder. "COMPANY" means the Hexcel Corporation, a Delaware corporation, its successors and assigns. "CREDIT AGREEMENT" means that certain Credit Agreement, dated as of February 29, 1996, as amended from time to time, among the Company, Hexcel S.A. (Belgium), Hexcel S.A. (Lyon), Brochier S.A., Hexcel U.K. Ltd. and Composite Materials Limited United Kingdom, as "Borrowers", the institutions from time to time party thereto as "Lenders" including the Bank, the institutions from time to time party thereto as "Issuing Banks" including the Bank, Citibank, N.A., New York Branch, as "U.S. Administrative Agent", Citibank, N.A., London Branch, as "European Administrative Agent" and Credit Suisse as "Syndication Agent." "CURRENT PLACEMENT AGENT AGREEMENTS" means the following documents: (a) that certain Remarketing and Interest Services Agreement, dated as of January 21, 1995, between the Company and Bear, Stearns & Co. Inc. as Placement Agent, with respect to $750,000 California Pollution Control Financing Authority Multi-Modal Interchangeable Rate Pollution Control Revenue Refunding Bonds (Hexcel Corporation Project), Series 1988; (b) that certain Remarketing and Interest Services Agreement, dated as of January 21, 1995, between the Company and Bear, Stearns & Co. Inc. as Placement Agent, with respect to $2,050,000 Industrial Development Authority of the City of Casa Grande Multi-Modal Interchangeable Rate Industrial Development Revenue Refunding Bonds (Hexcel Corporation Project), Series 1988; (c) that certain Remarketing and Interest Services Agreement, dated as of January 21, 1995, between the Company and Bear, Stearns & Co. Inc. as Placement Agent, with respect to $3,150,000 Guadalupe- Blanco River Authority Industrial Development Corpora- 17 tion Multi-Modal Interchangeable Rate Industrial Development Revenue Refunding Bonds, Series 1988 (Hexcel Corporation Project); (d) that certain Remarketing and Interest Services Agreement, dated as of January 21, 1995, between the Company and Bear, Stearns & Co. Inc. as Placement Agent, with respect to $6,200,000 Industrial Development Authority of the County of Los Angeles Multi-Modal Interchangeable Rate Industrial Development Revenue Refunding Bonds (Hexcel Corporation Project), Series 1988; and (e) that certain Remarketing and Interest Services Agreement, dated as of January 21, 1995, between the Company and Bear, Stearns & Co. Inc. as, with respect to $1,000,000 City of Lancaster Multi-Modal Interchangeable Rate Industrial Development Revenue Refunding Bonds (Hexcel Corporation Project), Series 1988. "DEBT SERVICE DRAWING" refers to Interest, Maturity, Mandatory Redemption, Optional Redemption, and Acceleration Drawings, as each of those terms is defined in the Bond Letters of Credit. "DEBT SERVICE REIMBURSEMENT OBLIGATION" means the reimbursement obligation of the Company to the Bank arising out of each Debt Service Drawing and, to the extent provided in the first paragraph of Section 7 of this Agreement, each Liquidity Drawing. "DEFAULT" has the meaning assigned to that term in the Credit Agreement. "DOLLARS" and "$" means the lawful currency of the United States of America and, in relation to any payment under this Agreement, same day or immediately available funds. "DRAWING" means any Debt Service Drawing or any Liquidity Drawing. "EVENT OF DEFAULT" has the meaning assigned to that term in the Credit Agreement. 18 "EXPIRATION DATE" means, for each Bond Letter of Credit, the date on which such Bond Letter of Credit shall expire in accordance with its terms, subject to extension as provided in paragraph 2 of such Bond Letter of Credit. "GOVERNMENTAL AUTHORITY" means any nation or government, any federal, state or local government or other political subdivision thereof and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to such government or political subdivision. "HEXCEL BONDS" means any Bond issued in connection with any or all of the following series of bonds: (a) California Pollution Control Financing Authority Multi-Modal Interchangeable Rate Pollution Control Revenue Refunding Bonds (Hexcel Corporation Project), Series 1988; (b) Industrial Development Authority of the City of Casa Grande Multi-Modal Interchangeable Rate Industrial Development Revenue Refunding Bonds (Hexcel Corporation Project), Series 1988; (c) Guadalupe-Blanco River Authority Industrial Development Corporation Multi-Modal Interchangeable Rate Industrial Development Revenue Refunding Bonds, Series 1988 (Hexcel Corporation Project); (d) Industrial Development Authority of the County of Los Angeles Multi-Modal Interchangeable Rate Industrial Development Revenue Refunding Bonds (Hexcel Corporation Project), Series 1988; (e) City of Lancaster Multi-Modal Interchangeable Rate Industrial Development Revenue Refunding Bonds (Hexcel Corporation Project), Series 1988; and (f) Port of Skagit Industrial Development Corporation Variable Rate Demand Revenue Bonds, 1989 (Hexcel Corporation Project). 19 "INDENTURE" or "INDENTURES" refers to the following indentures of trust: (a) that certain Indenture of Trust, dated as of April 1, 1988, between the Company and the Bank of California, with respect to $750,000 California Pollution Control Financing Authority Multi-Modal Interchangeable Rate Pollution Control Revenue Refunding Bonds (Hexcel Corporation Project), Series 1988, including the Standard Terms incorporated therein, as amended from to time in accordance with the terms thereof; (b) that certain Indenture of Trust, dated as of March 1, 1988, between the Company and the Bank of California, with respect to $2,050,000 Industrial Development Authority of the City of Casa Grande Multi-Modal Interchangeable Rate Industrial Development Revenue Refunding Bonds (Hexcel Corporation Project), Series 1988, including the Standard Terms incorporated therein, as amended from time to time in accordance with the terms thereof; (c) that certain Indenture of Trust, dated as of April 1, 1988, between the Company and the Bank of California, with respect to $3,150,000 Guadalupe-Blanco River Authority Industrial Development Corporation Multi-Modal Interchangeable Rate Industrial Development Revenue Refunding Bonds, Series 1988 (Hexcel Corporation Project), including the Standard Terms incorporated therein, as amended from time to time in accordance with the terms thereof; (d) that certain Indenture of Trust, dated as of March 1, 1988, between the Company and the Bank of California, with respect to $6,200,000 Industrial Development Authority of the County of Los Angeles Multi-Modal Interchangeable Rate Industrial Development Revenue Refunding Bonds (Hexcel Corporation Project), Series 1988, including the Standard Terms incorporated therein, as amended from time to time in accordance with the terms thereof; (e) that certain Indenture of Trust, dated as of April 1, 1988, between the Company and the Bank of California, with respect to $1,000,000 City of Lancaster Multi-Modal Interchangeable Rate Industrial Development Revenue Refunding Bonds (Hexcel Corpora- 20 tion Project), Series 1988, including the Standard Terms incorporated therein, as amended from time to time in accordance with the terms thereof; and (f) the Skagit Indenture. "INDENTURE/STANDARD TERMS" means the Standard Terms and Conditions of Trust, with respect to each of the Indentures (except the Skagit Indenture), dated the date of the applicable Indenture, incorporated by reference into such Indenture, as amended from time to time in accordance with the terms of such Indenture. "INTEREST COMPONENT", with respect to each Bond Letter of Credit, has the meaning given to such term in such Bond Letter of Credit. "INTEREST DRAWING", with respect to each Bond Letter of Credit, has the meaning given to such term in such Bond Letter of Credit. "LIQUIDITY DRAWING" has the meaning assigned to that term in paragraph 3 of the Bond Letters of Credit. "LIQUIDITY REIMBURSEMENT OBLIGATION" means the reimbursement obligation of the Company to the Bank resulting from each Liquidity Drawing, except to the extent that a Liquidity Drawing shall result in a Debt Service Reimbursement Obligation as provided in the first paragraph of Section 7 of this Agreement. "LOAN AGREEMENT" means each Loan Agreement as defined in each of the Indentures. "LOC BENEFICIARY" means (i) with respect to each Bond Letter of Credit other than the Bond Letter of Credit issued in connection with the Skagit Indenture, either of the Trustee or the Agent, as joint beneficiaries of the Bond Letter of Credit, and their respective transferees as provided in the Bond Letter of Credit, and (ii) with respect to the Bond Letter of Credit issued in connection with the Skagit Indenture, the Trustee. "MATERIAL ADVERSE EFFECT" means a material adverse effect on (a) the operations or financial condition of the Company alone or the Company and the 21 Subsidiaries on a combined basis, or (b) the ability of the Company to pay or perform its obligations in accordance with the terms of this Agreement and the other Related Documents. "MOODY'S" means Moody's Investors Service, Inc., a Delaware corporation, its successors and assigns and, if such corporation shall be dissolved or liquidated or no longer perform the functions of a securities rating agency, "Moody's" shall be deemed to refer to any other nationally recognized securities rating agency designated by the Company with the approval of the Bank. "OPTIONAL REDEMPTION DRAWING" has the meaning given to that term in paragraph 3 of each of the Bond Letters of Credit. "PERSON" means an individual, partnership, corporation, business trust, joint stock company, trust, unincorporated association, joint venture, Governmental Authority or other entity of whatever nature. "PLACEMENT AGENT" means (a) U.S. Bank of Washington, National Association, with respect to the Hexcel Bonds issued pursuant to the Skagit Indenture, and any successor Placement Agent appointed pursuant to the terms of the Skagit Indenture and acceptable to the Bank, and (b) Bear, Stearns & Co. Inc. with respect to the Hexcel Bonds issued pursuant to the Indentures other than the Skagit Indenture, and any successor Placement Agent or Placement Agents appointed pursuant to the terms of the applicable Indenture and acceptable to the Bank. "PLACEMENT AGREEMENTS" means the Current Placement Agreements and that certain Remarketing Agreement dated as of December 1, 1989, by and among the Company, the Port of Skagit County Industrial Development Corporation and Security Pacific Securities, Inc. "PLEDGE AGREEMENT" or "PLEDGE AGREEMENTS" means any or all of the following documents: (a) that certain Pledge and Security Agreement, dated as of April 1, 1988, by and among the Company, the Bank, and Morgan Guaranty Trust Company of New York relating to $750,000 California Pollution Control Financing Authority M ulti-Modal Interchange- 22 able Rate Pollution Control Revenue Refunding Bonds (Hexcel Corporation Project), Series 1988; (b) that certain Pledge and Security Agreement, dated as of March 1, 1988, by and among the Company, the Bank, and Morgan Guaranty Trust Company of New York relating to $2,050,000 Industrial Development Authority of the City of Casa Grande Multi-Modal Interchangeable Rate Industrial Development Revenue Refunding Bonds (Hexcel Corporation Project), Series 1988; (c) that certain Pledge and Security Agreement, dated as of April 1, 1988, by and among the Company, the Bank, and Morgan Guaranty Trust Company of New York relating to $3,150,000 Guadalupe-Blanco River Authority Industrial Development Corporation Multi-Modal Interchangeable Rate Industrial Development Revenue Refunding Bonds, Series 1988 (Hexcel Corporation Project); (d) that certain Pledge and Security Agreement, dated as of March 1, 1988, by and among the Company, the Bank, and Morgan Guaranty Trust Company of New York relating to $6,200,000 Industrial Development Authority of the County of Los Angeles Multi-Modal Interchangeable Rate Industrial Development Revenue Refunding Bonds (Hexcel Corporation Project), Series 1988; (e) that certain Pledge and Security Agreement, dated as of April 1, 1988, by and among the Company, the Bank, and Morgan Guaranty Trust Company of New York relating to $1,000,000 City of Lancaster Multi-Modal Interchangeable Rate Industrial Development Revenue Refunding Bonds (Hexcel Corporation Project); and (f) that certain Pledge and Security Agreement, dated as of December 1, 1989, by and among the Company, the Bank, and Bankers Trust Company of New York, National Association, relating to $3,000,000 Port of Skagit County Industrial Development Corporation Variable Rate Demand Revenue Bond Series 1989 (Hexcel Corporation Project). 23 "PLEDGED BONDS" means the Hexcel Bonds purchased or deemed to be purchased or otherwise acquired for the account of the Company with the proceeds of Liquidity Drawings during any period in which the Bank has not been reimbursed for such Liquidity Drawings. "PRINCIPAL COMPONENT", with respect to each Bond Letter of Credit, has the meaning given to such term in such Bond Letter of Credit. "PRIOR REIMBURSEMENT AGREEMENT" means that certain Restated and Amended Reimbursement Agreement, dated as of February 1, 1995, between the Bank and the Company. "RATING AGENCY" means Moody's and/or S&P. "REIMBURSEMENT AGREEMENT EVENT OF DEFAULT" has the meaning assigned to that term in Section 13 of this Agreement. "REIMBURSEMENT OBLIGATION" means any and all Debt Service Reimbursement Obligations and Liquidity Reimbursement Obligations. "RELATED DOCUMENTS" means the Indentures, the Resolutions, the Hexcel Bonds, the Loan Agreements, the Pledge Agreements, the Placement Agreements, and such other agreements, documents or certificates as were or will be delivered to the Bank in connection with the issuance of the Bond Letters of Credit and this Agreement. "RESOLUTIONS" refers to each resolution adopted by the issuer of each series of Hexcel Bonds, authorizing the issuance of such series of Hexcel Bonds. "S&P" means Standard and Poor's Corporation, a New York corporation, its successors and assigns and, if such corporation shall be dissolved or liquidated or no longer perform the functions of a securities rating agency, "S&P" shall be deemed to refer to any other nationally recognized securities rating agency designated by the Company with the approval of the Bank. "SKAGIT INDENTURE" means that certain Indenture of Trust, dated as of December 1, 1989, between the Company and Bankers Trust Company of 24 California, with respect to $3,000,000 Port of Skagit Industrial Development Corporation Variable Rate Demand Revenue Bonds, 1989 (Hexcel Corporation Project), as amended from time to time in accordance with the terms thereof. "STATED AMOUNT", with respect to each Bond Letter of Credit, has the meaning given to such term in such Bond Letter of Credit. "TRUSTEE" has the meaning assigned to that term in each of the Indentures. 25 EXHIBIT B to Second Restated and Amended Reimbursement Agreement LETTER OF CREDIT STATED AMOUNTS Letter of Credit No. 86063, issued April 21, 1988, relating to $750,000 California Pollution Control Financing Authority Multi-Modal Interchangeable Rate Pollution Control Revenue Refunding Bonds Series 1988 (Hexcel Corporation Project), as amended. Stated Amount: $802,500 Letter of Credit No. 86057, issued March 1, 1988, relating to $2,050,000 Industrial Development Authority of the City of Casa Grande Arizona Multi-Modal Interchangeable Rate Industrial Development Revenue Refunding Bonds Series 1988 (Hexcel Corporation Project), as amended. Stated Amount: $2,193,500 Letter of Credit No. 86066, issued April 21, 1988, relating to $3,150,000 Guadalupe-Blanco River Authority Industrial Development Corporation Multi-Modal Interchangeable Rate Industrial Development Revenue Refunding Bonds, Series 1988 (Hexcel Corporation Project), as amended. Stated Amount: $3,370,500 Letter of Credit No. 86056, issued March 1, 1988 relating to $6,200,000 Industrial Development Authority of the County of Los Angeles Multi--Modal Interchangeable Rate Industrial Development Revenue Refunding Bonds Series 1988 (Hexcel Corporation Project), as amended. Stated Amount: $5,029,000 26 Letter of Credit No. 86065, issued April 21, 1988, relating to $1,000,000 City of Lancaster Ohio Multi-Modal Interchangeable Rate Industrial Development Revenue Refunding Bonds, Series 1988 (Hexcel Corporation Project), as amended. Stated Amount: $1,070,000 Letter of Credit No. 086166, issued December 7, 1989, relating to $3,000,000 Port of Skagit County Industrial Development Corporation Variable Rate Demand Revenue Bond Series 1989 (Hexcel Corporation Project), as amended. Stated Amount: $2,598,630 27 EX-10.13 4 EXH 10.13NEW Exhibit 10.13 FORM OF OPTION AGREEMENT (DIRECTORS) OPTION AGREEMENT, dated as of the Grant Date, by and between the Optionee, residing at Address of Optionee and Hexcel Corporation (the "Corporation"). W I T N E S S E T H : WHEREAS, the Optionee is presently serving as a member of the Board of Directors of the Corporation (the "Board"); and WHEREAS, the Corporation has adopted the Corporation's Incentive Stock Plan (the "Plan"), pursuant to which members of the Board are to be granted stock options as an incentive for such members to advance the interests of the Corporation. NOW, THEREFORE, the parties agree as follows: 1. NOTICE OF GRANT; PLAN. Attached hereto and incorporated by reference herein is a Notice of Grant. Unless otherwise provided herein, capitalized terms used herein and set forth on such Notice of Grant shall have the meanings ascribed to them on the Notice of Grant. Also attached hereto is the Plan; the provisions of the Plan, including but not limited to Section VII(c) (Disability, Death or Termination of Director Status; Change in Control) and Section XI (Recapitalization), are incorporated by reference herein. This Option is intended to constitute a "formula award" within the meaning of Rule 16b-3(c) of the Securities Exchange Act of 1934, as amended, and all provisions of this Option Agreement shall be construed in a manner to so comply. 2. GRANT OF OPTION. Pursuant to the Plan, and subject to the terms and conditions set forth herein and therein, the Corporation hereby grants to the Optionee the right and option (the "Option") to purchase all or any part of the Option Shares of the Corporation's common stock, $.01 par value per share (the "Common Stock"), which option is not intended to qualify as an incentive stock option, as defined in Section 422 of the Internal Revenue Code of 1986, as 1 amended (the "Code"). The grant of the Option shall be subject to the Plan's approval by the stockholders of the Corporation. In the event such approval is withheld, the Option shall become null and void. 3. PURCHASE PRICE. The purchase price per share of the Option Shares shall be the Purchase Price. 4. TIME OF EXERCISE; TERM. (a) The Option shall become exercisable on the Initial Vesting Date and each Additional Vesting Date as to the number of shares set forth adjacent thereto. (b) Subject to the earlier expiration as expressly provided in the Plan, the Option shall expire and cease to have any force or effect on the tenth anniversary hereof. 5. METHOD OF EXERCISING OPTION. The Option shall be exercised by the delivery by the Optionee to the Corporation at its principal office (or at such other address as may be established by the Board) of written notice of the number of Option Shares with respect to which the Option is exercised, accompanied by payment in full of the aggregate Purchase Price for such Option Shares. Payment for such Option Shares shall be made (i) in U.S. dollars by personal check, bank draft or money order payable to the order of the Corporation, by money transfers or direct account debits; (ii) through the delivery or deemed delivery based on attestation to the ownership of shares of Common Stock with a fair market value equal to the total payment due from the Optionee; (iii) pursuant to a broker- assisted "cashless exercise" program if established by the Corporation; or (iv) by a combination of the methods described in (i) through (iii) above. 2 6. MINIMUM HOLDING PERIOD. Option Shares may not be sold until six months after the later of the Grant Date or date on which the Corporation's shareholders approve the Plan. 7. TRANSFER AND INVESTMENT REPRESENTATION. (a) The Option is not transferable otherwise than by will or the laws of descent and distribution, and the Option may be exercised during the Optionee's lifetime only by the Optionee. Any attempt to transfer the Option in contravention of this subparagraph (a) is void AB INITIO. The Option shall not be subject to execution, attachment or other process. (b) The Optionee represents that, unless at the time of exercise of the Option the issuance of the Option Shares to the Optionee is registered under the Securities Act of 1933, any and all Option Shares purchased hereunder shall be acquired for investment only and without a view to the resale or distribution thereof. If the issuance of the Option Shares is not so registered, certificates for the Option Shares shall bear a legend reciting the fact that such Option Shares may only be transferred pursuant to an effective registration statement under the Securities Act of 1933 or an opinion of counsel to the Corporation (or an opinion of counsel to the Optionee reasonably satisfactory to the Corporation) that such registration is not required. The Corporation may also issue "stop transfer" instructions with respect to such Option Shares while they are subject to such restrictions. (c) The Corporation shall use its best efforts to have the Option Shares listed on each securities exchange on which the Common Stock is then listed as promptly as possible. The Corporation shall not be obligated to issue or sell any Option Shares until they have been listed on each securities exchange on which the Common Stock is then listed. The Corporation shall use its best efforts to effect such listing as promptly as practicable. (d) The Corporation agrees promptly to file with the Securities and Exchange Commission a registration statement on Form S-8 covering the issuance of the Option Shares pursuant to this Option Agreement, and the Common Stock to be issued upon exercise of this Option, to cause such registration statement to become effective, and to keep such registration 3 statement effective for the period that this Option shall be outstanding and exercisable. In the event the Corporation fails to maintain the effectiveness of the Form S-8 registration statement and/or does not list the Option Shares on an appropriate stock exchange, and as a consequence, the Optionee is unable to sell his Option Shares, the Corporation hereby agrees, subject to compliance with any contractual restrictions applicable to the Corporation, to advance to the Optionee any funds that may be due by the Optionee to pay taxes (federal, state and/or local) that may be incurred in connection with the exercise of the Option. The Optionee agrees to reimburse the Corporation for any funds advanced by the Corporation to the Optionee pursuant to the preceding sentence (together with the Corporation's out-of-pocket interest costs thereon) out of proceeds derived by the Optionee from the sale of said Option Shares. 8. NO RIGHTS IN OPTION SHARES. The Optionee shall have none of the rights of a shareholder with respect to the Option Shares unless and until issued upon exercise of the Option. 9. NO RIGHT TO CONTINUE AS A DIRECTOR. Nothing contained herein shall be deemed to confer upon the Optionee any right to remain a director of the Corporation or a parent or subsidiary of the Corporation. 10. GOVERNING LAW/JURISDICTION. This Option Agreement shall be governed by and construed in accordance with the laws of the State of Delaware without reference to principles of conflict of laws. 11. RESOLUTION OF DISPUTES. Any disputes arising under or in connection with this Option Agreement shall be resolved by binding arbitration before a single arbitrator, to be held in New York in accordance with the commercial rules and procedures of the American Arbitration Association. Judgment upon the award rendered by the arbitrator shall be final and subject to appeal only to the extent permitted by law. Each party shall bear its or his own expenses incurred in connection with any arbitration; PROVIDED, HOWEVER, the cost of the arbitration, including without limitation, reasonable attorneys' fees of the Optionee, shall be borne by the Corporation in the event the Optionee is the prevailing party in the arbitration. Anything to the contrary notwithstanding, each party hereto has the right to proceed with a court action for injunctive relief or relief from violations of law not within the jurisdiction of an arbitrator. 4 12. MISCELLANEOUS. This Option Agreement cannot be changed or terminated orally. This Option Agreement and the Plan contain the entire agreement between the parties relating to this subject matter hereof. The section headings herein are intended for reference only and shall not affect the interpretation hereof. 5 ANNEX A NOTICE OF GRANT EMPLOYEE STOCK OPTION HEXCEL CORPORATION INCENTIVE STOCK PLAN The following employee of Hexcel Corporation, a Delaware corporation ("Hexcel") has been granted an employee stock option to purchase shares of the Common Stock of Hexcel, $.01 par value, in accordance with the terms of this Notice of Grant and the Employee Option Agreement attached. The following is a summary of the principal terms of the employee stock option which has been granted. The terms below shall have the meanings ascribed to them below when used in the Employee Option Agreement attached. - ------------------------------------ Optionee: - ------------------------------------ Address of Optionee: - ------------------------------------ Employee Number: - ------------------------------------' Employee ID Number - ------------------------------------ Foreign Sub Plan, if applicable March 1, 1996 - ------------------------------------ Grant Date - ------------------------------------ Purchase Price - ------------------------------------ Aggregate Number of Shares Granted (the "Option Shares") 6 IN WITNESS WHEREOF, the parties hereby agree to the terms of this Notice of Grant and the Employee Option Agreement attached hereto and execute this Notice of Grant as of the Grant Date. HEXCEL CORPORATION ___________________ By:___________________________________ Optionee Name:_________________________________ Title:________________________________ 7 EX-10.14 5 EXH 10.14NEW Exhibit 10.14 EMPLOYMENT AGREEMENT AGREEMENT made this 29th day of February, 1996, between Hexcel Corporation, a Delaware corporation (the "Company"), and John J. Lee (the "Executive"). The Executive is presently employed by the Company as its Chief Executive Officer. The Company has entered into the transactions contemplated under that certain Strategic Alliance Agreement, dated as of September 29, 1995, as amended, by and among Ciba-Geigy Limited ("Ciba"), Ciba-Geigy Corporation and the Company (the "Strategic Alliance Agreement"). The Board of Directors of the Company (the "Board") recognizes that the Executive's contribution to the growth and success of the Company has been substantial. The Board desires to provide for the continued employment of the Executive and to make certain changes in the Executive's employment arrangements with the Company which the Board has determined will reinforce and encourage the continued attention and dedication to the Company of the Executive as a member of the Company's management, in the best interest of the Company and its stockholders. The Executive is willing to commit himself to continue to serve the Company, on the terms and conditions herein provided. In order to effect the foregoing, the Company and the Executive wish to enter into an employment agreement on the terms and conditions set forth below. Accordingly, in consideration of the premises and the respective covenants and agreements of the parties herein contained, and intending to be legally bound hereby, the parties hereto agree as follows: I. EMPLOYMENT. The Company hereby agrees to continue to employ the Executive, and the Executive hereby agrees to continue to serve the Company, on the terms and conditions set forth herein. II. TERM. The employment of the Executive by the Company as provided in Section 1 shall commence on the Closing Date (as such term is defined in the Strategic Alliance Agreement) (the "Commencement Date") and end on the fifth anniversary of the Commencement Date, unless further extended or sooner terminated as hereinafter provided. 1 III. POSITION AND DUTIES. The Executive shall serve as Chairman of the Board and Chief Executive Officer of the Company and shall have such responsibilities, duties and authority consistent with such position and as may from time to time be assigned to the Executive by the Board. The Executive shall devote substantially all of his working time and efforts to the business and affairs of the Company; PROVIDED, HOWEVER, that the Executive will be permitted (i) to serve as a director or advisor to other for-profit and not-for-profit organizations and corporations and (ii) to serve as an active partner of certain partnerships for which he is already a partner as of the date hereof, in each case so long as (x) such service does not materially interfere with the performance of his obligations hereunder and (y) such organizations, corporations and partnerships are not competitive in any business area in which the Company is engaged during the term of this Agreement. The Executive shall furnish to the Company a list of each such entity on the Commencement Date and shall update such list as appropriate. IV. PLACE OF PERFORMANCE. In connection with the Executive's employment by the Company, the Executive shall perform his duties and conduct his business at the principal executive offices of the Company, which shall at all times be located in the New York City/Connecticut metropolitan area, except for required travel on the Company's business to an extent substantially consistent with present business travel obligations. V. COMPENSATION AND RELATED MATTERS. A. SALARY. During the period of the Executive's employment hereunder, the Company shall pay to the Executive an annual base salary at a rate of (x) for the 1996 calendar year, $400,000 and (y) for calendar years during the Term after 1996, at such increased rate as may from time to time be determined by the Board, PROVIDED, HOWEVER, that once the Executive's annual base salary is increased, it may not thereafter be decreased during the term of this Agreement. The Executive's annual base salary shall be paid in substantially equal installments, no less frequently than monthly, in accordance with the Company's standard payroll practices. Compensation of the Executive by salary payments shall not be deemed exclusive and shall not prevent the Executive from participating in any other compensation or benefit plan of the Company. The salary payments (including any increased salary payments) hereunder shall not in any way limit or reduce any other obligation of the Company hereunder, and no other compensation, benefit or payment hereunder shall in any way limit or reduce the obligation of the Company to pay the Executive's salary hereunder. 2 B. ANNUAL BONUSES. In recognition of the Executive's services on behalf of the Company in the 1995 calendar year, the Company shall pay the Executive a bonus award equal to $500,000. During the term of the Executive's employment hereunder, the Executive shall participate in such annual incentive compensation plans as the Company shall make available to its other officers on terms no less favorable than those applicable to such other officers. C. EQUITY COMPENSATION. 1. INCENTIVE STOCK PLAN. a. Effective as of the Commencement Date, the Executive shall be granted nonqualified options to purchase 200,000 shares of common stock of the Company, par value $.01 per share ("Common Stock"), under the Company's Incentive Stock Plan, at a per share exercise price equal to the closing price per share (the "Price Per Share") of Common Stock on the New York Stock Exchange (or if not then listed on such exchange, such other national securities exchange or quotation system as then listed upon) on the Commencement Date. Such options will have a ten-year term and will become vested and exercisable at the rate of (x) 33-1/3% of such options on each of the first three anniversaries of the Commencement Date, or (y) if more rapid than under clause (x), (A) an aggregate of 33-1/3% of such options on the fifth consecutive trading day on which the Price Per Share on the New York Stock Exchange remains at or above $12, (B) an aggregate of 66-2/3% of such options on the fifth consecutive trading day on which the Price Per Share remains at or above $16 and (C) an aggregate of 100% of such Options on the fifth consecutive trading day on which the Price Per Share remains at or above $20. b. Effective as of the Commencement Date, the Executive shall be granted nonqualified options to purchase 100,000 shares of Common Stock under the Company's Incentive Stock Plan at a per share exercise price equal to the Price Per Share on the date such options are exercised (the "Short-Term Options"). Such Short-Term Options will (1) have a 90-day term, (2) be immediately exercisable and (3) provide for automatic additional grants of two options for every Short-Term Option exercised by the Executive during such 90-day period ("Reload Options"). Reload Options will (1) have a per share exercise price equal to the per share exercise price of the Short-Term Options to which they relate, (2) have a term of ten years from the date of grant and (3) be subject to the same vesting and exercisability schedule as options provided in Section 3 5(c)(i)(A) hereof. Notwithstanding the foregoing, the two Reload Options corresponding to each exercised Short-Term Option will be immediately terminated in the event that the Executive sells, transfers, pledges or otherwise alienates the share of Common Stock received by him by virtue of the exercise of such Short-Term Option at any time prior to the earlier of (i) the Executive's termination of employment for any reason or (ii) the fourth anniversary of the exercise thereof. 2. PERFORMANCE ACCELERATED RESTRICTED STOCK UNITS. The Company shall implement a performance accelerated restricted stock unit program under its Stock Incentive Plan (the "Stock Program") on or prior to the Commencement Date. Effective as of the Commencement Date, the Executive shall be granted under the Stock Program, 200,000 performance accelerated restricted stock units ("PARs"). The 200,000 PARs shall vest on (x) the fifth anniversary of the Commencement Date, or (y) on such earlier date to the extent certain pre- determined performance criteria (the "PARs Goals") are achieved. The PARs Goals shall be as follows: if earnings of the Company before interest and taxes (as provided in the Company's audited financial statements) ("EBIT") equals or exceeds $70 million for any fiscal year of the Company, an aggregate of 33-1/3% of such PARs shall become vested; an aggregate of 66- 2/3% of such PARs shall become vested if EBIT for any fiscal year of the Company equals or exceeds $80 million; and an aggregate of 100% of such PARs shall become vested if EBIT for any fiscal year of the Company equals or exceeds $90 million. Upon vesting, PARs shall be converted into an equivalent number of shares of Common Stock that will be immediately distributed to the Executive; PROVIDED, HOWEVER, that no such PARs shall be converted and distributed to the Executive until the first business day of the first year in which the Company is not precluded from deducting the associated compensation expense under Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code"). The Executive shall have no voting rights with respect to PARs unless and until such PARs are converted to shares; PROVIDED, HOWEVER, that on each dividend payment date with respect to the Common Stock subsequent to any PARs becoming fully vested (but not yet converted or distributed by virtue of the immediately preceding proviso) the Company shall credit the Executive with an additional number of fully vested whole and partial PARs (assuming each such PAR was a share of Common Stock) equal in value to the amount of dividends which the Executive would have received on such dividend payment date if all such vested PARs (including PARs previously credited to the Execu- 4 tive pursuant to this section) which had not yet been converted into shares had been so converted prior to the record dated of such dividend. Such dividends will be credited as PARs as of the payment date of such dividends and such PARs shall thereafter be treated in the same manner as other PARs under this Agreement. 3. FORFEITURE. If the Executive's employment with the Company is involuntarily terminated for Cause (as defined below) or the Executive voluntarily terminates his employment with the Company other than for Good Reason (as defined below), the Executive shall forfeit all options (including Short-Term Options and Reload Options) and PARs provided in this Section 5(c) which have not yet become vested and/or exercisable as of the Date of Termination. Any such options which have become vested and exercisable will remain exercisable for a period of 90 days following the Date of Termination (as defined below) and any PARs which have vested shall be converted into shares of Common Stock and immediately distributed to the Executive, PROVIDED, HOWEVER, that no such shares shall be distributed to the Executive until the first business day of the first year in which the Company is not precluded from deducting the associated compensation expense under Section 162(m) of the Code. Notwithstanding any other provision contained herein, if the Executive's employment with the Company is involuntarily terminated other than for Cause, the Executive terminates employment for Good Reason, or the Executive dies or terminates employment due to disability, (x) all options (including Short- Term Options and Reload Options) shall become immediately vested and exercisable and shall remain exercisable for the lesser of (A) one year following the Date of Termination, or, if applicable, for one year following the Executive's death or disability or (B) for the remainder of the option term, and (y) all PARs shall vest, be converted into shares of Common Stock and be immediately distributed to the Executive, PROVIDED, HOWEVER, that no such shares shall be distributed to the Executive until the first business day of the first year in which the Company is not precluded from deducting the associated compensation expense under Section 162(m) of the Code. 4. PLAN TERMS GOVERN. Subject to the foregoing, all options and PARs granted to the Executive shall contain such terms and conditions as shall be set forth in the Company's Incentive Stock Plan. 5 5. BANKRUPTCY COURT GRANT. Effective as of the Commencement Date, the Executive shall be granted stock options (the "Bankruptcy Options") to acquire 113,379 shares of Common Stock as provided in the Plan of Reorganization, dated as of November 7, 1994, as approved by the United States Bankruptcy Court. The exercise price per share of the Bankruptcy Options shall be $5.05. The Bankruptcy Options shall expire on the third anniversary of the Commencement Date notwithstanding any earlier termination of the Executive's employment with the Company for any reason. The Bankruptcy Options shall vest in equal monthly installments over the two-year period beginning on the Commencement Date, PROVIDED, HOWEVER, that such options shall become immediately vested and exercisable upon a termination of the Executive's employment with the Company for any reason during the three- year period beginning on the Commencement Date. Except as provided in this section, the Bankruptcy Options shall be subject to the terms and conditions provided in the Stock Incentive Plan. 6. INCENTIVE COMPENSATION. During the term of the Executive's employment hereunder, the Executive shall participate in such long-term incentive and equity compensation plans as the Company shall make available to its other officers on terms no less favorable than those applicable to such other officers. D. DEFERRED COMPENSATION ACCOUNT. 1. Effective as of the Commencement Date, the Company shall establish a nonqualified deferred compensation arrangement for the benefit of the Executive. The Company will establish a bookkeeping account (the "Account") to which it shall credit in respect of each of seven fiscal years of the Company, commencing with the Company's 1995 fiscal year, an amount equal to $366,147 per annum, increased by 6% for each fiscal year after the 1995 fiscal year. The Company will credit the first installment contribution on the Commencement Date in respect of the 1995 fiscal year, and will credit each subsequent contribution on each of the next six consecutive December 31 thereafter in respect of fiscal years 1996 through 2001. The Account shall be credited with interest at the end of each fiscal year at a rate of 9%. No later than January 31 of each year during the term of this Agreement beginning with January 31, 1997, the Company shall deliver to the Executive a statement showing the balance of the Account as of December 31 of the prior year and all amounts credited to the Account during such year. 6 2. At any time following the later of (x) the Executive's attainment of age 65 or (y) the last required crediting of the $366,147 installment (as increased by 6% per annum) to the Account (including any early crediting as described in (iv) below) (but in no event earlier than the Executive's termination of employment with the Company), the Executive shall receive, or commence to receive, the amount credited to the Account. The Executive may elect to receive the value of the Account (1) in a lump sum, (2) in the form of a single life annuity with a ten-year certain payment, or (3) by causing the Company to purchase a single premium annuity contract from an insurance company of the Executive's choice, provided that any such election is made no later than the time determined by the Company's counsel to avoid the application of the doctrine of constructive receipt. If the Executive fails to make a timely election, payment will be in the form of a lump sum. Annuity payments (if applicable) shall be the actuarial equivalent of the lump sum amount, using the mortality table for males provided in Revenue Ruling 95-28 and assuming an interest rate equal to the product of (x) the prime rate in effect at Credit Suisse as of the first day of the month immediately preceding the first month for which an annuity payment is to be made to the Executive hereunder and (y) 1 minus the highest rate of individual federal, state and local income tax in effect for the year in which the annuity payments commence and in the jurisdiction of the Executive's residence for such year (giving effect to any available deduction for state and local income taxes in calculating federal income tax). 3. If the Executive's employment with the Company is involuntarily terminated other than for Cause or he terminates employment for Good Reason, (A) all remaining contribution installments referred to in clause (i) above that have not been made to the Account in respect of future fiscal years will be credited to the Account as of the Date of Termination, and (B) the Company shall commence distribution of the Account as soon as practicable following the Date of Termination in accordance with the election made by the Executive under clause (ii) above. If the Executive's employment with the Company is involuntarily terminated for Cause or if he terminates employment voluntarily other than for Good Reason, in either case during the term of this Agreement, no further contributions shall be made to the Account and the Company shall commence distribution of the Account as soon as practicable following the Date of Termination in accordance with the election made by the Executive under clause (ii) above. If the Executive's employment with the Company is involuntarily terminated for Cause, or if the Executive terminates employment with the Company voluntarily 7 other than for Good Reason, in either case after the expiration of the five-year term of this Agreement, the Company shall continue to credit to the Account all amounts as they become due in accordance with clause (i) above and the Company shall commence distribution of the Account as soon as practicable following the last date on which amounts are so credited in accordance with the election made by the Executive under clause (ii) above. If the Executive dies or terminates employment due to disability, all remaining contribution installments referred to in clause (i) above that have not been made to the Account in respect of future years will be credited to the Account as of the Date of Termination and the Company shall commence distribution of the Account as soon as practicable following the Date of Termination as a lump-sum distribution. 4. In no event shall payment of the Account be paid, or commence to be paid, until the first business day of the first year in which the Company is not precluded from deducting the associated compensation expense under Section 162(m) of the Code. E. OTHER BENEFITS. The Company shall maintain in full force and effect, and the Executive shall be entitled to continue to participate in with a level of benefits no less favorable than any other senior executive officer of the Company, all of the employee benefit plans and arrangements in effect on the date hereof in which the Executive participates or plans or arrangements providing the Executive with at least equivalent benefits thereunder (including, without limitation, each retirement plan, supplemental and excess retirement plans, annual and long-term incentive compensation plans, stock option and purchase plans, group life insurance and accident plan, medical and dental insurance plans, and disability plan). The Executive shall be entitled to participate in or receive benefits under any employee benefit plan or arrangement made available by the Company in the future to its executives and key management employees, subject to and on a basis consistent with the terms, conditions and overall administration of such plans and arrangements. F. VACATIONS. The Executive shall be entitled to a number of vacation days in each calendar year, and to compensation in respect of earned but unused vacation days, equal to the maximum number of vacation days for which any executive officer of the Company may become eligible determined under the Company's vacation policy as in effect from time to time, but in no event less 8 than five (5) weeks per year. The Executive shall also be entitled to all paid holidays and personal days given by the Company to its senior executive officers. G. SERVICES FURNISHED. The Company shall furnish the Executive with office space, stenographic assistance and such other facilities and services as shall be suitable to the Executive's position and adequate for the performance of his duties as set forth in Section 3 hereof. H. EXPENSES. During the term of the Executive's employment hereunder, the Executive shall be entitled to receive prompt reimbursement for all reasonable and customary expenses incurred by the Executive in performing services hereunder, including all reasonable and customary expenses of travel and living expenses while away from home on business or at the request of and in the service of the Company, provided that such expenses are incurred and accounted for in accordance with the policies and procedures established by the Company. VI. DIRECTORSHIPS/OTHER OFFICES. Subject to Sections 3 and 4, the Executive agrees to serve without additional compensation, if elected or appointed thereto, as a director of any of the Company's subsidiaries and in one or more executive offices of any of the Company's subsidiaries, provided that the Executive is indemnified for serving in any and all such capacities on a basis no less favorable than is from time to time provided by the Company or any of its subsidiaries to its other directors and senior executive officers. VII. TERMINATION. The Executive's employment hereunder may be terminated without any breach of this Agreement only under the following circumstances: A. DEATH. The Executive's employment hereunder shall terminate upon his death. B. DISABILITY. If, as a result of the Executive's incapacity due to physical or mental illness, the Executive shall have been absent from his duties hereunder on a full-time basis for the entire period of six consecutive months, and within thirty (30) days after written notice of termination is given (which may occur before or after the end of such six month period) shall not have returned to the performance of his duties hereunder on a full-time basis, the Company may terminate the Executive's employment hereunder. 9 C. CAUSE. The Company may terminate the Executive's employment hereunder for Cause. For purposes of this Agreement, the Company shall have "Cause" to terminate the Executive's employment hereunder upon (i) the willful and continued failure by the Executive to substantially perform his duties hereunder (other than any such failure resulting from the Executive's incapability due to physical or mental illness or any such actual or anticipated failure after the issuance of a Notice of Termination, as defined in Section 7(e), by the Executive for Good Reason, as defined in Section 7(d)(ii)), after demand for substantial performance is delivered by the Company that specifically identifies the manner in which the Company believes the Executive has not substantially performed his duties), or (ii) the willful engaging by the Executive in misconduct which is demonstrably and materially injurious to the Company, monetarily or otherwise including, but not limited to, conduct that constitutes Competitive Activity, as defined in Section 10). For purposes of this Section 7(c) no act, or failure to act, on the Executive's part shall be considered "willful" unless done, or omitted to be done, by him not in good faith and without reasonable belief that his action or omission was in the best interest of the Company. Notwithstanding the foregoing, the Executive shall not be deemed to have been terminated for Cause without (1) reasonable notice from the Board to the Executive setting forth the reasons for the Company's intention to terminate for Cause, (2) delivery to the Executive of a resolution duly adopted by the affirmative vote of two-thirds or more of the Board then in office (excluding the Executive) at a meeting of the Board called and held for such purpose, finding that in the good faith opinion of the Board, the Executive was guilty of the conduct set forth in this Section 7(c) and specifying the particulars thereof in detail, (3) an opportunity for the Executive, together with his counsel, to be heard before the Board, and (4) delivery to the Executive of a Notice of Termination, as defined in subsection (e) hereof, from the Board specifying the particulars thereof in detail. D. TERMINATION BY THE EXECUTIVE. 1. The Executive may terminate his employment hereunder (A) for Good Reason or (B) if his health should become impaired to an extent that makes his continued performance of his duties hereunder hazardous to his physical or mental health or his life, provided that the Executive shall have furnished the Company with a written statement from a qualified doctor to such effect, and provided, further, that, at the Company's request, the Executive shall submit to an examination by a doctor selected by the Company and such doctor shall have concurred in the conclusion of the Executive's doctor. In the event that the doctor selected by the Company does not so concur, the two doctors shall select, by mutual agreement, a third doctor, independent of the parties hereto, whose determination regarding the 10 Executive's physical or mental health shall be conclusive for purposes of this paragraph. 2. For purposes of this Agreement, "Good Reason" shall mean (A) a failure by the Company to comply with any material provision of this Agreement which failure has not been cured within thirty (30) days after written notice of such noncompliance has been given by the Executive to the Company, (B) any purported termination of the Executive's employment which is not effected pursuant to a Notice of Termination satisfying the requirements of paragraph (e) hereof (and for purposes of this Agreement no such purported termination shall be effective) or (C) a "Change in Control" shall have occurred. For purposes of this Agreement, Change in Control means: (A)(i) any person (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (other than Ciba and its affiliates and any former Ciba affiliates holding Company voting securities pursuant to Section 4.01(b) of the Governance Agreement (as defined in the Strategic Alliance Agreement)) (a "Person") is or becomes the beneficial owner (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of either (x) the then outstanding Common Stock of the Company (the "Outstanding Common Stock") or (y) the combined voting power of the then outstanding securities entitled to vote generally in the election of directors of the Company (the "Total Voting Power"); excluding, however, the following: (1) any acquisition by the Company or any of its affiliates or (2) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or Ciba or any of their respective affiliates or any former Ciba affiliates holding Company voting securities pursuant to Section 4.01(b) of the Governance Agreement and (ii) Ciba and its affiliates and any former Ciba affiliates holding Company voting securities pursuant to Section 4.01(b) of the Governance Agreement (1) beneficially own, in the aggregate, a lesser percentage of the Total Voting Power than such Person beneficially owns and (2) do not have the right or ability by voting power, contract or otherwise to elect or designate for election at least the same percentage of the members of the Board contemplated in the Governance Agreement for their then level of ownership; or (B) a change in the composition of the Board such that the individuals who, as of the effective date of this Agreement, constitute the Board 11 (such individuals shall be hereinafter referred to as the "Incumbent Directors") cease for any reason to constitute at least a majority of the Board; PROVIDED, HOWEVER, for purposes of this definition, that any individual who becomes a director subsequent to such effective date, whose election, or nomination for election by the Company's stockholders, was made or approved pursuant to the Governance Agreement between the Company and Ciba or by a vote of at least a majority of the Incumbent Directors (or directors whose election or nomination for election was previously so approved) shall be considered a member of the Incumbent Board; but, PROVIDED, FURTHER, that any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest (as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a person or legal entity other than the Board shall not be so considered as a member of the Incumbent Board; or (C) the approval by the stockholders of the Company of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company ("Corporate Transaction"); excluding, however, such a Corporate Transaction (1) pursuant to which all or substantially all of the individuals and entities who are the beneficial owners, respectively, of the Outstanding Common Stock and Total Voting Power immediately prior to such Corporate Transaction will beneficially own, directly or indirectly, more than 50%, respectively, of the outstanding common stock and the combined voting power of the then outstanding securities entitled to vote generally in the election of directors of the company resulting from such Corporate Transaction (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company's assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Corporate Transaction, of the Outstanding Common Stock and Total Voting Power, as the case may be, or (2) after which (a) no Person beneficially owns a greater percentage of the combined voting power of the then outstanding securities entitled to vote generally in the election of directors of such corporation than do Ciba and its affiliates and any former Ciba affiliates holding Company voting securities pursuant to Section 4.01(b) of the Governance Agreement in the aggregate and (b) Ciba and its affiliates and any former Ciba affiliates holding Company voting securities pursuant to Section 4.01(b) of the Governance Agreement have the right and ability by voting power, con- 12 tract or otherwise to elect or designate for election no less than the same percentage of the members of the board of directors of such corporation contemplated in the Governance Agreement with respect to the Company for their then level of ownership; or (D) the approval by the stockholders of the Company of a complete liquidation or dissolution of the Company. E. NOTICE OF TERMINATION. Any termination of the Executive's employment by the Company or by the Executive (other than termination pursuant to subsection (a) hereof) shall be communicated by written Notice of Termination to the other party hereto in accordance with Section 12. For purposes of this Agreement, a "Notice of Termination" shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated. F. DATE OF TERMINATION. "Date of Termination" shall mean (i) if the Executive's employment is terminated by his death, the date of his death, (ii) if the Executive's employment is terminated pursuant to subsection (b) above, thirty (30) days after Notice of Termination is given (provided that the Executive shall not have returned to the performance of his duties on a full-time basis during such thirty (30)-day period), (iii) if the Executive's employment is terminated pursuant to subsection (c) above, the date specified in the Notice of Termination, and (iv) if the Executive's employment is terminated for any other reason, the date on which a Notice of Termination is given; provided, however, that, if within thirty (30) days after any Notice of Termination is given the party receiving such Notice of Termination notifies the other party that a dispute exists concerning the termination, the Date of Termination shall be the date on which the dispute is finally determined, either by mutual written agreement of the parties, by a binding and final arbitration award or by a final judgment, order or decree of a court of competent jurisdiction (the time for appeal therefrom having expired and no appeal having been perfected). G. INDEMNIFICATION AFTER TERMINATION. Notwithstanding any other provision of this Agreement to the contrary, upon the Executive's termination of employment hereunder for any reason, the Company shall take such action necessary and appropriate to provide that the Executive's rights to indemnification from the Company as provided by applicable law, by the Company's charter and by-laws and by any agreement between the Company and the Executive shall not 13 be affected in any manner adverse to the Executive and shall be continued in full force and effect for a period of at least six years following such termination of employment. VIII. COMPENSATION UPON TERMINATION OR DURING DISABILITY. A. During any period that the Executive fails to perform his duties hereunder as a result of incapacity due to physical or mental illness ("disability period"), the Executive shall continue to receive his full salary at the rate then in effect for such period until his employment is terminated for disability pursuant to Section 7(b) hereof, provided that payments so made to the Executive shall be reduced by the sum of the amounts, if any, payable to the Executive at or prior to the time of any such payment under disability benefit plans of the Company or under the Social Security disability insurance program, and which amounts were not previously applied to reduce any such payment. B. If the Executive's employment is terminated by his death, the Company shall pay any amounts due to the Executive under Section 5 through the date of his death in accordance with Section 11(b). C. If the Executive's employment shall be terminated by the Company for Cause or voluntarily by the Executive other for than Good Reason, the Company shall pay the Executive his full salary through the Date of Termination at the rate in effect at the time Notice of Termination is given and the Company shall have no further obligations to the Executive relating to the provision of salary under this Agreement. D. If (A) in breach of this Agreement, the Company shall terminate the Executive's employment other than for disability pursuant to Section 7(b) or other than for Cause or (B) the Executive shall terminate his employment for Good Reason, then 1. the Company shall pay the Executive (A) his full salary through the Date of Termination at the rate in effect at the time Notice of Termination is given, (B) a pro rata portion of any incentive bonus for the year in which the Date of Termination occurs, such amount determined based on the target bonus amount that the Executive would have received if all performance goals (if any) had been attained in full and had his employment continued until the end of such year, and on the number of full and partial months worked during such year, and (C) all other unpaid 14 amounts, if any, with respect to which the Executive has a vested interest as of the Date of Termination under any compensation plan or program of the Company, at the time such payments are due; 2. in lieu of any further salary payments to the Executive for periods subsequent to the Date of Termination, the Company shall pay as liquidated damages, in full settlement of the Company's obligations to the Executive relating to the provision of salary and bonus under this Agreement, to the Executive an amount equal to the product of (A) the sum of (1) the highest annual salary rate in effect for the Executive in the 90 days immediately preceding the Date of Termination and (2) the highest annual amount payable to the Executive under the Company's annual bonus plans in respect of the three calendar years preceding the calendar year in which such Date of Termination occurs, and (B) the greater of the number of years (including partial years) remaining in the term of employment hereunder or the number two (2); such payment to be made in substantially equal monthly installments. E. If the Executive shall terminate his employment under clause (B) of subsection 7(d)(i) hereof, the Company shall pay the Executive his full salary through the Date of Termination at the rate in effect at the time Notice of Termination is given. IX. NO MITIGATION. The Company agrees that, if the Executive's employment with the Company terminates during the term of this Agreement, the Executive is not required to seek other employment or to attempt in any way to reduce any amounts payable to the Executive by the Company hereunder. Further, the amount of any payment or benefit provided for in this Agreement shall not be reduced by any compensation earned by the Executive as the result of employment by another employer, by retirement benefits, by offset against any amount claimed to be owed by the Executive to the Company, or otherwise. X. NONCOMPETITION/CONFIDENTIAL INFORMATION. The Executive agrees that, in order to protect the Company's trade secrets in the field of engineered materials (E.G., high technology, lightweight structural materials and specialty chemicals and resins) and other products being manufactured or marketed by the Company or developed for manufacture or marketing at the time of the Executive's retirement or termination of employment, or the trade secrets of any business acquired by the Company within six months after retirement or termina- 15 tion of such employment if said acquisition was in the process of negotiation at the time of such retirement or termination (hereinafter collectively designated the "Company's Business"), at all times prior to his retirement or termination of employment and during so much of the two-year period following such retirement or termination that the Company, or any of its successors, assigns or affiliated companies carries on any portion of the Company's Business, the Executive shall not directly or indirectly, as a partner, substantial owner, employee, associate, consultant, agent or otherwise, engage in any activity related to or competitive with the Company's Business in any county in the State of California, or in any other state, territory or foreign country within which the Company carries on the Company's Business or in which any of its products are sold either prior or subsequent to the date hereof. The invalidity or unenforceability of any provision of this Section 10 shall not affect the validity or enforceability of any other provision of this Section 10, which shall remain in full force and effect. XI. SUCCESSORS; BINDING AGREEMENT. A. The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company, by agreement in form and substance satisfactory to the Executive, to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain such assumption and agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle the Executive to compensation from the Company in the same amount and on the same terms as he would be entitled to hereunder if he terminated his employment for Good Reason, except that for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which executes and delivers the agreement provided for in this Section 11 or which otherwise becomes bound by all the terms and provisions of this Agreement by operation of law. B. This Agreement and all rights of the Executive hereunder shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Executive should die while any amounts would still be payable to him hereunder if he had continued to live, all such amounts, unless 16 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. XII. 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 If to the Company: Hexcel Corporation 72 Cummings Point Road Stamford, CT 06902 Attn: Board of Directors or to such other address as any party may have furnished to the other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt. XIII. MISCELLANEOUS. No provisions of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing signed by the Executive and such officer of the Company as may be specifically designated by the Board. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not set forth expressly in this Agreement. The validity, interpretation, construction and performance of this Agreement shall 17 be governed by the laws of the State of New York without regard to its conflicts of law principles. XIV. VALIDITY. The invalidity or unenforceability of any provision or provisions of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. XV. 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. XVI. SURVIVORSHIP. Any rights and obligations of the parties set forth in Sections 5(d), 5(e), 8, 10 of this Agreement shall survive any termination of this Agreement. XVII. ARBITRATION. Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration, conducted before a panel of three arbitrators, at a location mutually agreed upon by the Company and the Executive which is situated within 50 miles of the Company's headquarters, in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator's award in any court having jurisdiction; provided, however, that the Company shall be entitled to seek a restraining order or injunction in any court of competent jurisdiction to prevent any continuation of any violation of the provisions of Section 10 of the Employment Agreement and the Executive hereby consents that such restraining order or injunction may be granted without the necessity of the Company's posting any bond, and provided further that the Executive shall be entitled to seek specific performance of his right to be paid until the Date of Termination during the pendency of any dispute or controversy arising under or in connection with this Agreement. The Company shall pay to the Executive all legal fees and expenses incurred by the Executive in disputing in good faith any issue relating to the termination of the Executive's employment or in seeking in good faith to obtain or enforce any benefit or right provided by this Agreement, PROVIDED, that either (i) the Executive eventually prevails on at least one material issue which is a subject of such arbitration or (ii) the Executive and the Company enter into a written settlement agreement relating to one or more of such material issues prior to the conclusion of any such arbitration. Such payments shall be made within five (5) business days after delivery of the Executive's written re- 18 quests for payment accompanied with such evidence of fees and expenses incurred as the Company reasonably may require. XVIII. ENTIRE AGREEMENT. This Agreement sets forth the entire agreement of the parties hereto in respect of the subject matter contained herein and supersedes all prior agreements, promises, covenants, arrangements, communications, representations or warranties, whether oral or written, by any officer, employee or representative of any party hereto; and any prior agreement of the parties hereto (including the employment agreement dated as of September 1, 1994 between the Executive and the Company) in respect of the subject matter contained herein is hereby terminated and cancelled). 19 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date and year first above written. HEXCEL CORPORATION Attest: By: /s/ DAVID WONG By: /s/ JUERGEN HABERMEIER ------------------- ---------------------------------- Name: Juergen Habermeier Title: President WITNESS: EXECUTIVE /s/ MICHAEL BACAL /s/ JOHN J. LEE ------------------- ---------------------------------- John J. Lee 20 John J. Lee: INTERESTS IN OTHER CORPORATIONS, ORGANIZATIONS AND PARTNERSHIPS. 1. Director of XTRA Corporation. 2. Chairman, President & CEO of Lee Development Corporation. 3. Trustee of Yale University. 4. Advisor to The Clipper Group. 5. Director of Aviva Petroleum Corp. 21 EX-10.14(A) 6 EXH 10.14(A)NEW Exhibit 10.14 (a) EMPLOYEE OPTION AGREEMENT EMPLOYEE OPTION AGREEMENT, dated as of the Grant Date, by and between the Optionee, residing at Address of Optionee and Hexcel Corporation (the "Corporation"). W I T N E S S E T H: WHEREAS, the Corporation has adopted the Hexcel Corporation Incentive Stock Plan (the "Plan"). WHEREAS, the Executive Compensation Committee of the Board of Directors of the Corporation (the "Committee") has determined that it is desirable and in the best interest of the Corporation to grant to the Optionee a stock option as an incentive for the Optionee to advance the interests of the Corporation. NOW, THEREFORE, the parties agree as follows: 1. NOTICE OF GRANT. Attached hereto as Annex A and incorporated by reference herein is a Notice of Grant. Unless otherwise provided herein, capitalized terms used herein and set forth in such Notice of Grant shall have the meanings ascribed to them on the Notice of Grant. Also attached hereto is the Plan; the provisions of the Plan are incorporated by reference herein. 2. GRANT OF OPTION. Pursuant to the Plan and subject to the terms and conditions set forth herein and therein, the Corporation hereby grants to the Optionee the right and option (the "Option") to purchase all or any part of the Option Shares of the Corporation's common stock, $.01 par value per share (the "Common Stock"), which Option is not intended to qualify as an incentive stock option, as defined in Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"). 3. PURCHASE PRICE. The purchase price per share of the Option Shares shall be the Purchase Price. 1 4. TERMS OF OPTION. (a) EXPIRATION DATE. Subject to Section 4(c) below, the Option shall expire on, and shall no longer be exercisable following, the tenth anniversary of the Grant Date. (b) VESTING PERIOD; EXERCISABILITY. Subject to Section 4(c) below, the Option shall vest and become exercisable at the rate of (x) 33-1/3% of the Option Shares on each of the first three anniversaries of the Grant Date, or (y) if more rapid than under clause (x), (A) an aggregate of 33-1/3% of such Option Shares on the fifth consecutive trading day on which the Fair Market Value (as defined in the Plan) of the Common Stock remains at or above $12, (B) an aggregate of 66-2/3% of the Option Shares on the fifth consecutive trading day on which the Fair Market Value of the Common Stock remains at or above $16 and (C) an aggregate of 100% of the Option Shares on the fifth consecutive trading day on which the Fair Market Value of the Common Stock remains at or above $20. (c) TERMINATION OF EMPLOYMENT. If the Optionee's employment with the Corporation is involuntarily terminated for Cause (as defined in that certain Employment Agreement, dated as of the date hereof, by and between the Optionee and the Corporation (the "Employment Agreement")) or the Optionee voluntarily terminates his employment with the Corporation other than for Good Reason (as defined in the Employment Agreement), the Optionee shall forfeit the Option to the extent not yet vested as of the Date of Termination (as defined in the Employment Agreement). The Option, to the extent vested on the date of Termination, shall be exercisable for a period of 90 days following the Date of Termination. Notwithstanding any other provision contained herein or in the Plan, if the Optionee's employment with the Corporation is involuntarily terminated other than for Cause, the Optionee terminates employment for Good Reason, or the Optionee dies or terminates employment due to disability (within the meaning of Section 7(b) of the Employment Agreement), the Option shall become fully and immediately vested and exercisable and shall remain exercisable for the lesser of (A) one year following the Date of Termination, or, if applicable, for one year following the Optionee's death or disability or (B) for the remainder of the term of the Option. 5. ADJUSTMENT UPON CHANGES IN CAPITALIZATION. 2 (a) The aggregate number of Option Shares and the Purchase Price shall be appropriately adjusted by the Committee for any increase or decrease in the number of issued shares of Common Stock resulting from a subdivision or consolidation of shares or other capital adjustment, or the payment of a stock dividend or other increase or decrease in such shares, effected without receipt of consideration by the corporation, or other change in corporate or capital structure. (b) Any adjustment under this Section 5 in the number of Option Shares shall apply to only the unexercised portion of the Option. If fractions of a share would result from any such adjustment, the adjustment shall be revised to the next lower whole number of shares. 6. METHOD OF EXERCISING OPTION AND WITHHOLDING. (a) The Option shall be exercised by the delivery by the Optionee to the Corporation at its principal office (or at such other address as may be established by the Committee) of written notice of the number of Option Shares with respect to which the Option is exercised, accompanied by payment in full of the aggregate Purchase Price for such Option Shares. Payment for such Option Shares shall be made (i) in U.S. dollars by personal check, bank draft or money order payable to the order of the Corporation, by money transfers or direct account debits; (ii) through the delivery or deemed delivery based on attestation to the ownership of shares of Common Stock with a Fair Market Value equal to the total payment due from the Optionee; (iii) pursuant to a broker-assisted "cashless exercise" program if established by the Corporation; or (iv) by a combination of the methods described in (i) through (iii) above. (b) The Corporation's obligation to deliver shares of Common Stock upon the exercise of the Option shall be subject to the payment by the Optionee of applicable federal, state and local withholding tax, if any. The Corporation shall, to the extent permitted by law, have the right to deduct from any payment of any kind otherwise due to the Optionee any federal, state or local taxes required to be withheld with respect to such payment. 3 7. TRANSFER AND INVESTMENT REPRESENTATION. (a) The Option is not transferable otherwise than by will or the laws of descent and distribution, and the Option may be exercised during the Optionee's lifetime only by the Optionee. Any attempt to transfer the Option in contravention of this subsection (a) is void AB INITIO. The Option shall not be subject to execution, attachment or other process. (b) The Optionee represents that, unless at the time of exercise of the Option the issuance of the Option Shares to the Optionee is registered under the Securities Act of 1933, as amended (the "Securities Act"), any and all Option Shares purchased hereunder shall be acquired for investment only and without a view to the resale or distribution thereof. If the issuance of the Option Shares is not so registered, certificates for the Option Shares shall bear a legend reciting the fact that such Option Shares may only be transferred pursuant to an effective registration statement under the Securities Act or an opinion of counsel to the Corporation (or an opinion of counsel to the Optionee reasonably satisfactory to the Corporation) that such registration is not required. The Corporation may also issue "stop transfer" instructions with respect to such Option Shares while they are subject to such restrictions. (c) The Corporation shall use its best efforts to have the Option Shares listed on each securities exchange on which the Common Stock is then listed as promptly as possible. The Corporation shall not be obligated to issue or sell any Option Shares until they have been listed on each securities exchange on which the Common Stock is then listed. (d) The Corporation agrees promptly to file with the Securities and Exchange Commission a registration statement on Form S-8 covering the issuance of the Option Shares pursuant to this Employee Option Agreement, and the Common Stock to be issued upon exercise of this Option, to cause such registration statement to become effective, and to keep such registration statement effective for the period that this Option shall be outstanding and exercisable. In the event the Corporation fails to maintain the effectiveness of the Form S-8 registration statement and/or does not list the Option Shares on an appropriate stock exchange, and as a consequence, the Optionee is unable to sell his Option Shares, the Corporation hereby agrees, subject to compliance with any contractual restrictions applicable to the Corporation, to advance to the Optionee any funds that 4 may be due by the Optionee to pay taxes (federal, state and/or local) that may be incurred in connection with the exercise of the Option. The Optionee agrees to reimburse the Corporation for any funds advanced by the Corporation to the Optionee pursuant to the preceding sentence (together with the Corporation's out-of-pocket interest costs thereon) out of proceeds derived by the Optionee from the sale of said Option Shares. 8. NO RIGHTS IN OPTION SHARES. The Optionee shall have none of the rights of a stockholder with respect to the Option shares unless and until issued upon exercise of the Option. 9. NO RIGHT TO EMPLOYMENT. Nothing contained herein shall be deemed to confer upon the Optionee any right to remain as an employee of the Corporation. 10. GOVERNING LAW/JURISDICTION. This Employee Option Agreement shall be governed by and construed in accordance with the laws of the State of Delaware without reference to principles of conflict of laws. 11. RESOLUTION OF DISPUTES. Any disputes arising under or in connection with this Employee Option Agreement shall be resolved by binding arbitration before a single arbitrator, to be held in New York in accordance with the commercial rules and procedures of the American Arbitration Association. Judgment upon the award rendered by the arbitrator shall be final and subject to appeal only to the extent permitted by law. Each party shall bear its or his own expenses incurred in connection with any arbitration; PROVIDED, HOWEVER, the cost of the arbitration, including without limitation, reasonable attorneys' fees of the Optionee, shall be borne by the Corporation in the event the Optionee is the prevailing party in the arbitration. Anything to the contrary notwithstanding, each party hereto has the right to proceed with a court action for injunctive relief or relief from violations of law not within the jurisdiction of an arbitrator. 12. MISCELLANEOUS. This Employee Option Agreement cannot be changed or terminated orally. This Employee Option Agreement and the Plan contain the entire agreement between the parties relating to the subject matter hereof. The section headings herein are intended for reference only and shall not affect the interpretation hereof. This Employee Option Agreement is intended to comply with Rule 16b-3 of the Securities Exchange Act of 1934, as amended, and the provisions hereof shall be construed in a manner to so comply. 5 ANNEX A NOTICE OF GRANT EMPLOYEE STOCK OPTION HEXCEL CORPORATION INCENTIVE STOCK PLAN The following employee of Hexcel Corporation, a Delaware corporation ("Hexcel") has been granted an employee stock option to purchase shares of the Common Stock of Hexcel, $.01 par value, in accordance with the terms of this Notice of Grant and the Employee Option Agreement attached. The following is a summary of the principal terms of the employee stock option which has been granted. The terms below shall have the meanings ascribed to them below when used in the Employee Option Agreement attached. - ------------------------------------------------------------------------------- Optionee: John J. Lee - ------------------------------------------------------------------------------- Address of Optionee: - ------------------------------------------------------------------------------- Employee Number: - ------------------------------------------------------------------------------- Employee ID Number - ------------------------------------------------------------------------------- Foreign Sub Plan, if applicable - ------------------------------------------------------------------------------- Grant Date February 29, 1996 - ------------------------------------------------------------------------------- Purchase Price(1) $12.50 - ------------------------------------------------------------------------------- Aggregate Number of Shares 200,000 Granted (the "Option Shares") - ------------------------------------------------------------------------------- - ---------------- (1) Fair Market Value of Common Stock on February 29, 1996. 6 IN WITNESS WHEREOF, the parties hereby agree to the terms of this Notice of Grant and the Employee Option Agreement attached hereto and execute this Notice of Grant as of the Grant Date. HEXCEL CORPORATION /s/ JOHN J. LEE By: /s/ JUERGEN HABERMEIER - ----------------- ------------------------------------ Optionee Name Juergen Habermeier Title: President 7 EX-10.14(B) 7 EXH 10.14(B)NEW Exhibit 10.14 (b) BANKRUPTCY COURT OPTION AGREEMENT BANKRUPTCY COURT OPTION AGREEMENT, dated as of the Grant Date, by and between the Optionee, residing at Address of Optionee and Hexcel Corporation (the "Corporation"). W I T N E S S E T H: WHEREAS, the Corporation has adopted the Corporation's Incentive Stock Plan (the "Plan"). WHEREAS, the Hexcel Corporation Plan of Reorganization, dated as of November 7, 1994, as approved by the United States Bankruptcy Court, provides that the Optionee be granted an option to purchase shares of Common Stock. WHEREAS, the Executive Compensation Committee of the Board of Directors of the Corporation (the "Committee") has determined that it is desirable and in the best interest of the Corporation to grant to the Optionee a stock option in accordance with the Plan of Reorganization. NOW, THEREFORE, the parties agree as follows: 1. NOTICE OF GRANT. Attached hereto as Annex A and incorporated by reference herein is a Notice of Grant. Unless otherwise provided herein, capitalized terms used herein and set forth in such Notice of Grant shall have the meanings ascribed to them on the Notice of Grant. Also attached hereto is the Plan; the provisions of the Plan are incorporated by reference herein. 2. GRANT OF OPTION. Pursuant to the Plan and subject to the terms and conditions set forth herein and therein, the Corporation hereby grants to the Optionee the right and option (the "Option") to purchase all or any part of the Option Shares of the Corporation's common stock, $.01 par value per share (the "Common Stock"), which option is not intended to qualify as an incentive stock option, as defined in Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"). 3. PURCHASE PRICE. The purchase price per share of the Option Shares shall be the Purchase Price. 1 4. TIME OF EXERCISE; TERM. (a) The Option shall vest and become exercisable in 24 equal monthly installments over the two-year period beginning on the Grant Date. (b) The Option shall expire and cease to have any force or effect on the third anniversary of the Grant Date. 5. ADJUSTMENT UPON CHANGES IN CAPITALIZATION. (a) The aggregate number of Option Shares and the Purchase Price shall be appropriately adjusted by the Committee for any increase or decrease in the number of issued shares of Common Stock resulting from a subdivision or consolidation of shares or other capital adjustment, or the payment of a stock dividend or other increase or decrease in such shares, effected without receipt of consideration by the corporation, or other change in corporate or capital structure. (b) Any adjustment under this Section 5 in the number of Option Shares shall apply to only the unexercised portion of the Option. If fractions of a share would result from any such adjustment, the adjustment shall be revised to the next lower whole number of shares. 6. METHOD OF EXERCISING OPTION AND WITHHOLDING. (a) The Option shall be exercised by the delivery by the Optionee to the Corporation at its principal office (or at such other address as may be estab lished by the Committee) of written notice of the number of Option Shares with respect to which the Option is exercised, accompanied by payment in full of the aggregate Purchase Price for such Option Shares. Payment for such Option Shares shall be made (i) in U.S. dollars by personal check, bank draft or money order payable to the order of the Corporation, by money transfers or direct account debits; (ii) through the delivery or deemed delivery based on attestation to the ownership of shares of Common Stock with a Fair Market Value (as defined in the Plan) equal to the total payment due from the Optionee; (iii) pursuant to a broker-assisted "cashless exercise" program if established by the Corporation; or (iv) by a combination of the methods described in (i) through (iii) above. 2 (b) The Corporation's obligation to deliver shares of Common Stock upon the exercise of the Option shall be subject to the payment by the Optionee of applicable federal, state and local withholding tax, if any. The Corporation shall, to the extent permitted by law, have the right to deduct from any payment of any kind otherwise due to the Optionee any federal, state or local taxes required to be withheld with respect to such payment. Subject to the right of the Committee to disapprove any such election and require the withholding tax in cash, the Optionee shall have the right to elect to pay the withholding tax with shares of Common Stock to be received upon exercise of the Option or which are otherwise owned by the Optionee. Any election to pay withholding taxes with stock shall be irrevocable once made. 7. DISABILITY, DEATH OR TERMINATION OF EMPLOYMENT; CHANGE IN CONTROL. If the employment of the Optionee with the Corporation shall be terminated for any reason whatsoever during the term of this Bankruptcy Court Option Agreement, the Option shall become immediately and fully vested and exercisable for the remainder of such term. 8. TRANSFER AND INVESTMENT REPRESENTATION. (a) The Option is not transferable otherwise than by will or the laws of descent and distribution, and the Option may be exercised during the Optionee's lifetime only by the Optionee. Any attempt to transfer the Option in contravention of this subsection (a) is void AB INITIO. The Option shall not be subject to execution, attachment or other process. (b) The Optionee represents that, unless at the time of exercise of the Option the issuance of the Option Shares to the Optionee is registered under the Securities Act of 1933, as amended (the "Securities Act") any and all Option Shares purchased hereunder shall be acquired for investment only and without a view to the resale or distribution thereof. If the issuance of the Option Shares is not so registered, certificates for the Option Shares shall bear a legend reciting the fact that such Option Shares may only be transferred pursuant to an effective registration statement under the Securities Act or an opinion of counsel to the Corporation (or an opinion of counsel to the Optionee reasonably satisfactory to the Corporation) that such registration is not required. The Corporation may also issue "stop transfer" instructions with respect to such Option Shares while they are subject to such restrictions. 3 (c) The Corporation shall use its best efforts to have the Option Shares listed on each securities exchange on which the Common Stock is then listed as promptly as possible. The Corporation shall not be obligated to issue or sell any Option Shares until they have been listed on each securities exchange on which the Common Stock is then listed. (d) The Corporation agrees promptly to file with the Securities and Exchange Commission a registration statement on Form S-8 covering the issuance of the Option Shares pursuant to this Bankruptcy Court Option Agreement, and the Common Stock to be issued upon exercise of this Option, to cause such registration statement to become effective, and to keep such registration statement effective for the period that this Option shall be outstanding and exercisable. In the event the Corporation fails to maintain the effectiveness of the Form S-8 registration statement and/or does not list the Option Shares on an appropriate stock exchange, and as a consequence, the Optionee is unable to sell his Option Shares, the Corporation hereby agrees, subject to compliance with any contractual restrictions applicable to the Corporation, to advance to the Optionee any funds that may be due by the Optionee to pay taxes (federal, state and/or local) that may be incurred in connection with the exercise of the Option. The Optionee agrees to reimburse the Corporation for any funds advanced by the Corporation to the Optionee pursuant to the preceding sentence (together with the Corporation's out-of- pocket interest costs thereon) out of proceeds derived by the Optionee from the sale of said Option Shares. 9. NO RIGHTS IN OPTION SHARES. The Optionee shall have none of the rights of a stockholder with respect to the Option shares unless and until issued upon exercise of the Option. 10. NO RIGHT TO EMPLOYMENT. Nothing contained herein shall be deemed to confer upon the Optionee any right to remain as an employee of the Corporation. 11. GOVERNING LAW/JURISDICTION. This Bankruptcy Court Option Agreement shall be governed by and construed in accordance with the laws of the State of Delaware without reference to principles of conflict of laws. 12. RESOLUTION OF DISPUTES. Any disputes arising under or in connection with this Bankruptcy Court Option Agreement shall be resolved by binding arbitration before a single arbitrator, to be held in New York in accordance with the commercial rules and procedures of the American Arbitration Association. Judgment 4 upon the award rendered by the arbitrator shall be final and subject to appeal only to the extent permitted by law. Each party shall bear its or his own expenses incurred in connection with any arbitration; PROVIDED, HOWEVER, the cost of the arbitration, including without limitation, reasonable attorneys' fees of the Optionee, shall be borne by the Corporation in the event the Optionee is the prevailing party in the arbitration. Anything to the contrary notwithstanding, each party hereto has the right to proceed with a court action for injunctive relief or relief from violations of law not within the jurisdiction of an arbitrator. 13. MISCELLANEOUS. This Bankruptcy Court Option Agreement cannot be changed or terminated orally. This Bankruptcy Court Option Agreement and the Plan contain the entire agreement between the parties relating to the subject matter hereof. The section headings herein are intended for reference only and shall not affect the interpretation hereof. This Bankruptcy Court Option Agreement is intended to comply with Rule 16b-3 of the Securities Exchange Act of 1934, as amended, and the provisions hereof shall be construed in a manner to so comply. 5 IN WITNESS WHEREOF, the parties hereby agree to the terms of this Notice of Grant and the Bankruptcy Court Option Agreement attached hereto and execute this Notice of Grant as of the Grant Date. HEXCEL CORPORATION /s/ JOHN J. LEE By: /s/ JUERGEN HABERMEIER - ------------------------ ----------------------- Optionee Name: Juergen Habermeier Title: President 6 ANNEX A NOTICE OF GRANT BANKRUPTCY COURT STOCK OPTION HEXCEL CORPORATION INCENTIVE STOCK PLAN The following employee of Hexcel Corporation, a Delaware corporation ("Hexcel") has been granted an employee stock option to purchase shares of the Common Stock of Hexcel, $.01 par value, in accordance with the terms of this Notice of Grant and the Bankruptcy Court Option Agreement attached. The following is a summary of the principal terms of the employee stock option which has been granted. The terms below shall have the meanings ascribed to them below when used in the Bankruptcy Court Option Agreement attached. - -------------------------------------------------------------------------------- Optionee: John J. Lee - -------------------------------------------------------------------------------- Address of Optionee: - -------------------------------------------------------------------------------- Employee Number: - -------------------------------------------------------------------------------- Employee ID Number - -------------------------------------------------------------------------------- Foreign Sub Plan, if applicable - -------------------------------------------------------------------------------- Grant Date February 29, 1996 - -------------------------------------------------------------------------------- Purchase Price $5.05 - -------------------------------------------------------------------------------- Aggregate Number of Shares Granted (the "Option Shares") 113,379 - -------------------------------------------------------------------------------- 7 EX-10.14(C) 8 EXH 10.14(C)NEW Exhibit 10.14 (c) PERFORMANCE ACCELERATED RESTRICTED STOCK UNIT AGREEMENT This Performance Accelerated Restricted Stock Unit Agreement (the "Agreement"), is entered into as of February 29, 1996 (the "Grant Date"), by and between Hexcel Corporation, a Delaware corporation (collectively with its subsidiaries, the "Company"), and John J. Lee (the "Grantee"). Pursuant to the Hexcel Corporation Incentive Stock Plan (the "Plan"), the Executive Compensation Committee of the Board of Directors of the Company (the "Committee") has determined that the Grantee shall be granted Performance Accelerated Restricted Stock Units ("PARS") upon the terms and subject to the conditions hereinafter contained. Capitalized terms used but not defined herein shall have the meanings assigned to them in the Plan. 1. NUMBER OF SHARES. The Grantee is hereby granted 200,000 PARS, subject to the restrictions set forth herein. 2. TERMS OF RESTRICTED STOCK. The grant of PARS provided in Section 1 hereof shall be subject to the following terms, conditions and restrictions: (a) The Grantee shall not possess any incidents of ownership (including, without limitation, dividend and voting rights) in shares of Common Stock in respect of the PARS until such PARS have vested and been distributed to the Grantee in the form of shares of Common Stock. (b) The PARS and any interest therein may not be sold, assigned, transferred, pledged, hypothecated or otherwise disposed of, except by will or the laws of descent and distribution, prior to the distribution of the Common Stock in respect of such PARS and subject to the conditions set forth in the Plan and this Agreement. 3. VESTING AND CONVERSION OF PARS. The 200,000 PARS shall vest on (x) the fifth anniversary of the Grant Date, or (y) on such earlier date to the extent certain pre-determined performance criteria (the "PARS Goals") are achieved. The PARS Goals shall be as follows: if earnings of the Company before interest and taxes (as provided in the Company's audited financial statements) ("EBIT") equal or exceed $70 million for any fiscal year of the Company, an aggregate of 33-1/3% of such PARS shall become vested; if EBIT for any 1 fiscal year of the Company equals or exceeds $80 million, an aggregate of 66-2/3% of such PARS shall become vested; and if EBIT for any fiscal year of the Company equals or exceeds $90 million, an aggregate of 100% of such PARS shall become vested. Upon vesting, PARS shall be converted into an equivalent number of shares of Common Stock that will be immediately distributed to the Grantee; PROVIDED, HOWEVER, that an appropriate number of PARS shall not be converted and distributed to the Grantee until the first business day of the first year in which the Company is not precluded from deducting the associated compensation expense under Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code"), but only to the extent such number of PARS would not be deductible until such time. On each dividend payment date with respect to the Common Stock subsequent to any PARS becoming fully vested but not yet converted or distributed by virtue of the immediately preceding proviso, the Company shall credit the Grantee with an additional number of fully vested whole and partial PARS (assuming each such PARS unit was a share of Common Stock) equal in value to the amount of dividends which the Grantee would have received on such dividend payment date if all such vested PARS (including PARS previously credited to the Grantee pursuant to this section) which had not yet been converted into shares had been so converted prior to the record date of such dividend. Such dividends will be credited as PARS as of the payment date of such dividends and such PARS shall thereafter be treated in the same manner as other PARS under this Agreement (the foregoing method of dividend crediting being referred to herein as a "Dividend Equivalent"). Upon the distribution of the shares of Common Stock in respect of the PARS, the Company shall issue to the Grantee or the Grantee's personal representative a stock certificate representing such shares of Common Stock, free of any restrictions. 4. TERMINATION OF EMPLOYMENT. Notwithstanding any other provision contained herein or in the Plan, if the Grantee's employment with the Company is involuntarily terminated other than for Cause (as such term is defined in that certain Employment Agreement, dated as of the date hereof, by and between the Company and the Grantee) (the "Employment Agreement")), the Grantee terminates employment for Good Reason (as such term is defined in the Employment Agreement), or the Grantee dies or terminates employment due to disability (within the meaning of Section 7(b) of the Employment Agreement), all PARS shall vest, be converted into shares of Common Stock and be immediately distributed to the Grantee, PROVIDED, HOWEVER, that an appropriate number of such PARS shall not be converted and distributed to the Grantee until the first business 2 day of the first year in which the Company is not precluded from deducting the associated compensation expense under Section 162(m) of the Code, but only to the extent such number of PARS would not be deductible until such time; FURTHER, PROVIDED, that the Grantee shall be credited with the Dividend Equivalent with respect to such PARS. If the Grantee's employment with the Company is involuntarily terminated for Cause or the Grantee voluntarily terminates his employment with the Company other than for Good Reason, the Grantee shall forfeit all PARS provided herein which have not yet become vested as of the Date of Termination (as defined in the Employment Agreement). Any PARS which have vested as of the Date of Termination shall be converted into shares of Common Stock and immediately distributed to the Grantee, PROVIDED, HOWEVER, that an appropriate number of such PARS shall not be converted and distributed to the Grantee until the first business day of the first year in which the Company is not precluded from deducting the associated compensation expense under Section 162(m) of the Code, but only to the extent such number of PARS would not be deductible until such time; FURTHER, PROVIDED, that the Grantee shall be credited with the Dividend Equivalent with respect to such PARS. 5. EQUITABLE ADJUSTMENT. The aggregate number of shares of Common Stock subject to the PARS shall be proportionately adjusted for any increase or decrease in the number of issued shares of Common Stock resulting from a subdivi sion or consolidation of shares or other capital adjustment, or the payment of a stock dividend or other increase or decrease in such shares, effected without the receipt of consideration by the Corporation, or other change in corporate or capital structure; provided, however, that any fractional shares resulting from any such adjustment shall be eliminated. The Committee may also make the foregoing changes and any other changes, including changes in the classes of securities available, to the extent it deems necessary or desirable to preserve the intended benefits under this Agreement in the event of any other reorganization, recapitalization, merger, consolidation, spin-off, extraordinary dividend or other distribution or similar transaction. 6. TAXES. The Grantee shall pay to the Company promptly upon request, and in any event at the time the Grantee recognizes taxable income in respect of the PARS, an amount equal to the taxes the Company determines it is required to withhold under applicable tax laws with respect to the PARS. Such payment shall be made as provided in Section IX(f) of the Plan. 3 7. NO GUARANTEE OF EMPLOYMENT. Nothing set forth herein or in the Plan shall confer upon the Grantee any right of continued employment for any period by the Company, or shall interfere in any way with the right of the Company to terminate such employment. 8. NOTICES. Any notice required or permitted under this Agreement shall be deemed given when delivered personally, or when deposited in a United States Post Office, postage prepaid, addressed, as appropriate, to the Grantee at the last address specified in Grantee's employment records, or such other address as the Grantee may designate in writing to the Company, or to the Company, Attention: Corporate Secretary, or such other address as the Company may designate in writing to the Grantee. 9. FAILURE TO ENFORCE NOT A WAIVER. The failure of either party hereto to enforce at any time any provision of this Agreement shall in no way be construed to be a waiver of such provision or of any other provision hereof. 10. GOVERNING LAW. This Agreement shall be governed by and construed according to the laws of the State of Delaware, without regard to the conflicts of laws provisions thereof. 11. INCORPORATION OF PLAN. The Plan is hereby incorporated herein by reference and made a part of this Agreement, and this Agreement shall be subject to the terms of the Plan, as it may be amended from time to time, provided that such amendment of the Plan is made in accordance with Section X of the Plan. The PARS granted herein constitute Awards within the meaning of the Plan. 12. AMENDMENTS. This Agreement may be amended or modified at any time by an instrument in writing signed by the parties hereto. 13. COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which shall be an original but all of which together shall represent one and the same agreement. 4 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date and year set forth above. HEXCEL CORPORATION By: /s/ JUERGEN HABERMEIER ----------------------- Its: President ----------------------- /s/ JOHN J. LEE ----------------------- John J. Lee 5 EX-10.14(D) 9 EXH 10.14(D)NEW Exhibit 10.14 (d) SHORT-TERM OPTION AGREEMENT SHORT-TERM OPTION AGREEMENT, dated as of the Grant Date, by and between the Optionee, residing at Address of Optionee and Hexcel Corporation (the "Corporation"). W I T N E S S E T H: WHEREAS, the Corporation has adopted the Hexcel Corporation Incentive Stock Plan (the "Plan"). WHEREAS, the Executive Compensation Committee of the Board of Directors of the Corporation (the "Committee") has determined that it is desirable and in the best interest of the Corporation to grant to the Optionee a stock option as an incentive for the Optionee to advance the interests of the Corporation. NOW, THEREFORE, the parties agree as follows: 1. NOTICE OF GRANT. Attached hereto as Annex A and incorporated by reference herein is a Notice of Grant. Unless otherwise provided herein, capitalized terms used herein and set forth in such Notice of Grant shall have the meanings ascribed to them on the Notice of Grant. Also attached hereto is the Plan; the provisions of the Plan are incorporated by reference herein. 2. GRANT OF OPTION. Pursuant to the Plan and subject to the terms and conditions set forth herein and therein, the Corporation hereby grants to the Optionee the right and option (the "Option") to purchase all or any part of the Option Shares of the Corporation's common stock, $.01 par value per share (the "Common Stock"), which Option is not intended to qualify as an incentive stock option, as defined in Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"). 3. PURCHASE PRICE. The purchase price per share (the "Purchase Price") of the Option Shares shall equal the Fair Market Value (as defined in the Plan) as of the date of exercise of the Option. 4. TIME OF EXERCISE; TERM. 1 (a) The Option shall be fully vested and exercisable as of the Grant Date. (b) Subject to the earlier expiration as expressly provided in this Section 4, the Option shall expire and cease to have any force or effect ninety (90) days after the Grant Date (the "Expiration Date"). (c) If the Optionee's employment with the Corporation is terminated for Cause (as defined in that certain Employment Agreement, dated as of the date hereof, by and between the Optionee and the Corporation (the "Employment Agreement")), the Option, to the extent not yet exercised as of the Date of Termination (as defined in the Employment Agreement), shall expire forthwith. (d) If the employment of the Optionee with the Corporation shall be terminated for any other reason, the Option may be exercised at any time prior to the Expiration Date. 5. GRANT OF RELOAD OPTION. Upon each full or partial exercise of the Option by the Optionee, the Optionee shall be granted automatically on the date (or dates) of such exercise or exercises a new option (the "Reload Option") for a number of shares of the Common Stock equal to the number of Option Shares purchased upon such exercise, multiplied by two (2). The Reload Option shall be evidenced by an Option Agreement substantially in the form of Annex B hereto and shall be granted pursuant to the Plan. 6. ADJUSTMENT UPON CHANGES IN CAPITALIZATION. (a) The aggregate number of Option Shares and the Purchase Price shall be appropriately adjusted by the Committee for any increase or decrease in the number of issued shares of Common Stock resulting from a subdivision or consolidation of shares or other capital adjustment, or the payment of a stock dividend or other increase or decrease in such shares, effected without receipt of consideration by the corporation, or other change in corporate or capital structure. (b) Any adjustment under this Section 6 in the number of Option Shares shall apply to only the unexercised portion of the Option. If fractions of a share would result from any such adjustment, the adjustment shall be revised to the next lower whole number of shares. 2 7. METHOD OF EXERCISING OPTION AND WITHHOLDING. (a) The Option shall be exercised by the delivery by the Optionee to the Corporation at its principal office (or at such other address as may be established by the Committee) of written notice of the number of Option Shares with respect to which the Option is exercised, accompanied by payment in full of the aggregate Purchase Price for such Option Shares. Payment for such Option Shares shall be made in U.S. dollars by personal check, bank draft or money order payable to the order of the Corporation, by money transfers or direct account debits. (b) The Corporation's obligation to deliver shares of Common Stock upon the exercise of the Option shall be subject to the payment by the Optionee of applicable federal, state and local withholding tax, if any. The Corporation shall, to the extent permitted by law, have the right to deduct from any payment of any kind otherwise due to the Optionee any federal, state or local taxes required to be withheld with respect to such payment. 8. TRANSFER AND INVESTMENT REPRESENTATION. (a) The Option is not transferable otherwise than by will or the laws of descent and distribution, and the Option may be exercised during the Optionee's lifetime only by the Optionee. Any attempt to transfer the Option in contravention of this subparagraph (a) is void AB INITIO. The Option shall not be subject to execution, attachment or other process. (b) The Optionee represents that, unless at the time of exercise of the Option the issuance of the Option Shares to the Optionee is registered under the Securities Act of 1933, as amended (the "Securities Act"), any and all Option Shares purchased hereunder shall be acquired for investment only and without a view to the resale or distribution thereof. If the issuance of the Option Shares is not so registered, certificates for the Option Shares shall bear a legend reciting the fact that such Option Shares may only be transferred pursuant to an effective registration statement under the Securities Act or an opinion of counsel to the Corporation (or an opinion of counsel to the Optionee reasonably satisfactory to the Corporation) that such registration is not required. The Corporation may also issue "stop transfer" instructions with respect to such Option Shares while they are subject to such restrictions. 3 (c) The Corporation shall use its best efforts to have the Option Shares listed on each securities exchange on which the Common Stock is then listed as promptly as possible. The Corporation shall not be obligated to issue or sell any Option Shares until they have been listed on each securities exchange on which the Common Stock is then listed. (d) The Corporation agrees promptly to file with the Securities and Exchange Commission a registration statement on Form S-8 covering the issuance of the Option Shares pursuant to this Short-Term Option Agreement, and the Common Stock to be issued upon exercise of this Option, to cause such registration statement to become effective, and to keep such registration statement effective for the period that this Option shall be outstanding and exercisable. In the event the Corporation fails to maintain the effectiveness of the Form S-8 registration statement and/or does not list the Option Shares on an appropriate stock exchange, and as a consequence, the Optionee is unable to sell his Option Shares, the Corporation hereby agrees, subject to compliance with any contractual restrictions applicable to the Corporation, to advance to the Optionee any funds that may be due by the Optionee to pay taxes (federal, state and/or local) that may be incurred in connection with the exercise of the Option. The Optionee agrees to reimburse the Corporation for any funds advanced by the Corporation to the Optionee pursuant to the preceding sentence (together with the Corporation's out-of-pocket interest costs thereon) out of proceeds derived by the Optionee from the sale of said Option Shares. 9. NO RIGHTS IN OPTION SHARES. The Optionee shall have none of the rights of a stockholder with respect to the Option shares unless and until issued upon exercise of the Option. 10. NO RIGHT TO EMPLOYMENT. Nothing contained herein shall be deemed to confer upon the Optionee any right to remain as an employee of the Corporation. 11. GOVERNING LAW/JURISDICTION. This Short-Term Option Agreement shall be governed by and construed in accordance with the laws of the State of Delaware without reference to principles of conflict of laws. 12. RESOLUTION OF DISPUTES. Any disputes arising under or in connection with this Short-Term Option Agreement shall be resolved by binding arbitration before a single arbitrator, to be held in New York in accordance with the commercial rules and procedures of the American Arbitration Association. Judgment upon 4 the award rendered by the arbitrator shall be final and subject to appeal only to the extent permitted by law. Each party shall bear its or his own expenses incurred in connection with any arbitration; PROVIDED, HOWEVER, the cost of the arbitration, including without limitation, reasonable attorneys' fees of the Optionee, shall be borne by the Corporation in the event the Optionee is the prevailing party in the arbitration. Anything to the contrary notwithstanding, each party hereto has the right to proceed with a court action for injunctive relief or relief from violations of law not within the jurisdiction of an arbitrator. 13. MISCELLANEOUS. This Short-Term Option Agreement cannot be changed or terminated orally. This Short-Term Option Agreement and the Plan contain the entire agreement between the parties relating to the subject matter hereof. The section headings herein are intended for reference only and shall not affect the interpretation hereof. This Short-Term Option Agreement is intended to comply with Rule 16b-3 of the Securities Exchange Act of 1934, as amended, and the provisions hereof shall be construed in a manner to so comply. 5 IN WITNESS WHEREOF, the parties hereby agree to the terms of this Notice of Grant and the Short-Term Option Agreement attached hereto and execute this Notice of Grant as of the Grant Date. HEXCEL CORPORATION /s/ JOHN J. LEE By: /s/ JUERGEN HABERMEIER - ---------------------- ---------------------------------- Optionee Name: Juergen Habermeier Title: President 6 ANNEX A NOTICE OF GRANT SHORT-TERM STOCK OPTION HEXCEL CORPORATION INCENTIVE STOCK PLAN The following employee of Hexcel Corporation, a Delaware corporation ("Hexcel") has been granted an employee stock option to purchase shares of the Common Stock of Hexcel, $.01 par value, in accordance with the terms of this Notice of Grant and the Short-Term Option Agreement attached. The following is a summary of the principal terms of the employee stock option which has been granted. The terms below shall have the meanings ascribed to them below when used in the Short-Term Option Agreement attached. - ------------------------------------------------------------------------------ Optionee: John L. Lee - ------------------------------------------------------------------------------ Address of Optionee: - ------------------------------------------------------------------------------ Employee Number: - ------------------------------------------------------------------------------ Employee ID Number - ------------------------------------------------------------------------------ Foreign Sub Plan, if applicable - ------------------------------------------------------------------------------ Grant Date February 29, 1996 - ------------------------------------------------------------------------------ Aggregate Number of Shares 100,000 Granted (the "Option Shares") - ------------------------------------------------------------------------------ 7 EX-10.14(E) 10 EXH 10.14(E)NEW Exhibit 10.14 (e) FORM OF RELOAD OPTION AGREEMENT RELOAD OPTION AGREEMENT, dated as of the Grant Date, by and between the Optionee, residing at Address of Optionee and Hexcel Corporation (the "Corporation"). W I T N E S S E T H: WHEREAS, the Corporation has adopted the Hexcel Corporation Incentive Stock Plan (the "Plan"). WHEREAS, the Executive Compensation Committee of the Board of Directors of the Corporation (the "Committee") has previously granted to the Optionee a Short-Term Option, pursuant to a Short-Term Option Agreement, dated as of February 29, 1996 (the "Short-Term Option Agreement"), which Short-Term Option provides for, upon the exercise thereof, the grant of a new option, subject to certain terms and conditions. WHEREAS, the Optionee has exercised the Short-Term Option and is in possession of all or certain of the shares of Common Stock (as defined below) issued to him thereunder (the "Short-Term Option Shares") in accordance with its terms and the terms of the Plan. NOW, THEREFORE, the parties agree as follows: 1. NOTICE OF GRANT. Attached hereto as Annex A and incorporated by reference herein is a Notice of Grant. Unless otherwise provided herein, capitalized terms used herein and set forth in such Notice of Grant shall have the meanings ascribed to them on the Notice of Grant. Also attached hereto is the Plan; the provisions of the Plan are incorporated by reference herein. 2. GRANT OF OPTION. Pursuant to the Plan and subject to the terms and conditions set forth herein and therein, the Corporation hereby grants to the Optionee the right and option (the "Option") to purchase all or any part of the Option Shares of the Corporation's common stock, $.01 par value per share (the "Common Stock"), which Option is not intended to qualify as an incentive stock option, as defined in Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"). 1 3. PURCHASE PRICE. The purchase price per share of the Option Shares shall be the Purchase Price. 4. TERMS OF OPTION. (a) EXPIRATION DATE. Subject to Section 4(c) and 4(d) below, the Option shall expire on, and shall no longer be exercisable following, the tenth anniversary of the Grant Date. (b) VESTING PERIOD; EXERCISABILITY. The Option shall vest and, subject to Section 4(d), shall become non-forfeitable (but not exercisable) at the rate of (x) 33-1/3% of the Option Shares on each of the first three anniversaries of the Grant Date, or (y) if more rapid than under clause (x), (A) an aggregate of 33-1/3% of such Option Shares on the fifth consecutive trading day on which the Fair Market Value (as defined in the Plan) of the Common Stock remains at or above $12, (B) an aggregate of 66-2/3% of such Option Shares on the fifth consecutive trading day on which the Fair Market Value of the Common Stock remains at or above $16 and (C) an aggregate of 100% of such Option Shares on the fifth consecutive trading day on which the Fair Market Value of the Common Stock remains at or above $20. The Option shall become exercisable, but only to the extent already vested pursuant to the foregoing, on the fourth anniversary of the Grant Date or, if sooner, as provided in Section 4(c) below. (c) TERMINATION OF EMPLOYMENT. If the Optionee's employment with the Corporation is involuntarily terminated for Cause (as defined in that certain Employment Agreement, dated as of February 29, 1996, by and between the Optionee and the Corporation (the "Employment Agreement")) or the Optionee voluntarily terminates his employment with the Corporation other than for Good Reason (as defined in the Employment Agreement), the Optionee shall forfeit the Option to the extent not yet vested as of the Date of Termination (as defined in the Employment Agreement). The Option, to the extent vested on the Date of Termination, shall be exercisable for a period of 90 days following the Date of Termination. Notwithstanding any other provision contained herein or in the Plan, if the Optionee's employment with the Corporation is involuntarily terminated 2 other than for Cause, the Optionee terminates employment for Good Reason, or the Optionee dies or terminates employment due to disability (within the meaning of Section 7(b) of the Employment Agreement), the Option shall become fully and immediately vested and exercisable and shall remain exercisable for the lesser of (A) one year following the Date of Termination, or, if applicable, for one year following the Optionee's death or disability or (B) for the remainder of the term of the Option. d) AUTOMATIC CANCELLATION. Subject to Section 4(c) above, the Option shall be immediately cancelled (automatically and without any action taken by the Corporation) with respect to that number of Option Shares subject to the Option (such number of Option Shares being determined in accordance with the succeeding sentence), effective immediately upon any sale, disposition or purported assignment or transfer of any or all of the Short-Term Option Shares prior to the earlier of the Optionee's termination of employment with the Corporation and the fourth anniversary of the Grant Date (as defined in the Short-Term Option Agreement). The number of Option Shares so cancelled shall equal the number of Short-Term Option Shares so sold, disposed of, assigned or transferred prior to the earlier of the Optionee's termination of employment with the Corporation and the fourth anniversary of the Grant Date (as defined in the Short-Term Option Agreement), multiplied by two (2). The Optionee shall promptly notify the Corporation of any such sale, disposition, assignment or transfer. 5. ADJUSTMENT UPON CHANGES IN CAPITALIZATION. (a) The aggregate number of Option Shares and the Purchase Price shall be appropriately adjusted by the Committee for any increase or decrease in the number of issued shares of Common Stock resulting from a subdivision or consolidation of shares or other capital adjustment, or the payment of a stock dividend or other increase or decrease in such shares, effected without receipt of consideration by the corporation, or other change in corporate or capital structure. (b) Any adjustment under this Section 5 in the number of Option Shares shall apply to only the unexercised portion of the Option. If fractions of a share would result from any such adjustment, the adjustment shall be revised to the next lower whole number of shares. 3 6. METHOD OF EXERCISING OPTION AND WITHHOLDING. (a) The Option shall be exercised by the delivery by the Optionee to the Corporation at its principal office (or at such other address as may be established by the Committee) of written notice of the number of Option Shares with respect to which the Option is exercised, accompanied by payment in full of the aggregate Purchase Price for such Option Shares. Payment for such Option Shares shall be made (i) in U.S. dollars by personal check, bank draft or money order payable to the order of the Corporation, by money transfers or direct account debits; (ii) through the delivery or deemed delivery based on attestation to the ownership of shares of Common Stock with a Fair Market Value equal to the total payment due from the Optionee; (iii) pursuant to a broker-assisted "cashless exercise" program if established by the Corporation; or (iv) by a combination of the methods described in (i) through (iii) above. (b) The Corporation's obligation to deliver shares of Common Stock upon the exercise of the Option shall be subject to the payment by the Optionee of applicable federal, state and local withholding tax, if any. The Corporation shall, to the extent permitted by law, have the right to deduct from any payment of any kind otherwise due to the Optionee any federal, state or local taxes required to be withheld with respect to such payment. 7. TRANSFER AND INVESTMENT REPRESENTATION. (a) The Option is not transferable otherwise than by will or the laws of descent and distribution, and the Option may be exercised during the Optionee's lifetime only by the Optionee. Any attempt to transfer the Option in contravention of this subsection (a) is void AB INITIO. The Option shall not be subject to execution, attachment or other process. (b) The Optionee represents that, unless at the time of exercise of the Option the issuance of the Option Shares to the Optionee is registered under the Securities Act of 1933, as amended (the "Securities Act"), any and all Option Shares purchased hereunder shall be acquired for investment only and without a view to the resale or distribution thereof. If the issuance of the Option Shares is not so registered, certificates for the Option Shares shall bear a legend reciting the fact that such Option Shares may only be transferred pursuant to an effective registration statement under the Securities Act or an opinion of counsel to the Corporation (or an 4 opinion of counsel to the Optionee reasonably satisfactory to the Corporation) that such registration is not required. The Corporation may also issue "stop transfer" instructions with respect to such Option Shares while they are subject to such restrictions. (c) The Corporation shall use its best efforts to have the Option Shares listed on each securities exchange on which the Common Stock is then listed as promptly as possible. The Corporation shall not be obligated to issue or sell any Option Shares until they have been listed on each securities exchange on which the Common Stock is then listed. (d) The Corporation agrees promptly to file with the Securities and Exchange Commission a registration statement on Form S-8 covering the issuance of the Option Shares pursuant to this Reload Option Agreement, and the Common Stock to be issued upon exercise of this Option, to cause such registration statement to become effective, and to keep such registration statement effective for the period that this Option shall be outstanding and exercisable. In the event the Corporation fails to maintain the effectiveness of the Form S-8 registration statement and/or does not list the Option Shares on an appropriate stock exchange, and as a consequence, the Optionee is unable to sell his Option Shares, the Corporation hereby agrees, subject to compliance with any contractual restrictions applicable to the Corporation, to advance to the Optionee any funds that may be due by the Optionee to pay taxes (federal, state and/or local) that may be incurred in connection with the exercise of the Option. The Optionee agrees to reimburse the Corporation for any funds advanced by the Corporation to the Optionee pursuant to the preceding sentence (together with the Corporation's out-of-pocket interest costs thereon) out of proceeds derived by the Optionee from the sale of said Option Shares. 8. NO RIGHTS IN OPTION SHARES. The Optionee shall have none of the rights of a stockholder with respect to the Option shares unless and until issued upon exercise of the Option. 9. NO RIGHT TO EMPLOYMENT. Nothing contained herein shall be deemed to confer upon the Optionee any right to remain as an employee of the Corporation. 10. GOVERNING LAW/JURISDICTION. This Reload Option Agreement shall be governed by and construed in accordance with the laws of the State of Delaware without reference to principles of conflict of laws. 5 11. RESOLUTION OF DISPUTES. Any disputes arising under or in connection with this Reload Option Agreement shall be resolved by binding arbitration before a single arbitrator, to be held in New York in accordance with the commercial rules and procedures of the American Arbitration Association. Judgment upon the award rendered by the arbitrator shall be final and subject to appeal only to the extent permitted by law. Each party shall bear its or his own expenses incurred in connection with any arbitration; PROVIDED, HOWEVER, the cost of the arbitration, including without limitation, reasonable attorneys' fees of the Optionee, shall be borne by the Corporation in the event the Optionee is the prevailing party in the arbitration. Anything to the contrary notwithstanding, each party hereto has the right to proceed with a court action for injunctive relief or relief from violations of law not within the jurisdiction of an arbitrator. 12. MISCELLANEOUS. This Reload Option Agreement cannot be changed or terminated orally. This Reload Option Agreement and the Plan contain the entire agreement between the parties relating to the subject matter hereof. The section headings herein are intended for reference only and shall not affect the interpretation hereof. This Reload Option Agreement is intended to comply with Rule 16b-3 of the Securities Exchange Act of 1934, as amended, and the provisions hereof shall be construed in a manner to so comply. 6 IN WITNESS WHEREOF, the parties hereby agree to the terms of this Notice of Grant and the Reload Option Agreement attached hereto and execute this Notice of Grant as of the Grant Date. HEXCEL CORPORATION By: - ---------------- ------------------------- Optionee Name: Title: 7 ANNEX A NOTICE OF GRANT RELOAD STOCK OPTION HEXCEL CORPORATION INCENTIVE STOCK PLAN The following employee of Hexcel Corporation, a Delaware corporation ("Hexcel") has been granted an employee stock option to purchase shares of the Common Stock of Hexcel, $.01 par value, in accordance with the terms of this Notice of Grant and the Reload Option Agreement attached. The following is a summary of the principal terms of the employee stock option which has been granted. The terms below shall have the meanings ascribed to them below when used in the Reload Option Agreement attached. - ------------------------------------------------------------------------------- Optionee: John J. Lee - ------------------------------------------------------------------------------- Address of Optionee: - ------------------------------------------------------------------------------- Employee Number: - ------------------------------------------------------------------------------- Employee ID Number - ------------------------------------------------------------------------------- Foreign Sub Plan, if applicable - ------------------------------------------------------------------------------- Grant Date [exercise date of STOP] - ------------------------------------------------------------------------------- Purchase Price(1) $[purchase price of STOP] - ------------------------------------------------------------------------------- Aggregate Number of Shares [200,000] Granted (the "Option Shares") - ------------------------------------------------------------------------------- 8 EX-10.19 11 EXH 10.19NEW Exhibit 10.19 M E M O R A N D U M TO: Rod Jenks CC: Dave Wong FROM: John Lee DATE: January 31, 1996 SUBJ: TRANSITION EMPLOYMENT AGREEMENT The following confirms the terms of the transition employment arrangements that you and I agreed to around November 10, 1995. On November 20, 1995, I briefed John Cheesmond and Peter Langerman and they are in general agreement with these terms. 1. The Company has a need for your services for a period through the closing of the Ciba Composites acquisition and the hiring of a new general counsel. 2. In order to provide a smooth transition, you have agreed to continue as an employee of Hexcel until March 31, 1996 or such earlier date as the Company may elect. 3. You will remain in your current position as Vice President - Legal, General Counsel and Secretary reporting to John Lee. 4. In consideration for your past and continuing service, you will receive a compensation package consisting of: 4.1 your current salary level of $180,000 per year prorated and payable in the normal course, plus normal benefits; 4.2 bonus of $100,000 payable no later than 5 business days after the earlier of the date of termination or March 31, 1996; Such bonus is in lieu of any 1995 or 1996 bonus that may be otherwise payable. 4.3 guaranteed vesting of the second third of the 1995 option grant; Thus, of the 39,000 stock options granted to you in 1995, you will be vested in and be able to exercise 26,000 stock options (2/3 of 39,000). We will extend the exercise period to January 10, 1997. 5. Upon termination of employment, you will 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 1 condition to the receipt of the transition compensation, 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). The Company also agrees to indemnify you for acts as an employee and officer to the fullest extent of Delaware law. Please sign below to indicate your agreement with the terms of the transition employment arrangements. Signed: /s/ RODNEY P. JENKS, JR. /s/ JOHN J. LEE - ------------------------ ------------------------- Rodney P. Jenks, Jr. John J. Lee CEO, Hexcel Corporation 2 EX-10.20(A) 12 EXH 10.20(A)NEW Exhibit 10.20 (a) UNIROCK MANAGEMENT CORPORATION 1228 FIFTEENTH STREET at LARIMER SUITE 201 DENVER, COLORADO 80202 (303) 623-4500 FAX (303) 623-9006 October 27, 1995 Mr. Rodney P. Jenks Vice President & General Counsel Hexcel Corporation 5794 West Las Positas Blvd. Pleasanton, California 94588 Dear Rod: This is to confirm my conversations with you, John Lee, Bob Petrisko and Claude Genin concerning UniRock Management Corporation ("UniRock") providing consulting assistance to Hexcel Corporation ("Hexcel") relating to the continuing Northrop Grumman relationship, the evaluation of a possible transaction relating to Ciba's Brochier - Decines fabric operations and other matters as agreed between management of Hexcel and UniRock. On the Northrop Grumman matter, UniRock's primary contact will be Bob Petrisko, and on the fabrics matter, Claude Genin; contacts on other matters will be determined upon agreement of scope of work. We are aware that this arrangement has been confirmed with Messrs. Langerman and Geller, as well. UniRock will provide these services under a monthly retainer of $15,000, commencing with the month of October, 1995. UniRock principals will track their hours at their standard hourly rates: Franklin S. Wimer $350 Scott H. Maierhofer $275 Laurel W. Kenny $175 1 The first month of the retainer, October, is intended to cover work done during that month, as well as work done earlier on the Northrop Grumman matter but not yet compensated, including telephone conferences and a visit by Frank Wimer to Pleasanton in late September to participate in a major meeting between Hexcel and Northrop Grumman. We will track hourly billing against the retainer. For the months of November and December, to the extent that the amount of UniRock principal's hours at the above rates cumulatively either exceeds or falls short of the retainer for those months, we agree to revisit the issue of the amount of the retainer after the first of the year. The retainer will be paid monthly in advance (we will send Hexcel a monthly invoice). Out of pocket expenses and hourly fees in excess of retainer will be billed on a monthly basis in arrears. An hourly reconciliation of UniRock's time will be directed to Bob Petrisko's attention monthly, regardless of the designated contact. Hexcel will make available where possible the services of its travel department to make arrangements for travel by UniRock employees. Hexcel will furnish UniRock with such information as UniRock believes appropriate to its assignments (all such information so furnished being the "Information"). Hexcel recognizes and confirms that UniRock (i) will use and rely primarily on the Information and on information available from primarily generally recognized public sources in performing the services contemplated by this letter agreement without having independently verified the same, (ii) does not assume responsibility for the accuracy or completeness of the Information and such other information, and (iii) will not make an appraisal of any assets or liabilities of Hexcel. The obligations of UniRock to keep the Information confidential shall be the same as that of any senior officer of Hexcel. Hexcel shall indemnify UniRock to the fullest extent permitted for the indemnification of agents of Hexcel under the General Corporation law of the State of Delaware and Hexcel's Certificate of Incorporation, subject however, to such limitations as are contained in such law or Certificate of Incorporation. UniRock shall act as an independent contractor, and any duties of UniRock arising out of its engagement pursuant to this letter agreement shall be owed solely to Hexcel and not to any holder of Hexcel's securities. 2 The retainer arrangement may be canceled by either party on 30 days' notice. Notwithstanding any termination of this letter agreement, the obligations of Hexcel to compensate UniRock, the provisions relating to indemnification and the status of UniRock as an independent contractor, will survive such termination. This letter agreement constitutes the entire agreement and understanding between the parties hereto with respect to the subject matter hereof and supersedes any and all prior agreements and understandings, both written and oral, between the parties with respect to the subject matter hereof. If this represents our understanding, please acknowledge that in the space provided below. Sincerely, /s/ FRANKLIN S. WIMER Franklin S. Wimer President /ck Agreed and Acknowledged this 27th day of October, 1995. /s/ RODNEY P. JENKS - -------------------------- Rodney P. Jenks 3 EX-10.21 13 EXH 10.21NEW Exhibit 10.21 GOVERNANCE AGREEMENT dated as of February 29, 1996, between CIBA-GEIGY LIMITED, a Swiss corporation ("Ciba"), and HEXCEL CORPORATION, a Delaware corporation ("Hexcel"). WHEREAS Hexcel, Ciba and Ciba-Geigy Corporation, a New York corporation ("CGC"), are parties to a Strategic Alliance Agreement dated as of September 29, 1995 and amended as of December 12, 1995 (the "Strategic Alliance Agreement"), and upon consummation of the transactions contemplated therein (the "Transactions"), Ciba will Beneficially Own approximately 49.9% of the Total Voting Power of Hexcel (as such terms are defined below); and WHEREAS the parties hereto wish to further establish the nature of their strategic alliance and set forth their agreement concerning the governance of Hexcel following consummation of the Transactions as well as certain matters relating to Ciba's ownership of Voting Securities (as such term is defined below). NOW, THEREFORE, in consideration of the mutual covenants and undertakings contained herein and for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: ARTICLE I DEFINITIONS Section 1.01. DEFINITIONS. As used in this Agreement, the following terms shall have the following meanings: An "AFFILIATE" of any Person means any other Person that directly or indirectly, through one or more intermediaries, Controls, is Controlled by, or is under common Control with, such first Person. "CONTROL" has the meaning specified in Rule 12b-2 under the Exchange Act as in effect on the date of this Agreement. "ASSOCIATE" has the meaning set forth in Rule 12b-2 under the Exchange Act as in effect on the date of this Agreement. 1 Any Person shall be deemed to "BENEFICIALLY OWN", to have "BENEFICIAL OWNERSHIP" of, or to be "BENEFICIALLY OWNING" any securities (which securities shall also be deemed "BENEFICIALLY OWNED" by such Person) that such Person is deemed to "beneficially own" within the meaning of Rule 13d-3 under the Exchange Act as in effect on the date of this Agreement. "BOARD" means the board of directors of Hexcel. "BROAD DISTRIBUTION" (A) with respect to Voting Securities, means a distribution of Voting Securities that, to the knowledge, after due inquiry, of the Person on whose behalf such distribution is being made, will not result in the acquisition by any other Person of any such Voting Securities to the extent that, after giving effect to such acquisition, such acquiring Person would hold in excess of the greater of (x) 5% of the Total Voting Power of Hexcel or (y) if such acquiring Person is an institutional investor eligible to file a Statement on Schedule 13G (or any successor form) with respect to its investment in Hexcel, 7% of the Total Voting Power of Hexcel and (B) with respect to the equity securities of a Ciba Entity, shall have the same meaning as set forth in clause (A) above substituting the equity securities of such Ciba Entity for Voting Securities and the total voting power of such Ciba Entity for the Total Voting Power of Hexcel. "BUYOUT TRANSACTION" means a tender offer, merger, sale of all or substantially all Hexcel's assets or any similar transaction that offers each holder of Voting Securities (other than, if applicable, the Person proposing such transaction) the opportunity to dispose of all Voting Securities Beneficially Owned by each such holder or otherwise contemplates the acquisition of all (but not less than all) Voting Securities Beneficially Owned by each such holder. "CGC" has the meaning set forth in the recitals to this Agreement. "CHAIRMAN" means the Chairman of the Board and Chief Executive Officer of Hexcel. "CIBA" has the meaning set forth in the recitals to this Agreement. "CIBA DIRECTORS" means Ciba Nominees who are elected or appointed to serve as members of the Board in accordance with this Agreement. "CIBA ENTITY" means any Subsidiary of Ciba that holds Voting Securities. 2 "CIBA NOMINEES" means such Persons as are so designated by Ciba, as such designations may change from time to time in accordance with this Agreement, to serve as members of the Board pursuant to Section 2.02 hereof. "CLOSING DATE" means the date of the closing of the Transactions. "CUSTOMARY ACQUISITION/CONTROL PREMIUM" means the aggregate realizable value for all Voting Securities (including Voting Securities owned by Ciba or any Ciba Entity), assuming a sale of Hexcel in its entirety in a transaction or series of related transactions to a third party or parties on an arm's length basis in a controlled auction process designed to maximize shareholder value by attracting all possible bidders, including Ciba and its affiliates. "ELECTION DATE" means the tenth anniversary of the Closing Date and, if Ciba exercises its right to extend this Agreement for one or more successive two year periods thereafter pursuant to Section 5.01(a)(i), the date on which each such extension period expires. "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder. "GOVERNMENTAL ENTITY" means any court, administrative agency, regulatory body, commission or other governmental authority, board, bureau or instrumentality, domestic or foreign and any subdivision thereof. "GROUP" has the meaning set forth in Section 13(d) of the Exchange Act as in effect on the date of this Agreement. "HEXCEL" has the meaning set forth in the recitals to this Agreement. "HEXCEL COMMON" means the common stock of Hexcel, par value $0.01 per share. "INDEPENDENT DIRECTOR" means a director of Hexcel who is not a Ciba Director and who (i) is not and has never been an officer, employee or director of Ciba or any affiliate (other than Hexcel) or associate of Ciba and (ii) has no affiliation or compensation, consulting or contractual relationship with Ciba or any of its affiliates (other than Hexcel) such that a reasonable person would regard 3 such director as likely to be unduly influenced by Ciba or any of its affiliates (other than Hexcel). "OTHER HOLDERS" means the holders of the Other Shares. "OTHER SHARES means Voting Securities not Beneficially Owned by Ciba or any Ciba Entity. "PERSON" means any individual, group, corporation, firm, partnership, joint venture, trust, business association, organization, Governmental Entity or other entity. "PRESIDENT" means the President and Chief Operating Officer of Hexcel. "REGISTRATION RIGHTS AGREEMENT" means the Registration Rights Agreement dated as of the date hereof between Ciba and Hexcel. "REQUISITE CONSIDERATION" means consideration that is (i) approved by (x) a majority of the Independent Directors acting solely in the interests of the Other Holders, after the receipt of an opinion of an independent nationally recognized investment banking firm retained by them or (y) a majority in interest of the Other Holders by means of a Stockholder Vote solicited pursuant to a proxy statement containing the information required by Schedule 14A under the Exchange Act (it being understood that the Independent Directors shall, consistent with their fiduciary duties, be free to include in such proxy statement, if applicable, the reasons underlying any failure by them to approve a Buyout Transaction by the requisite vote, including whether a fairness opinion was sought by the Independent Directors and any opinions or recommendations expressed in connection therewith) and (ii) in the opinion of an independent nationally recognized investment banking firm (including such a firm retained by Ciba), fair to the Other Holders from a financial point of view. In connection with the retention of any investment banking firm referred to herein, the Independent Directors shall instruct such investment banking firm, unless the Independent Directors conclude, after consultation with their outside legal and financial advisors, that such instructions are not appropriate, to (a) value Hexcel's businesses taking into account a premium for control and (b) assume for purposes of such opinion that the Other Holders are entitled to their proportionate part of a Customary Acquisition/Control Premium. 4 "REQUISITE DISTRIBUTION" means a public offering registered under the Securities Act or a non-registered distribution conducted pursuant to an applicable exemption from registration under the Securities Act, in each case that is conducted in a manner calculated to achieve a Broad Distribution. "SEC" means the Securities and Exchange Commission or any successor Governmental Entity. "SECURITIES ACT" means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder. "SIGNIFICANT SUBSIDIARY" has the meaning set forth in Rule 1-02 of Regulation S-X under the Securities Act as in effect on the date of this Agreement. "STANDSTILL PERIOD" means the five-year period commencing on the Closing Date. "STOCKHOLDER VOTE" means as to any matter to be presented to holders of Voting Securities, a vote at a duly called and held annual or special meeting of the holders of Voting Securities entitled to vote on such matter. "STRATEGIC ALLIANCE AGREEMENT" has the meaning set forth in the recitals to this Agreement. "SUBSIDIARY" means, with respect to any Person, as of any date of determination, any other Person as to which such Person owns, directly or indirectly, or otherwise controls, more than 50% of the voting shares or other similar interests. "THIRD PARTY OFFER" means a bona fide offer to enter into a Buyout Transaction by a Person other than Ciba or any of its affiliates or any other Person acting on behalf of Ciba or any of its affiliates that does not treat Ciba or any Ciba Entity differently than the Other Holders. "TOTAL VOTING POWER OF HEXCEL" means the total number of votes that may be cast in the election of directors of Hexcel if all Voting Securities outstanding or treated as outstanding pursuant to the final sentence of this definition were present and voted at a meeting held for such purpose. The percentage of the Total Voting Power of Hexcel Beneficially Owned by any Person is the 5 percentage of the Total Voting Power of Hexcel that is represented by the total number of votes that may be cast in the election of directors of Hexcel by Voting Securities Beneficially Owned by such Person. In calculating such percentage, the Voting Securities Beneficially Owned by any Person that are not outstanding but are subject to issuance upon exercise or exchange of rights of conversion or any options, warrants or other rights Beneficially Owned by such Person shall be deemed to be outstanding for the purpose of computing the percentage of the Total Voting Power represented by Voting Securities Beneficially Owned by such Person, but shall not be deemed to be outstanding for the purpose of computing the percentage of the Total Voting Power represented by Voting Securities Beneficially Owned by any other Person. "TRANSACTIONS" has the meaning set forth in the recitals to this Agreement. "VOTING SECURITIES" means Hexcel Common and any other securities of Hexcel or any Subsidiary of Hexcel entitled to vote generally in the election of directors of Hexcel or such Subsidiary of Hexcel. ARTICLE II CORPORATE GOVERNANCE SECTION 2.01. BOARD OF DIRECTORS. The Board shall consist of ten members, two of whom shall be the Chairman and the President. SECTION 2.02. CIBA BOARD REPRESENTATION. (a) If Ciba Beneficially Owns 30% or more of the Total Voting Power of Hexcel determined in accordance with Section 2.02(e), the parties hereto shall exercise all authority under applicable law to cause any slate of directors presented to stockholders for election to the Board to consist of such nominees that, if elected, would result in the Board consisting of four Ciba Directors, the Chairman, the President and four additional Independent Directors. (b) If Ciba Beneficially Owns less than 30% but at least 20% of the Total Voting Power of Hexcel determined in accordance with Section 2.02(e), the parties hereto shall exercise all authority under applicable law to cause any slate of directors presented to stockholders for election to the Board to consist of 6 such nominees that, if elected, would result in the Board consisting of three Ciba Directors, the Chairman, the President and five additional Independent Directors. (c) If Ciba Beneficially Owns less than 20% but at least 15% of the Total Voting Power of Hexcel determined in accordance with Section 2.02(e), the parties hereto shall exercise all authority under applicable law to cause any slate of directors presented to stockholders for election to the Board to consist of such nominees that, if elected, would result in the Board consisting of two Ciba Directors, the Chairman, the President and six additional Independent Directors. (d) If Ciba Beneficially Owns less than 15% but at least 10% of the Total Voting Power of Hexcel determined in accordance with Section 2.02(e), the parties hereto shall exercise all authority under applicable law to cause any slate of directors presented to stockholders for election to the Board to consist of such nominees that, if elected, would result in the Board consisting of one Ciba Director, the Chairman, the President and seven additional Independent Directors. (e) In order to determine (x) the number of Ciba Nominees to be included in any slate of directors to be presented to stockholders for election to the Board and (y) the percentage of the Total Voting Power of Hexcel Beneficially Owned by Ciba for purposes of Sections 2.04 and 2.06, Ciba shall be deemed to Beneficially Own a percentage of the Total Voting Power of Hexcel that is no more than (1) 49.9% of the Total Voting Power of Hexcel (or such greater percentage as Ciba in fact hereafter Beneficially Owns in accordance with the terms of this Agreement) less (2) the percentage of the Total Voting Power of Hexcel represented by any Voting Securities disposed of by Ciba or any Ciba Entity since the Closing. SECTION 2.03. DESIGNATION OF SLATE. Any Ciba Nominees that are included in a slate of directors pursuant to Section 2.02 shall be designated by Ciba, and any Independent Director nominees who are to be included in any slate of directors pursuant to Section 2.02 shall be designated by majority vote by the then incumbent Independent Directors (including the Chairman and the President if he or she is an Independent Director). Hexcel's nominating committee shall nominate each person so designated. The initial Ciba Nominees shall be John M.D. Cheesmond, Stanley Sherman, Joseph T. Sullivan and Hermann Vodicka. The initial Chairman shall be John J. Lee. The initial President shall be Juergen Habermeier. Upon consummation of the Transactions, the number of directors constituting the entire Board will be fixed at ten and a sufficient number of the then serving members of the Board will resign in order to permit the appointment 7 of the initial Ciba Nominees and the initial President to fill the vacancies thereby created. The remaining members of the Board shall be Marshall S. Geller, Peter A. Langerman, George S. Springer and Frederick W. Stanske. SECTION 2.04. COMMITTEE MEMBERSHIP. Ciba Directors shall serve on each committee of the Board, including the finance, audit, nominating, and compensation committees of the Board. So long as Ciba Beneficially Owns 40% or more of the Total Voting Power of Hexcel determined in accordance with Section 2.02(e), each committee of the Board shall consist of the same number of Ciba Directors as Independent Directors. At all other times, each such committee shall be comprised such that Ciba's representation on such committee is at least proportionate to its representation on the Board unless the committee is comprised of three members or less, in which case at least one Ciba Director shall serve. SECTION 2.05. RESIGNATIONS AND REPLACEMENTS. (a) If at any time a member of the Board resigns (pursuant to this Section 2.05 or otherwise) or is removed, a new member shall be designated to replace such member until the next election of directors. If consistent with Section 2.02 the replacement director is to be a Ciba Director, Ciba shall designate the replacement Ciba Director. If the former member was the Chairman or President, the replacement Chairman or President, respectively, shall be the replacement. Except as set forth in paragraph (c) below, if consistent with Section 2.02, the replacement director is to be an Independent Director (other than the Chairman or President), the remaining Independent Directors (including the Chairman and the President if he or she is an Independent Director) shall designate the replacement Independent Director. (b) Subject to paragraph (c) below, if at any time the percentage of the Total Voting Power of Hexcel Beneficially Owned by Ciba decreases to a point at which the number of Ciba Nominees entitled to be nominated to the Board in accordance with this Agreement in an election of directors presented to stockholders would decrease, within 10 days thereafter Ciba shall cause a sufficient number of Ciba Directors to resign from the Board so that the number of Ciba Directors on the Board after such resignation(s) equals the number of Ciba Nominees that Ciba would have been entitled to designate had an election of directors taken place at such time. Ciba shall also cause a sufficient number of Ciba Directors to resign from any relevant committees of the Board so that such committees are comprised in the manner contemplated by Section 2.04 after giving effect to such resignations. Any vacancies created by the resignations required by this Section 2.05(b) shall be filled by Independent Directors. 8 (c) If at any time the percentage of the Total Voting Power of Hexcel Beneficially Owned by Ciba decreases as a result of an issuance of Voting Securities by Hexcel, Ciba may notify Hexcel that Ciba intends to acquire a sufficient amount of additional Voting Securities in accordance with this Agreement necessary to maintain its then current level of Board representation within 90 days, PROVIDED, HOWEVER, that if during such period (or any extension under this proviso), Ciba is prohibited from purchasing Voting Securities in order to comply with applicable law or refrains from such purchases at Hexcel's request, such period shall be extended by the number of days during which Ciba is so prohibited or so refrains. In such event, until the end of such period (and thereafter if Ciba in fact restores its percentage of the Total Voting Power of Hexcel during such period and provided that Ciba continues to maintain the requisite level of Beneficial Ownership of Voting Securities in accordance with Section 2.02) the Board shall continue to have the number of Ciba Directors that corresponds to the percentage of the Total Voting Power of Hexcel Beneficially Owned by Ciba prior to such issuance of Voting Securities by Hexcel. SECTION 2.06. APPROVALS. (a) So long as Ciba Beneficially Owns 40% or more of the Total Voting Power of Hexcel determined in accordance with Section 2.02(e), neither the Board nor any committee of the Board shall take any action, including approval, authorization or ratification of any action or inaction by officers, agents or employees of Hexcel, without the affirmative vote of at least one Ciba Director and one Independent Director. (b) The Board shall not authorize, approve or ratify any of the following actions without the approval of a majority of the Ciba Directors (x) so long as Ciba Beneficially Owns 33% or more of the Total Voting Power of Hexcel determined in accordance with Section 2.02(e) and, if Ciba's percentage ownership of the Total Voting Power of Hexcel is reduced below 33% as so determined by an issuance of Voting Securities by Hexcel, until 10 business days after Hexcel notifies Ciba in writing of such issuance, and (y) during the 90-day period following an issuance of Voting Securities by Hexcel that causes Ciba to Beneficially Own less than 33% of the Total Voting Power of Hexcel as so determined if Ciba shall have notified Hexcel within 10 business days after Ciba's receipt of a written notification of such issuance that Ciba intends to acquire a sufficient amount of Voting Securities within such 90-day period so that it will Beneficially 9 Own at least 33% of the Total Voting Power of Hexcel determined in accordance with Section 2.02(e) by the end of such 90-day period: (i) any merger, consolidation, acquisition or other business combination involving Hexcel or any Subsidiary of Hexcel if the value of the consideration to be paid or received by Hexcel in any such individual transaction or in such transaction when added to the aggregate value of the consideration paid or received by Hexcel in all other such transactions approved by the Board during the prior 12 months exceeds the greater of (x) $75 million or (y) 11% of Hexcel's total consolidated assets; (ii) any sale, transfer, assignment, conveyance, lease or other disposition or any series of related dispositions of any assets, business or operations of Hexcel or any of its Subsidiaries if the value of the assets, business or operations so disposed exceeds the greater of (x) $75 million or (y) 11% of Hexcel's total consolidated assets; (iii) any issuance by Hexcel or any Significant Subsidiary of Hexcel of equity securities (other than pursuant to customary employee or director stock option or incentive compensation or similar plans and other than transactions solely among Hexcel and its Subsidiaries) or of any bonds, debentures, notes or other securities convertible into, exchangeable for or exercisable for equity securities if the aggregate net proceeds to Hexcel of such issuance or of such issuance when added to the aggregate net proceeds of all such issuances approved by the Board during the prior 12 months exceeds the greater of (x) $75 million or (y) 11% of Hexcel's total consolidated assets; and (iv) any new capital expenditure program or any capital expenditure that is not part of a capital expenditure program previously approved by the Board, if the amount or anticipated amount of such program or expenditure or of such program or expenditure when added to the aggregate amount of capital expenditures not so approved by the Board during the prior 12 months exceeds the greater of (x) $50 million or (y) 7% of Hexcel's total consolidated assets. SECTION 2.07. SOLICITATION AND VOTING OF SHARES. (a) Hexcel shall use reasonable efforts to solicit from the stockholders of Hexcel eligible to vote for the election of directors proxies in favor of the Board nominees selected in accordance with Section 2.02. 10 (b) Except as provided in Section 3.03, until the percentage of the Total Voting Power of Hexcel Beneficially Owned by Ciba falls below either (x) 15% if and so long as there is on file with the SEC any Statement on Schedule 13D or 13G (or any comparable successor form) showing Beneficial Ownership by any Person (other than Ciba or the Ciba Entities) of 10% or more of the Total Voting Power of Hexcel or (y) 10% in all other cases, (A) in any election of directors or at any meeting of the stockholders of Hexcel called expressly for the removal of directors, so long as the Board includes (and will include after any such removal) the Ciba Directors contemplated by Section 2.02, Ciba shall and shall cause any Ciba Entity to be present for purposes of establishing a quorum and shall vote and shall cause any Ciba Entity to vote all its Voting Securities entitled to vote (1) in favor of any nominee or director selected in accordance with Section 2.02 and (2) otherwise against the removal of any director designated in accordance with Section 2.02 and (B) in any other matter submitted to, or to be acted upon by, stockholders, Ciba shall and shall cause any Ciba Entity, if applicable, to be present for purposes of establishing a quorum and shall vote and shall cause any Ciba Entity to vote all its Voting Securities entitled to vote either, at the discretion of Ciba, (1) as recommended by the Board or (2) in proportion to the votes cast with respect to the Other Shares; PROVIDED, HOWEVER, that, except as provided in Section 3.03, Ciba and any Ciba Entity shall be free to vote all its Voting Securities entitled to vote in its sole discretion on the following matters submitted to or acted upon by stockholders so long as such matters were not submitted to or acted upon by stockholders, without the concurrence of the Board (or if with such concurrence so long as such concurrence is not obtained by Ciba in violation of this Agreement), at the request of Ciba or any of its affiliates (other than Hexcel) or at the request of any Person acting on behalf of Ciba or any of its affiliates (other than Hexcel): (i) any amendment to Hexcel's certificate of incorporation (provided, however, that Ciba and any Ciba Entity shall vote against any such amendment that is inconsistent with Section 4.14 of the Strategic Alliance Agreement); (ii) any merger, consolidation, acquisition or other business combination involving Hexcel or any Subsidiary of Hexcel; (iii) any sale, lease, transfer or other disposition of the business operations or assets of Hexcel; 11 (iv) any recapitalization, restructuring or similar transaction or series of transactions involving Hexcel or any Significant Subsidiary of Hexcel; (v) any dissolution or complete or partial liquidation or similar arrangement of Hexcel or any Significant Subsidiary of Hexcel; (vi) any issuance of equity securities (other than pursuant to customary employee or director stock option or incentive compensation or similar plans and other than transactions solely among Hexcel and its Subsidiaries approved by the Board in accordance with this Agreement) or of any bonds, debentures, notes or other securities convertible into, exchangeable for or exercisable for equity securities; and (vii) entering into any material joint venture, collaboration or partnership by Hexcel or any Subsidiary of Hexcel. SECTION 2.08. CERTIFICATE OF INCORPORATION AND BY-LAWS; ANTI-TAKEOVER MEASURES. (a) Hexcel shall present to stockholders for approval at its first meeting of stockholders following the date of this Agreement amendments to its by-laws reflecting the provisions of Article II of this Agreement and such other matters as the parties may reasonably agree. Those by-laws reflecting the provisions of Article II of this Agreement shall not thereafter be amended during the term of this Agreement except with Ciba's written consent. Hexcel and Ciba shall each take or cause to be taken all lawful action necessary to ensure at all times that Hexcel's certificate of incorporation and by-laws are not at any time inconsistent with the provisions of this Agreement. (b) Hexcel shall not adopt or implement any takeover defense measures applicable to Ciba or any of its affiliates, including the institution or amendment by Hexcel or any of its Subsidiaries of any stockholders rights plan or similar plan or device, or any change of control matters (including provisions in future agreements or collaborations (i) that contain any restrictions on Ciba by virtue of its Beneficial Ownership of Voting Securities or (ii) that would subject Ciba or Hexcel to any adverse effect if Ciba increased the Total Voting Power of Hexcel Beneficially Owned by it in accordance with this Agreement). (c) Except as required by applicable law, rule or regulation, Hexcel shall not approve or recommend to its stockholders any transaction or approve, recommend or take any other action (other than those expressly contemplated by 12 this Agreement and other than those that affect Ciba and each Other Holder or each director at the same time in the same manner) that would (1) impose limitations on the legal rights of Ciba or its affiliates or associates as a stockholder of Hexcel, including, any action that would impose restrictions based upon the size of security holding, nationality of a securityholder, the business in which a securityholder is engaged or other considerations applicable to Ciba or its affiliates or associates and not to stockholders generally, (2) deny any benefit to Ciba or its affiliates or associates, proportionately as a holder of any class of Voting Securities, (3) otherwise materially adversely discriminate against Ciba, its affiliates or associates as stockholders of Hexcel or (4) restrict the right of any Ciba Director to vote on any matter as such director believes appropriate in light of his or her duties as a director or the manner in which a Ciba Director may participate in his or her capacity as a director in deliberations or discussions at meetings of the Board or any committee thereof, except with respect to (i) entering into contractual or other business relationships with Ciba or any of its affiliates (other than in their capacity as stockholders of Hexcel), (ii) disputes with Ciba or any of its affiliates (including disputes under this Agreement), (iii) interpretation or enforcement of this Agreement or any other agreement with Ciba or any of its affiliates or (iv) any other matter involving an actual or potential conflict of interest due to such director's relationship with Ciba or any of its affiliates. ARTICLE III STANDSTILL SECTION 3.01. STANDSTILL. (a) Except as otherwise expressly provided in this Agreement (including this Section 3.01, Section 2.02 or Section 3.03) or as specifically approved by a majority of the Independent Directors (so long as such approval was not obtained by Ciba in violation of this Agreement), neither Ciba nor any of Ciba's controlled affiliates shall, directly or indirectly, (i) by purchase or otherwise, acquire, agree to acquire or offer to acquire Beneficial Ownership of any Voting Securities or direct or indirect rights or options to Beneficially Own Voting Securities (including any voting trust certificates representing such securities), (ii) enter, propose to enter into, solicit or support any merger or business combination or similar transaction involving Hexcel or any of its Subsidiaries, or purchase, acquire, propose to purchase or acquire or solicit or support the purchase or acquisition of any portion of the business or assets of Hexcel or any of its Subsidiaries (except (x) for purchases or acquisitions in the ordinary course of business and (y) for proposals to purchase or acquire a non- 13 material portion of the assets of Hexcel or any of its Subsidiaries that are not required to be publicly disclosed), (iii) initiate or propose any securityholder proposal without the approval of the Board granted in accordance with this Agreement or make, or in any way participate in, any "solicitation" of "proxies" (as such terms are used in the proxy rules promulgated by the SEC under the Exchange Act) to vote, or seek to advise or influence any Person with respect to the voting of, any Voting Securities or request or take any action to obtain any list of securityholders for such purposes with respect to any matter other than those upon which Ciba and the Ciba Entities may vote in their sole discretion under Section 2.07 (or, as to such matters, solicit any Person in a manner that would require the filing of a proxy statement under Regulation 14A of the Exchange Act), (iv) form, join or in any way participate in a group (other than a group consisting solely of Ciba and its affiliates) formed for the purpose of acquiring, holding, voting or disposing of or taking any other action with respect to Voting Securities that would be required under Section 13(d) of the Exchange Act to file a Statement on Schedule 13D with respect to such Voting Securities, (v) deposit any Voting Securities in a voting trust or enter into any voting agreement or arrangement with respect thereto (other than this Agreement), (vi) seek representation on the Board, the removal of any directors from the Board or a change in the size or composition of the Board, (vii) make any request to amend or waive any provision of this Section 3.01, which request would require public disclosure under applicable law, rule or regulation, (viii) disclose any intent, purpose, plan, arrangement or proposal inconsistent with the foregoing (including any such intent, purpose, plan, arrangement or proposal that is conditioned on or would require the waiver, amendment, nullification or invalidation of any of the foregoing) or take any action that would require public disclosure of any such intent, purpose, plan, arrangement or proposal, (ix) take any action challenging the validity or enforceability of the foregoing or (x) assist, advise, encourage or negotiate with any Person with respect to, or seek to do, any of the foregoing. (b) Nothing in this Section 3.01 shall (i) prohibit or restrict Ciba from responding to any inquiries from any shareholders of Hexcel as to Ciba's intention with respect to the voting of any Voting Securities Beneficially Owned by Ciba so long as such response is consistent with the terms of this Agreement; (ii) prohibit the purchase or other acquisition of Beneficial Ownership of any Voting Securities, including pursuant to Section 3.02 or in open market purchases, so long as after giving effect to such purchase or other acquisition the percentage of the Total Voting Power of Hexcel 14 Beneficially Owned by Ciba does not exceed the greater of (A) 49.9% until the third anniversary of the Closing, or 57.5% thereafter, and (B) the highest percentage of the Total Voting Power of Hexcel Beneficially Owned by Ciba immediately following any action by Hexcel (including a purchase by Hexcel of Voting Securities) that increases the percentage of the Total Voting Power of Hexcel Beneficially Owned by Ciba due to a reduction in the amount of Voting Securities outstanding as a result of such action; (iii) restrict the right of each Ciba Director on the Board or any committee thereof to vote on any matter as such individual believes appropriate in light of his or her duties as a director or committee member or the manner in which a Ciba Nominee may participate in his or her capacity as a director in deliberations or discussions at meetings of the Board or as a member of any committee thereof; (iv) prohibit Ciba from Beneficially Owning Voting Securities issued as dividends or distributions in respect of, or issued upon conversion, exchange or exercise of, securities which Ciba is permitted to Beneficially Own under this Agreement; (v) prohibit any officer, director, employee or agent of Ciba and its Subsidiaries from purchasing or otherwise acquiring Voting Securities so long as he or she is not a member of a group that includes Ciba or any of its affiliates or is not otherwise acting on behalf of Ciba or any of its affiliates; or (vi) prohibit Ciba or any of its affiliates from disclosing in accordance with its obligations (if any) under the federal securities laws or other applicable law its desire (if any) that Hexcel become the subject of a Buyout Transaction. (c) After the Standstill Period, nothing in this Section 3.01 shall prohibit or restrict Ciba or its affiliates from proposing, participating in, supporting or causing the consummation of a Buyout Transaction, including a transaction with Ciba or any of its affiliates, if all Other Holders are entitled to receive Requisite Consideration upon consummation of such Buyout Transaction. SECTION 3.02. CIBA RIGHT TO MAINTAIN POSITION. Hexcel hereby grants to Ciba the following irrevocable option: If, at any time after the Closing for so long as Ciba shall be entitled to designate one or more Ciba Nominees for election to the Board, Hexcel shall issue for cash any additional Voting Securities (except for any issuances described in the following sentence), then Hexcel shall notify Ciba of such issuance and the price and terms thereof, and Ciba shall have the option, for a period of 45 days after receipt of such notice, to purchase from Hexcel an Amount (as defined below) of such Voting Securities for the same consideration per security and on the same terms as were applicable to such issuance by Hexcel. The foregoing option shall not apply to any issuance of Voting Securities in connection with employee or director stock option or incentive compensation or similar plans. An "Amount" shall mean the smallest number of securities that would allow Ciba to Beneficially 15 Own the same percentage of the Total Voting Power of Hexcel as Ciba Beneficially Owned immediately prior to such issuance. SECTION 3.03. THIRD PARTY OFFERS. (a) In the event that Hexcel becomes the subject of a Third Party Offer that is made after the third anniversary of the Closing and that is approved by two-thirds of the Independent Directors, promptly after such approval, Hexcel shall deliver a written notice to Ciba, briefly describing the material terms of such Third Party Offer. Ciba shall, within 10 business days after receipt of such notice, either (i) offer to acquire the Other Shares on terms at least as favorable to the Other Holders as those contemplated by such Third Party Offer (in which event Hexcel shall endorse such offer by Ciba rather than such Third Party Offer; PROVIDED, HOWEVER, that if Hexcel becomes the subject of another Third Party Offer that provides for greater currently realizable value to Hexcel's stockholders (including Ciba and the Ciba Entities) than such previously proposed Third Party Offer, Hexcel shall be free to pursue such newly proposed Third Party Offer; and PROVIDED, FURTHER, that such newly proposed Third Party Offer shall be subject to Ciba's rights pursuant to this Section 3.03(a)(i) and obligations pursuant to Section 3.03(a)(ii)) or (ii) confirm in writing that it will support, and at the appropriate time Ciba shall actually support, such Third Party Offer (or an alternative Third Party Offer providing greater currently realizable value to all Other Holders) by voting and causing each Ciba Entity to vote all its Voting Securities eligible to vote thereon in favor of such Third Party Offer or, if applicable, tendering or selling and causing each such Ciba Entity to tender or sell all its Voting Securities to the Person making such Third Party Offer. (b) In the event that Hexcel becomes the subject of a Third Party Offer, neither Ciba nor any of the Ciba Entities may support such Third Party Offer, vote in favor of such Third Party Offer or tender or sell its Voting Securities to the Person making such Third Party Offer unless such Third Party Offer is approved by (x) a majority of the Independent Directors acting solely in the interest of the Other Holders or (y) a majority in interest of the Other Holders in a Stockholder Vote solicited pursuant to a proxy statement containing the information required by Schedule 14A under the Exchange Act (it being understood that the Independent Directors shall, consistent with their fiduciary duties, be free to include in such proxy statement, if applicable, the reasons underlying any failure by them to approve such Third Party Offer by the requisite vote, including whether a fairness opinion was sought and any opinions or recommendations expressed in connection therewith). 16 (c) Notwithstanding Section 3.03(b), if Ciba has exercised the right to require Hexcel to solicit a Buyout Transaction pursuant to Section 5.01, Ciba and the Ciba Entities may vote in favor of or tender or sell their Voting Securities pursuant to any Third Party Offer made as a result of or during such solicitation so long as such Third Party Offer offers the same consideration to all Hexcel stockholders. Unless Hexcel shall have accepted another Third Party Offer providing at least equivalent value to all Hexcel stockholders, Hexcel shall not take any action to interfere with Ciba's right to vote in favor of or tender into such a Third Party Offer (it being understood that Hexcel shall remain free to pursue alternative Third Party Offers that provide for at least equivalent currently realizable value to Hexcel's stockholders (including Ciba and the Ciba Entities) as such previously proposed Third Party Offer). ARTICLE IV TRANSFER RESTRICTIONS SECTION 4.01. RESTRICTIONS. (a) Except in connection with a Third Party Offer that has been approved by the Independent Directors or the Other Holders in accordance with Section 3.03 or as provided in Section 3.03(c), Ciba shall not, and shall not permit any Ciba Entity, directly or indirectly, to sell, transfer or otherwise dispose of any Voting Securities except (i) transfers solely among Ciba and its wholly owned Subsidiaries, (ii) in accordance with the volume and manner-of-sale limitations of Rule 144 under the Securities Act (regardless of whether such limitations are applicable) and otherwise subject to compliance with the Securities Act or (iii) in a registered public offering or a non-registered offering subject to an applicable exemption from the registration requirements of the Securities Act, in the case of clauses (ii) and (iii), in a manner calculated to achieve a Broad Distribution. (b) Ciba shall not sell, transfer or otherwise dispose of any of the capital stock of any Ciba Entity, except to another direct or indirect wholly owned Subsidiary of Ciba; PROVIDED, HOWEVER, that nothing in this Agreement shall prohibit Ciba from effecting (x) a pro rata distribution to Ciba's stockholders or (y) a sale in a manner calculated to achieve a Broad Distribution of up to 20%, in each case, of the equity securities of a Ciba Entity if (1) such distribution or sale has a bona fide business purpose (other than the sale or distribution of Voting Securities), (2) the Voting Securities Beneficially Owned by such Ciba Entity do not constitute a material portion of the total assets of such Ciba Entity and (3) in the 17 case of clause (x), such Ciba Entity agrees in writing to be bound by the terms and provisions of this Agreement to the same extent that Ciba would be bound if it Beneficially Owned the Voting Securities Beneficially Owned by such Ciba Entity. Other than as permitted pursuant to the proviso in the immediately preceding sentence, Ciba shall not permit any Subsidiary of Ciba that is not a direct or indirect wholly owned Subsidiary of Ciba to become a Ciba Entity. SECTION 4.02. LEGENDS. (a) Except as set forth in paragraph (b) below, during the term of this Agreement all certificates representing Voting Securities Beneficially Owned by Ciba shall bear an appropriate restrictive legend indicating that such Voting Securities are subject to restrictions pursuant to this Agreement and that such Voting Securities were not issued pursuant to a public offering registered pursuant to the Securities Act. (b) Upon any transfer or proposed transfer of Beneficial Ownership by Ciba or any Ciba Entity of any Voting Securities to any Person other than Ciba or a Ciba Entity that is permitted pursuant to this Agreement, Hexcel shall, upon receipt of timely notice and such certificates, opinions and other documentation as shall be reasonably requested by Hexcel, cause certificates representing such transferred Voting Securities to be issued not later than the time needed to effect such transfer (x) without any restrictive legend if upon consummation of such transfer such Voting Securities are no longer "restricted securities" as defined in Rule 144 under the Securities Act or (y) without any reference to this Agreement if upon consummation of such transfer such Voting Securities continue to be "restricted securities". SECTION 4.03. EFFECT. Any purported transfer of Voting Securities that is inconsistent with the provisions of this Article IV shall be null and void and of no force or effect. ARTICLE V EXTENSION AND TERMINATION SECTION 5.01. CIBA ELECTION. (a) If the percentage of the Total Voting Power of Hexcel Beneficially Owned by Ciba on any Election Date is 18 greater than 10% but less than 100%, Ciba shall take either of the following actions on such Election Date: (i) extend this Agreement for an additional two year period, in which case so long as Ciba Beneficially Owns 25% or more of the Total Voting Power of Hexcel, on one occasion during each such two-year period Ciba may require Hexcel to solicit in good faith a Buyout Transaction in which Ciba, the Ciba Entities and the Other Holders receive the same consideration per Voting Security (in which event the provisions of this Agreement shall continue in full force and effect until the consummation of such a Buyout Transaction); or (ii) undertake to sell a sufficient number of Voting Securities so that the percentage of the Total Voting Power of Hexcel Beneficially Owned by Ciba falls below 10% during the subsequent 18 months pursuant to one or more Requisite Distributions (in which event the provisions of this Agreement shall continue until the percentage of the Total Voting Power of Hexcel Beneficially Owned by Ciba falls below 10%). (b) If at any time in accordance with this Agreement the percentage of the Total Voting Power of Hexcel Beneficially Owned by Ciba is either (x) 10% or less or (y) 100%, this Agreement shall automatically terminate. (c) If either party to this Agreement is in breach of or violates any material obligation under this Agreement and fails to cure such breach or violation within 60 days after delivery of written notice from the other party specifying such breach or violation and requesting its cure, such other party may terminate its obligations under this Agreement. 19 ARTICLE VI MISCELLANEOUS SECTION 6.01. NOTICES. All notices, requests and other communications hereunder shall be in writing (including fax) and shall be sent, delivered or mailed, addressed, or faxed: (a) if to Hexcel, to: Hexcel Corporation 5794 West Las Positas Boulevard Pleasanton,CA 94588 (T) (510) 847-9500 (F) (510) 734-8611 Attention of Rodney P. Jenks, Esq. with a copy to: Alan C. Myers, Esq. Skadden, Arps, Slate, Meagher & Flom 919 Third Avenue New York, NY 10022 (T) (212) 735-3000 (F) (212) 735-2000 (b) if to Ciba, to: Ciba-Geigy Limited CH 4002 Basle, Switzerland (T) (41) 61 697-4750 (F) (41) 61 697-8253 Attention of Mr. John M.D. Cheesmond 20 with copies to: Ciba-Geigy Corporation 520 White Plains Road P.O. Box 2005 Tarrytown, NY 10591-9005 (T) (914) 785-2000 (F) (914) 785-2844 Attention of Mr. Stanley Sherman and Attention of John J. McGraw, Esq. and Ciba-Geigy Limited CH 4002 Basle, Switzerland (T) (41) 696-5107 (F) (41) 696-4677 Attention of Dr. Peter Rudolf and Philip A. Gelston, Esq. Cravath, Swaine & Moore 825 Eighth Avenue New York, NY 10019 (T) (212) 474-1548 (F) (212) 474-3700 Each such notice, request or other communication shall be given (i) by hand delivery, (ii) by nationally recognized courier service or (iii) by fax, receipt confirmed. Each such notice, request or communication shall be effective (A) if delivered by hand or by nationally recognized courier service, when delivered at the address specified in this Section 6.01 (or in accordance with the latest unrevoked written direction from such party) and (B) if given by fax, when such fax is transmitted to the fax number specified in this Section 6.01 (or in accordance with the latest 21 unrevoked written direction from such party), and the appropriate confirmation is received. SECTION 6.02. INTERPRETATION. The headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Whenever the words "included", "includes" or "including" are used in this Agreement, they shall be deemed to be followed by the words "without limitation". SECTION 6.03. SEVERABILITY. The provisions of this Agreement shall be deemed severable and the invalidity or unenforceability of any provision shall not affect the validity or enforceability of the other provisions hereof. If any provision of this Agreement, or the application thereof to any person or entity or any circumstance, is found to be invalid or unenforceable in any jurisdiction, (a) a suitable and equitable provision shall be substituted therefor in order to carry out, so far as may be valid and enforceable, the intent and purpose of such invalid or unenforceable provision and (b) the remainder of this Agreement and the application of such provision to other Persons or circumstances shall not be affected by such invalidity or unenforceability, nor shall such invalidity or unenforceability affect the validity or enforceability of such provision, or the application thereof, in any other jurisdiction. SECTION 6.04. COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original and all of which shall, taken together, be considered one and the same agreement, it being understood that both parties need not sign the same counterpart. SECTION 6.05. ENTIRE AGREEMENT; NO THIRD PARTY BENEFICIARIES. This Agreement together with the Registration Rights Agreement and the Strategic Alliance Agreement (a) constitutes the entire agreement and supersedes all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof and (b) is not intended to confer upon any Person, other than the parties hereto and, solely with respect to the proviso in Section 2.07(b)(i), the Indemnified Individuals (as defined in the Strategic Alliance Agreement), any rights or remedies hereunder. SECTION 6.06. FURTHER ASSURANCES. Each party shall execute, deliver, acknowledge and file such other documents and take such further actions as may be reasonably requested from time to time by the other party hereto to give effect to and carry out the transactions contemplated herein. 22 SECTION 6.07. GOVERNING LAW; EQUITABLE REMEDIES. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, regardless of the laws that might otherwise govern under applicable principles of conflicts of law. The parties hereto agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that the parties hereto shall be entitled to equitable relief, including in the form of injunctions, in order to enforce specifically the provisions of this Agreement, in addition to any other remedy to which they are entitled at law or in equity. SECTION 6.08. CONSENT TO JURISDICTION. Each party hereto irrevocably submits to the exclusive jurisdiction of the United States District Court for the Southern District of New York located in the borough of Manhattan in the City of New York, or if such court does not have jurisdiction, the Supreme Court of the State of New York, New York County, for the purposes of any suit, action or other proceeding arising out of this Agreement or any transaction contemplated hereby. Each party hereto further agrees that service of any process, summons, notice or document by U.S. registered mail to such party's respective address set forth in Section 6.01 shall be effective service of process for any action, suit or proceeding in New York with respect to any matters to which it has submitted to jurisdiction as set forth above in the immediately preceding sentence. Each party hereto irrevocably and unconditionally waives any objection to the laying of venue of any action, suit or proceeding arising out of this Agreement or the transactions contemplated hereby in (a) the United States District Court for the Southern District of New York or (b) the Supreme Court of the State of New York, New York County, and hereby further irrevocably and unconditionally waives and agrees not to plead or claim in any such court that any such action, suit or proceeding brought in any such court has been brought in an inconvenient forum. SECTION 6.09. AMENDMENTS; WAIVERS. (a) No provision of this Agreement may be amended or waived unless such amendment or waiver is in writing and signed, in the case of an amendment, by the parties hereto, or in the case of a waiver, by the party against whom the waiver is to be effective; PROVIDED that no such amendment or waiver by Hexcel shall be effective without the approval of a majority of the Independent Directors. Notwithstanding any provision herein to the contrary, if a majority of the Independent Directors determine in good faith to do so, such Independent Directors may seek to enforce, in the name and on behalf of Hexcel, the terms of this Agreement against Ciba. 23 (b) No failure or delay by any party in exercising any right, power or privilege hereunder shall operate as waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein provided shall be cumulative and not exclusive of any rights or remedies provided by law. SECTION 6.10. ASSIGNMENT. Neither this Agreement nor any of the rights or obligations hereunder shall be assigned by either of the parties hereto without the prior written consent of the other party, except that either party may assign all its rights and obligations to the assignee of all or substantially all of the assets of such party, PROVIDED that such party shall in no event be released from its obligations hereunder without the prior written consent of the other party. Subject to the preceding sentence, this Agreement will be binding upon, inure to the benefit of and be enforceable by the parties and their respective successors and assigns. IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed and delivered, all as of the date first set forth above. CIBA-GEIGY LIMITED, by /s/ JOHN M.D. CHEESMOND ------------------------------------------- Name: John M.D. Cheesmond Title: Head of Regional Finance and Control by /s/ PETER RUDOLF ------------------------------------------- Name: Peter Rudolf Title: Senior Division Counsel HEXCEL CORPORATION, by /s/ WILLIAM P. MEEHAN ------------------------------------------- Name: William P. Meehan Title: Vice President, Chief Financial Officer & Treasurer 24 EX-10.22 14 EXH 10.22NEW Exhibit 10.22 REGISTRATION RIGHTS AGREEMENT dated as of February 29, 1996 by and between CIBA-GEIGY LIMITED, a Swiss corporation ("Ciba"), and HEXCEL CORPORATION, a Delaware corporation ("Hexcel"). WHEREAS Ciba, Ciba-Geigy Corporation, a New York corporation, and Hexcel are parties to the Strategic Alliance Agreement dated as of September 29, 1995 (the "Strategic Alliance Agreement"), as amended; WHEREAS Hexcel is simultaneously herewith issuing common stock to Ciba and has agreed to provide certain registration rights therefor pursuant to the Strategic Alliance Agreement; WHEREAS Ciba or a Subsidiary thereof may hereafter acquire certain additional securities of Hexcel in accordance with the terms of the Governance Agreement dated as of the date hereof (the "Governance Agreement"); WHEREAS the parties hereto desire to set forth the terms and conditions relating to the sale by means of public offerings of certain securities of Hexcel owned by Ciba and its affiliates. NOW, THEREFORE, in consideration of the mutual covenants and undertakings contained herein and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto hereby agree as follows: SECTION 1. DEFINITIONS. Capitalized terms used herein without definition shall have their respective meanings set forth in the Governance Agreement. As used in this Agreement, the following terms shall have the following meanings: "BOARD" means the board of directors of Hexcel. "CLOSING" has the meaning set forth in Section 2.01 of the Strategic Alliance Agreement. "COMMON STOCK" means the common stock of Hexcel, par value $0.01 per share. 1 "DEMAND REGISTRATION" has the meaning set forth in Section 3(a) hereof. "DEMAND REGISTRATION STATEMENT" has the meaning set forth in Section 3(a) hereof. "EXPIRATION DATE" means the date upon which all Registrable Securities have been sold or can be sold without restriction, including volume and manner of sale restrictions, under the Securities Act. "FIRST INSTALLMENT" means the Installment that may be sold by Ciba and the Ciba Entities in whole or in part pursuant to a Registration Statement at any time on or after March 1, 1998. "FORM S-3" means Form S-3 under the Securities Act or any successor registration form or any similar registration form that permits, to no lesser extent than permitted by Form S-3, the incorporation by reference of reports filed by Hexcel under the Exchange Act. "FOURTH INSTALLMENT" means the Installment that may be sold by Ciba and the Ciba Entities in whole or in part pursuant to a Registration Statement at any time on or after March 1, 2001. "INSTALLMENT" means, as to each Installment Date, an aggregate of 25% of the greater of (x) the total number of Shares and (y) the total number of Registrable Securities outstanding as of such Installment Date; PROVIDED that with respect to the Fourth Installment, the term "Installment" means all Registrable Securities. "INSTALLMENT DATE" means the date upon which the First Installment, the Second Installment, the Third Installment or the Fourth Installment, as the case may be, may be sold pursuant to a Registration Statement. "MANAGING UNDERWRITERS" means the Underwriter or Underwriters that manage or lead an underwritten offering. "PIGGYBACK REGISTRATION" has the meaning set forth in Section 3(d) hereof. 2 "PROSPECTUS" means the prospectus included in any Registration Statement (including a prospectus that discloses information previously omitted from a prospectus filed as part of an effective registration statement in reliance upon Rule 430A under the Securities Act), as amended or supplemented by any prospectus supplement with respect to the terms of the offering of any portion of the Registrable Securities covered by such Registration Statement, and all amendments and supplements to the prospectus, including post-effective amendments. "REGISTRABLE SECURITIES" means, at any particular time, all Securities then owned beneficially and of record by Ciba and the Ciba Entities. "REGISTRATION PERIOD" means the period from March 1, 1998 until the Expiration Date. "REGISTRATION STATEMENT" means any registration statement, including a Demand Registration Statement or a Shelf Registration Statement, filed by Hexcel with the SEC under the Securities Act that covers some or all Registrable Securities, and any amendments or supplements thereto, including post-effective amendments, in each case including the Prospectus contained therein, all exhibits thereto and all documents and other materials incorporated by reference therein. "SECOND INSTALLMENT" means the Installment that may be sold by Ciba and the Ciba Entities in whole or in part pursuant to a Registration Statement at any time on or after March 1, 1999 and any Registrable Securities in respect of the First Installment that have not been sold prior to March 1, 1999 pursuant to a Registration Statement. "SECURITIES" means the Shares and any additional shares of Common Stock purchased or otherwise acquired in accordance with the Governance Agreement by Ciba or any Ciba Entity after the Closing or issuable upon exercise, conversion or exchange of any options, rights or securities purchased or otherwise acquired in accordance with the Governance Agreement by Ciba or any Ciba Entity after the Closing. "SHARES" means the shares of Common Stock issued by Hexcel at the Closing pursuant to the Strategic Alliance Agreement. "SHELF REGISTRATION" means a registration effected pursuant to Section 2 hereof. 3 "SHELF REGISTRATION STATEMENT" means a "shelf" registration statement on Form S-3 filed by Hexcel pursuant to the provisions of Section 2 hereof with the SEC under Rule 415 under the Securities Act, or any similar rule that may be adopted by the SEC, that covers some or all of the Registrable Securities, and any amendments and supplements to such Registration Statement, including post- effective amendments, and including the Prospectus contained therein, all exhibits thereto and all documents and other materials incorporated by reference therein and any additional such Registration Statements filed as contemplated by Section 2. "THIRD INSTALLMENT" means the Installment that may be sold by Ciba and the Ciba Entities in whole or in part pursuant to a Registration Statement at any time on or after March 1, 2000 and any Registrable Securities in respect of prior Installments that have not been sold prior to March 1, 2000 pursuant to a Registration Statement. "UNDERWRITER" means any underwriter of Registrable Securities in connection with an offering thereof pursuant to a Registration Statement. SECTION 2. SHELF REGISTRATION. If Hexcel at any time during the Registration Period is eligible to use Form S-3 and then for so long as Hexcel is so eligible, Hexcel shall be subject to the provisions of this Section 2 as follows: (a) Hexcel shall prepare and, not later than 60 days prior to March 1, 1998, shall file with the SEC, and thereafter shall use its commercially reasonable efforts to cause to be declared effective under the Securities Act on or prior to March 1, 1998, a Shelf Registration Statement relating to the offer and sale by Ciba and the Ciba Entities of all Registrable Securities permitted to be registered on Form S-3 as part of such Shelf Registration Statement in a manner elected by Ciba and set forth in such Shelf Registration Statement; PROVIDED, HOWEVER, that Ciba and the Ciba Entities may offer and sell pursuant to such Shelf Registration Statement Registrable Securities relating to a given Installment only on or after the Installment Date with respect to such Installment. No securities other than Registrable Securities shall be included in any such initial Shelf Registration Statement or any additional Shelf Registration Statement with respect thereto without the consent of Ciba, which consent shall not be unreasonably withheld. (b) Hexcel shall use commercially reasonable efforts to keep the Shelf Registration Statement continuously effective during the Registration Period. 4 (c) Without limiting the foregoing, Hexcel shall be deemed not to have made commercially reasonable efforts to keep the Shelf Registration Statement effective during the Registration Period if Hexcel voluntarily takes any action that would result in Ciba or any Ciba Entity not being able to offer and sell Registrable Securities that are then eligible under this Agreement to be offered and sold unless (i) such action is required by applicable law, rule, regulation, or legal proceeding or (ii) such action is consistent with the provisions of Section 5 hereof. (d) Subject to Section 5 hereof, if the Shelf Registration Statement ceases to be effective for any reason at any time during the Registration Period, Hexcel shall use its commercially reasonable efforts to obtain the prompt withdrawal of any order suspending the effectiveness thereof, and shall (i) within 60 days of such cessation of effectiveness, amend the Shelf Registration Statement in a manner reasonably expected to obtain the withdrawal of the order suspending the effectiveness thereof, or (ii) file an additional Shelf Registration Statement subsequent to the expired or ineffective Shelf Registration Statement covering the Registrable Securities. If any additional Shelf Registration Statement is filed, Hexcel shall use its commercially reasonable efforts to cause such Shelf Registration Statement to be declared effective as soon as practicable after such filing and to keep such Shelf Registration Statement continuously effective for the remainder of the Registration Period. (e) Subject to Section 5 hereof, Hexcel shall supplement and amend any Shelf Registration Statement if (i) required by the SEC or the rules, regulations or instructions applicable to such Shelf Registration Statement, (ii) otherwise required by the Securities Act or (iii) reasonably requested by Ciba or by the Managing Underwriters with respect to an underwritten offering of such Registrable Securities. (f) As soon as practicable after determining that Registrable Securities permitted to be included on Form S-3 in a Shelf Registration Statement have not been so included, Hexcel shall file a subsequent Shelf Registration Statement covering all such unregistered Registrable Securities that includes a combined Prospectus permitting the inclusion in such Prospectus of all Registrable Securities eligible to be sold thereunder, including Registrable Securities included in a previously filed Registration Statement, PROVIDED that no such subsequent Shelf Registration Statement need be filed for Registrable Securities representing less than 1% of the then outstanding Common Stock unless Ciba informs Hexcel that Ciba or any Ciba Entity currently intends to sell such Registrable Securities. 5 (g) If at any time or from time to time Ciba or any Ciba Entity desires to sell Registrable Securities in an underwritten offering pursuant to a Shelf Registration Statement, the Managing Underwriters shall be selected by Ciba; PROVIDED that such Managing Underwriters shall be nationally recognized investment banking firms and shall be reasonably satisfactory to Hexcel. SECTION 3. DEMAND AND PIGGYBACK REGISTRATIONS. If at any time during the Registration Period Hexcel is not eligible to use Form S-3 then so long as Hexcel is not so eligible Hexcel shall be subject to the provisions of this Section 3 as follows: (a) Subject to Section 5 hereof, upon the written request of Ciba requesting that Hexcel effect the registration under the Securities Act of an offering of that number of Registrable Securities specified by Ciba not to exceed the amount then permitted to be sold as part of the relevant Installment and specifying the holders who plan to participate in such offering and the intended method or methods of disposition of such Registrable Securities, Hexcel shall use its commercially reasonable efforts to effect the registration of the offering of such Registrable Securities under the Securities Act, as soon as practicable (in accordance with such intended method or methods of disposition) (any such registration is hereinafter referred to as a "Demand Registration"). (b) Hexcel shall not be deemed to have effected a Demand Registration pursuant to this Section 3 unless the applicable Demand Registration Statement is declared effective under the Securities Act. (c) If Hexcel shall have previously effected (i) a Demand Registration pursuant to this Section 3, (ii) a Shelf Registration pursuant to Section 2 hereof or (iii) an underwritten offering pursuant to a Shelf Registration Statement, or if any offering of Registrable Securities is registered in a Piggyback Registration (as hereinafter defined) pursuant to Section 3(d) hereof and such offering is consummated (without having been reduced in size pursuant to Section 3(d)(ii)), then in each such case Hexcel shall not be required to effect a subsequent Demand Registration until a period of at least 120 days shall have elapsed from (i) the effective date of the Registration Statement used in connection with such previous Shelf, Demand or Piggyback Registration or (ii) the consummation of such underwritten offering pursuant to a Shelf Registration Statement. (d) If Hexcel at any time during the Registration Period proposes to register an underwritten public offering for cash or cash equivalents under the 6 Securities Act (other than pursuant to a registration statement on Form S-4 or S-8 or any successor or substantially similar forms), that will include disclosure sufficient to offer its common equity securities (or any security with respect to which common equity securities may be issuable upon exercise, conversion or exchange thereof), Hexcel shall each such time give prompt written notice to Ciba and each Ciba Entity identified in Section 9(h), as updated from time to time, of Hexcel's intention to do so, briefly describing such offering and specifying the form and manner and the other relevant facts involved in such proposed registration (including, if known, the identity of the Managing Underwriter and whether such offering will be pursuant to a "best efforts" or "firm commitment" underwriting). Upon the written request of Ciba delivered to Hexcel within 10 business days after such notice shall have been given to Ciba (which request shall specify the Registrable Securities intended to be disposed of by Ciba and each Ciba Entity and the intended method of disposition thereof), Hexcel shall use its commercially reasonable efforts to include in the registration statement relating to such offering all Registrable Securities (which are then eligible for sale by Ciba and the Ciba Entities pursuant to a Registration Statement) that Hexcel has been so requested to register by Ciba (in accordance with the intended methods of distribution thereof as aforesaid) (such registration being hereafter referred to as a "Piggyback Registration"); PROVIDED, HOWEVER, that: (i) Hexcel shall have the right, exercisable in Hexcel's sole and absolute discretion by written notice to Ciba at any time prior to the effectiveness of the Registration Statement filed in connection with such Piggyback Offering, to abandon or delay an offering giving rise to Piggyback Registration rights, without obligation or liability to Ciba and the Ciba Entities (except to the extent of any registration expenses required to be paid by Hexcel pursuant to Section 6 hereof), without prejudice, however, to the right of Ciba to request that such registration be effected immediately as a Demand Registration under and pursuant to the terms of Section 3(a) and subject to the provisions of Sections 3(c) and 5 hereof; (ii) if the Managing Underwriter of such proposed Piggyback Registration offering shall advise Hexcel in writing that, in the judgment of such Managing Underwriter, the inclusion in any such offering of some or all of the securities (including Registrable Securities) sought to be registered by Persons other than Hexcel (or, if applicable, the Person whose demand registration rights required the filing of the registration statement relating to such offering) creates a substantial risk that the proceeds or price per security that Hexcel or Persons other than Hexcel will derive from such 7 offering will be reduced and/or that the number of securities included in such offering (including those sought to be included at the insistence of Hexcel and any other Persons entitled to participate in such offering) is too large a number to be reasonably sold, or the Managing Underwriter of such underwritten offering shall inform Hexcel in writing of its opinion that the number of securities to be included in such offering would materially adversely affect its ability to effect such offering (such opinion shall state the reasons therefor and the approximate number of securities that may be included in such offering without such effect), Hexcel shall use its commercially reasonable efforts to register an offering of that number of securities that Hexcel is so advised can be sold in such offering without such risk or effect, which shall consist of the following number of securities sought to be registered by each participant (which term shall include Hexcel, Ciba, each Ciba Entity, and any other Person seeking to include securities in such registration) (A) FIRST, the securities Hexcel proposes to sell or, if applicable, the securities proposed to be sold by a participant the exercise of whose demand registration right required the filing of the registration statement, (B) SECOND, the securities, if any, requested to be included by holders of piggyback registration rights granted pursuant to the registration rights agreement between Mutual Series Fund Inc. and Hexcel dated as of February 9, 1995, (C) THIRD, the Registrable Securities requested to be included by Ciba and the Ciba Entities and the securities, if any, requested to be included by "Eligible Holders" pursuant to Hexcel's Registration Rights Agreement for Affiliates dated as of February 9, 1995, pro rata based on the number of securities requested to be included by each such Person and (D) FOURTH, the securities requested to be included by any other Person; and (iii) if the Managing Underwriter of such proposed Piggyback Registration offering shall advise Hexcel in writing that, in the judgment of such Managing Underwriter, the inclusion of any Registrable Securities in such offering of a type, class or series, as the case may be, different from that of the securities originally intended to be included in such offering would materially adversely affect the success of the offering of such securities originally intended to be so included, then Hexcel shall promptly advise Ciba thereof and may require, by written notice to Ciba accompanying such advice, that such different Registrable Securities be excluded from such offering to the extent the inclusion thereof could adversely affect such offering. 8 SECTION 4. REGISTRATION PROCEDURES. In connection with any Registration Statement the following provisions shall apply: (a) Hexcel shall furnish to Ciba and each Ciba Entity set forth in Section 9(h), as updated from time to time, prior to the filing thereof with the SEC, a copy of any Registration Statement (including any preliminary prospectus contained therein), and each amendment thereto and each amendment or supplement, if any, to the Prospectus included therein and shall reflect in each such document, when so filed with the SEC, such comments as Ciba and each Ciba Entity set forth in Section 9(h), as updated from time to time, reasonably may propose. (b) Hexcel shall ensure that (i) any Registration Statement and any amendment thereto and any Prospectus forming part thereof and any amendment or supplement thereto complies as to form in all material respects with the Securities Act (ii) any Registration Statement and any amendment thereto does not, when it becomes effective, contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading and (iii) subject to Section 5 hereof, any Prospectus forming part of any Registration Statement, and any amendment or supplement to such Prospectus, does not include an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading other than, in the case of clauses (ii) and (iii), any such untrue statement or omission made therein in reliance upon and conformity with written information furnished to Hexcel or its representatives or advisors by or on behalf of Ciba or any Ciba Entity specifically for inclusion therein. (c) Hexcel shall promptly advise Ciba and each Ciba Entity set forth in Section 9(h), as updated from time to time, and, if requested by Ciba, promptly confirm such advice in writing: (i) when a Registration Statement and any amendment or supplement thereto has been filed with the SEC and when a Registration Statement or any post-effective amendment thereto has become effective; (ii) of any request by the SEC for amendments or supplements to any Registration Statement or the Prospectus included therein or for additional information in connection therewith; 9 (iii) of the issuance by the SEC of any stop order suspending the effectiveness of any Registration Statement or the initiation of any actions or proceedings for that purpose; (iv) of the receipt by Hexcel of any notification with respect to the suspension of the qualification of the Registrable Securities included therein for sale in any jurisdiction or the initiation or threatening of any action or proceeding for such purpose; and (v) to the extent known to Hexcel, of the happening of any event that requires the making of any changes in any Registration Statement or Prospectus so that, as of the date of such event, the statements therein are not misleading and do not omit to state a material fact required to be stated therein or necessary to make the statements therein (in the case of the Prospectus, in light of the circumstances under which they were made) not misleading. (d) subject to Section 5 hereof, Hexcel shall use its commercially reasonable efforts to obtain the withdrawal of any order suspending the effectiveness of any Registration Statement at the earliest possible time. (e) Hexcel shall furnish to Ciba, without charge, three copies of each Registration Statement and any post-effective amendment thereto, including financial statements and schedules, and, if Ciba so requests in writing, all exhibits thereto (including those incorporated therein by reference). (f) Hexcel shall furnish Ciba, without charge, copies of any and all transmittal letters or other correspondence with the SEC or any other governmental entity relating to a Registration Statement or the public offering of Hexcel's securities thereunder. (g) Hexcel shall, during the Registration Period, deliver to Ciba and each Ciba Entity, without charge, as many copies of the Prospectus (including each preliminary Prospectus) included in such Registration Statement and any amendment or supplement thereto as such Person may reasonably request; and subject to Section 5 below and Ciba's and each Ciba Entity's compliance with its obligations under Section 4(l), Hexcel consents to the use of the Prospectus or any amendment or supplement thereto by each such Person in connection with the offering and sale of the Registrable Securities covered by the Prospectus or any amendment or supplement thereto. 10 (h) Prior to any offering of Registrable Securities pursuant to any Registration Statement, Hexcel shall use its commercially reasonable efforts to register or qualify or cooperate with Ciba and each Ciba Entity and their counsel in connection with the registration or qualification of such Registrable Securities for offer and sale under the securities, Blue Sky or similar laws of such jurisdictions as Ciba reasonably requests in writing and Hexcel shall use its commercially reasonable efforts to do any and all other acts or things necessary or advisable to enable the offer and sale in such jurisdictions of the Registrable Securities covered by such Registration Statement; PROVIDED, HOWEVER, that Hexcel shall not be required to qualify generally to do business in any jurisdiction where it is not then so qualified or to take any action which would subject it to general service of process or to taxation in any such jurisdiction where it is not then so subject. (i) Hexcel shall cooperate with Ciba and each Ciba Entity to facilitate the timely preparation and delivery of certificates representing Registrable Securities to be sold pursuant to any Registration Statement in accordance with the Governance Agreement free of any restrictive legends and in such denominations and registered in such names as requested prior to such sales. (j) Subject to Section 5 hereof, upon the occurrence of any event contemplated by paragraph (c)(v) above, Hexcel shall use its commercially reasonable efforts to promptly prepare a post-effective amendment to any Registration Statement or an amendment or supplement to the related Prospectus or file any other required document so that, as thereafter delivered to purchasers of the Securities included therein, the Prospectus will not include an untrue statement of a material fact or omit to state any material fact necessary to make the statements therein (in the case of the Prospectus, in the light of the circumstances under which they were made) not misleading, it being understood that the provisions of Section 7 shall apply to any such statement or omission. (k) Hexcel shall comply in all material respects with all applicable rules and regulations of the SEC and shall make generally available to Ciba and the Ciba Entities as soon as practicable after the effective date of the applicable Registration Statement an earnings statement satisfying the provisions of Section 11(a) of the Securities Act and Rule 158 under the Securities Act. (l) Each holder of Registrable Securities that plans to participate in a distribution pursuant to a Registration Statement shall furnish to Hexcel such information regarding such Person and its affiliates and the distribution of such Registrable Securities as Hexcel may from time to time reasonably require for 11 inclusion in such Registration Statement. Ciba shall ensure that such information at the time any Registration Statement and any amendment thereto becomes effective, and at the time any Prospectus or supplement thereto previously reviewed by Ciba forming a part of any Registration Statement is delivered in any offering of Registrable Securities, shall not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein (in the case of the Prospectus, in light of the circumstances which the were made) not misleading. Ciba shall advise Hexcel and, if requested by Hexcel, confirm such advice in writing in the event that Ciba or any Ciba Entity becomes aware of the happening of any event that requires the making of any changes in a Registration Statement or Prospectus so that as of the date of such event the statements therein provided by Ciba and the Ciba Entities specifically for inclusion therein are not misleading and do not omit to state a material fact required to be stated therein or necessary to make the statements therein (in the case of the Prospectus, in light of the circumstances under which they were made) not misleading. (m) Subject to Section 5 below, Hexcel shall, if requested, promptly incorporate in a Prospectus supplement or post-effective amendment to a Registration Statement, such information, if any, as the Managing Underwriters, Ciba and Hexcel reasonably agree should be included therein and shall make all required filings of such Prospectus supplement or post-effective amendment as soon as practicable following notification of the matters to be incorporated in such Prospectus supplement or post-effective amendment. (n) If requested by Ciba in connection with the offering and sale of Registrable Securities pursuant to a Registration Statement, Hexcel shall enter into one or more underwriting agreements with the Managing Underwriters selected in accordance with Section 2(g) above. Any such underwriting agreement shall contain such indemnities and other terms and agreements as are then customarily included in underwriting agreements relating to secondary public offerings; PROVIDED that in no event shall the indemnification provisions and procedures in such underwriting agreements be less favorable to the Managing Underwriters than those contained in Section 7 hereof. (o) Hexcel shall (i) make reasonably available for inspection during normal business hours by Ciba, any Underwriter participating in any disposition pursuant to a Registration Statement, and any attorney, accountant or other agent or representative retained by Ciba or any such Underwriter all relevant financial and other records, pertinent corporate documents and properties of Hexcel and its 12 Subsidiaries; (ii) cause Hexcel's officers, directors and employees to supply all relevant information reasonably requested by Ciba or any such Underwriter, attorney, accountant, agent or representative in connection with any such Registration Statement as is customary for similar due diligence examinations; PROVIDED, HOWEVER, that all such information that is designated in writing by Hexcel as confidential at the time of delivery of such information shall be kept confidential by Ciba and any such Underwriter, attorney, accountant, agent or representative, unless and to the extent that (x) disclosure is, in the opinion of counsel to the disclosing party, required to be made in connection with a court proceeding or required by law or (y) such information becomes available to the public generally or through a third party without an accompanying obligation of confidentiality and other than as a result of a breach of this confidentiality provision; (iii) make such representations and warranties to the holders of Registrable Securities covered by such Registration Statement and the Underwriters, if any, in form, substance and scope as are then customarily made by issuers to Underwriters in underwritten secondary public offerings by an affiliate; (iv) use its commercially reasonable efforts to obtain opinions of counsel to Hexcel and updates thereof addressed to each selling holder of Registrable Securities and the Underwriters in customary form and covering such matters as are then customarily covered in opinions requested in underwritten secondary public offerings by an affiliate and such other matters as may be reasonably requested by the Underwriters; (v) use its commercially reasonable efforts to obtain "cold comfort" letters and updates thereof from the independent certified public accountants of Hexcel (and, if necessary, any other independent certified public accountants of any Subsidiary of Hexcel or of any business acquired by Hexcel for which financial statements and financial data are, or are required to be, included in a Registration Statement, it being understood that Ciba shall cooperate with Hexcel in obtaining such letters and updates from the independent certified public accountants for the business acquired by Hexcel pursuant to the Strategic Alliance Agreement), addressed to each holder of Registrable Securities and the Underwriters, if any, in customary form and covering matters of the type then customarily covered in "cold comfort" letters in connection with underwritten secondary public offerings by an affiliate; and (vi) deliver such documents and certificates as may be reasonably requested by Ciba and the Managing Underwriters, if any, including any customary condition contained in the underwriting agreement entered into by Hexcel at Ciba's request. The foregoing actions set forth in clauses (iii), (iv), (v) and (vi) of this Section 4(o) shall to the extent applicable be performed at (A) the effectiveness of such Registration Statement and each post-effective amendment thereto and (B) each closing under any underwriting agreement as and to the extent required thereunder. 13 (p) Hexcel shall not be obligated to effect more than (i) an aggregate of two underwritten offerings or Demand Registrations pursuant to this Agreement in any twelve month period or (ii) an aggregate of six underwritten offerings or Demand Registrations pursuant to this Agreement during the entire Registration Period, PROVIDED that no (A) underwritten offering or Demand Registration that is not completed due to a postponement pursuant to Section 5 or (B) Piggyback Registration shall be included in any calculation for purposes of this sentence. SECTION 5. SUSPENSION OF OFFERINGS IN CERTAIN CIRCUMSTANCES. (a) BUSINESS DEVELOPMENT DETERMINATION. Hexcel shall be entitled for the period referred to below to postpone the filing of any Registration Statement or the taking of any other action otherwise required to be prepared, filed or taken by it pursuant to Sections 2, 3(a) or 4 hereof and/or to direct the suspension of any public offering, sale or distribution of Registrable Securities pursuant to this Agreement if the Independent Directors determine in good faith that any disclosure that would be required in connection therewith would have a material adverse effect on Hexcel and its Subsidiaries taken as a whole or any financing, acquisition, disposition, merger, business combination, corporate reorganization, or other transaction or development involving Hexcel or any Subsidiary of Hexcel (a "Business Development Determination"). Such postponement or direction (a "Business Development Period") shall continue until such time as the Independent Directors determine that the preparation and/or filing of such Registration Statement or the taking of any such action and/or such public offering, sale or distribution would no longer have such a material adverse effect. During the pendency of any Business Development Period, Ciba shall provide prompt written notice to Hexcel whenever it has a present bona fide intention to offer Registrable Securities hereunder (a "Bona Fide Notice"). During the pendency of any Business Development Period and during any period thereafter during which Hexcel is prevented from making a Business Development Determination, Ciba shall provide prompt written notice to Hexcel whenever it ceases to have a present bona fide intention to offer Registrable Securities (a "Cessation Notice"). Each day commencing with the day on which a Bona Fide Notice is delivered and ending on the day on which a Cessation Notice is delivered shall be referred to as a "Blackout Day". Any particular Business Development Period shall not continue for more than 90 Blackout Days and there shall not be more than 150 Blackout Days in any 365-day period. If a Shelf Registration Statement is not in effect at and after the end of a Business Development Period and Ciba, having delivered a Bona Fide Notice, was prevented from offering Registrable Securities hereunder because of the pendency of such Business Development Period, Hexcel shall not make another Business Development Deter- 14 mination until the earlier of the consummation of the offering that was previously postponed because of such Business Development Period or the delivery of a Cessation Notice. If a Shelf Registration Statement is in effect at and after the end of a Business Development Period that includes a Blackout Day, Hexcel shall not make another Business Development Determination within 45 days of the expiration of such Business Development Period unless Ciba earlier delivers a Cessation Notice. Hexcel shall, as promptly as practicable, give Ciba written notice of any Business Development Determination. Ciba and the Ciba Entities shall be obligated to suspend any public offering, sale or distribution of Registrable Securities in accordance with Hexcel's directions and for the period provided in this Section 5(a). (b) RULE 10b-6 ELECTION. In the event that Hexcel or a Subsidiary of Hexcel plans to repurchase or bid for securities of Hexcel in the open market on a private solicited basis or otherwise and the Independent Directors determine that any such repurchase or bid may not under Rule 10b-6 under the Securities Act ("Rule 10b-6") be commenced or consummated due to the existence of a "distribution" (within the meaning of Rule 10b-6, but including in any event any offers or sales under any Registration Statement filed pursuant to this Agreement) and/or the possible commencement of a distribution by Ciba or the Ciba Entities, Hexcel shall be entitled to postpone taking any action otherwise required to be taken by it pursuant to Sections 2, 3(a) or 4 above and/or direct that Ciba and the Ciba Entities suspend such distribution and/or postpone any distribution that has not yet been commenced (a "Rule 10b-6 Election"), and Ciba and the Ciba Entities shall be obligated to suspend or postpone such distribution for such period as the Board shall specify in such request, except that the suspension or postponement relating to any particular Rule 10b-6 Election shall not exceed 60 days nor shall the aggregate suspensions or postponements relating to all Rule 10b-6 Elections during any twelve month period exceed 90 days, at the end of each of which periods Hexcel shall suspend all bids or repurchases by it that gave rise to the Rule 10b-6 Election. No Rule 10b-6 Election shall occur within 60 days of the expiration of a postponement or suspension caused by another Rule 10b-6 Election. Hexcel shall, as promptly as practicable, give Ciba and the Ciba Entities set forth in Section 9(h), as updated from time to time, written notice of any such Rule 10b-6 Election. As promptly as practicable after the time that the Independent Directors determine that Ciba and the Ciba Entities may commence or recommence their distribution without causing Hexcel or such Subsidiary to be in violation of Rule 10b-6, Hexcel shall give Ciba and the Ciba Entities set forth in Section 9(h), as updated from time to time, written notice of such determination. 15 SECTION 6. REGISTRATION EXPENSES. Hexcel shall bear all costs and expenses incurred by it in connection with the performance of its obligations under Sections 2, 3 and 4 hereof (other than SEC and Blue Sky filing fees) including fees and disbursements of its counsel and accountants and printing expenses. Ciba shall pay all SEC and Blue Sky filing fees incurred in connection with the registration of Registrable Securities in accordance with this Agreement and all other expenses incurred in connection with the registration, offering and sale of Registrable Securities, including the fees and disbursements of counsel for Ciba and the Ciba Entities. SECTION 7. INDEMNIFICATION AND CONTRIBUTION. (a) INDEMNIFICATION OF CIBA AND THE CIBA ENTITIES. In the case of any offering or sale of Registrable Securities covered by this Agreement, Hexcel shall indemnify and hold harmless Ciba, the Ciba Entities and each person affiliated with or retained by Ciba and the Ciba Entities and who may be subject to liability under any applicable securities laws, against any and all losses, claims, damages or liabilities to which they or any of them may become subject under the Securities Act or any other statute or common law of the United States of America or political subdivision thereof, or any other country or political subdivision thereof or otherwise, including, subject to Section 7(c) below, any amount paid in settlement of any litigation commenced or threatened (including any amounts paid pursuant to or in settlement of claims made under customary indemnification or contribution provisions of any underwriting agreement entered into by Ciba or the Ciba Entities in connection with any offering or sale of Registrable Securities pursuant to this Agreement), and shall, subject to Section 7(c) below, promptly reimburse them, as and when incurred, for any reasonable legal fees, disbursements and other expenses incurred by them in connection with investigating any claims and defending any actions, insofar as any such losses, claims, damages, liabilities or actions shall arise out of or shall be based upon any untrue statement or alleged untrue statement of a material fact contained in any Registration Statement (or in any preliminary or final Prospectus included therein) relating to the offering and sale of such Registrable Securities, or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein (in the case of a Prospectus, in light of the circumstances under which they were made) not misleading; PROVIDED, HOWEVER, that Hexcel will not be liable in any case to the extent that any such loss, claim, damage, liability or action arises out of or is based upon any such untrue statement or alleged untrue statement or omission or alleged omission made therein in reliance upon and in conformity with written information furnished to Hexcel or its representatives or advisors by or on behalf of Ciba or any such Ciba Entity specifically for inclusion therein or in any 16 amendment thereof or supplement thereto, including any such information furnished pursuant to Section 4(l) hereof. (b) INDEMNIFICATION OF HEXCEL. In the case of each offering or sale of Securities covered by this Agreement, Ciba shall indemnify and hold harmless Hexcel and each person, if any, who controls Hexcel within the meaning of Section 15 of the Securities Act, each person affiliated with or retained by Hexcel and who may be subject to liability under any applicable securities laws, and each of Hexcel's directors and those officers of Hexcel who shall have signed any Registration Statement, against any and all losses, claims, damages or liabilities to which they or any of them may become subject under the Securities Act or any other statute or common law of the United States of America or political subdivision thereof, or any other country or political subdivision thereof or otherwise, including, subject to Section 7(c) below, any amount paid in settlement of any litigation commenced or threatened (including any amounts paid pursuant to or in settlement of claims made under customary indemnification or contribution provisions of any underwriting agreement entered into in connection with any offering or sale of Registrable Securities pursuant to this Agreement), and shall, subject to Section 7(c) below, promptly reimburse them, as and when incurred, for any reasonable legal fees, disbursements and other expenses incurred by them in connection with investigating any claims and defending any actions, insofar as any such losses, claims, damages, liabilities or actions shall arise out of or shall be based upon any untrue statement or alleged untrue statement of a material fact contained in any Registration Statement (or in any preliminary or final Prospectus included therein) or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein (in the case of a Prospectus, in light of the circumstances in which they were made) not misleading; PROVIDED, HOWEVER, that Ciba shall not be liable in any case, except to the extent such loss, claim, damage, liability or action arises out of or is based upon written information furnished to Hexcel or its representatives or advisors by or on behalf of Ciba or any Ciba Entity specifically for inclusion in any Registration Statement or any preliminary Prospectus or Prospectus contained in such Registration Statement, or in any amendment thereof or supplement thereto, including any such information furnished pursuant to Section 4(l). (c) PROCEDURE FOR INDEMNIFICATION. Each party indemnified under paragraph (a) or (b) of this Section 7, shall, promptly after receipt of notice of the commencement of any action against such indemnified party in respect of which indemnity may be sought, notify the indemnifying party in writing of the commencement thereof. The omission of any indemnified party so to notify an indem- 17 nifying party of such action shall not relieve the indemnifying party from any liability in respect of such action which it may have to such indemnified party on account of the indemnity agreement contained in paragraph (a) or (b) of this Section 7, except to the extent that the indemnifying party was or is actually prejudiced thereby, and in no event shall relieve the indemnifying party from any other liability which it may have to such indemnified party to the extent the indemnifying party has not actually been prejudiced thereby. In case any such action shall be brought against any indemnified party and such indemnified party shall notify an indemnifying party of the commencement thereof, the indemnifying party shall be entitled to participate therein and, to the extent that it may wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel reasonably satisfactory to such indemnified party. If the indemnifying party so assumes the defense thereof, it may not agree to any settlement of any such action as the result of which any remedy or relief, other than monetary damages for which the indemnifying party shall be responsible hereunder, shall be applied to or against the indemnified party, without the prior written consent of the indemnified party. An indemnifying party may not assume or jointly assume the defense of an action if in the reasonable judgment of the indemnified party a conflict of interest may exist between the indemnifying party and such indemnified party with respect to such action. An indemnifying party who is not entitled to, who elects not to, or who has not appointed counsel reasonably satisfactory to the indemnified party within a reasonable time to, assume the defense of an action shall be obligated to pay the fees and expenses of counsel for the indemnified party; PROVIDED that the indemnifying party shall not be obligated to pay the fees and the expenses of more than one counsel (plus local counsel if reasonably necessary) for all parties who may be indemnified by such indemnifying party with respect to such action, unless in the reasonable judgment of any indemnified party a conflict of interest exists between such indemnified party and any other indemnified party with respect to such action. If the indemnifying party does not assume the defense of an action, it shall be bound by any settlement to which the indemnified party agrees, irrespective of whether the indemnifying party consents thereto PROVIDED, that if the indemnifying party does not assume the defense of action because of a conflict of interest that prevented it from doing so, then the indemnifying party shall be bound by any settlement to which the indemnified party agrees and to which the indemnifying party consents (which consent shall not be unreasonably withheld). If any settlement of any claim is effected by the indemnified party prior to commencement of any action relating thereto, the indemnifying party shall be bound thereby only if it has consented in writing thereto. In any action with respect to which the indemnifying party has assumed the defense thereof, the indemnified party shall continue to be entitled to participate in the 18 defense thereof, with counsel of its own choice, PROVIDED that the indemnifying party shall be relieved of the obligation hereunder to reimburse the indemnified party for the costs thereof. SECTION 8. CIBA TO CAUSE COMPLIANCE. Ciba shall cause each Ciba Entity to perform its obligations hereunder and otherwise to act consistently with Ciba's obligations hereunder and shall be liable for the failure of any Ciba Entity (other than a Ciba Entity that ceases to be a Ciba Entity for purposes of the Governance Agreement in accordance with Section 4.01(b) of the Governance Agreement, provided that such entity agrees to become a party to, and to be bound by the terms and provisions of, this Agreement) to do so. SECTION 9. MISCELLANEOUS. (a) NO INCONSISTENT AGREEMENTS. Hexcel has not as of the date hereof taken any actions in accordance with or entered into, and except as expressly permitted by Section 5 hereof, Hexcel shall not from the date hereof until the expiration of the Registration Period take any actions in accordance with or enter into, any agreement or arrangement with respect to any class of its securities that limits or interferes with or is inconsistent with the rights granted to Ciba and the Ciba Entities herein or otherwise conflicts with the provisions hereof. (b) AMENDMENTS AND WAIVERS. The provisions of this Agreement, including the provisions of this sentence, may be amended, qualified, modified or supplemented only by means of a written instrument executed by the affected party or parties (it being understood that any such amendment executed by Ciba shall bind all Ciba Entities, and no Ciba Entity may execute any such instrument without Ciba's consent). (c) ASSIGNMENT. Neither this Agreement nor any of the rights, interests or obligations under this Agreement shall be assigned or transferred, in whole or in part, by Hexcel, Ciba or any Ciba Entity except that (i) Ciba may assign any or all of its rights, interests, and obligations under this Agreement to any direct or indirect wholly owned Subsidiary of Ciba and, such Subsidiary may assign any or all of its rights, interests and obligations under this Agreement to another such Subsidiary or to Ciba, but no such assignment shall relieve Ciba of any of its obligations under this Agreement, and (ii) any Ciba Entity holding Registrable Securities that ceases to be a Ciba Entity in accordance with Section 4.01(b) of the Governance Agreement shall continue to be deemed a Ciba Entity for purposes of this Agreement until all Registrable Securities held by such Ciba Entity can be sold without restriction, including volume and manner of sale 19 restrictions, under the Securities Act (it being understood that after such time Hexcel shall have no further obligation to such Ciba Entity under this Agreement). Subject to the preceding sentence, this Agreement shall be binding upon, inure to the benefit of, and be enforceable by and against, the parties and their respective successors and assigns. Any attempted assignment or transfer in violation of this Section 9(c) shall be void. (d) COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original and all of which taken together shall be considered one and the same agreement, it being understood that the parties need not sign the same counterpart. (e) INTERPRETATION. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. Whenever the words "included", "includes" or "including" are used in this Agreement they shall be deemed to be followed by the words "without limitation". (f) GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the internal laws of the State of New York applicable to agreements made and to be performed in said State, regardless of the laws that might otherwise govern under applicable principles of conflicts of law. (g) CONSENT TO JURISDICTION. Each of Hexcel and Ciba irrevocably submits to the exclusive jurisdiction of the United States District Court for the Southern District of New York located in the borough of Manhattan in the City of New York, or if such court does not have jurisdiction, the Supreme Court of the State of New York, New York County, for the purposes of any suit, action or other proceeding arising out of this Agreement or any transaction contemplated hereby. Each of Hexcel and Ciba further agrees that service of any process, summons, notice or document by U.S. registered mail to such party's respective address set forth in Section 9(h) (as it may be changed from time to time) shall be effective service of process for any action, suit or proceeding in New York with respect to any matters to which it has submitted to jurisdiction as set forth above in the immediately preceding sentence. Each of Hexcel and Ciba irrevocably and unconditionally waives any objection to the laying of venue of any action, suit or proceeding arising out of this Agreement or the transactions contemplated hereby in (a) the United States District Court for the Southern District of New York or (b) the Supreme Court of the State of New York, New York County, and hereby further irrevocably and unconditionally waives and agrees not to plead or claim in 20 any such court that any such action, suit or proceeding brought in any such court has been brought in an inconvenient forum. (h) NOTICES. All notices, requests and other communications hereunder shall be in writing (including fax) and shall be sent, delivered or mailed, addressed, or faxed: (a) if to Hexcel, to: Hexcel Corporation 5794 West Las Positas Boulevard Pleasanton,CA 94588 (T) (510) 847-9500 (F) (510) 734-8611 Attention of Rodney P. Jenks, Esq. with a copy to: Alan C. Myers, Esq. Skadden, Arps, Slate, Meagher & Flom 919 Third Avenue New York, NY 10022 (T) (212) 735-3000 (F) (212) 735-2000 (b) if to Ciba, to: Ciba-Geigy Limited CH 4002 Basle, Switzerland (T) (41) 61 697-4750 (F) (41) 61 697-8253 Attention of Mr. John M.D. Cheesmond 21 with copies to: Ciba-Geigy Corporation 520 White Plains Road P.O. Box 2005 Tarrytown, NY 10591-9005 (T) (914) 785-2000 (F) (914) 785-2844 Attention of Mr. Stanley Sherman and John J. McGraw, Esq. and Ciba-Geigy Limited CH4002 Basle, Switzerland (T) (41) 696-5107 (F) (41) 696-4677 Attention of Dr. Peter Rudolf and Philip A. Gelston, Esq. Cravath, Swaine & Moore 825 Eighth Avenue New York, NY 10019 (T) (212) 474-1548 (F) (212) 474-3700 (c) if to the Ciba Entities, to: Each such notice, request or other communication shall be given (i) by hand delivery, (ii) by nationally recognized courier service or (iii) by fax, receipt confirmed. Each such notice, request or communication shall be effective (A) if delivered by hand or by nationally recognized courier service, when delivered at the address specified in this Section 9(h) and (B) if given by fax, when such fax is transmitted to the fax number specified in this Section 9(h), and the appropriate confirmation is received. 22 The information set forth in this Section 9(h) as to Hexcel, Ciba and the Ciba Entities may be amended or updated at any time and from time to time by Hexcel, Ciba or the relevant Ciba Entity (including any additional or subsequent Ciba Entities), as the case may be. (i) SEVERABILITY. In the event that any one or more of the provisions contained herein, or the application thereof in any circumstances, is held invalid, illegal or unenforceable in any respect for any reason, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions hereof shall not be in any way impaired or affected thereby, it being intended that all of the rights and privileges of the parties shall be enforceable to the fullest extent permitted by law. 23 IN WITNESS WHEREOF, Ciba, on behalf of itself and the Ciba Entities, and Hexcel by their duly authorized representatives have caused this Agreement to be executed as of the day and year first above written. CIBA-GEIGY LIMITED, by /s/ JOHN M.D. CHEESMOND ------------------------------------ Name: John M.D. Cheesmond Title: Head of Regional by /s/ PETER RUDOLF ------------------------------------ Name: Peter Rudolf Title: Senior Division Counsel HEXCEL CORPORATION, by /s/ STEPHEN C. FORSYTH ------------------------------------ Name: Stephen C. Forsyth Title: Vice President 24 EX-10.23(A) 15 EXH 10.23(A)NEW Exhibit 10.23(a) AMENDMENT DATED NOVEMBER 22, 1995 TO AGREEMENT GOVERNING EMPLOYMENT MATTERS dated as of September 29, 1995 (the "Agreement") between CIBA-GEIGY CORPORATION, a New York corporation ("CGC"), and HEXCEL CORPORATION, a Delaware corporation ("Hexcel"). CGC and Hexcel agree to amend the Agreement as follows: (a) DEFINITIONS. Unless specifically provided otherwise, each term used in this Amendment has the same meaning specified or referred to in Appendix A of the Strategic Alliance Agreement or in Article I of the Agreement. (b) AMENDMENT. Article 5 of the Agreement shall be deleted in its entirety and replaced by the following: ARTICLE 5. COLLECTIVE BARGAINING AGREEMENT Notwithstanding anything to the contrary in this Agreement and except as otherwise may be agreed by the parties, Hexcel shall not be required to assume or be bound by, and shall have no obligation or liability under (unless and until Hexcel, in its sole discretion, decides to assume and so assumes on the Closing Date), the Collective Bargaining Agreement between Heath Tecna and the IAM District Lodge Number 160, Local Lodge 1103 (the "IAM CBA"), including any obligation thereunder to contribute to any Multi-Employer Plan. In any event, CGC shall continue to be responsible for any and all obligations and liabilities arising, accruing or attributable to service with CGC prior to the Closing Date or asserted to exist as of the Closing Date with respect to the IAM CBA. At Hexcel's request, CGC shall allow employees of the U.S. Transferred Business to participate with Hexcel and its representatives in the planning, discussions and negotiations concerning the modification of the terms and conditions of the Heath Tecna collective bargaining unit's employment or the terms of the IAM CBA; provided however, that CGC may provide reasonable restrictions on the employees who are to participate and on the parameters of their participation. (c) AMENDMENT. The following shall be deleted in its entirety from Schedule 2.1(a) of the Agreement: "Blue Cross of Washington and Alaska (Union Medical Plan) and the Group Health Cooperative of Puget Sound (Union HMO)." (d) MISCELLANEOUS. Except as specifically provided in this Amendment, the terms of the Agreement shall remain in full force and effect. 1 IN WITNESS WHEREOF, the parties have executed this Amendment effective as of the date first above written. CIBA-GEIGY CORPORATION HEXCEL CORPORATION By: /s/ STANLEY SHERMAN By: /s/ JOHN J. LEE ---------------------- ------------------- Name: Stanley Sherman Name: John J. Lee Title: VP & CFO Title: CEO 2 EX-10.24 16 EXH 10.24NEW Exhibit 10.24 EMPLOYMENT AGREEMENT THIS AGREEMENT is made the 29th day of February, 1996 BETWEEN: (1) CIBA-GEIGY PLC (registered no. 170180) whose registered office is at Hulley Road Macclesfield, Cheshire SK10 4NX ("Ciba"); (2) COMPOSITE MATERIALS LIMITED (registered no. 3069887), formerly known as EuroMaterials Limited, whose registered office is at Hulley Road aforesaid ("CML"); and (3) HEXCEL CORPORATION a Delaware corporation whose principal place of business is at 5794 West Las Positas Boulevard, P.O. Box 8181, Pleasanton, CA 94588) ("Hexcel"). WHEREAS: A. By an agreement dated 5th July 1995 and made between Ciba and CML (the "Business Sale Agreement") as amended by a Supplemental Agreement dated February, 1996 (the "Supplemental Agreement"), CML agreed to purchase the Business (as defined in the Supplemental Agreement) as a transfer of a going concern. B. In the Business Sale Agreement the parties acknowledged that the contracts of employment of each of the Employees of the Business transferred to CML in accordance with the Transfer of Undertakings (Protection of Employment) Regulations 1981. In addition CML agreed under Clause 4 of that Business Sale Agreement in respect of pensionable service of the Employees (as therein defined) on and from 4 July, to provide pension benefits which were overall no less favourable than the benefits which would have been provided under Ciba's Scheme for and in respect of the Employees using the provisions of Ciba's Scheme which were in force as at 4 July. The parties wish to confirm in this Employment Agreement what measures shall apply in respect of pensions and employment between Closing and the end of the Transitional Period (as defined in this Employment Agreement) and after the Transitional Period for and in respect of the Employees who are, or were, at the relevant time, active members of Ciba's Scheme. C. By an agreement entered into on 29 September 1995 between Ciba-Geigy Limited (1), Ciba-Geigy Corporation (2) and Hexcel (3) (the "Strategic Alliance Agreement"), Ciba-Geigy Limited (the parent company of CML) agreed to transfer its shareholding in CML to Hexcel or to such other company as Hexcel shall determine. D. Under the terms of the Strategic Alliance Agreement, Hexcel agreed to and Ciba-Geigy Limited agreed to procure that Ciba and CML enter into this Employment Agreement. NOW IT IS HEREBY AGREED: 1. INTERPRETATIONS 1.1 In this Employment Agreement the following words shall have the following meanings: "Actuary's Letter" means the letter from Ciba's Actuary dated February 1996 which is agreed and countersigned by CML's Actuary and which is attached to this Employment Agreement as Appendix A; "Actuarial Assumptions" means the actuarial assumptions and methods set out in the Actuary' Letter; "Business" shall have the same meaning as specified in the Strategic Alliance Agreement to which recital C of this Employment Agreement refers; "Contracted-out", have the same meanings as in the Pension "contracting-out Schemes Act 1993 and any reference to certificate", any person's guaranteed minimum "contracted-out pension includes the spouse's guaranteed employment" minimum pension; "guaranteed minimum pension" "Ciba's Actuary" mean William M Mercer Limited of 30 Exchange Street East Liverpool L2 3QB or such other actuary or firm of actuaries as 2 may be appointed by Ciba for the purposes of this Employment Agreement; "Ciba's Scheme" means The Ciba Pension Scheme established by an Interim Deed dated 23 January 1972 and, where the context permits, includes the trustees thereof; "Closing" means closing of the Strategic Alliance Agreement; "CML's Actuary" means R Watson & Sons of 21 Tothill Street, Westminster, London SW1H 9LL or such other actuary or firm of actuaries as may be appointed by CML for the purposes of this Employment Agreement; "CML's Scheme" means a retirement benefits scheme existing, established or nominated by CML which is approved or capable of approval as an exempt approved scheme under Chapter I of Part XIV of Income and Corporation Taxes Act of 1988 and which is contracted out and where the context permits includes the trustees thereof; "Disclosure Letter" means the signed letter of even date from Ciba to Hexcel in agreed terms; "Employees" means those employees employed by CML in the Business at Closing and the Lacquer Employees; "Lacquer Employees" means the 20 employees listed in Appendix C who are employed by Ciba in relation to the toll manufacturing operation carried out at the Duxford site for and behalf of Dynochem. The list of employees described in Appendix C shall be subject to such amendments as CML and Ciba agree be- 3 tween Closing and the end of the Transitional Period; "Lloyds Arrangement" means the Personal Accident and Illness insurance arranged with Colburn, French & Kneen Ltd issued on 9 July 1991 under certificate number AFT0044/31 and underwritten by Lloyd's; "Option Form" means a form which is in all material respects identical to the form set out in Appendix B to this Employment Agreement, which form is to be returned to Ciba's Scheme by the latest date specified therein being a date not later than 2 months after the Pensions Transfer Date; "Past Service Reserve" shall have the meaning set out in the Actuary's Letter; "Payment Date" means a date which is on or after the Pensions Transfer Date and not later than ten business days after the later of the dates on which: (i) the Past Service Reserve has been calculated by Ciba's Actuary and agreed by CML's Actuary (or deemed to have been agreed as specified in Clause 4.3); and (ii) CML's Scheme has notified to Ciba that it is able and willing to accept the Transfer Amount. "Pensionable Employees" means those Employees who are active members of Ciba's Scheme, including any person who is a member under the provisions of Ciba's Scheme relating to temporary absence from duty or maternity leave, 4 on the day before the Pensions Transfer Date; "Pensionable Salary" means 104% (or where appropriate, and as indicated on Employment Document 12, 100%) of contractual salary or wages and such other emoluments as have previously been determined are pensionable but excluding, for the avoidance of doubt, any other fluctuating emoluments; "Pensions Transfer Date" means 6 April 1997 or such earlier date as may be agreed in writing by Ciba and CML; "Standard Life Scheme" means the tax exempt approved personal plan insured with Standard Life established on 1 April 1991 for the benefit of Mr W. Hunt; "Timing Adjustment Factor" means the ratio of the FT-SE Actuaries All-Share (total return) index at the end of the period in question to that same index at the beginning of that period; "Transfer Amount" means the Transfer Amount specified in the Actuary's Letter; "Transferring Member" means a Pensionable Employee who becomes a member of CML's Scheme on the Pensions Transfer Date and in respect of whom Ciba's Scheme receives, within the time specified in the Option Form, a completed Option Form, with option A (transfer payment) selected, and who has not withdrawn such request before the Payment Date; "Transitional Period" means the period from and including Closing up to but excluding the Pensions Transfer Date; 5 "Voluntary Fund" means those funds comprising voluntary contributions paid by the Transferring Members and the investments and monies representing those contributions and any income derived therefrom, excepting any voluntary contributions which have been paid by the Transferring Members to purchase additional pensionable service in Ciba's Scheme which will be taken into account in the calculation of the Past Service Reserve; "Warranties" means those warranties relating to pensions and employment matters as set out in Clause 12 of this Employment Agreement; "Zurich Life Scheme" means the Zurich Life Assurance Company Limited Terms Assurance Policy No: A27939Q-000-000 dated 27 April 1992 as varied by the Trust Deed and Rules dated 26 May 1992 and the Deed of Assignment of Policy dated 27 May 1992. 2. WARRANTIES 2.1 Save to the extent that Ciba has fairly disclosed facts and documentation to CML against the Warranties in the Disclosure Letter, Ciba agrees that as at the date of this Employment Agreement the Warranties are true in all material respects. Each Warranty shall be construed independently of the others. Ciba acknowledges that CML has entered into this Employment Agreement in reliance on the Warranties. 2.2 None of the Warranties in this Employment Agreement shall survive Closing. 3. INVITATION BY CML 3.1 CML hereby undertakes with Ciba to use its reasonable endeavours to procure that the Pensionable Employees will be invited to become members of CML's Scheme with effect from the Pensions Transfer Date. 6 3.2 CML will as soon as practicable issue the Option Form to each Pensionable Employee. 4. CALCULATION OF PAST SERVICE RESERVE 4.1 Ciba shall procure that Ciba's Actuary shall, within 2 months of CML notifying Ciba's Actuary of any adjustments as required under Clause 8.3.3, calculate and certify to CML's Actuary the Past Service Reserve. CML shall promptly provide Ciba with such information in CML's possession or control as Ciba or Ciba's Actuary may reasonably require to facilitate the calculations of the Past Service Reserve. The certification provided by Ciba's Actuary shall include a statement of that part of the Part Service Reserve which relates to each Transferring Member. 4.2 Ciba will procure that Ciba's Actuary shall, within 3 months after the Pensions Transfer Date, promptly provide to CML's Actuary such data and other information as CML's Actuary may reasonably require to agree to the calculation of what is the Past Service Reserve. 4.3 CML's Actuary shall have 2 months, from later of the date on which he receives certification of the Past Service Reserve from Ciba's Actuary under paragraph 4.1 and the date on which he receives the data and other information under paragraph 4.2, to agree the calculation of the Past Service Reserve or raise any objection that it is, or may be, incorrect or not in accordance with the terms of this Employment Agreement. Subject thereto, the certification by Ciba's Actuary of the Past Service Reserve shall be deemed to have been agreed by CML's Actuary at the expiry of such 2 months. 4.4 Any dispute between Ciba's Actuary and CML's Actuary concerning the Past Service Reserve shall, in the absence of agreement between them within 30 days of the party concerned having notified the other of the dispute, be referred to an independent actuary chosen by agreement between the parties or, failing agreement, appointed by the President for the time being of the Institute of Actuaries at the instance of either party. The independent actuary shall determine the matter in dispute acting as an expert and not as an arbitrator and his decision shall be final and binding. The fees and expenses of the independent actuary and of the President of the Institute of Actuaries shall be borne equally between Ciba and CML. 7 4.5 Ciba shall procure as soon as reasonably practicable and in any event no later than is prescribed under Clause 4.2 that Ciba's Actuary shall provide CML's Actuary with a written statement on the actuarial valuation of the Ciba Scheme which valuation shall have an effective date of 31 March 1996 (or such other date as may be chosen for the effective date of the actuarial valuation) and which valuation was made by Ciba's Actuary for the purpose of recommending the employer's contribution rate payable to the Ciba Scheme from the Pensions Transfer Date. The written statement shall be confined to matters which are pertinent to this Employment Agreement and the Actuary's Letter and shall include all such information as, in the opinion of Ciba's Actuary, CML's Actuary shall reasonably require. 4.6 In addition Ciba shall procure that Ciba's Actuary shall calculate, within 14 days of receiving Mr. Hunt's written request, a transfer amount in respect of Mr. Hunt's benefits in the Ciba Scheme to be paid out of the Ciba Scheme to a suitable pension arrangement which is either approved or capable of approval under Chapter I or Chapter IV of Part XIV of the Income and Corporation Taxes Act 1988. The transfer amount in respect of Mr Hunt's credited pensionable service under the Ciba Scheme shall be calculated as a Past Service Reserve as defined in the Actuary's Letter and in accordance with the Actuarial Assumptions. For the avoidance of doubt it is agreed that this Past Service Reserve shall not be adjusted to allow for the contribution rate payable to the Ciba Scheme as the Pensions Transfer Date. The transfer amount in respect of Pensionable Service accrued by Mr. Hunt whilst he was an active member of the Ciba Scheme (and excluding any credited pensionable service awarded to Mr. Hunt on his joining the Ciba Scheme) shall be calculated in accordance with the requirements of the Pension Schemes Act 1993 and shall be included within any transfer payment paid out of the Ciba Scheme in respect of Mr. Hunt to the suitable arrangement. The total transfer amount payable in respect of Mr. Hunt shall be agreed by CML's Actuary within 14 days (such agreement not to be unreasonably withheld) and failing agreement shall be determined in accordance with Clause 4.4. It shall then be adjusted to the date of payment as described in the Actuary's Letter. For the avoidance of doubt no interim payment will be made to Mr. Hunt's suitable pension arrangement. 8 Ciba shall use its best endeavours to procure that the total transfer amount payable in respect of Mr Hunt shall be paid out of the Ciba Scheme to the suitable pension arrangement as soon as reasonably practicable following agreement of the calculation. The total transfer amount will not be available unless Mr Hunt's written request is received by Ciba before the Pensions Transfer Date, nor will it be available if Mr. Hunt's benefit in the Ciba Scheme have been brought into payment or otherwise discharged. 5. TRANSFER OF TRANSFER AMOUNT 5.1 Ciba's Actuary shall on the Payment Date calculate and certify to CML's Actuary the Transfer Amount and shall promptly provide to CML's Actuary such data and information as CML's Actuary may reasonably require promptly to agree the calculation of the Transfer Amount (such agreement not to be unreasonably withheld). Subject to CML having performed its obligations under this Employment Agreement and to the Transfer Amount being agreed by the CML's Actuary, Ciba shall use its best endeavours to procure that, on the Payment Date, Ciba's Scheme shall, subject to the approval of the Pension Schemes Office of the Inland Revenue, transfer the Transfer Amount to CML's Scheme adjusted in accordance with the Actuary's Letter in respect of any interim payment made under Clause 14. 5.2 SHORTFALL PROVISION If Ciba's Scheme does not pay the full amount of the Transfer Amount to CML's Scheme on the Payment Date, Ciba shall, no later than 14 days after the Payment Date, pay to CML, or if CML so requests in writing, to CML's Scheme, an amount (the "Shortfall") equal to the sum by which the Transfer Amount exceeds the amount of the payment (if any), paid by Ciba's Scheme to CML's Scheme and Ciba shall pay compound interest at 2% above the bank base rate on the Shortfall (or on any part thereof) calculated on a day to day basis with monthly rests for so long as it shall remain unpaid after the Payment Date. 5.3 CML shall within 14 working days after receipt of any payment (the "Payment") under Clause 5.2 by CML pay, or procure the payment of, the Payment to CML's Scheme. CML shall repay to Ciba a sum equal to the amount of tax relief obtained by CML in respect of the Payment paid to CML's 9 Scheme on the date on which such relief is obtained. For these purposes CML shall be treated as having obtained tax relief on the date on which CML would have had a liability to pay corporation tax or an increased liability to pay corporation tax but for the payment of the shortfall to CML's Scheme. 5.4 OVERPAYMENT PROVISION If Ciba's Scheme transfers, on or prior to the Payment Date, in aggregate cash or other assets in excess of the Transfer Amount (the "Excess") to CML's Scheme CML shall, within seven days of receiving Ciba's written demand, pay or procure the payment to Ciba of an amount equal to the Excess. If at the expiry of the seven day period no payment has been made to Ciba, compound interest at 2% above the bank base rate shall accrue on the Excess calculated from the Payment Date on a day to day basis with monthly rests. 6. CML'S OBLIGATIONS 6.1 Subject to the rest of this Clause 6, and in particular Clause 6.3, CML shall offer benefits for and in respect of the Pensionable Employees, in relation to their employment on and after the Pensions Transfer Date, for a period of five years commencing on Closing, on a basis which is overall no less favourable than the basis of benefits to which the Pensionable Employees as a group would have been entitled under Ciba's Scheme if they had remained members thereof and if the provisions of Ciba's Scheme at the Pensions Transfer Date had remained unchanged for that period of 5 years. 6.2 For the said period of five years from Closing and subject to the receipt of the Transfer Amount in full (including any amounts paid under Clause 5.2 of this Employment Agreement) CML shall use its best endeavours to procure that: 6.2.1 CML shall not exercise or cause to be exercised any right to amend or to wind up CML's Scheme in such a way as to cause any reduction in the benefits of the Transferring Members. 6.2.2 The Transferring Members shall not be required to contribute to the CML Scheme at a rate expressed as a percentage of Pensionable Salaries which is greater than the rate payable by the active members under the Ciba Scheme as the Pensions Transfer Date and as disclosed in writing to CML not later than the day before the Pensions Transfer Date. 10 6.2.3 The rate of contribution paid by CML, or procured to be paid by CML, to the CML Scheme from the Pensions Transfer Date until the expiry of the five year period shall be at least equal to the rate, expressed as a percentage of Pensionable Salaries, which is payable by the employers participating in Ciba's Scheme to Ciba's Scheme as at the Pensions Transfer Date and which is disclosed in writing to CML not later than the day before the Pensions Transfer Date. 6.2.4 There shall be no refund of assets out of the CML Scheme to any of the participating companies (including the Principal Company) whilst the CML Scheme is ongoing. 6.3 For the said period of five years from Closing and subject to the receipt of the Transfer Amount in full as aforesaid CML: 6.3.1 will not exercise or cause to be exercised any right to wind up the CML Scheme except in circumstances in which CML deem there is no other commercial alternative and CML has the prior written consent of the Board of Hexcel Corporation. 6.3.2 will ensure that, if the CML Scheme were to be wound up, the CML Trustee (for the time being of the CML Scheme) shall have an absolute discretion (exercisable without the consent of CML or any other employer participating in the CML Scheme) to augment the benefits payable to the Transferring Members under the CML Scheme prior to any refund of assets being paid to any employer participating in the CML Scheme. 6.4 Subject to receipt of the Transfer Amount in full (including any amounts paid under Clause 5.2 of this Employment Agreement) CML shall use its best endeavours to procure that the Transferring Members are awarded, in respect of their pensionable employment (including credited pensionable employment) in Ciba's Scheme before the Pensions Transfer Date, benefits under CML's Scheme which are, in the opinion of CML's Actuary and as agreed by Ciba's Actuary (or failing agreement as resolved in accordance with Clause 4.4), overall no less favourable as determined on the basis of the Actuarial Assumptions than the benefits which would have been provided for and in respect of the Transferring Members under Ciba's Scheme had they remained in membership thereof and by reference to the provisions of the Ciba Scheme in force it the Pensions Transfer Date (of which written details have been disclosed to CML). 11 7. CIBA'S OBLIGATIONS 7.1 Ciba shall use its best endeavours to procure that, unless CML's prior consent in writing is obtained (such consent not to be unreasonably withheld) during the Transitional Period: 7.1.1 no new obligation or liability shall be imposed on CML unless it is also imposed on all the other participating employers in the Ciba Scheme; and 7.1.2 no benefits additional to or in augmentation of the benefits payable or prospectively payable in respect of the Pensionable Employees at Closing shall be provided or promised prior to the Payment Date which would result in an increase in CML's normal contribution rate (that is, in the absence of any adjustment to the contribution rate for Ciba's Scheme's past service funding level) to CML's Scheme on or after the Pensions Transfer Date by more than 4% of Pensionable Salary as determined on the basis prescribed in the Actuarial Assumptions. 7.1.3 that the Trustee will not trigger the winding up of the Ciba Scheme. For the avoidance of doubt CML shall not withhold its consent to the winding up of the Ciba Scheme during the Transitional Period if, during the Transitional Period, the circumstances pertaining to the CML Scheme change to such an extent that the continuation of the Ciba Scheme is no longer appropriate in the written opinion of Ciba's Actuary. 7.2 Ciba shall, as soon as reasonably practicable, and in any event not less than two months prior to the Pensions Transfer Date, inform CML in writing of any benefit changes in the benefits of the Pensionable Employees or Mr Hunt implemented during the Transitional Period. CML shall have the opportunity to review and agree (such agreement not to be unreasonably withheld) any announcements issued by either Ciba or Ciba's Scheme to the Pensionable Employees who are active members of the Ciba Scheme prior to the end of the Transitional Period or to Mr Hunt which relate to their benefits accrued under the Ciba Scheme. 8. TRANSITIONAL PERIOD 8.1 Ciba and CML shall use all reasonable endeavours to procure the continued inclusion of CML in Ciba's Scheme during the Transitional Period and the continued inclusion of CML on the contracting-out certificate. 12 8.2 During the Transitional Period CML shall procure payment of the following: 8.2.1 contributions in respect of each Pensionable Employee who is an active member of Ciba's Scheme during the Transitional Period as required under the rules of Ciba's Scheme in force from time to time; 8.2.2 employer contributions in respect of each Pensionable Employee who is an active member of Ciba's Scheme at the rate of Pensionable Salary which is payable from time to time by an employer participating in Ciba's Scheme save that, in the event that the employer contributions shall exceed 12% of Pensionable Salary, the Transitional Period shall, with the agreement of CML, end on the date such rate comes into effect. 8.3 CML undertakes that it shall during the Transitional Period (so far as it is within its power): 8.3.1 comply in all respects with the provisions of Ciba's Scheme which apply to all the other participating employers under Ciba's Scheme; 8.3.2 not do or omit to do any act or thing whereby approval of Ciba's Scheme as an exempt approved scheme or its status as a contracted out scheme would be prejudiced; 8.3.3 notify Ciba's Actuary (as required under Clause 4.1), within 2 months of the Pensions Transfer Date, of any increase or increases after Closing of pay which is relevant for the purposes of calculating benefits under Ciba's Scheme at a rate which in total for the group of Transferring Members exceeds in any year the increase in the retail prices index plus 2.5 per cent per annum. In such case the Past Service Reserve shall be reduced so that it does not exceed the sum that would be calculated if it was instead based on Pensionable Salary applicable at the Pensions Transfer Date but restricted to Pensionable Salary applicable at Closing increased for the Transitional Period by the increase in the retail prices index plus 2.5 per cent per annum; 8.3.4 notify Ciba's Scheme on the retirement, prior to normal pension age, of a Pensionable Employee during the Transitional Period as a result of redundancy without actuarial reduction to the pension for early payment and to pay to Ciba's Scheme a special additional employer contribution within 7 days of a demand for such a contribution by Ciba or Ciba's Scheme provided that each of the other participating companies would have been required to pay an 13 additional employer contribution in these circumstances. The special additional contribution shall be calculated in each such case using the method and factors as used under Ciba's Scheme from time to time in the case of early retirements on redundancy (and as disclosed in writing to CML by Ciba) resulting from a restructuring of the business and as would apply to any other participating company in the same circumstances. 8.4 CML undertakes that, for a period commencing on the Pensions Transfer Date and concluding two years after Closing, the following terms shall apply in the case of a Transferring Member who ceases employment with CML and recommences employment, with CML's approval, with Ciba and rejoins Ciba's Scheme. In the case of each such Transferring Member CML shall use its best endeavours to procure that any transfer amount paid from CML's Scheme shall be equal to: 8.4.1 the part of the Transfer Amount which relates to that Transferring Member adjusted by the Timing Adjustment Factor from the payment date to the date the transfer amount is paid from CML's Scheme; plus 8.4.2 the total contributions paid by the Transferring Member to CML's Scheme multiplied by the ratio of the joint contribution rate payable by CML and by employees to CML's Scheme to the employee contribution rate and adjusted by the Timing Adjustment Factor assuming that contributions were paid quarterly in advance. 9. LACQUER EMPLOYEES CML agrees with Ciba that it shall offer to the Lacquer Employees the opportunity to join CML, on such terms and conditions of employment (excluding any terms regarding pensions, or the opportunity to buy Ciba shares, or any terms as to job function, title or location which will be different due to Dynochem's withdrawal) as they enjoyed whilst employed at the Dynochem site and which terms and conditions are disclosed to and agreed by CML prior to Closing. CML agrees with Ciba that it shall recognise the continuity of employment of the Lacquer Employees whilst they were employed by Ciba for contractual but not statutory purposes, should they become employed by CML. The offer of employment by CML shall commence at a date to be agreed between the parties which date shall be no later than 30 June 1996. 14 10. APPROVALS The provisions of this Employment Agreement are subject to the appropriate approval and agreement of the Pension Schemes Office of the Inland Revenue and the Occupational Pensions Board being obtained, which the parties to this Agreement shall use their reasonable endeavours to secure as soon as is reasonably practicable. 11. ADDITIONAL VOLUNTARY CONTRIBUTIONS Notwithstanding the preceding provisions of this Employment Agreement if within Ciba's Scheme there is a Voluntary Fund the Voluntary Fund and the benefits payable or prospectively or contingently payable shall be disregarded for all the preceding provisions of this Employment Agreement. Ciba shall nevertheless use all reasonable endeavours to procure that the part of the Voluntary Fund which is attributable to the Transferring Members in accordance with the provisions of Ciba's Scheme is transferred to CML's Scheme on the Payment Date. 12. WARRANTIES 12.1 In relation to pensions issues Ciba hereby warrants to and with Hexcel as follows: 12.1.1 Except for Ciba's Scheme, the Standard Life Scheme, the Zurich Life Scheme and the Lloyd's Arrangement (the latter three arrangements together called the "Hunt Schemes") there are no: 12.1.1.1 agreements or arrangements (whether exempt approved or unapproved) for the provision by Ciba or CML of any retirement or other benefit (including any pension, share option, share incentive, annuity, lump sum, gratuity or other like benefit) and neither Ciba nor CML has any obligation, whether legally binding or established by custom, to pay any pension or make any other payment after retirement or death or otherwise to provide relevant benefits within the means of Section 612 of the Income and Corporation Taxes Act 1988 to or in respect of any Employees or for any dependents of any such person; or 12.1.1.2 informal or ex-gratia pension arrangements or schemes offered by Ciba or CML to any Employee or any dependent of any such person. 15 Ciba and CML are not party to any scheme or arrangement having as its purpose or one of its purposes the making of payments or the provision of benefits to any Employee (or dependent of any such person) as set out in Clauses 12.1.1.1 and 12.1.1.2. 12.1.2 Details of Ciba's Scheme and the Hunt Schemes have been given to Hexcel in the form of: 12.1.2.1 copies of all current trust deeds and rules (if any) governing or relating to Ciba's Scheme and the Hunt Schemes; 12.1.2.2 copies of the current explanatory booklets and any resolutions and announcements relating to benefits or contributions issued to the Pensionable Employees and who are active members of Ciba's Scheme and to Mr Hunt; and 12.1.2.3 a copy of the report of the last actuarial valuation or funding review (if any) of Ciba's Scheme and the Hunt Schemes which has been received (in draft or final form) prior to the date hereof. 12.1.3 Ciba warrants that it has disclosed to Hexcel details of all benefits payable or prospectively payable under Ciba's Scheme in respect of the Pensionable Employees who are active members of it including any augmentations of their benefits and that it has disclosed to Hexcel all benefits payable as prospectively payable, whether legally binding or established by custom, under the Hunt Schemes in respect of Mr Hunt and any augmentations of his benefits. 12.1.4 No discretion or power has been exercised under Ciba's Scheme and the Hunt Schemes in respect of the Employees to: 12.1.4.1 augment benefits to which members are entitled at the date hereof thereunder; 12.1.4.2 provide thereunder in respect of Employees thereof a benefit which would not otherwise be provided thereunder in respect of such Employees; or 12.1.4.3 pay a contribution thereto which would not otherwise have been paid. 12.1.5 There are no actions, suits or claims outstanding, pending or threatened against Ciba's Scheme or the Hunt Schemes in respect of any act, event, omission or other matter arising out of or in connection with Ciba's Scheme or the Hunt Schemes in relation to any of the Employees. 16 12.1.6 There are no contributions to Ciba's Scheme or the Hunt Schemes in respect of the Employees (including contributions payable by Employees themselves) which have fallen due to Ciba's Scheme or the Hunt Schemes or to an insurance company but are unpaid and since the date of the last actuarial valuation or funding review referred to above contributions made to Ciba's Scheme or the Hunt Schemes by or in respect of the Employees have been at the rates recommended in such valuation or review. Ciba's Scheme and the Hunt Schemes have been funded to the extent recommended by Ciba's Actuary. 12.1.7 Ciba's Scheme and the Zurich Life Scheme are approved by the Board of Inland Revenue for the purpose of Chapter I of Part XIV of the Income and Corporation Taxes Act of 1988 and Ciba is not aware, having made all reasonable enquiries, of any circumstances which might give the Inland Revenue reason to withdraw such approval. Ciba's Scheme complies with any relevant legislation relating to occupational pension schemes and to relevant benefit arrangements and the requirements of the Occupational Pensions Board affecting schemes which are contracted-out. So far as Ciba is aware and it is within Ciba's control the Hunt Schemes comply with the provisions of their respective governing documents and any relevant legislation relating to these relevant benefits arrangements. 12.1.8 Ciba holds a current contracting-out certificate issued in relation to Ciba's Scheme which covers CML. 12.1.9 No retirement benefits scheme (as defined in Section 611 of the Income and Corporation Taxes Act of 1988) in which the Employees participate or have participated has been or is in the process of being wound up. 12.1.10 STANDARD LIFE SCHEME The Standard Life Scheme is an exempt approved personal pension scheme under Chapter IV of Part XIV of the Income and Corporation Taxes Act of 1988. 12.1.11 CML has no liability to pay or provide any post retirement medical benefits to any existing or former Employees. 12.2 In relation to employment issues Ciba hereby warrants to and with Hexcel as follows (and for the purposes of this Clause 12.2, the "Employees" shall mean 17 those employees employed by CML in the Business at the date hereof and the Lacquer Employees): 12.2.1 Full particulars of the identity, age, length of service, remuneration (including any bonus or commission entitlements), date of birth and start date of all the Employees, copies of standard contracts of employment and details of all other terms and conditions of employment of the Employees and a statement of all benefits provided to Employees together with copies of all documentation relating to the benefit schemes are fully and accurately set out in the Disclosure Letter. For the avoidance of doubt Ciba confirms that the standard contracts, terms and conditions of employment and benefits of the Lacquer Employees are the same as those of the Employees employed by CML in the Business at the date hereof. 12.2.2 Since 31 December 1994 or where employment commences after that date since the commencement date of the employment, no change has been made in the rate of remuneration or pension or other benefits of any senior manager (a senior manager being an Employee in receipt of remuneration in excess of L25,000 per annum). 12.2.3 There are no claims pending or threatened against Ciba or CML by any Employee or former employee of the Business of any kind whatsoever including but without limitation claims in respect of any accident or injury or for unfair dismissal, wrongful dismissal, redundancy pay, sex or race discrimination, equal pay, breach of contract, or unlawful deductions. Neither Ciba nor CML has given any notice of any redundancies to the Secretary of State relating to any Employee or former employee of the Business. Ciba and CML have materially complied with their obligations under all statutes and regulations, codes, orders and awards in connection with the Employees. 12.2.4 Neither Ciba nor CML has entered into any recognition agreement with a trade union nor has either done any act which might be construed as recognition in relation to the Employees. There is no existing or threatened or pending industrial or trade dispute involving Ciba or CML in relation to any of the Employees. 12.2.5 Save as set out in the Disclosure Letter all subsisting contracts of service of Employees are determinable at any time on three months' notice or less without compensation (other than compensation in accordance with the Em- 18 ployment Protection (Consolidation) Act 1978, as amended by the Employment Act 1982). 12.2.6 So far as Ciba is aware, having made all reasonable enquiries, there are no circumstances giving rise to a debt as a result of the operation of Section 144 of the Pension Schemes Act 1993 or otherwise. 13. DEFICIENCY ON WINDING-UP 13.1 In the event that a debt (the "Debt") shall be owing or shall become due from CML in respect of its participation in Ciba's Scheme on and after Closing as a result of the operation of Section 144 of the Pension Schemes Act 1993 or otherwise, Ciba undertakes to indemnify CML on demand for the total amount of the Debt together with interest thereon from the date on which CML makes payment of the Debt to the date payment is made under this paragraph. 13.2 No payment shall be due from Ciba under Clause 13.1 if the reason for the Debt becoming due or owing is the insolvency of CML or any act or omission of CML. 13.3 If the necessity to undertake a calculation of the amount of the Debt arises as a result of the insolvency of CML or any act or omission of CML, the cost of calculating the amount of the Debt shall be borne by CML. 14. INTERIM PAYMENT Ciba undertakes to pay or procure the payment of an interim payment (the "Interim Payment") to CML's Scheme within 30 days of the Pensions Transfer Date provided that: 14.1 the Interim Payment shall be equal to 20% of the estimated Transfer Amount (assuming that all Pensionable Employees become Transferring Members). The Interim Payment shall be calculated by Ciba's Actuary and must be confirmed as reasonable by CML's Actuary; 14.2 such payment shall be made on account of the Transfer Amount and adjustment shall be made to the Transfer Amount in accordance with the Actuary's Letter. 19 15. CONTINUING EFFECT 15.1 This Employment Agreement shall be binding on and shall enure for the benefit of each party's successors but shall not be assignable by either party without the prior written consent of the other. 15.2 Hexcel shall use all reasonable endeavours to procure the performance by CML or its successor in relation to the Business (in so far as such successor shall be a member of the Hexcel group of companies) of its obligations under this Employment Agreement. Ciba shall use all reasonable endeavours to procure the performance by any successor of it of the obligations of Ciba under this Employment Agreement. IN WITNESS the parties have executed this Employment Agreement the day and year first before written. SIGNED by ) /s/ JOHN BREWER for and on behalf of ) John Brewer CIBA-GEIGY PLC ) Director SIGNED by ) /s/ WILLIAM HUNT for and on behalf of ) William Hunt COMPOSITE MATERIALS LTD ) Director SIGNED by ) /s/ WILLIAM P. MEEHAN for and on behalf of ) William P. Meehan HEXCEL CORPORATION ) Vice President, Chief Financial Officer and Treasurer 20 EX-11 17 EXH 11 EXHIBIT 11 STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS - UNAUDITED Hexcel 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 1995, 1994 and 1993 were:
- ------------------------------------------------------------------------------------------------------------------------------ PRIMARY NET INCOME (LOSS) PER SHARE AND EQUIVALENT SHARE 1995 1994 1993 - ------------------------------------------------------------------------------------------------------------------------------ Income (loss) from continuing operations $ 3,201 $(28,080) $(79,872) Loss from discontinued operations (468) (1,890) (10,623) Cumulative effect of change in accounting for income taxes 4,500 - ------------------------------------------------------------------------------------------------------------------------------ Net income (loss) $ 2,733 $(29,970) $(85,995) - ------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------ Weighted average common shares outstanding 15,742 7,310 7,330 Weighted average common equivalent shares from stock options - ------------------------------------------------------------------------------------------------------------------------------ Weighted average common shares and equivalent shares 15,742 7,310 7,330 - ------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------ Primary net income (loss) per share and equivalent share from (1): Continuing operations $ 0.20 $ (3.84) $ (10.89) Discontinued operations (0.03) (0.26) (1.45) Cumulative effect of change in accounting for income taxes 0.61 - ------------------------------------------------------------------------------------------------------------------------------ Primary net income (loss) per share and equivalent share (1) $ 0.17 $ (4.10) $ (11.73) - ------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------ FULLY DILUTED NET INCOME (LOSS) PER SHARE AND EQUIVALENT SHARE - ------------------------------------------------------------------------------------------------------------------------------ Income (loss) from continuing operations $ 3,201 $(28,080) $(79,872) Loss from discontinued operations (468) (1,890) (10,623) Cumulative effect of change in accounting for income taxes 4,500 - ------------------------------------------------------------------------------------------------------------------------------ Net income (loss) 2,733 (29,970) (85,995) Debenture interest and issuance costs 1,184 1,204 1,213 - ------------------------------------------------------------------------------------------------------------------------------ Adjusted net income (loss) $ 3,917 $(28,766) $(84,782) - ------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------ Weighted average common shares outstanding 15,742 7,310 7,330 Weighted average common equivalent shares Stock options 7% convertible debentures 834 804 804 - ------------------------------------------------------------------------------------------------------------------------------ Weighted average common shares and equivalent shares 16,576 8,114 8,134 - ------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------ Fully diluted net income (loss) per share and equivalent share from (1): Continuing operations $ 0.20 $ (3.84) $ (10.89) Discontinued operations (0.03) (0.26) (1.45) Cumulative effect of change in accounting for income taxes 0.61 - ------------------------------------------------------------------------------------------------------------------------------ Fully diluted net income (loss) per share and equivalent share (1) $ 0.17 $ (4.10) $ (11.73) - ------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------
(1) For 1995, 1994 and 1993 the primary and fully diluted net income (loss) per share were the same because the fully diluted computation was antidilutive. EX-21 18 EX-21 Exhibit 21 HEXCEL SUBSIDIARIES Hexcel Far East (California) Hexcel International (California) Hexcel Alpha Corp. (Delaware) Hexcel Beta Corp. (Delaware) Hexcel Pottsville Corporation (Delaware) Hexcel Technologies Inc. (Delaware) Hexcel Foreign Sales Corporation (Guam) Hexcel S.A. (Belgium) Hexcel do Brazil Servicos S/C Ltda. (Brazil) Brochier S.A. (France) Confection et Diffusion de Stores et Rideaux (France) Hexcel S.A. (France) Salver S.r.l. (Italy) Hexcel Chemical Products Ltd. (U.K.) Hexcel Composite Materials Ltd. (U.K.) Hexcel (U.K.) Limited (U.K.) EX-23 19 EXH 23 EXHIBIT 23 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference of our report dated March 1, 1996 (which report contains explanatory paragraphs regarding Hexcel Corporation's emergence from Chapter 11 bankruptcy, acquisition of the Ciba Composites Business, and a change in accounting for income taxes) appearing in this Annual Report on Form 10-K for the year ended December 31, 1995, in the following registration statements: - - 33-439478 on Form S-8 regarding the 1988 Management Stock Program; - - 333-1225 on Form S-8 regarding the Incentive Stock Plan. /s/ DELOITTE & TOUCHE LLP DELOITTE & TOUCHE LLP Oakland, California March 29, 1996 EX-27 20 EXH 27
5 1,000 12-MOS DEC-31-1995 JAN-01-1995 DEC-31-1995 3,829 0 68,491 2,603 55,475 128,055 203,580 117,625 230,602 66,485 88,342 0 0 181 48,193 230,602 350,238 350,238 283,148 283,148 0 0 8,682 6,514 3,313 3,201 (468) 0 0 2,733 0.17 0.17
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