-----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, OLD3Gu49JKoSA/1xD+sWAx1aYv3b3eysM2RzuhHBH1k1lbJSTcI2FF+d61/EgL20 pQpFisSRUyj097d9vS2nzQ== 0000912057-97-027897.txt : 19970815 0000912057-97-027897.hdr.sgml : 19970815 ACCESSION NUMBER: 0000912057-97-027897 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 13 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970814 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-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-08472 FILM NUMBER: 97661432 BUSINESS ADDRESS: STREET 1: 281 TRESSER BOULEVARD STREET 2: C/O TWO STAMFORD PLZ CITY: STAMFORD STATE: CT ZIP: 06901 BUSINESS PHONE: 5108479500 MAIL ADDRESS: STREET 1: 5794 W LAS POSITAS BLVD CITY: PLEASANTON STATE: CA ZIP: 945888781 10-Q 1 FORM 10-Q - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON D.C. 20549 FORM 10-Q /X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarter Ended June 30, 1997 or / / Transition Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 For the transition period from _______________ to _________________ Commission File Number 1-8472 ---------------------- HEXCEL CORPORATION (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) Delaware 94-1109521 (STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NO.) Two Stamford Plaza 281 Tresser Boulevard Stamford, Connecticut 06901-3238 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES AND ZIP CODE) Registrant's telephone number, including area code: (203) 969-0666 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan of reorganization confirmed by a US Bankruptcy Court. Yes X No --- --- Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date. Class Outstanding at August 8, 1997 ----- ----------------------------- COMMON STOCK 36,814,739 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- HEXCEL CORPORATION AND SUBSIDIARIES INDEX PAGE PART I. FINANCIAL INFORMATION - Condensed Consolidated Balance Sheets -- 2 June 30, 1997 and December 31, 1996 - Condensed Consolidated Statements of 3 Operations -- The Quarter and Year-to-Date Periods Ended June 30, 1997 and 1996 - Condensed Consolidated Statements of 4 Cash Flows -- The Year-to-Date Periods Ended June 30, 1997 and 1996 - Notes to Condensed Consolidated 5 Financial Statements - Management's Discussion and Analysis 10 of Financial Condition and Results of Operations PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders 17 Item 6. Exhibits and Report on Form 8-K 18 SIGNATURES 19 HEXCEL CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS
- ------------------------------------------------------------------------------------------------------------- UNAUDITED ---------------------------------- JUNE 30, December 31, (IN THOUSANDS, EXCEPT PER SHARE DATA) 1997 1996 - ------------------------------------------------------------------------------------------------------------- ASSETS Current assets: Cash and cash equivalents $ 3,345 $ 7,975 Accounts receivable 196,373 151,263 Inventories 153,118 145,884 Prepaid expenses 10,658 11,809 - ------------------------------------------------------------------------------------------------------------- Total current assets 363,494 316,931 - ------------------------------------------------------------------------------------------------------------- Property, plant and equipment 474,520 468,173 Less accumulated depreciation (152,765) (141,390) - ------------------------------------------------------------------------------------------------------------- Net property, plant and equipment 321,755 326,783 - ------------------------------------------------------------------------------------------------------------- Intangibles and other assets 58,126 58,022 - ------------------------------------------------------------------------------------------------------------- Total assets $ 743,375 $ 701,736 - ------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Notes payable and current maturities of long-term liabilities $ 25,606 $ 23,835 Accounts payable 67,766 73,117 Accrued liabilities 97,035 91,860 - ------------------------------------------------------------------------------------------------------------- Total current liabilities 190,407 188,812 - ------------------------------------------------------------------------------------------------------------- Long-term notes payable and capital lease obligations 281,483 254,919 Indebtedness to related parties 34,238 32,262 Deferred liabilities 39,839 46,414 - ------------------------------------------------------------------------------------------------------------- Stockholders' equity: Common stock, $0.01 par value, 100,000 shares authorized, shares issued and outstanding of 36,782 in 1997 and 36,561 in 1996 368 366 Additional paid-in capital 262,634 259,592 Accumulated deficit (65,810) (89,171) Cumulative currency translation adjustment 216 8,542 - ------------------------------------------------------------------------------------------------------------- Total stockholders' equity 197,408 179,329 - ------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------- Total liabilities and stockholders' equity $ 743,375 $ 701,736 - ------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS. HEXCEL CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - --------------------------------------------------------------------------------
UNAUDITED -------------------------------------------------------------------------- THE QUARTER ENDED JUNE 30, THE YEAR-TO-DATE ENDED JUNE 30, ---------------------------------- ------------------------------------ (IN THOUSANDS, EXCEPT PER SHARE DATA) 1997 1996 1997 1996 - ---------------------------------------------------------------------------------------------------------------------------- Net sales $ 241,629 $ 166,770 $ 455,638 $ 293,188 Cost of sales (183,811) (131,582) (350,931) (231,217) - ---------------------------------------------------------------------------------------------------------------------------- Gross margin 57,818 35,188 104,707 61,971 Selling, general and administrative expenses (30,484) (23,879) (58,090) (41,361) Business acquisition and consolidation expenses (2,818) (29,209) (5,717) (34,420) Other income, net - 288 - 2,985 - ---------------------------------------------------------------------------------------------------------------------------- Operating income (loss) 24,516 (17,612) 40,900 (10,825) Interest expense (5,829) (4,849) (11,517) (8,482) - ---------------------------------------------------------------------------------------------------------------------------- Income (loss) before income taxes 18,687 (22,461) 29,383 (19,307) Provision for income taxes (3,552) (1,206) (6,022) (2,512) - ---------------------------------------------------------------------------------------------------------------------------- Net income (loss) $ 15,135 $ (23,667) $ 23,361 $ (21,819) - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- Net income (loss) per share and equivalent share: Primary $ 0.40 $ (0.65) $ 0.62 $ (0.72) Fully Diluted 0.38 (0.65) 0.60 (0.72) - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- Weighted average shares and equivalent shares: Primary 37,904 36,547 37,917 30,483 Fully Diluted 45,145 36,547 45,158 30,483 - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
HEXCEL CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
- ---------------------------------------------------------------------------------------------------------------- UNAUDITED -------------------------------- THE YEAR-TO-DATE ENDED JUNE 30, (IN THOUSANDS) 1997 1996 - ---------------------------------------------------------------------------------------------------------------- Cash flows from operating activities: Net income (loss) $ 23,361 $ (21,819) Reconciliation to net cash provided (used) by operating activities: Depreciation and amortization 18,399 9,977 Accrued business acquisition and consolidation expenses 5,717 34,420 Business acquisition and consolidation payments (9,641) (2,256) Working capital changes and other (68,640) (21,659) - ---------------------------------------------------------------------------------------------------------------- Net cash used by operating activities (30,804) (1,337) - ---------------------------------------------------------------------------------------------------------------- Cash flows from investing activities: Capital expenditures (18,090) (8,652) Proceeds from the sale of Knytex joint venture 5,000 - Cash paid for the Acquired Ciba Business - (25,000) Cash paid for the Acquired Hercules Business - (135,000) Other (1,250) 1,560 - ---------------------------------------------------------------------------------------------------------------- Net cash used by investing activities (14,340) (167,092) - ---------------------------------------------------------------------------------------------------------------- Cash flows from financing activities: Proceeds from issuance of long-term debt 21,145 163,703 Payments of long-term debt (15,514) (8,006) Proceeds from short-term debt, net 30,196 15,174 Proceeds from issuance of common stock 3,044 2,191 - ---------------------------------------------------------------------------------------------------------------- Net cash provided by financing activities 38,871 173,062 - ---------------------------------------------------------------------------------------------------------------- Effect of exchange rate changes on cash and cash equivalents 1,643 (17) - ---------------------------------------------------------------------------------------------------------------- Net increase (decrease) in cash and cash equivalents (4,630) 4,616 Cash and cash equivalents at beginning of year 7,975 3,829 - ---------------------------------------------------------------------------------------------------------------- Cash and cash equivalents at end of period $ 3,345 $ 8,445 - ---------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------- THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
HEXCEL CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) NOTE 1 -- BASIS OF ACCOUNTING The accompanying condensed consolidated financial statements have been prepared from the unaudited records of Hexcel Corporation and subsidiaries ("Hexcel" or the "company") in accordance with generally accepted accounting principles, and, in the opinion of management, include all adjustments necessary to present fairly the balance sheet of the company as of June 30, 1997, and the results of operations for the quarters and year-to-date periods ended June 30, 1997 and 1996, and the cash flows for the year-to-date periods ended June 30, 1997 and 1996. The condensed consolidated balance sheet of the company as of December 31, 1996 was derived from the audited 1996 consolidated balance sheet. Certain information and footnote disclosures normally included in financial statements have been omitted pursuant to rules and regulations of the Securities and Exchange Commission. Certain prior period amounts in the condensed consolidated financial statements and notes have been reclassified to conform to the 1997 presentation. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the company's 1996 Annual Report on Form 10-K. As discussed in Note 2, Hexcel acquired the worldwide composites division of Ciba-Geigy Limited, a Swiss corporation, and Ciba-Geigy Corporation, a New York corporation (collectively, "Ciba"), including most of Ciba's composite materials, parts and structures businesses, on February 29, 1996. The company subsequently acquired Ciba's Austrian composites business on May 30, 1996, and various remaining assets of Ciba's worldwide composites division at various dates through February 28, 1997. As also discussed in Note 2, Hexcel acquired the composite products division of Hercules Incorporated ("Hercules") on June 27, 1996. Accordingly, the accompanying condensed consolidated balance sheets, statements of operations and cash flows include the financial position, results of operations and cash flows, respectively, of the businesses acquired from Ciba and Hercules as of such dates and for such periods that these businesses were owned by the company. NOTE 2 - BUSINESS ACQUISITIONS AND CONSOLIDATION ACQUIRED CIBA BUSINESS Hexcel acquired most of Ciba's composite materials, parts and structures businesses on February 29, 1996, Ciba's Austrian composites business on May 30, 1996, and various remaining assets of Ciba's worldwide composites division (collectively, the "Acquired Ciba Business") at various dates through February 28, 1997. The company acquired the assets and assumed the liabilities of the Acquired Ciba Business, other than certain excluded assets and liabilities, in exchange for: (a) 18,022 newly issued shares of Hexcel common stock; (b) $25,000 in cash; (c) senior subordinated notes in an aggregate principal amount of approximately $37,650; and (d) senior demand notes in an aggregate principal amount of $5,329. The aggregate purchase price for the net assets acquired was approximately $209,100. On February 21, 1997, Hexcel consented to an assignment by Ciba of Ciba's rights and obligations under various agreements with the company. As a result of the assignment of these rights and obligations, the Hexcel common stock and the senior subordinated notes previously held by Ciba are now beneficially held by Ciba Specialty Chemicals Holding Inc., a Swiss corporation ("CSC"). 5 ACQUIRED HERCULES BUSINESS Hexcel acquired the assets of the composite products and carbon fibers businesses of Hercules (the "Acquired Hercules Business") on June 27, 1996. The Acquired Hercules Business was purchased for $135,000 in cash subject to certain post-closing adjustments. The adjusted purchase price was approximately $139,400 as of June 30, 1997, but additional post-closing purchase price adjustments could arise in 1997. PRO FORMA FINANCIAL INFORMATION The pro forma net sales, net loss and net loss per share of Hexcel for the year-to-date period ended June 30, 1996, giving effect to the acquisitions of the Acquired Ciba Business and the Acquired Hercules Business as if they had occurred on January 1, 1996, were: - -------------------------------------------------------------------------------- 6/30/97 - -------------------------------------------------------------------------------- Pro forma net sales $ 397,021 Pro forma net loss (23,448) Pro forma net loss per share (0.65) - -------------------------------------------------------------------------------- Weighted average shares and equivalent shares used in computing pro forma net loss per share 36,201 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- BUSINESS CONSOLIDATION In May 1996 in conjunction with the integration of the Acquired Ciba Business, Hexcel announced the commencement of a plan to consolidate the company's operations over a period of three years. In December of 1996, the company announced the commencement of further consolidation activities identified during the ongoing integration of the acquired businesses. The total expense of the business consolidation program is estimated to be approximately $58,000, of which approximately $42,000 relates to cash expenditures. Of the total estimated expense, $42,370 was incurred in 1996 and $5,717 was incurred in the first half of 1997. The company expects to record the majority of the remaining expenses of approximately $10,000 during the latter half of 1997. The objective of the business consolidation program is to integrate acquired assets and operations into Hexcel, and to reorganize the company's manufacturing and research activities around strategic centers dedicated to select product technologies. The business consolidation is also intended to eliminate excess manufacturing capacity and redundant administrative functions. Specific actions either commenced or contemplated by the consolidation program include the closure of the Anaheim, California facility acquired in connection with the purchase of the Acquired Ciba Business, the closure of a portion of the Welkenraedt, Belgium facility, the reorganization of the company's manufacturing operations in France, the consolidation of the company's US special process manufacturing activities, and the integration of sales, marketing and administrative resources. Management expects that the business consolidation program will take up to three years to complete, in part because of the aerospace industry requirements to "qualify" specific equipment and manufacturing facilities for the manufacture of certain products. These qualification requirements increase the complexity, cost and time of moving equipment and rationalizing manufacturing activities. Based on Hexcel's experience with previous plant consolidations, compliance with these qualification requirements necessitates an approach to the consolidation of manufacturing facilities that generally requires two to three years to complete. Accordingly, the business consolidation program is not expected to be complete until sometime during 1998. 6 The following table sets forth the company's accrued business acquisition and consolidation expenses for the period from December 31, 1996 to June 30, 1997:
- -------------------------------------------------------------------------------- EMPLOYEE FACILITY SEVERANCE CLOSURE & AND EQUIPMENT RELOCATION RELOCATION OTHER TOTAL - -------------------------------------------------------------------------------- BALANCE AS OF 12/31/96 $ 19,083 $ 5,198 $ 1,076 $ 25,357 Business acquisition and consolidation expenses 119 3,573 2,025 5,717 Cash expenditures (3,684) (3,967) (1,990) (9,641) Non-cash usage, including asset write-downs and currency translation effects (132) (579) (202) (913) - -------------------------------------------------------------------------------- BALANCE AS OF 6/30/97 $ 15,386 $ 4,225 $ 909 $ 20,520 - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
Approximately 75 positions were eliminated during 1996, and another 143 positions were eliminated during the first half of 1997. NOTE 3 -- PROPOSED BUSINESS ACQUISITION On April 21, 1997, Hexcel announced that it has entered into an agreement to acquire selected assets and businesses of Fiberite, Inc. ("Fiberite") for approximately $300 million in cash and the assumption of certain operating liabilities relating to the businesses to be acquired. Fiberite, headquartered in Tempe, Arizona, is engaged in the manufacture and marketing of advanced composite materials for commercial aerospace, space and defense, recreation, and general industrial markets. The lines of business to be acquired by the company include certain prepreg operations, as well as Fiberite's ablatives, carbon-carbon, molding compounds and engineered components businesses. The proposed acquisition is expected to be completed in the third quarter of 1997, subject to customary conditions of closing and required regulatory approvals. In connection with this proposed acquisition, Hexcel has obtained a commitment for a new bank credit facility, the proceeds of which would be sufficient to fund the proposed acquisition, refinance certain existing indebtedness including the Revolving Credit Facility (see Note 5), and provide for the ongoing working capital and other financing requirements of the company. NOTE 4 -- INVENTORIES Inventories as of June 30, 1997 and December 31, 1996 were: - -------------------------------------------------------------------------------- 6/30/97 12/31/96 - -------------------------------------------------------------------------------- Raw materials $ 82,710 $ 66,055 Work in progress 44,659 45,469 Finished goods 25,749 34,360 - -------------------------------------------------------------------------------- Total inventories $ 153,118 $ 145,884 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 7 NOTE 5 -- NOTES PAYABLE, CAPITAL LEASE OBLIGATIONS AND INDEBTEDNESS TO RELATED PARTIES Notes payable, capital lease obligations and indebtedness to related parties as of June 30, 1997 and December 31, 1996 were: - -------------------------------------------------------------------------------- 6/30/97 12/31/96 - -------------------------------------------------------------------------------- Revolving credit facility, expires 1999 $ 126,087 $ 98,656 European credit and overdraft facilities 29,886 23,405 Convertible subordinated notes, due 2003 114,485 114,500 Convertible subordinated debentures, due 2011 25,625 25,625 Obligations under IDRB variable rate demand notes 8,450 8,450 Various notes payable 1,008 1,212 - -------------------------------------------------------------------------------- Total notes payable 305,541 271,848 Capital lease obligations 1,548 6,906 Senior subordinated notes payable to CSC, net of unamortized discount of $2,450 and $2,666 as of June 30, 1997 and December 31, 1996, respectively 34,238 32,262 - -------------------------------------------------------------------------------- Total notes payable, capital lease obligations and indebtedness to related parties $ 341,327 $ 311,016 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Notes payable and current maturities of long-term liabilities $ 25,606 $ 23,835 Long-term notes payable and capital lease obligations, less current maturities 281,483 254,919 Indebtedness to related parties 34,238 32,262 - -------------------------------------------------------------------------------- Total notes payable, capital lease obligations and indebtedness to related parties $ 341,327 $ 311,016 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- REVOLVING CREDIT FACILITY In connection with the acquisition of the Acquired Hercules Business on June 27, 1996, Hexcel obtained the Revolving Credit Facility to: (a) refinance certain outstanding indebtedness; (b) finance the purchase of the Acquired Hercules Business; and (c) provide for the ongoing working capital and other financing requirements of the company on a worldwide basis. The Revolving Credit Facility initially provided for up to $310,000 of borrowing capacity. However, as a result of the company's issuance of convertible subordinated notes in July of 1996, maximum availability under the Revolving Credit Facility was reduced from $310,000 to $254,600, in accordance with the terms of that facility. As of June 30, 1997, letters of credit with an aggregate face amount of $12,700 were outstanding under the Revolving Credit Facility. SENIOR SUBORDINATED NOTES PAYABLE TO CSC In connection with the purchase of the Acquired Ciba Business, Hexcel has delivered to Ciba Senior Subordinated Notes in an aggregate principal amount of $34,928, and has undertaken to deliver additional Senior Subordinated Notes in an aggregate principal amount of approximately $2,700. On February 21, 1997, the company consented to an assignment by Ciba of Ciba's rights and obligations under various agreements with Hexcel. As a result of the assignment of these rights and obligations, the Hexcel common stock and the senior subordinated notes previously held by Ciba are now beneficially held by CSC. 8 NOTE 6 -- PROVISION FOR INCOME TAXES Income tax provisions of $6,022 and $2,512 in the year-to-date periods ended June 30, 1997 and 1996, respectively, primarily reflect international taxes on certain European subsidiaries, state taxes, and settlement of various tax audits. No provision for U.S. federal or Belgium income taxes has been recorded for these periods since the company has available net operating loss carryforwards to offset taxes in these jurisdictions. The income tax provision is determined by the company's level of profitability in each jurisdiction in which it is subject to tax. The level of profitability of the company by country may vary, which could result in changes in the effective tax rate and could cause the estimated tax rate in interim quarters to vary from the actual annual effective tax rate for the year. At June 30, 1997, the company has a deferred tax asset valuation allowance (a reserve against the company's deferred tax assets) of approximately $60,000, that is primarily attributable to U.S. federal and Belgium deferred tax assets. Realization of the deferred tax assets is dependent on generating sufficient future U.S. and Belgium taxable income to utilize deductions and credits prior to their expiration. The amount of the valuation allowance is periodically reassessed and may be adjusted depending on the company's outlook for future U.S. and Belgium taxable income. During the latter half of the year, the company develops its strategic and annual business plans. These plans provide additional insight into the outlook for the company's future U.S. and Belgium taxable income, and when combined with other factors (such as recent operating results), may serve as a basis for a future reduction of the valuation allowance. When it is determined that all or a portion of the valuation allowance is not needed, such amount will be reversed resulting in an increase in net income. Once all of the valuation allowance has been reversed, the company expects that its effective income tax rates for U.S. and Belgium income will approximate the statutory rates. NOTE 7 -- EARNINGS PER SHARE In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS 128"). Hexcel is required to adopt SFAS 128 in the fourth quarter of 1997, and at that time will restate earnings per share ("EPS") data for prior periods to conform with SFAS 128. Earlier application of the provisions of SFAS 128 is not permitted. SFAS 128 replaces current EPS reporting requirements and requires a dual presentation of basic and diluted EPS. Basic EPS excludes dilution and is computed by dividing net income by the weighted average shares of common stock outstanding for the period. Diluted EPS reflects the potential dilution that could occur if stock options, convertible debt instruments, or other securities or contracts to issue common stock were exercised or converted into common stock. If SFAS 128 had been in effect during the current and prior year periods, basic EPS and diluted EPS would have been as follows: - -------------------------------------------------------------------------------- THE QUARTER ENDED JUNE 30, THE YEAR-TO-DATE ENDED JUNE 30, 1997 1996 1997 1996 - -------------------------------------------------------------------------------- Basic $0.41 ($0.65) $0.64 ($0.72) Diluted $0.38 ($0.65) $0.60 ($0.72) - -------------------------------------------------------------------------------- 9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS BUSINESS ACQUISITIONS AND CONSOLIDATION BUSINESS ACQUISITIONS Hexcel acquired most of Ciba's composite materials, parts and structures businesses on February 29, 1996, Ciba's Austrian composites business on May 30, 1996, and various remaining assets of Ciba's worldwide composites division at various dates through February 28, 1997. The aggregate purchase price for the net assets acquired was approximately $209.1 million. Hexcel acquired the assets of the composite products and carbon fibers businesses of Hercules on June 27, 1996. The Acquired Hercules Business was purchased for $135.0 million in cash subject to certain post-closing adjustments. The adjusted purchase price was approximately $139.4 million as of June 30, 1997, but additional post-closing adjustments could arise in 1997. On April 21, 1997, Hexcel announced that it has entered into an agreement to acquire selected assets and businesses of Fiberite, Inc. for approximately $300 million in cash and the assumption of certain operating liabilities relating to the businesses to be acquired. The lines of business to be acquired by the company include certain prepreg operations, as well as Fiberite's ablatives, carbon-carbon, molding compounds and engineered components businesses. The proposed acquisition is expected to be completed in the third quarter of 1997, subject to customary conditions of closing and required regulatory approvals. Further discussion of the acquisitions of the Acquired Ciba Business and the Acquired Hercules Business is contained in Note 2 to the accompanying condensed consolidated financial statements. Further discussion of the proposed acquisition of selected assets and businesses from Fiberite is contained in Note 3 to the accompanying condensed consolidated financial statements. BUSINESS CONSOLIDATION In May 1996 in conjunction with the integration of the Acquired Ciba Business, Hexcel announced the commencement of a plan to consolidate the company's operations over a period of three years. In December 1996, the company announced the commencement of further consolidation activities identified during the ongoing integration of the acquired businesses. The total expense of the business consolidation program is estimated to be approximately $58.0 million of which approximately $42,000 relates to cash expenditures. Of the total estimated expense, $42.4 million was incurred in 1996 and $5.7 million was incurred in the first half of 1997. The company expects to incur the majority of the remaining expenses of approximately $10 million during the latter half of 1997. Further discussion of the business consolidation program is contained in Note 2 to the accompanying condensed consolidated financial statements. 10 RESULTS OF OPERATIONS SECOND QUARTER NET SALES: Net sales for the second quarter of 1997 were $241.6 million, compared with net sales for the 1996 second quarter of $166.8 million. Results for the second quarter of 1997 include the results of the Acquired Ciba Business and the Acquired Hercules Business, while second quarter 1996 results include only the business operations acquired from Ciba. The second quarter is traditionally the company's strongest. Pro forma net sales for the second quarter of 1996, giving effect to the acquisition of the Acquired Hercules Business as if the transaction had occurred at the beginning of the quarter, were $198.1 million. The 22% increase in 1997 second quarter sales over pro forma 1996 second quarter sales was largely attributable to improved sales of composite materials to commercial aerospace customers, and reflects the impact of increases in production rates for certain aircraft as well as the increased utilization of composite materials on new generation aircraft. In particular, Hexcel benefited from higher sales of carbon honeycomb core and carbon fiber based prepregs. The company also benefited from increased sales of engineered products, largely as a result of the production of structural and interior components outsourced to Hexcel by The Boeing Company. Commercial aerospace now accounts for more than 60% of net sales, compared to 52% of pro forma sales two years ago. These sales gains were partially offset by the translation impact of a strengthening US dollar on European revenues. Sales to European customers and export sales from European factories comprise approximately 40% of consolidated sales. Changes in currency exchange rates reduced 1997 second quarter sales, relative to the second quarter of 1996, by nearly 4%. Hexcel believes that the availability of certain carbon fibers, an important raw material in manufacturing advanced structural materials, is currently insufficient to satisfy worldwide demand. The company estimates it has production capacity and sufficient contracts to purchase carbon fiber to meet its estimated 1997 aerospace customer requirements. However, should customer demand grow faster than expected or the mix or timing of customer requirements change, the company may not be able to satisfy all of its customers' requirements. Carbon fiber manufacturers, including the company, have announced plans to increase carbon fiber production capacity during the next twelve months. At the end of June 1997, the company completed the first phase of its previously announced carbon fiber capacity expansion program. The following table summarizes net sales to third-party customers by product group and market segment for the quarter ended June 30, 1997: - -------------------------------------------------------------------------------- COMMERCIAL SPACE & GENERAL (IN MILLIONS) AEROSPACE DEFENSE RECREATION INDUSTRIAL TOTAL - -------------------------------------------------------------------------------- Fibers and Fabrics $ 5.0 $ 2.7 $ 3.0 $ 33.0 $ 43.7 Composite Materials 101.1 18.0 17.4 18.5 155.0 Engineered Products 40.8 2.1 -- -- 42.9 - -------------------------------------------------------------------------------- Total $ 146.9 $ 22.8 $ 20.4 $ 51.5 $ 241.6 61% 9% 8% 22% 100% - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- BACKLOG: The backlog of orders for commercial and military aerospace materials to be filled within 12 months increased from $347.5 million as of December 31, 1996, to $427.6 million as of June 30, 1997. The 23.1% improvement reflects the impact of increased commercial aircraft build rates, as well as an increase in orders for engineered products. The order backlog for non-aerospace materials increased from $54.2 million as of December 31, 1996, to $69.9 million as of June 30, 1997. This improvement is primarily attributable to increased orders from train and wind energy customers. 11 The following tables summarizes the backlog of orders by product group as of June 30, 1997 and December 31, 1996: - -------------------------------------------------------------------------------- JUNE 30, 1997 NON- (IN MILLIONS) AEROSPACE AEROSPACE TOTAL - -------------------------------------------------------------------------------- Fibers and Fabrics $ 20.5 $ 35.8 $ 56.3 Composite Materials 256.7 33.6 290.3 Engineered Products 150.4 0.5 150.9 - -------------------------------------------------------------------------------- Total $ 427.6 $ 69.9 $ 497.5 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- DECEMBER 31, 1996 NON- (IN MILLIONS) AEROSPACE AEROSPACE TOTAL - -------------------------------------------------------------------------------- Fibers and Fabrics $ 26.9 $ 33.6 $ 60.5 Composite Materials 194.6 15.8 210.4 Engineered Products 126.0 4.8 130.8 - -------------------------------------------------------------------------------- Total $ 347.5 $ 54.2 $ 401.7 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- GROSS MARGIN: Gross margin for the second quarter of 1997 was $57.8 million, or 23.9% of sales, compared with $35.2 million for the second quarter of 1996, or 21.1% of sales. Aside from the impact of business acquisitions, the improvement in 1997 second quarter gross margin is the result of higher sales volume, favorable product mix, enhanced manufacturing productivity resulting from Hexcel's business consolidation program, and the benefits from the recent investments made in our carbon fibers business. 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 the 1997 gross margin improvement. Management expects gross margin as a percentage of sales for the remainder of 1997 to be comparable to second quarter levels or to show continued modest improvement. SELLING, GENERAL AND ADMINISTRATIVE ("SG&A"): SG&A expenses were $30.5 million, in the second quarter of 1997, or 12.6% of sales, which includes $4.9 million of research and technology expenses. This compares with 1996 second quarter SG&A expenses of $23.9 million, or 14.3% of sales. The aggregate dollar increase in SG&A expenses from 1996 to 1997 is primarily attributable to the acquired businesses. The decrease in SG&A expenses as a percentage of sales primarily reflects higher sales levels. Management does not expect any significant change in SG&A expenses, as a percentage of sales, for the remainder of 1997. OPERATING INCOME: Operating income was $24.5 million in the second quarter of 1997, compared with a loss of $17.6 million in the second quarter of 1996. The 1996 quarterly loss includes a charge for business acquisition and consolidation expenses of $29.2 million, compared to $2.8 million for the second quarter of 1997. Excluding the charge for business acquisition and consolidation expenses, the improvement in operating income as a percentage of sales (11.3% in second quarter 1997 and 7.0% in second quarter 1996) reflects both improved gross margin and lower SG&A expenditures relative to sales. INTEREST EXPENSE: Interest expense totaled $5.8 million in the second quarter of 1997 and $4.8 million in the second quarter of 1996. The quarter-on-quarter increase primarily reflects the additional cost of financing the Acquired Hercules Business with various debt and credit facilities. The second quarter of 1996 included a $1.8 million write-off of capitalized debt financing costs resulting from the refinancing of the credit facility. 12 INCOME TAXES: Income tax provisions of $3.6 million and $1.2 million for the quarters ended June 30, 1997 and 1996, respectively, primarily reflect international taxes on certain European subsidiaries, state taxes, and settlement of various tax audits. No provision for U.S. federal or Belgium income taxes has been recorded for these periods since the company has available net operating loss carryforwards to offset taxes in these jurisdictions. The income tax provision is determined by the company's level of profitability in each jurisdiction in which it is subject to tax. The level of profitability of the company by country may vary, which could result in changes in the annual effective tax rate and could cause the estimated tax rate in interim quarters to vary from the actual annual effective tax rate for the year. At June 30, 1997, the company has a deferred tax asset valuation allowance (a reserve against the company's deferred tax assets) of approximately $60.0 million, that is primarily attributable to U.S. federal and Belgium deferred tax assets. Realization of the deferred tax assets is dependent on generating sufficient future U.S. and Belgium taxable income to utilize deductions and credits prior to their expiration. The amount of the valuation allowance is periodically reassessed and may be adjusted depending on the company's outlook for future U.S. and Belgium taxable income. During the latter half of the year, the company develops its strategic and annual business plans. These plans provide additional insight into the outlook for the company's future U.S. and Belgium taxable income, and when combined with other factors (such as recent operating results), may serve as a basis for a future reduction of the valuation allowance. When it is determined that all or a portion of the valuation allowance is not needed, such amount will be reversed thereby resulting in an increase in net income. Once all of the valuation allowance has been reversed, the company expects that its effective income tax rates for U.S. and Belgium will approximate the statutory rates. NET INCOME (LOSS) AND NET INCOME (LOSS) PER SHARE: Net income for the 1997 second quarter was $15.1 million, or $0.38 per share on a fully diluted basis, compared with a net loss for the 1996 second quarter of $23.7 million, or $0.65 per share. The results include business acquisition and consolidation expenses of $2.8 million, or $0.06 per share after income taxes, for the 1997 quarter, and $29.2 million, or $0.77 per share after income taxes, for the 1996 quarter. Information regarding the impact of SFAS 128 on earnings per share is contained in Note 8 to the accompanying condensed consolidated financial statements. There were 45.1 million weighted-average shares and equivalent shares outstanding during the second quarter of 1997, versus 36.5 million during the second quarter of 1996. The quarter-on-quarter increase in the number of weighted average shares and equivalent shares is primarily attributable to the inclusion of 7.2 million common share equivalents from the $114.5 million Convertible Subordinated Notes which were issued in July 1996. YEAR-TO-DATE NET SALES AND GROSS MARGIN: Net sales for the first half of 1997 were $455.6 million, compared with $293.2 million for the first half of 1996. Pro forma net sales for the first half of 1996 were $397.0 million. Gross margin for the first half of 1997 was $104.7 million, or 23.0% of sales, versus gross margin for the same period of 1996 of $62 million, or 21.1% of sales. These increases primarily reflect the same factors noted above. 13 The following table summarizes net sales to third-party customers by product group and market segment for the year-to-date period ended June 30, 1997: - -------------------------------------------------------------------------------- COMMERCIAL SPACE & GENERAL (IN MILLIONS) AEROSPACE DEFENSE RECREATION INDUSTRIAL TOTAL - -------------------------------------------------------------------------------- Fibers and Fabrics $ 13.8 $ 6.0 $ 4.5 $ 62.8 $ 87.1 Composite Materials 192.7 30.3 32.4 32.6 288.0 Engineered Products 74.0 5.1 -- 1.4 80.5 - -------------------------------------------------------------------------------- Total $ 280.5 $ 41.4 $ 36.9 $ 96.8 $ 455.6 62% 9% 8% 21% 100% - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- OPERATING INCOME: Operating income for the first six months of 1997 was $40.9 million, compared with operating loss for the same period of 1996 of $10.8 million. Results for the six-month period ended June 30, 1996 include $34.4 million of business consolidation and acquisition expenses, compared to $5.7 million for the first half of 1997. The business acquisition and consolidation expenses incurred in the first half of 1996 included non-cash expenditures of $3,635 of compensation expense resulting from stock options that were granted in 1995 subject to stockholder approval and stock options which vested in connection with the acquisition of the Acquired Ciba Business and $11,356 of write downs on various assets primarily relating to the disposal of certain manufacturing equipment and a building. Excluding the business consolidation and acquisition expenses, the improvement in operating income is the result of the benefit from the acquired businesses and improvements in gross margin, offset by higher SG&A expenses. SG&A expenses were $58.1 million in the 1997 period, or 12.8% of sales, versus $41.4 million in the 1996 period, or 14.1% of sales. Results for 1996 also include $3.0 million of other income, which was largely attributable to the receipt of an additional $1.6 million of cash in connection with the sale of a manufacturing facility and related assets in 1994, and to the partial settlement for $1.1 million of a claim arising from the sale of certain assets in 1991. NET INCOME (LOSS) AND NET INCOME (LOSS) PER SHARE: The 1997 year-to-date net income was $23.4 million, or $0.60 per share on a fully diluted basis, versus net loss of $21.8 million, or $0.72 per share, for the comparable period of 1996. The 1997 net income includes $11.5 million of interest expense, compared with $8.5 million for the 1996 period, and reflects the additional debt used to finance the business acquisitions. The 1996 period includes a write-off of $3.4 million of capitalized debt financing costs. There were approximately 45.2 million weighted-average shares and equivalent shares outstanding during the first half of 1997, versus 30.5 million during the first half of 1996. The difference in the number of weighted average shares and equivalent shares reflects the issuance of approximately 18.0 million shares of new common stock to Ciba on February 29, 1996 in connection with the acquisition of the Acquired Ciba Business as well as the inclusion of 7.2 million of common share equivalents from the $114.5 Convertible Subordinated Notes which were issued in July 1996. CAPITAL RESOURCES AND LIQUIDITY FINANCIAL RESOURCES In connection with the purchase of the Acquired Ciba Business on February 29, 1996, Hexcel obtained a three-year senior secured credit facility of up to $175.0 million to: (a) fund the cash component of the purchase price; (b) refinance outstanding indebtedness under certain US and European credit facilities; and (c) provide for the ongoing working capital and other financing requirements of the company on a worldwide basis. This senior secured credit facility was subsequently replaced with the 14 Revolving Credit Facility in connection with the purchase of the Acquired Hercules Business in June 1996. The Revolving Credit Facility was obtained to: (a) refinance outstanding indebtedness under a senior secured credit facility obtained in connection with the purchase of the Acquired Ciba Business; (b) finance the purchase of the Acquired Hercules Business; and (c) provide for the ongoing working capital and other financing requirements of the company on a worldwide basis. The Revolving Credit Facility initially provided for up to $310.0 million of borrowing capacity. However, as a result of the company's issuance of $114.5 million in Convertible Subordinated Notes in July 1996, maximum availability under the Revolving Credit Facility was reduced from $310.0 million to $254.6 million, in accordance with the terms of that facility. As of June 30, 1997, outstanding borrowings and letter of credit commitments under the Revolving Credit Facility totaled $138.8 million. The Revolving Credit Facility expires in February 1999. Management expects that the financial resources of Hexcel, together with the available funds under the Revolving Credit Facility, will be sufficient to fund the company's worldwide operations without regard to the Fiberite acquisition. In connection with the proposed acquisition of selected Fiberite assets and businesses, Hexcel has obtained a commitment for a new bank credit facility, the proceeds of which would be sufficient to fund the proposed acquisition, refinance certain existing indebtedness including the Revolving Credit Facility, and provide for the ongoing working capital and other financing requirements of the company. Further discussion of the company's financial resources is contained in Note 5 to the accompanying condensed consolidated financial statements. EBITDA AND CASH FLOWS FIRST HALF, 1997: Earnings before business acquisition and consolidation expenses, other income, interest, taxes, depreciation and amortization ("Adjusted EBITDA") were $65.0 million. Net cash used by operating activities was $30.8 million, as an increase of $68.6 million in working capital more than offset $23.4 million of net income and $18.4 million of non-cash depreciation and amortization. The substantial increase in working capital reflects higher levels of accounts receivable and inventory resulting from increased sales and production volumes. The working capital increase also reflects reductions in accrued liabilities from peak year-end levels, primarily due to the payment in 1997 of obligations incurred during 1996 for capital projects and employee incentive and benefit programs. Net cash used for investing activities was $14.3 million, reflecting $18.1 million of capital expenditures and the receipt of $5.0 million in connection with the sale of a 50% equity interest in the Knytex joint venture. Net cash provided from financing activities was $38.9 million which was primarily the result of $30.2 million of borrowings under the Revolving Credit Facility. FIRST HALF, 1996: Adjusted EBITDA was $30.6 million, and net cash used by operating activities was $1.3 million. Net cash used for investing activities totaled $167.1 million, including cash payments of $160.0 million in connection with the purchase of the Acquired Ciba Business and the Acquired Hercules Business. As noted above, a substantial portion of the consideration paid for the Acquired Ciba Business was comprised of Hexcel common stock, senior subordinated notes and senior demand notes. Net cash provided by financing activities was $173.1 million. Adjusted EBITDA has been presented to provide a measure of Hexcel's operating performance that is commonly used by investors and financial analysts to analyze and compare companies. Adjusted EBITDA does not represent an alternative measure of the company's cash flows or operating income, and should not be considered in isolation or as a substitute for measures of performance presented in accordance with generally accepted accounting principles. 15 CAPITAL EXPENDITURES Capital expenditures increased to $18.1 million in the first half of 1997, from $8.7 million in the first half of 1996. This increase is attributable to capital expenditures incurred in connection with the business consolidation program as well as expenditures to improve manufacturing processes and to expand production capacity for select product lines that are in high demand. Management expects capital spending for all of 1997 to approximate $60 million. RISKS, UNCERTAINTIES AND OTHER FACTORS WITH RESPECT TO "FORWARD-LOOKING STATEMENTS" Certain statements contained in this Quarterly Report on Form 10-Q constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of Hexcel, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among others, the following: General economic and business conditions; changes in political, social and economic conditions and local regulations, particularly in Europe and Asia; foreign currency fluctuations; level of profitability by country, particularly in the U.S. and Belgium; changes in, or failure to comply with, government regulations; demographic changes; the ability to complete the proposed Fiberite acquisition; changes in sales mix; maintaining current pricing levels; the loss of any significant customers; changes in methods of distribution and technology; industry capacity; competition; availability of carbon fiber; capacity constraints; changes in business strategy or development plans; availability of liquidity sufficient to meet the company's need for capital; availability of qualified personnel; and various other factors referenced in this Quarterly Report on Form 10-Q. The company assumes no obligation to update the forward-looking information to reflect actual results or changes in the factors affecting such forward-looking information. The forward-looking information referred to above includes, but is not limited to: (a) order backlog information; (b) expectations regarding sales growth, sales mix, gross margins, manufacturing productivity, and selling, general and administrative expenses; (c) the availability and utilization of net operating loss carryforwards and other deferred tax assets for income tax purposes; (d) expectations regarding Hexcel's financial condition and liquidity, as well as future cash flows; (e) expectations regarding capital expenditures; and (f) the estimated total cost of the company's business consolidation program. In addition to the risks, uncertainties and other factors referred to above which may cause the actual costs of the business consolidation program to differ materially from estimated amounts, such estimated amounts are based on various factors and were derived utilizing numerous important assumptions, including: (a) achieving estimated reductions in the number of total employees within anticipated time frames and at currently projected severance costs levels, while maintaining work flow in the business areas affected; (b) the ability to maintain manufacturing know-how with respect to production processes conducted at facilities that will be closed or at which the number of employees will be reduced, including cooperation by employees who will be terminated; (c) the assimilation of the production processes at closed facilities with production at other company facilities without undue disruption to the manufacturing, marketing and distribution functions, including the cooperation of customers in connection with requalifying the subject products for various customer and government programs; (d) selling a vacated facility within an anticipated time frame at an anticipated selling price; and (e) the absence of changes in business conditions that would require significant modifications to the current program, including the effects of the proposed acquisition and assimilation of Fiberite. The failure of these assumptions to be realized may cause the actual total cost or benefit of the consolidation program to differ materially from the estimates. 16 PART II. OTHER INFORMATION HEXCEL CORPORATION AND SUBSIDIARIES Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS An Annual Meeting of Stockholders of the company was held on May 22, 1997. Stockholders holding 35,586,511 shares of Hexcel common stock were present, either in person or by proxy. The following matters were submitted to the company's stockholders for a vote at that meeting, with the results of the vote indicated: 1 The election of nominees to the Board of Directors: Votes Cast ------------------------------------------------------- Director For Withheld ------------------------------------------------------- John M. D. Cheesmond 35,272,903 313,608 ------------------------------------------------------- Marshall S. Geller 35,290,483 296,028 ------------------------------------------------------- Juergen Habermeier 35,289,696 296,815 ------------------------------------------------------- John J. Lee 35,289,602 296,909 ------------------------------------------------------- Stanley Sherman 35,290,633 295,878 ------------------------------------------------------- Martin L. Solomon 35,290,633 295,878 ------------------------------------------------------- George S. Springer 35,290,633 295,878 ------------------------------------------------------- Joseph T. Sullivan 35,290,633 295,878 ------------------------------------------------------- Hermann Vodicka 35,290,633 295,878 ------------------------------------------------------- Franklin S. Wimer 35,290,633 295,878 ------------------------------------------------------- 2. The approval and adoption of the Hexcel Incentive Stock Plan as described in the Proxy Statement: Votes Cast ------------------------------------------------------- For Against Abstentions ------------------------------------------------------- 27,659,838 4,443,584 36,874 ------------------------------------------------------- 3. The approval and adoption of the Hexcel Management Stock Purchase Plan as described in the Proxy Statement: Votes Cast ------------------------------------------------------- For Against Abstentions ------------------------------------------------------- 30,139,459 1,960,691 40,146 ------------------------------------------------------- 17 Item 6. EXHIBITS AND REPORT ON FORM 8-K (a) Exhibits: 10.1 Asset Purchase Agreement, by and among Stamford FHI Acquisition Corp., Fiberite, Inc. and Hexcel Corporation, dated as of April 21, 1997. 10.2 Hexcel Corporation 1997 Employee Stock Purchase Plan. 10.3 Hexcel Corporation Incentive Stock Plan, As Amended and Restated January 30, 1997. 10.4 Form of Non-Qualified Stock Option Agreement (1997). 10.5 Form of Performance Accelerated Restricted Stock Units. 10.6 Form of Performance Accelerated Stock Option Agreement (Director). 10.7 Form of Performance Accelerated Stock Option Agreement (Employee). 10.8 Form of Reload Option Agreement (1997). 10.9 Hexcel Corporation Management Stock Purchase Plan. 10.10 Form of Grant of Restricted Stock Units Agreement. 11. Statement Regarding Computation of Per Share Earnings. 27. Financial Data Schedule (electronic filing only). (b) Report on Form 8-K: Current Report on Form 8-K dated July 10, 1997, relating to Hexcel's change in independent accountants. 18 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized, and in the capacity indicated. HEXCEL CORPORATION (Registrant) August 13, 1997 /s/ Wayne C. Pensky - ------------------------- ---------------------------------- (Date) Wayne C. Pensky, Corporate Controller and Chief Accounting Officer 19 EX-10.1 2 ASSET PURCHASE AGREEMENT - ------------------------------------------------------------------------------- ASSET PURCHASE AGREEMENT BY AND AMONG STAMFORD FHI ACQUISITION CORP., FIBERITE, INC. AND HEXCEL CORPORATION DATED AS OF APRIL 21, 1997 - ------------------------------------------------------------------------------- 0 TABLE OF CONTENTS ----------------- PAGE ----- ARTICLE I PURCHASE AND SALE OF ASSETS AND ASSUMPTION OF LIABILITIES 2 Section 1.1 Purchase and Sale....................................... 2 Section 1.2 Consideration........................................... 10 Section 1.3 Closing................................................. 11 Section 1.4 Deliveries by Fiberite.................................. 11 Section 1.5 Deliveries by Buyer..................................... 12 ARTICLE II-A REPRESENTATIONS AND WARRANTIES OF STAMFORD 12 Section 2A.1 Organization............................................ 12 Section 2A.2 Authority............................................... 13 Section 2A.3 No Violations; Consents and Approvals................... 13 ARTICLE II-B REPRESENTATIONS AND WARRANTIES OF FIBERITE 14 Section 2B.1 Organization............................................ 14 Section 2B.2 Authority............................................... 15 Section 2B.3 No Violations; Consents and Approvals................... 15 ARTICLE III REPRESENTATIONS AND WARRANTIES OF BUYER 16 Section 3.1 Organization............................................ 16 Section 3.2 Authority............................................... 16 Section 3.3 No Violations; Consents and Approvals................... 16 ARTICLE IV COVENANTS 17 Section 4.1 Conduct of Business..................................... 17 Section 4.2 Access to Information................................... 19 Section 4.3 Commercially Reasonable Efforts; Other Actions.......... 19 Section 4.4 Public Announcements.................................... 20 Section 4.5 Notification of Certain Matters......................... 20 Section 4.6 Expenses................................................ 20 Section 4.7 Affected Employees...................................... 20 Section 4.8 Insurance............................................... 22 Section 4.9 Sums Received in Respect of Acquired Businesses and Excluded Businesses..................................... 23 Section 4.10 Name.................................................... 23 i Section 4.11 Books and Records....................................... 23 Section 4.12 Allocation of the Purchase Price........................ 24 Section 4.13 Agreements Regarding Intellectual Property.............. 24 Section 4.14 Assignment of Contracts; Nonassignability............... 25 Section 4.15 Assignment of Certain Indemnification Rights............ 26 Section 4.16 Continuation of Certain Plans........................... 26 Section 4.17 Exon-Florio............................................. 27 Section 4.18 Transitional Services................................... 27 Section 4.19 Supply Agreement........................................ 27 Section 4.20 Tax Cooperation......................................... 27 Section 4.21 Directors' and Officers' Insurance...................... 28 Section 4.22 Pre-Closing Adjustment.................................. 29 ARTICLE V CONDITIONS TO THE OBLIGATIONS OF BUYER 29 Section 5.1 Consents and Approvals.................................. 29 Section 5.2 Certain Proceedings..................................... 29 Section 5.3 Financing............................................... 29 Section 5.4 Stock Purchase Agreement................................ 29 ARTICLE VI CONDITIONS TO THE OBLIGATIONS OF STAMFORD AND FIBERITE 30 Section 6.1 Consents and Approvals.................................. 30 Section 6.2 Certain Proceedings..................................... 30 ARTICLE VII TERMINATION AND ABANDONMENT 30 Section 7.1 Termination............................................. 30 Section 7.2 Termination by Buyer.................................... 31 Section 7.3 Termination by Stamford................................. 31 Section 7.4 Procedure for Termination............................... 32 Section 7.5 Effect of Termination and Abandonment................... 32 ARTICLE VIII SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION 32 Section 8.1 Survival of Representations and Warranties, Covenants, etc. ........................................ 32 Section 8.2 Fiberite's and Stamford's Agreements to Indemnify....... 33 Section 8.3 Buyer's Agreement to Indemnify.......................... 33 Section 8.4 Indemnification Based on Net Damage..................... 34 Section 8.5 Third Party Claims...................................... 34 ii ARTICLE IX MISCELLANEOUS 35 Section 9.1 Fees, Expenses and Taxes................................ 35 Section 9.2 Further Assurances...................................... 36 Section 9.3 Notices................................................. 36 Section 9.4 Severability............................................ 38 Section 9.5 Binding Effect; Assignment.............................. 38 Section 9.6 Bulk Sales Law.......................................... 39 Section 9.7 No Third Party Beneficiaries............................ 39 Section 9.8 Interpretation.......................................... 39 Section 9.9 Jurisdiction and Consent to Service..................... 39 Section 9.10 Governing Law........................................... 40 Section 9.11 Entire Agreement........................................ 40 Section 9.12 Amendment, Modification and Waiver...................... 40 Section 9.13 Specific Performance.................................... 40 Section 9.14 Counterparts............................................ 41 Section 9.15 Effective Date.......................................... 41 ARTICLE X CERTAIN DEFINITIONS 41 iii SCHEDULES Schedule 1.1(a)(xii) Warranties/Indemnification Provisions Schedule 1.1(a)(xv) Certain Acquired Intellectual Property Schedule 1.1(a)(xvii) Certain Acquired Assets Schedule 1.1(b)(ii) Deeds for Certain Properties Schedule 1.1(c) Certain Intellectual Property Schedule 1.1(c)(iv) Certain Excluded Intellectual Property Schedule 1.1(c)(vi) Certain Excluded Assets Schedule 1.1(e)(xv) Certain Excluded Employment Agreements Schedule 1.4(c) Material Contracts Requiring Consents Schedule 2B.3(b)(iii) Certain Consents, Orders and Filings of Fiberite Schedule 3.3(b)(iii) Certain Consents, Orders and Filings of Buyer EXHIBITS EXHIBIT A Stock Purchase and Sale Agreement EXHIBIT B Bill of Sale and Assignment EXHIBIT C Undertaking EXHIBIT D FIRPTA Certificate iv ASSET PURCHASE AGREEMENT This ASSET PURCHASE AGREEMENT (this "Agreement"), dated as of April 21, 1997, is by and among Fiberite, Inc., a Delaware corporation ("Fiberite"), Stamford FHI Acquisition Corp., a Delaware corporation ("Stamford"), and Hexcel Corporation, a Delaware corporation ("Buyer", together with Fiberite and Stamford, the "Parties"). RECITALS A. Stamford has entered into a Stock Purchase and Sale Agreement (the "Stock Purchase Agreement"), dated as of April 20, 1997, by and among, Stamford, Fiberite Holdings, Inc., a Delaware corporation and as of the Closing Date (as defined in Section 1.3 hereof) the former parent of Fiberite ("Fiberite Holdings"), and the Selling Stockholders of Fiberite Holdings providing for, among other things, the purchase and sale of all of the outstanding shares of Common Stock of Fiberite Holdings and which is attached hereto as Exhibit A. B. Upon the closing of the transactions contemplated by the Stock Purchase Agreement, Fiberite desires to sell to Buyer, and Buyer desires to purchase from Fiberite, certain assets and operations of Fiberite as more fully described herein, upon the terms and subject to the conditions set forth herein. Now, therefore, in consideration of the mutual agreements herein and in reliance upon the representations and warranties herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged and intending to be legally bound hereby, the Parties hereby agree as follows: ARTICLE I PURCHASE AND SALE OF ASSETS AND ASSUMPTION OF LIABILITIES Section 1.1 PURCHASE AND SALE. (a) Subject to the terms and conditions of this Agreement, at the Closing, Fiberite will sell, convey, assign, transfer and deliver to Buyer, and Buyer will purchase, acquire and accept from Fiberite, all of its rights, title and interests in and to all properties, contracts and other assets (of every kind, nature, character and description, whether real, personal or mixed, whether tangible or intangible, whether accrued, contingent or otherwise and wherever situated), goodwill and business as a going concern of Fiberite other than the Excluded Assets (as defined in Section 1.1(c) hereof), including without limitation, the following assets (collectively, the "Acquired Assets"): (i) all real property, together with all buildings, fixtures and improvements erected thereon, owned by Fiberite; (ii) all leases of real property and all contracts, commitments or other agreements relating thereto to which Fiberite is a party or by which Fiberite is bound; (iii) all computer hardware and software, computer programs and systems, databases, documentation and resource material relating thereto, of Fiberite; (iv) all inventory, wherever located, including raw materials, work-in-progress, finished goods, supplies and other inventories which relate to the Acquired Businesses (the "Inventory") and any rights of Fiberite to the warranties received from suppliers and any related claims, credits, rights of recovery and setoff with respect to such Inventory; (v) all furniture, fixtures, vehicles, spare parts, tools, supplies, leasehold improvements, plant and equipment and all other tangible property of Fiberite; (vi) all rights in, to and under all contracts, licenses, leases (other than leases for real property), commitments, purchase orders and other agreements; (vii) all customer lists of Fiberite; 2 (viii) all accounts receivable of Fiberite; (ix) all Intellectual Property rights and other proprietary rights of Fiberite and the German subsidiary (as defined herein) (the "Acquired Intellectual Property"); (x) all permits, licenses, approvals and authorizations by governmental authorities or third parties which are transferable by Fiberite; (xi) all of the books of account and other accounting records (or copies thereof) of Fiberite; (xii) all warranties, rights to indemnification or similar rights, whether arising by contract, operation of law or otherwise in favor of Fiberite or Fiberite Holdings including, without limitation, rights to indemnification under the contracts listed on Schedule 1.1(a)(xii), to the extent related to the Acquired Businesses, Acquired Assets or Assumed Liabilities (as defined in Section 1.1(d)); (xiii) all of the capital stock and all rights, title, and interests in and to all properties, contracts, and other assets, goodwill and operations of the business as a going concern of, Fiberite France SARL, a corporation formed under the laws of France ("Fiberite France"); (xiv) subject to Section 4.10, the name "Fiberite" and all derivatives and extensions thereof and all associated goodwill; (xv) all Intellectual Property related to or arising from the research and development projects described on Schedule 1.1(a)(xv); (xvi) all rights, title and interests in and to all of the properties, contracts and other assets, goodwill and operations of the business as a going concern of any 3 subsidiary of Fiberite Holdings (other than Fiberite) or Fiberite organized under a jurisdiction within the United States of America (a "Domestic Subsidiary"); and (xvii) the assets of Fiberite listed on Schedule 1.1(a)(xvii). (b) Such sale, assignment, transfer and delivery of the Acquired Assets will be effected by delivery by Fiberite to Buyer of (i) a duly executed bill of sale and assignment agreement (the "Bill of Sale and Assignment") substantially in the form set forth as Exhibit B attached hereto, (ii) properly executed and acknowledged deeds without covenants against grantor's acts for the properties listed on Schedule 1.1(b)(ii), each in recordable form, effective to convey fee title to each such property to Buyer in the state in which each such property is located such that a reputable title insurance company licensed to do business in the state in which each such property is located would issue a title insurance policy insuring Buyer's fee title to each such property (the "Deeds"), and (iii) such other duly executed, good and sufficient instruments of conveyance, transfer and assignment as shall be necessary to convey to Buyer all of Fiberite's rights, title and interests in and to the Acquired Assets (collectively, the "Other Instruments"). (c) Notwithstanding anything contained herein to the contrary, Fiberite shall not sell, convey, assign, transfer or deliver, or cause to be sold, conveyed, assigned, transferred or delivered, to Buyer, and Buyer shall not purchase, acquire or accept from Fiberite, the rights, title and interests in all of the following properties, contracts and other assets (the "Excluded Assets"): (i) all of the capital stock and all rights, title, and interests in and to all properties, contracts and other assets, goodwill and business as a going concern of, Fiberite Europe GmbH, a corporation formed under the laws of Germany (the "German Subsidiary"), other than (A) Intellectual Property not exclusively used in the business of the German Subsidiary and (B) the Intellectual 4 Property and distribution agreements described on Schedule 1.1(c); (ii) all of Stamford's and Fiberite's rights, title and interests in and to all of the properties, contracts and other assets (of every kind, nature, character and description, whether real, personal or mixed, whether tangible or intangible, whether accrued contingent or otherwise and wherever situated) relating exclusively to the following businesses: (A) the businesses conducted at the Orange Facility (the "Orange Businesses") (B) the recycling business, and (C) the Ligustica business (together with the German Businesses, the "Excluded Businesses"), including all Intellectual Property exclusively relating thereto other than the Intellectual Property described on Schedule 1.1(c); (iii) all capital stock of Domestic Subsidiaries held by Fiberite, Stamford or any of their subsidiaries; (iv) all Intellectual Property related to or arising from the research and development projects described on Schedule 1.1(c)(iv); (v) cash and cash equivalents of Fiberite; (vi) the assets of Fiberite listed on Schedule 1.1(c)(vi); and (vii) the assets of Fiberite located at the Orange Facility other than those listed on Schedule 1.1(a)(xvii). (d) On and as of the Closing Date (as defined in Section 1.3), Buyer shall assume and agree to perform, pay and discharge, all of the following obligations and liabilities of Fiberite (whether liquidated or unliquidated, known or unknown, contingent or otherwise) (collectively, the "Assumed Liabilities"): (i) the Buyer Allocated Liabilities (as defined in Section 1.1(f)); 5 (ii) any and all obligations and liabilities arising exclusively from the Acquired Businesses or relating exclusively to the Acquired Assets; (iii) eighty-one percent (81%) of all post-retirement liabilities for medical, dental and life insurance programs (other than multi-employer programs and plans), for U.S. employees or former U.S. employees of Fiberite Holdings and its subsidiaries who retire (or have retired) before the Closing Date; (iv) eighty-five and six tenths percent (85.6%) of any and all liabilities and obligations, direct or indirect, fixed or contingent, for federal income taxes of Fiberite or any of its subsidiaries or any member of any affiliated group (within the meaning of Section 1504 of the Code) or any similar state, local or foreign group of which such entities are or have been a member, for taxable periods, or portions thereof ending prior to the closing of the Stock Purchase Agreement; (v) without limiting Section 1.1(d)(ii), all environmental liabilities and obligations arising from or relating to the following sites: (A) American Chemical Services, Griffith, Indiana; (B) Artel Chemical, Nitro, West Virginia; (C) P.C.B. Treatment, Inc., Kansas City, Kansas and Kansas City, Missouri; (D) an unspecified local municipal landfill, Winona, Minnesota; and (E) any property formerly owned or operated by Fiberite which relates exclusively to the Acquired Businesses; and (vi) any liability with respect to the Affected Employees arising from the notice to be given pursuant to Section 4.7 hereof, whether or not the transactions contemplated by this Agreement are consummated. (e) On and as of the Closing Date Buyer shall not assume or agree to perform, pay or discharge and Fiberite shall retain all of the following obligations and liabilities of Fiberite (whether liquidated or 6 unliquidated, known or unknown, contingent or otherwise) (collectively, the "Excluded Liabilities"): (i) the Fiberite Allocated Liabilities (as defined in Section 1.1(f); (ii) any and all obligations and liabilities arising exclusively from the Excluded Businesses or relating exclusively to the Excluded Assets; (iii) (A) fourteen and four tenths percent (14.4%) of any and all liabilities and obligations, direct or indirect, fixed or contingent, for federal income taxes of Stamford, Fiberite or any of their subsidiaries or any member of any affiliated group (within the meaning of Section 1504 of the Code) or any similar state, local or foreign group of which any of such entities is or has been a member on or prior to the date hereof, for taxable periods (or portions thereof) ending on or prior to the closing of the Stock Purchase Agreement and 100% of such federal income taxes or any state, local or foreign income taxes for any taxable period (or portion thereof) beginning on or after the closing of the Stock Purchase Agreement; and (B) notwithstanding anything in this Agreement to the contrary, any and all liabilities and obligations, direct or indirect, fixed or contingent, for federal, state, local or foreign income taxes due as a result of any of the transactions contemplated by this Agreement or any transactions occurring on the date of the closing of the Stock Purchase Agreement; (iv) all obligations remaining for the payment of the purchase price for the Ligustica business and for the assets acquired in connection therewith; (v) severance for employees who participate in the ICI Composites Severance Plan (or, if applicable, its successor plan, the Fiberite, Inc. Severance Plan) who are not Affected Employees (as defined in Section 4.7); (vi) certain collective bargaining agreements, including the Agreement 7 Between ICI Fiberite, A Business Unit of ICI Composites, Inc. and General Drivers, Helpers, Warehousemen, and Inside Employees Local Union No. 160 affiliated with the International Brotherhood of Teamsters, effective January 1, 1993 to December 31, 1997; and Agreement Between ICI Fiberite, A Business Unit of ICI Composites, Inc. and United Steelworkers of America, AFL-CIO, Local No. 13421, effective March 28, 1993 to March 29, 1998; (vii) the settlement agreement between Fiberite and Paul Pendorf; (viii) Nineteen percent (19%) of all post-retirement liabilities for medical, dental and life insurance programs (other than multi-employer programs and plans), for U.S. employees or former U.S. employees of Fiberite Holdings and its subsidiaries who retire (or have retired) before the Closing Date; (ix) all outstanding indebtedness for borrowed money of Fiberite (together with all interest accrued thereon); (x) all Expenses (as defined in the Stock Purchase Agreement) to the extent not paid prior to the Closing; (xi) the 11.3% Zero Coupon Subordinated Notes of Fiberite Holdings due in 2002 and 2003; (xii) subject to Section 4.16, all liabilities and obligations with respect to the Fiberite, Inc. Pension Plan, Fiberite, Inc. Service Related Pension Plan, Fiberite, Inc. 401(k) Plan I and Fiberite, Inc. 401(k) Plan II; (xiii) without limiting Section 1.1(e)(ii), all environmental liabilities and obligations arising from or related to the following sites: (A) Stringfellow Landfill, Glen Avon, California; (B) Frank R. Bowerman Landfill (formerly known as Bee Canyon Landfill) near Irvine, Orange County, California; (C) 8 Olinda/Olinda Alpha Landfill, Brea, Orange County, California; (D) Santiago Canyon Landfill, Orange County, California and (E) any property formerly owned or operated by Fiberite which relates exclusively to the Excluded Businesses; (xiv) all obligations and liabilities of Stamford, Fiberite Holdings (or any successor) or Fiberite which may arise in connection with the transactions contemplated by the Stock Purchase Agreement, the proposed sale of Fiberite Holdings, or this Agreement to indemnify, defend and hold harmless the present and former officers, directors, employees and agents of Fiberite Holdings, Fiberite and the Selling Stockholders other than Buyer's obligation to maintain insurance pursuant to Section 4.21 hereof; and (xv) all obligations and liabilities of Stamford, Fiberite Holdings (or any successor) or Fiberite arising in connection with the employment agreements set forth on Schedule 1.1(e)(xv), including, without limitation, obligations and liabilities relating to the payment of "excess parachute payments" within the meaning of Section 280G of the Code. (f) For purposes of this Agreement, all obligations and liabilities of Fiberite (whether liquidated or unliquidated, known or unknown, contingent or otherwise) that are neither (1) described in subclauses (ii) through (v) of clause (d) above, nor (2) described in subclauses (ii) through (xv) of clause (e) above shall be "Allocated Liabilities", and shall be borne by the parties in the following proportions, 80% by Buyer ("Buyer Allocated Liabilities") and 20% by Fiberite and Stamford ("Fiberite Allocated Liabilities"); PROVIDED, HOWEVER, that the percentage of any Allocated Liability to be borne by Buyer on the one hand and Fiberite and Stamford on the other hand shall be varied from the percentages set forth above in the event that the parties in good faith reasonably agree to such other allocation based upon such facts and circumstances giving rise to such liability and the relationship of such liability to the Acquired Businesses and Acquired Assets on the one hand and the Excluded Businesses and Excluded Assets on the other hand. In no event shall (i) Buyer be liable 9 for, and Stamford and Fiberite hereby indemnify and agree to hold harmless Buyer from, the payment of any Fiberite Allocated Liabilities or (ii) Stamford or Fiberite be liable for, and Buyer hereby indemnifies and agrees to hold harmless Stamford and Fiberite from, the payment of any Buyer Allocated Liabilities. With respect to any third party claim that is subject to the provisions of this Section 1.1(f), the administration, management and control of such third party claim shall be undertaken by the party hereto with the greatest exposure for loss under such third party claim (the "Administrator") and shall be administered, managed and controlled in the manner contemplated by Section 8.5 below as if the Administrator were the Indemnifying Party described in Section 8.4, but subject to the allocation of liability set forth in or determined pursuant to this Section 1.1(f). Each party hereby agrees to notify the other of any third party claim or other obligation or liability subject to this Section 1.1(f) promptly following such party's obtaining knowledge thereof; PROVIDED that any delay in providing such notice shall affect such party's rights or obligations hereunder, only to the extent the party to be notified is actually prejudiced. Section 1.2 CONSIDERATION. Subject to the terms and conditions of this Agreement, the consideration to be paid for the Acquired Assets and Acquired Businesses shall consist of: (a) $297,790,000 as adjusted by the Pre-Closing Adjustment Amount referred to in Section 4.22 (the "Purchase Price"), payable at Closing, by wire transfer of immediately available funds to such bank account as shall be designated by Fiberite at least two business days prior to the Closing; and (b) an undertaking substantially in the form set forth as Exhibit C attached hereto (the "Undertaking"), whereby Buyer will assume and agree to pay and discharge the Assumed Liabilities as provided in the Undertaking. Section 1.3 CLOSING. The Closing of the transactions contemplated by this Agreement shall take place following the satisfaction or waiver of all of the conditions to Closing set forth in Article V and Article VI hereof, and immediately following the Closing of the transactions contemplated in the Stock Purchase Agree- 10 ment, at the offices of Skadden, Arps, Slate, Meagher & Flom LLP, 919 Third Avenue, New York, New York, or on such other date and at such other time or place as the Parties may agree. The date of the Closing is sometimes referred to herein as the "Closing Date." Section 1.4 DELIVERIES BY FIBERITE. At the Closing, Fiberite will deliver or cause to be delivered to Buyer (unless delivered previously) the following: (a) a duly executed Bill of Sale and Assignment; (b) the books and records of Fiberite other than those books and records that relate exclusively to the Excluded Businesses to the extent provided in Section 4.11 hereof; (c) the consents required for assignment of the contracts listed on Schedule 1.4(c); (d) a Certificate of Non-Foreign Status in the form attached hereto as Exhibit D (the "FIRPTA Certificate"), provided, however, that if Fiberite fails to provide the FIRPTA Certificate, the transaction shall nonetheless close and Buyer shall withhold from the Purchase Price and pay over to the appropriate taxing authorities the amount required to be withheld under Section 1445 of the Code as determined by Buyer; (e) the Deeds; (f) certain affidavits and certificates required in connection with the recordation of the deeds; (g) a duly executed and acknowledged assignment and assumption agreement with respect to the ground lease for the property located at 2055 East Technology Circle, Tempe, Arizona; and (h) all other documents, instruments and writings (including, if necessary, the Other Instruments) required to be delivered by Stamford, Fiberite Holdings and Fiberite at or prior to the Closing pursuant to this Agreement or otherwise required in connection herewith. 11 Section 1.5 DELIVERIES BY BUYER. At the Closing, Buyer will deliver or cause to be delivered to Fiberite (unless previously delivered) the following: (a) the Purchase Price referred to in Section 1.2(a) hereof; (b) the duly executed Undertaking; and (c) all other documents, instruments or writings required to be delivered by Buyer at or prior to the Closing pursuant to this Agreement or otherwise required in connection herewith. ARTICLE II-A REPRESENTATIONS AND WARRANTIES OF STAMFORD Stamford represents and warrants to Buyer as follows: Section 2A.1 ORGANIZATION. Stamford is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation. True and complete copies of the certificate of incorporation and by-laws of Stamford, as they are currently in effect and as they will be in effect at Closing, have been made available to Buyer. Section 2A.2 AUTHORITY. Stamford has full corporate power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized and approved by Stamford. No other proceedings on the part of Stamford are necessary to authorize this Agreement or the consummation of the transactions contemplated hereby. This Agreement has been duly and validly executed and delivered by Stamford, and, assuming this Agreement constitutes a legal, valid and binding agreement of Buyer, constitutes a legal, valid and binding agreement of Stamford, enforceable against Stamford in accordance with its terms, except that enforcement thereof may be subject to (i) bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or other similar laws now or hereafter in 12 effect relating to creditors' rights generally and (ii) general principles of equity and the discretion of the court before which any proceeding therefor may be brought. Section 2A.3 NO VIOLATIONS; CONSENTS AND APPROVALS. (a) Neither the execution and delivery of this Agreement nor the consummation of the transactions contemplated hereby to be performed by Stamford nor compliance by Stamford with any of the provisions hereof will (i) violate any provision of Stamford's certificate of incorporation or by-laws, (ii) result in a violation or breach of, or constitute (with or without due notice or lapse of time or both) a default, or give rise to any right of termination, cancellation or acceleration or any right that becomes effective upon the occurrence of a merger, consolidation, sale of assets or change in control, under, any of the terms, conditions or provisions of any note, bond, mortgage, indenture, other instrument of indebtedness for money borrowed, license, franchise, permit or agreement to which Stamford is a party, or by which Stamford or any of its properties is bound immediately prior to the closing of the Stock Purchase Agreement or (iii) violate any statute, rule, regulation, order or decree of any public body or authority by which Stamford or any of its properties is bound immediately prior to the closing of the Stock Purchase Agreement, excluding from the foregoing clauses (ii) and (iii) violations, breaches, defaults or rights that, either individually or in the aggregate, would not have a Material Adverse Effect or materially impair its ability to consummate the transactions contemplated hereby or for which it has received, or prior to the Closing shall have received, appropriate consents or waivers. (b) No filing or registration with, notification to, or authorization, consent or approval of, any governmental entity is required by Stamford in connection with the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby, except (i) in connection with the applicable requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act") and as required pursuant to applicable antitrust and competition law statutes and regulations of applicable foreign jurisdictions, (ii) for filing a notice pursuant to the Exon-Florio Amendment and (iii) such other consents, orders, 13 authorizations, registrations, declarations and filings the failure of which to obtain would not have a Material Adverse Effect. ARTICLE II-B REPRESENTATIONS AND WARRANTIES OF FIBERITE Fiberite (as of the Effective Date) represents and warrants to Buyer as follows: Section 2B.1 ORGANIZATION. Fiberite is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation and Fiberite has all requisite corporate power and authority to own, lease and operate its properties and to carry on its business as now being conducted. True and complete copies of the certificate of incorporation and by-laws of Fiberite, as they are currently in effect and as they will be in effect at Closing, have been made available to Buyer. Section 2B.2 AUTHORITY. Fiberite has full corporate power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized and approved by Fiberite. No other proceedings on the part of Fiberite are necessary to authorize this Agreement or the consummation of the transactions contemplated hereby. This Agreement has been duly and validly executed and delivered by Fiberite, and, assuming this Agreement constitutes a legal, valid and binding agreement of Buyer, constitutes a legal, valid and binding agreement of Fiberite enforceable against Fiberite in accordance with its terms, except that enforcement thereof may be subject to (i) bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or other similar laws now or hereafter in effect relating to creditors' rights generally and (ii) general principles of equity and the discretion of the court before which any proceeding therefor may be brought. Section 2B.3 NO VIOLATIONS; CONSENTS AND APPROVALS. 14 (a) Neither the execution and delivery of this Agreement nor the consummation of the transactions contemplated hereby to be performed by Fiberite nor compliance by Fiberite with any of the provisions hereof will violate any provision of Fiberite's certificate of incorporation or by-laws. (b) No filing or registration with, notification to, or authorization, consent or approval of, any governmental entity is required by Fiberite in connection with the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby, except (i) in connection with the applicable requirements of the HSR Act and as required pursuant to applicable antitrust and competition law statutes and regulations of applicable foreign jurisdictions, (ii) for filing a notice pursuant to the Exon-Florio Amendment and (iii) such other consents, orders, authorizations, registrations, declarations and filings the failure of which to obtain would not have a Material Adverse Effect or which are set forth on Schedule 2B.3(b)(iii). ARTICLE III REPRESENTATIONS AND WARRANTIES OF BUYER Buyer represents and warrants to Stamford and Fiberite as follows: Section 3.1 ORGANIZATION. Buyer is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation and has all requisite corporate power and authority to own, lease and operate its properties and to carry on its business as now being conducted. Section 3.2 AUTHORITY. Buyer has full corporate power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly and validly authorized and approved by Buyer, and no other proceedings on the part of Buyer are necessary to authorize this Agreement or the consummation of the transactions contemplated hereby. This Agreement has been duly and validly executed and delivered by Buyer and, assuming this Agreement constitutes a legal, valid and binding agreement of the other parties hereto, con- 15 stitutes a legal, valid, and binding agreement of Buyer, enforceable against Buyer in accordance with its terms, except that enforcement thereof may be subject to (i) bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or other similar laws nor or hereafter in effect relating to creditors' rights generally and (ii) general principles of equity and the discretion of the court before which any proceeding therefor may be brought. Section 3.3 NO VIOLATIONS; CONSENTS AND APPROVALS. (a) Neither the execution and delivery of this Agreement nor the consummation of the transactions contemplated hereby nor compliance by Buyer with any of the provisions hereof will (i) violate any provision of the certificate of incorporation or by-laws of Buyer, (ii) result in a violation or breach of, or constitute (with or without due notice or lapse of time or both) a default, or give rise to any right of termination, cancellation or acceleration or any right that becomes effective upon the occurrence of a merger, consolidation, sale of assets or change in control, under, any of the terms, conditions or provisions of any note, bond, mortgage, indenture, other instrument of indebtedness for money borrowed, license, franchise, permit or agreement to which Buyer is a party, or by which any of their respective properties is bound, or (iii) violate any statute, rule, regulation, order or decree of any public body or authority by which Buyer or any of its properties is bound, excluding from the foregoing clauses (ii) and (iii), violations, breaches, defaults or rights that, either individually or in the aggregate, would not materially impair Buyer's ability to consummate the transactions contemplated hereby or for which Buyer has received or, prior to the Closing, shall have received appropriate consents or waivers. (b) No filing or registration with, notification to, or authorization, consent or approval of, any governmental entity is required by Buyer in connection with the execution and delivery of this Agreement, or the consummation by Buyer of the transactions contemplated hereby, except (i) in connection with the applicable requirements of the HSR Act and as required pursuant to applicable antitrust and competition law statutes and regulations of applicable foreign jurisdictions, (ii) for filing a notice pursuant to the Exon- 16 Florio Amendment and (iii) such other consents, orders, authorizations, registrations, declarations and filings not obtained prior to the Closing the failure of which to be obtained or made would not, individually or in the aggregate, materially impair the ability of Buyer to perform its obligations hereunder or prevent the consummation of any of the transactions contemplated hereby or which are set forth on Schedule 3.3(b)(iii). ARTICLE IV COVENANTS Section 4.1 CONDUCT OF BUSINESS. (a) During the period from the date of the closing of the Stock Purchase Agreement to the Closing, Fiberite shall (i) operate the Acquired Businesses only in the ordinary course of business consistent with past practice, (ii) use its reasonable efforts to preserve intact the Acquired Assets (except for wear and tear in the ordinary course of business) and the Acquired Businesses and keep available the services of the Affected Employees (as defined in Section 4.7(a) herein), (iii) preserve and maintain the Acquired Assets and use its reasonable efforts to preserve and maintain satisfactory relationships with suppliers, distributors and customers in connection with the Acquired Businesses, and (iv) take all commercially reasonable steps to protect the Intellectual Property rights of the Acquired Businesses and prevent any of it from falling into the public domain. (b) During the period from the date of the closing of the Stock Purchase Agreement to the Closing, without the prior written consent of Buyer, Fiberite shall not (i) mortgage, pledge or subject to any Lien (other than Permitted Liens or as will be discharged and released prior to Closing), any of the Acquired Assets, (ii) transfer, convey or otherwise dispose of any of the Acquired Assets (except for sales of inventory in the ordinary course of business), (iii) provide any Acquired Intellectual Property or any other confidential or proprietary information with respect to the Acquired Businesses or the Acquired Assets to any person, (iv) take any action which could be reasonably expected to prevent or materially delay the consummation of the transactions contemplated by this Agreement or to materially impair the value of the Acquired Assets or the Acquired Busi- 17 nesses, (v) change any of the accounting principles or practices applied with respect to the Acquired Assets or the Acquired Businesses, (vi) enter into, adopt, amend (except as required by applicable law, with notice to Buyer) or terminate any of the Plans as they apply to any of the Affected Employees or increase the amount or accelerate the payment or vesting of any benefits payable thereunder, (vii) increase in any manner the compensation or fringe benefits of any Affected Employee or enter into or offer to enter into any employment or consulting arrangement with any person who would be an Affected Employee, (viii) amend or terminate any material contracts (including, but not limited to the material contracts listed on Schedule 1.4(c)) or take any action or fail to take any action that, to the knowledge of Fiberite, with or without notice or lapse of time, would constitute a default under any such contract; or (ix) take, or agree to take, any of the foregoing actions or any action which would make any representation or warranty of Fiberite contained in this Agreement untrue or incorrect as of the date when made or as of the Closing Date or which would reasonably be expected to prevent or materially delay the satisfaction of any condition to Closing set forth in Article V hereof. Section 4.2 ACCESS TO INFORMATION. From the date of this Agreement until the Closing Date, Stamford shall authorize and provide Buyer and Buyer's authorized representatives (including counsel, financial advisers, environmental and other consultants, accountants and auditors) full access to the information regarding Fiberite Holdings and its subsidiaries provided to Stamford pursuant to Section 5.02 of the Stock Purchase Agreement and agree to exercise its rights pursuant to Section 5.02 to obtain promptly such information as Buyer may reasonably request (or to designate Buyer and Buyer's representatives as its authorized representatives to obtain such information), subject to the limitations set forth therein. Section 4.3 COMMERCIALLY REASONABLE EFFORTS; OTHER ACTIONS. Subject to the terms and conditions herein provided and applicable law, Buyer, on the one hand, and Stamford and Fiberite, on the other, shall use their commercially reasonable efforts promptly to take, or cause to be taken, all other actions and do, or cause to be done, all other things necessary, proper, appropriate or advisable under applicable laws and regulations to 18 consummate and make effective the transactions contemplated by this Agreement, including, without limitation, (i) the filing of Notification and Report Forms under the HSR Act with the Federal Trade Commission (the "FTC") and the Antitrust Division of the Department of Justice (the "Antitrust Division") and using their commercially reasonable efforts to respond as promptly as practicable to all inquiries received from the FTC or the Antitrust Division for additional information or documentation and (ii) the obtaining of all necessary consents, approvals or waivers under applicable law or its material contracts; PROVIDED, HOWEVER, the agreement of the Parties contained herein shall not require Buyer to take any action that would (i) require divestiture by Buyer of any of its existing business operations or of a not insubstantial portion of the Acquired Assets or Acquired Businesses, or (ii) impose a commercially unreasonable burden on, or restriction upon, Buyer's existing business operations or the Acquired Businesses or the Acquired Assets. Section 4.4 PUBLIC ANNOUNCEMENTS. Except as may be required by applicable law, rule, regulation or legal process, so long as this Agreement is in effect, none of Stamford, Fiberite, Buyer or any of their respective subsidiaries or Affiliates shall issue or cause the publication of any press release or other public announcement with respect to the transactions contemplated by this Agreement without the consent of the other parties hereto, which consent shall not be unreasonably withheld or withdrawn, PROVIDED, HOWEVER, nothing in this Section 4.4 shall limit or restrict Buyer from communicating with customers, suppliers, advisors or analysts with respect to the transactions contemplated by this Agreement or require the consent from any other Party hereto. Section 4.5 NOTIFICATION OF CERTAIN MATTERS. Stamford shall provide to Buyer within one business day of receipt thereof a copy of any notification received by Stamford pursuant to Section 5.05 of the Stock Purchase Agreement. Stamford shall provide to Buyer such notification in the manner described in Section 9.3 hereof. Section 4.6 EXPENSES. Except as provided herein, Buyer, on the one hand, and Stamford and Fiberite, on the other hand, shall bear their respective expenses incurred in connection with this Agreement and the transactions contemplated hereby, and all fees and 19 expenses of their respective investment bankers, finders, brokers, agents, representatives, counsel and accountants. Section 4.7 AFFECTED EMPLOYEES. (a) Buyer shall offer to employ (effective as of the Closing) the employees (other than the Executives as defined in Section 4.7(d)) of Fiberite Holdings and its subsidiaries who are actively employed in the United States and who are either (i) employed exclusively in the Acquired Businesses or (ii) primarily work in the Acquired Businesses (together, the "Affected Employees"). Consistent with the foregoing, the Parties shall mutually agree between the date of this Agreement and the Closing Date on appropriate mechanisms for the orderly transition from Fiberite to Buyer of Affected Employees who accept employment with Buyer. (b) Buyer shall provide to each Affected Employee who is not covered by a collective bargaining agreement, and who accepts Buyer's offer, a compensation and benefits package which is generally comparable in the aggregate to the compensation and benefits package provided such Affected Employee immediately prior to the Closing Date, which compensation and benefits package shall not be changed in any manner that would cause such package to not be generally comparable at any time prior to January 1, 1998. Fiberite Holdings and its subsidiaries which employ Affected Employees shall give notice to each Affected Employee who is not covered by a collective bargaining agreement (in compliance with Section 3.3(ii) of the ICI Composites Severance Plan or, if applicable, its successor plan, the Fiberite, Inc. Severance Plan, as provided in the draft thereof delivered to Buyer's counsel by Fiberite Holdings' counsel) that Fiberite Holdings and its subsidiaries intend to terminate his or her employment if he or she does not accept Buyer's offer. Buyer shall provide compensation and benefits, on terms and conditions to be determined by Buyer, to each Affected Employee who is covered by a collective bargaining agreement, and who accepts Buyer's offer. Subject to compliance with the foregoing provisions of this Section 4.7(b), Buyer reserves the right to establish, amend, modify or terminate any terms or conditions of employment for such Affected Employees. Nothing in this Section 4.7 shall be deemed (i) to require the employment of any Affected Employee to be continued for any particular 20 period of time after the Closing Date, or (ii) to require Buyer to assume any collective bargaining agreement. (c) If any Affected Employee who is not covered by a collective bargaining agreement and who accepts Buyer's offer becomes a participant in any employee benefit or compensation plan of Buyer, such Affected Employee shall be given credit under such plan for all prior service with Fiberite Holdings and its subsidiaries, Affiliates and predecessors which is recognized by Fiberite Holdings or its subsidiaries, solely for purposes of determining eligibility and vesting (but not benefit accrual or any other purposes); provided, however, that such service need not be credited to the extent it would result in a duplication of benefits, including without limitation, benefit accrual service under defined benefit plans. Nothing in this Section 4.7(c) shall be construed to alter Buyer's obligations under Section 4.7(b) above. (d) Fiberite will make available (on a non-exclusive basis) the services of Messrs. Ashton, Smith, Miller, DeVault and Bowman (the "Executives") to work for Buyer in the Acquired Businesses for a period of up to six (6) months from the Closing at their salaries on the date hereof, including pro-rata target bonuses and benefits packages (without changing their domicile) which such expenses will be allocated between Fiberite and Buyer on a pro rata basis. In addition, Fiberite shall cause the Executives to terminate their respective employment and severance agreements and to waive all of their respective rights thereunder as of the Closing Date. The provisions of Sections 4.7(a), 4.7(b) and 4.7(c) do not apply to the Executives. Section 4.8 INSURANCE. Subsequent to the Closing, neither Fiberite Holdings (or any successor) nor Fiberite shall surrender their respective rights under any policies of insurance which were in effect at the time immediately prior to the Closing Date in respect of risks and losses arising out of events or occurrences occurring prior to the Closing Date in the course or as a result of the conduct of the Acquired Businesses, with respect to the Acquired Assets, Assumed Liabilities or Buyer Allocated Liabilities ("Prior Occurrences"); PROVIDED, HOWEVER, that nothing herein shall be deemed to require Fiberite Holdings (or any successor) or Fiberite to maintain any insurance with respect to events or occurrences occurring after the Closing Date. Fiberite 21 Holdings (or any successor) and Fiberite shall cause Buyer to be designated as loss payee under such policies with respect to the Prior Occurrences, and shall assign to Buyer, or designate Buyer as their agent with respect to, all claims and other rights to enforce or assure insurance coverage under such policies with respect to Prior Occurrences; PROVIDED further, that in the event Fiberite Holdings (or any successor) or Fiberite is unable to designate Buyer as loss payee under such policies, Fiberite Holdings (or any successor) and Fiberite shall cooperate with Buyer and use their commercially reasonable efforts to provide Buyer the equivalent benefits of such policies. Section 4.9 SUMS RECEIVED IN RESPECT OF ACQUIRED BUSINESSES AND EXCLUDED BUSINESSES. Fiberite shall pay or cause to be paid over to Buyer, promptly after the receipt thereof after the Closing Date, all sums received in respect or on account of the Acquired Assets and the Acquired Businesses, other than the Purchase Price and any other amounts paid to Stamford by Buyer pursuant to this Agreement. Buyer shall pay or cause to be paid over to Fiberite, promptly after the receipt thereof after the Closing Date, all sums received in respect or on account of the Excluded Assets and the Excluded Businesses, other than amounts paid to Buyer by Fiberite, Fiberite Holdings or Stamford pursuant to this Agreement. Section 4.10 NAME. From and after the Closing Date and consistent with the terms hereof, Buyer shall possess, to the exclusion of Stamford, Fiberite Holdings and Fiberite and their respective subsidiaries and Affiliates, all rights to the use of the Acquired Intellectual Property (except as set forth in Section 4.13 hereof), including the name "Fiberite", and Fiberite and its subsidiaries shall each, as promptly as commercially practicable following the Closing Date, change its name to a name which does not contain either "Fiberite" or any word confusingly similar with such word. Notwithstanding the previous sentence, Fiberite may continue to use the Fiberite name in the ordinary course of the Excluded Businesses for the period terminating on the six month anniversary of the Closing. Section 4.11 BOOKS AND RECORDS. Each of the Parties agree that all books and records of Fiberite Holdings and Fiberite, wherever located, which a Party 22 acquires hereunder (including, but not limited to, correspondence, memoranda, books of account, personnel and payroll records and the like) (the "Business Records") shall be preserved by such Party for a period of at least seven (7) years following the Closing Date. Following such seven (7) year period, neither Stamford, Fiberite Holdings and Fiberite (or any successor thereof), on the one hand, nor Buyer, on the other hand, will dispose of any such books and records without first offering such books and records to the other Party. After the Closing Date, where there is some legitimate business purpose, the Party in possession of any Business Records shall provide the other Party and its authorized representatives with access, upon prior reasonable notice specifying the need therefor, during regular business hours, to the Business Records, and the other Party or its representatives shall have the right to examine and make copies of such Business Records; provided that the foregoing right shall not be exercisable in such a manner as to unreasonably interfere with the normal operations of such Party. Section 4.12 ALLOCATION OF THE PURCHASE PRICE. As soon as practicable after the date hereof, but in no event less than 10 days prior to the Closing Date, Buyer and Stamford shall mutually agree on an allocation (the "Allocation Statement") of the Purchase Price payable by Buyer pursuant to Section 1.2 hereof plus the amount of any Assumed Liabilities (collectively, the "Allocable Amount") for federal income tax purposes in accordance with their fair market values and with the requirements of Section 1060 of the Code. Each of Buyer and Fiberite shall (i) report for all Tax purposes the purchase of the Acquired Assets in a manner consistent with the Allocation Statement and in a manner consistent with all applicable rules and regulations; (ii) timely file a Form 8594 in accordance with the requirements of Section 1060 of the Code and this Section 4.12; (iii) not assert, in connection with any Return, Tax audit or similar proceedings, any allocation of the Allocable Amount that differs from that agreed to herein; and (iv) notify the other in the event any taxing authority is taking or proposing to take a position inconsistent with such allocation. 23 Section 4.13 AGREEMENTS REGARDING INTELLECTUAL PROPERTY. At Closing, Buyer, Fiberite and the German Subsidiary shall enter into agreements, which agreements shall be in form and substance agreeable to Buyer, Fiberite and the German Subsidiary (as applicable), regarding the exploitation of certain Intellectual Property following the Closing by the Orange Businesses, the German Businesses and the Acquired Businesses. Any or all of such agreements may contain royalty payment provisions, and such royalties may take the form of a lump sum fully paid up royalty. Section 4.14 ASSIGNMENT OF CONTRACTS; NONASSIGNABILITY. From and after the Closing Date Fiberite shall use commercially reasonable efforts to obtain all necessary consents, approvals or waivers required for the transfer to Buyer of the agreements, contracts and commitments, and any other property interest or right that is included in the Acquired Assets. Notwithstanding the foregoing, to the extent that any contract, agreement or commitment, or any other property interest or right included in the Acquired Assets, is not capable of being assigned or transferred without the consent or waiver of the other party thereto, or any third person (including a government or governmental unit), or if such assignment or transfer or attempted assignment or transfer would constitute a breach thereof or a violation of any law, decree, order, regulation or other governmental edict or is otherwise not practicable, this Agreement shall not constitute an assignment, transfer or sublease thereof, or an attempted assignment, transfer or sublease thereof prior to the time that the appropriate consent or waiver is obtained. To the extent that any contract, agreement or commitment or any other property interest or right included in the Acquired Assets is not assigned hereby (the "Non-Assigned Contracts"), then Fiberite shall, and Stamford shall cause Fiberite to, use commercially reasonable efforts to provide to Buyer the economic benefit of the Non-Assigned Contracts. The parties acknowledge that to the extent the rights under an agreement are validly assigned or to the extent that Buyer receives the economic benefit of any such agreement, the Buyer will assume the obligations under such agreement, PROVIDED THAT, Buyer will use commercially reasonable efforts, including where appropriate partial performance, to assist Stamford and Fiberite to provide to Buyer the economic benefit of any agreement. Furthermore, the Parties hereto acknowledge and agree that to the extent the transactions contemplated by this Agreement have closed and there exists any Non-Assigned 24 Contracts, Buyer does not waive any rights to receive any assignment of or to receive the economic benefit from the Non-Assigned Contracts. In the event a contract relating to raw materials is used by both the Acquired Businesses and the Excluded Businesses as of the Closing, the Buyer and Fiberite agree for a commercially reasonable period to share or otherwise allocate the benefits and obligations under such contract in the proportion used by the respective businesses over the recent past. Section 4.15 ASSIGNMENT OF CERTAIN INDEMNIFICATION RIGHTS. From and after the Closing Date, Fiberite shall use commercially reasonable efforts to obtain the consents and approvals necessary to assign all rights of Fiberite Holdings (and any successor) and Fiberite to indemnification from any party under the agreements listed on Schedule 1.1(a)(xii) to the extent related to the Acquired Assets, Acquired Businesses or any Assumed Liabilities and to the extent that, by operation of law or otherwise, Buyer is held liable for any Excluded Liabilities. Stamford, Fiberite and Buyer shall each cooperate and use commercially reasonable efforts to provide for the allocation of all indemnification rights available under the agreements listed on Schedule 1.1(a)(xii) such that the Party who has assumed any liability for which any such agreement provides indemnification may exercise rights directly to obtain such indemnification. To the extent that a Party may not directly seek indemnification under an agreement listed on Schedule 1.1(a)(xii) with respect to any covered liability, then the Party who may seek such indemnification directly shall, use commercially reasonable efforts to obtain such indemnification from the third party and to provide to the Party subject to such liability the economic benefit of such indemnification received from such third party. Section 4.16 CONTINUATION OF CERTAIN PLANS. Upon written request from the Buyer delivered to Fiberite within the first ninety (90) days immediately following the Closing Date, Stamford shall take, or shall cause the sponsoring employer to take, all necessary or appropriate actions reasonably requested by the Buyer with respect to the Fiberite, Inc. 401(k) Plan I and the Fiberite, Inc. 401(k) Plan II (collectively the "Fiberite 401(k) Plans") to cause and facilitate the transfers of any assets related to Affected Employees who accept employment with Buyer from the respective trustees of the Fiberite, Inc. 401(k) Plans to the trustee(s) of one or 25 more retirement plans qualified under Code Sections 401(a) and 401(k) which are designated or established by Buyer (the "Buyer's 401(k) Plans"). Upon the transfer, each Buyer's 401(k) Plan shall indemnify and hold harmless the corresponding Fiberite 401(k) Plan from and against all liabilities attributable to the account balances transferred to such Buyer's 401(k) Plan. Section 4.17 EXON-FLORIO. During the period from the execution of the Stock Purchase Agreement through the Closing Date, Fiberite shall not, and Stamford shall not permit Fiberite to, engage in any activity that would result in Fiberite or Fiberite Holdings being required to file an amendment to its initial filing with respect to compliance with the terms of the Exon-Florio Amendment in connection with the transactions contemplated hereby. Section 4.18 TRANSITIONAL SERVICES. Each of the Parties agree that for a transitional period commencing on the Closing Date and expiring 90 days thereafter, or such later date as the Parties shall mutually agree Buyer on the one hand and Fiberite on the other hand, shall provide such other Party with all services reasonable and necessary to operate such other Party's business as it is being operated as of the Closing Date. The Party requesting such services shall pay to the Party upon request (with such requests not being made more often than once every thirty days) providing such services all Costs incurred by the providing Party in connection with providing such services. As used herein, "Costs" shall mean an amount equal to the total direct costs and expenses incurred in connection with providing the applicable services, calculated in accordance with generally accepted accounting principles, consistently applied. Section 4.19 SUPPLY AGREEMENT. On or after the Closing Date, the Parties will enter into a mutually satisfactory supply agreement whereby Buyer will provide fabric and certain other raw materials to the business conducted at the Orange Facility and the German Subsidiary. Section 4.20 TAX COOPERATION. The Parties and their respective affiliates shall cooperate in the preparation of all Returns relating in whole or in part to taxable periods ending on or before or including the Closing Date that are required to be filed after such date. Such cooperation shall include, but not be limited 26 to, furnishing prior years' Returns or return preparation packages illustrating previous reporting practices or containing historical information relevant to the preparation of such Returns, providing reasonable access to employees with knowledge of such Returns during regular business hours and furnishing such other information within such party's possession requested by the party filing such Returns as is relevant to their preparation. Additionally, a Party filing any such Returns (the "Filing Party") shall mail a draft copy of such Returns to the other party (the "Non-Filing Party"), not less than 30 days prior to the expected filing date and shall provide the Non-Filing Party and its representatives, advisors and agents with such materials and such access to the books and records of the Filing Party related to such Return so that the Non-Filing Party may review and comment on such Return prior to the filing thereof. The Filing Party and the Non-Filing Party shall mutually agree on the final preparation content and filing of any Return referred to in this Section 4.20. Section 4.21 DIRECTORS' AND OFFICERS' INSURANCE. Buyer agrees to maintain in effect for not less than six years after the Closing Date the current policies of directors' and officers' liability insurance maintained by Fiberite with respect to matters occurring prior to the Closing Date; PROVIDED, HOWEVER, that (i) Buyer may substitute therefor policies of at least the same coverage containing terms and conditions which are no less advantageous to the covered officers and directors and (ii) Buyer shall not be required to pay an annual premium for such insurance coverage in excess of one hundred and twenty-five percent (125%) of the current annual premium paid by Fiberite for its existing coverage, but in such case shall purchase as much coverage as possible for such amount. If Buyer proposes to change the liability insurance coverage referred to in this Section 4.21 such change shall become effective upon obtaining the consent from a duly appointed representative of the persons covered by such liability insurance (which consent shall not be unreasonably withheld). In addition, Buyer hereby waives any and all claims that Buyer may have against the officers and directors of Fiberite and its subsidiaries in their capacities as such. Section 4.22 PRE-CLOSING ADJUSTMENT. Prior to the Closing Date, the parties shall mutually agree on the value of certain assets listed on Schedule 1.1(a)(xvii) (the "Pre-Closing Adjustment Amount"), at which time, the 27 consideration to be paid by Buyer under Section 1.2 hereof will be increased by the Pre-Closing Adjustment Amount. ARTICLE V CONDITIONS TO THE OBLIGATIONS OF BUYER The obligation of Buyer to perform its obligations under this Agreement shall be subject to the fulfillment, on or before the Closing Date of each of the following conditions, any one or more of which may be waived by Buyer: Section 5.1 CONSENTS AND APPROVALS. All necessary consents and approvals of any United States or any other governmental authority that are required for the consummation of the transactions contemplated by this Agreement, shall have been obtained and any waiting period applicable to the consummation of the transactions contemplated by this Agreement under the HSR Act and under any applicable antitrust and competition law statutes and regulations of foreign jurisdictions, or other applicable law shall have expired or been terminated. Section 5.2 CERTAIN PROCEEDINGS. No writ, order, decree or injunction of a court of competent jurisdiction, governmental entity or regulatory body shall be in effect against any of the Parties or their respective subsidiaries and no proceedings therefor shall have been threatened or commenced by any governmental entity or regulatory body, in each case, which prohibits or restricts the consummation of the transactions contemplated by this Agreement. Section 5.3 FINANCING Buyer shall have received the funds necessary to consummate the transactions contemplated by this Agreement. Section 5.4 STOCK PURCHASE AGREEMENT. The representations and warranties of Fiberite Holdings (including the disclosure Schedules attached thereto) contained in Article II of the Stock Purchase Agreement shall have been true and correct in all material respects as of the closing of the transactions contemplated by the Stock Purchase Agreement and shall be true and correct in all material respects as of the Closing Date. Each of the conditions contained in Article VI and Article VII of 28 the Stock Purchase Agreement shall have been satisfied and complied with, shall not have been waived without Buyer's prior written consent, the transactions contemplated by the Stock Purchase Agreement shall have been consummated and Stamford shall have caused Fiberite to execute and deliver this Agreement. ARTICLE VI CONDITIONS TO THE OBLIGATIONS OF STAMFORD AND FIBERITE The obligations of Stamford and Fiberite to perform their respective obligations under this Agreement shall be subject to the fulfillment on or before the Closing Date of each of the following conditions, any one or more of which may be waived by Stamford and Fiberite: Section 6.1 CONSENTS AND APPROVALS. All necessary consents and approvals of any United States or any other governmental authority that are both required for the consummation of the transactions contemplated by this Agreement shall have been obtained and any waiting period applicable to the consummation of the transactions contemplated hereby under the HSR Act and under any applicable antitrust and competition law statutes and regulations of foreign jurisdictions, or other applicable law shall have expired or been terminated. Section 6.2 CERTAIN PROCEEDINGS. No writ, order, decree or injunction of a court of competent jurisdiction, governmental entity or regulatory body shall be in effect against any of the Parties or their respective subsidiaries, and no proceedings therefor shall have been threatened or commenced by any governmental entity, which prohibits or restricts the consummation of the transactions contemplated by this Agreement. ARTICLE VII TERMINATION AND ABANDONMENT Section 7.1 TERMINATION. This Agreement may be terminated at any time prior to the closing of the Stock Purchase Agreement: 29 (a) by mutual written consent of Stamford and Buyer; (b) by Stamford or Buyer if, without fault of such terminating party, the transactions contemplated by this Agreement shall not have been consummated on or before September 15, 1997, which date may be extended by mutual written consent of Stamford and Buyer; or (c) by either Stamford or Buyer if any court of competent jurisdiction in the United States or other governmental body in the United States shall have issued an order (other than a temporary restraining order), decree or ruling or taken any other action restraining, enjoining or otherwise prohibiting the transactions contemplated by this Agreement, and such order, decree, ruling or other action shall have become final and nonappealable; PROVIDED that the party seeking to terminate this Agreement shall have complied with the provisions of Section 4.3. Section 7.2 TERMINATION BY BUYER. This Agreement may be terminated and the transactions contemplated by this Agreement may be abandoned, at any time prior to the closing of the Stock Purchase Agreement by Buyer, if (a) either Stamford or Fiberite has failed to comply in any material respect with any of the material covenants or agreements contained in this Agreement to be complied with or performed by Stamford or Fiberite, at or prior to such date of termination, (b) there exists a breach or breaches of any representation or warranty of Stamford or Fiberite contained in this Agreement such that the closing conditions set forth in Article V would not be satisfied; PROVIDED, HOWEVER, that if such breach or breaches are capable of being cured prior to the closing of the Stock Purchase Agreement, termination pursuant to this Section 7.2 shall be permitted only to the extent such breaches shall not have been cured within 30 days of delivery to Stamford or Fiberite, as the case may be, of written notice of such breach or breaches, or (c) any event occurs which renders impossible compliance with one or more of the conditions set forth in Article V hereof, and compliance with such condition or conditions are not waived by Buyer. Section 7.3 TERMINATION BY STAMFORD. This Agreement may be terminated and the transactions contemplated by this Agreement may be abandoned by Stamford at 30 any time prior to the closing of the Stock Purchase Agreement, if (a) Buyer shall have failed to comply in any material respect with any of the material covenants or agreements contained in this Agreement to be complied with or performed by it at or prior to such date of termination, (b) there exists a breach or breaches of any representation or warranty of Buyer contained in this Agreement such that the closing conditions set forth in Article VI would not be satisfied; PROVIDED, HOWEVER, that if such breach or breaches are capable of being cured prior to the closing of the Stock Purchase Agreement, termination pursuant to this Section shall be permitted only to the extent such breaches shall not have been cured within 30 days of delivery to Buyer of written notice of such breach or breaches, or (c) any event occurs which renders impossible compliance with one or more of the conditions set forth in Article VI hereof, and compliance with such condition or conditions are not waived by Stamford. Section 7.4 PROCEDURE FOR TERMINATION. In the event of termination and abandonment of the transactions contemplated by this Agreement by Stamford or Buyer pursuant to this Article VII, written notice thereof shall forthwith be given to the other. Section 7.5 EFFECT OF TERMINATION AND ABANDONMENT. In the event of proper termination of this Agreement and abandonment of the transactions contemplated by this Agreement pursuant to this Article VII, no Party hereto (or any of its directors or officers) shall have any liability or further obligation to any other Party to this Agreement, except that in such event nothing herein shall relieve any Party from liability for any breach of this Agreement. ARTICLE VIII SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION Section 8.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES, COVENANTS, ETC. Except for the respective covenants and other agreements of the Parties made in this Article VIII and Article IX hereof, the respective representations, warranties, covenants and other agreements of the Parties shall not survive the Closing or any termination of this Agreement. This Section 8.1 shall 31 not limit any covenant or agreement of the Parties which contemplates performance after the Closing, including, without limitation, any such covenants and agreements set forth in Article IV hereof and in the Undertaking. Section 8.2 FIBERITE'S AND STAMFORD'S AGREEMENTS TO INDEMNIFY. Subject to the terms, conditions and limitations set forth in Sections 8.1 and 8.5, from and after the Closing, Stamford and Fiberite shall defend, indemnify and hold harmless Buyer, its Affiliates and if applicable, their respective directors, officers, employees, attorneys, representatives and agents, and each of the heirs, executors, successors and assigns of any of the foregoing (each a "Buyer Indemnitee") of Buyer from and against any costs or expenses (including, without limitation, reasonable attorneys' fees, investigation costs and remediation costs), judgments, fines, losses, actions, claims, damages and assessments of any nature (collectively, "Losses") imposed on, sustained, incurred or suffered by or asserted against any Buyer Indemnitee that arise out of or relate to (i) any breach of or failure to perform any covenant to be performed on or after the Closing Date made by or on behalf of Stamford or Fiberite under this Agreement, the Other Instruments or in any certificate, exhibit or other instrument contemplated by this Agreement and delivered by Stamford or Fiberite in connection herewith and (ii) the Excluded Liabilities. Section 8.3 BUYER'S AGREEMENT TO INDEMNIFY. Subject to the terms, conditions and limitations set forth in Sections 8.1 and 8.5, from and after the Closing, Buyer shall defend, indemnify and hold harmless Stamford and Fiberite and their respective Affiliates, and if applicable, their respective directors, officers, attorneys, representatives and agents and each of the heirs, executors, successors and assigns of any of the foregoing (each a "Seller Indemnitee") of Stamford, Fiberite Holdings and Fiberite from and against any Losses imposed on, sustained, incurred or suffered by or asserted against any Seller Indemnitee that arise out of or are the result of (i) any breach of or failure to perform any covenant to be preformed on or after the Closing Date made by or on behalf of Buyer under this Agreement, the Other Instruments or in any certificate, exhibit or other instrument contemplated by this Agree- 32 ment and delivered by Buyer in connection herewith and (ii) the Assumed Liabilities. Section 8.4 INDEMNIFICATION BASED ON NET DAMAGE. In calculating amounts payable from a party required to indemnify a party under this Agreement (the "Indemnifying Party") to a party entitled to indemnification under this Agreement (an "Indemnified Party"), the amount of the indemnified Losses shall be computed net of payments received by the Indemnified Party under any insurance policy or contract with respect to such Losses. Section 8.5 THIRD PARTY CLAIMS. In the event that a claim for indemnification ("Claim") involves a claim by a Third Party against the Indemnified Party, the Indemnifying Party shall notify the Indemnified Party in writing within ten business days after receipt of written notice from the Indemnified Party if it agrees to undertake the defense thereof. The written notice provided to the Indemnifying Party from the Indemnified Party shall be delivered promptly following the Indemnified Party's obtaining knowledge of the Claim and shall state the basis of the Claim with reasonable specificity, including the Section or Sections of this Agreement alleged to have been breached. If the Indemnifying Party so notifies the Indemnified Party, then the Indemnifying Party shall control such defense and shall bear all costs of such defense, PROVIDED, that the Indemnified Party may participate in such settlement or defense through counsel chosen by it (the fees and expenses of which shall be borne by the Indemnified Party). Notwithstanding anything in this Section 8.5 to the contrary, the Indemnifying Party may, with the consent of the Indemnified Party (which consent shall not be unreasonably withheld), settle or compromise any action or consent to the entry of any judgment which includes as a term thereof the delivery by the claimant or plaintiff to the Indemnified Party of a duly executed written unconditional release of the Indemnified Party from all liability in respect of such action, which release shall be reasonably satisfactory in form and substance to counsel for the Indemnified Party. If the Indemnifying Party does not notify the Indemnified Party within ten business days after the receipt of the Indemnified Party's notice of a claim of indemnity hereunder that it elects to undertake the defense thereof, the Indemnified Party shall have the right to contest, settle or compromise the claim but shall not thereby waive any right to indemnity therefor pursuant to this Agreement. Notwithstanding the forego- 33 ing, the Indemnified Party, during the period the Indemnifying Party is determining whether to elect to assume the defense of a matter covered by this Section 8.5, may take such reasonable actions as it deems necessary to preserve any and all rights with respect to the matter, without such actions being construed as a waiver of the Indemnified Party's rights to defense and indemnification pursuant to this Agreement. No failure to provide any notice required by this Section 8.5 shall relieve the Indemnifying Party of any obligation to indemnify the Indemnified Party hereunder except to the extent that the Indemnifying Party is actually prejudiced thereby. ARTICLE IX MISCELLANEOUS Section 9.1 FEES, EXPENSES AND TAXES. (a) Whether or not the transactions contemplated herein are consummated pursuant hereto, except as otherwise provided herein, each of the Parties shall pay all of its respective fees and expenses incurred by, or in connection with, or in anticipation of, this Agreement and the consummation of the transactions contemplated hereby and thereby. Each of the Parties shall indemnify and hold harmless the other parties from and against any and all claims or liabilities for brokerage commissions and financial advisory and finders' fees incurred by reason of any action taken by such Party or otherwise arising out of the transactions contemplated by this Agreement by any person claiming to have been engaged by such Party. Buyer shall be responsible for the payment of any fee, sales tax, transfer tax, filing expense or other charge incurred in connection with the transfer of the Acquired Assets or the Acquired Business. (b) Each of Buyer and Fiberite shall provide the other with such assistance and documents, without charge, as may be reasonably requested by either of them in connection with the preparation of any Return, the conduct of any audit or administrative or court proceeding, and any other Tax related matter that is a subject of this Agreement. Such cooperation and assistance shall be provided to the requesting Party promptly upon its request. 34 (c) Unless otherwise required by law, the Parties shall treat any indemnification payments made under this Agreement as an adjustment to the Allocable Amount for all Tax purposes, including, without limitation, in connection with all income Tax Returns and all proceedings in connection with income Taxes. Each of Buyer, Fiberite Holdings (or any successor) and Fiberite shall notify the others in the event any taxing authority is taking or proposing to take a position inconsistent with the treatment of an indemnification payment, pursuant to the first sentence of this Section 9.1(c), as an adjustment to the Allocable Amount. Section 9.2 FURTHER ASSURANCES. From time to time after the Closing Date, at the request of another Party hereto and at the expense of the Party so requesting, each of the parties hereto shall execute and deliver to such requesting Party such documents and take such other action as such requesting Party may reasonably request in order to consummate more effectively the transactions contemplated hereby. Section 9.3 NOTICES. All notices, requests, demands, waivers and other communications required or permitted to be given under this Agreement shall be in writing and may be given by any of the following methods: (a) personal delivery; (b) facsimile transmission; (c) registered or certified mail, postage prepaid, return receipt requested; or (d) overnight delivery service. Notices shall be sent to the appropriate Party at its address or facsimile number given below (or at such other address or facsimile number for such Party as shall be specified by notice given hereunder): If to Stamford, to: Stamford FHI Acquisition Corp. 206 Danbury Rd. Wilton, CT 06899 (203) 834-6360 Attention: President with copies to: Latham & Watkins 885 Third Avenue New York, NY 10022 35 Fax No.: (212) 751-4864 Attention: Steve Della Rocca, Esq. If to Fiberite, to: Fiberite, Inc. 206 Danbury Rd. Wilton, CT 06899 (203) 834-6360 Attention: President with a copy to: Latham & Watkins 885 Third Avenue New York, NY 10022 Fax No.: (212) 751-4864 Attention: Steve Della Rocca, Esq. If to Buyer, to: Hexcel Corporation Two Stamford Plaza 281 Tresser Boulevard Stamford, CT 06901-3238 Fax No.: (203) 358-3972 Attention: Ira J. Krakower, Esq. with copies to: Skadden, Arps, Slate, Meagher & Flom LLP 919 Third Avenue New York, New York 10022-9931 Fax No.: (212) 735-2000 Attention: Joseph A. Coco, Esq. All such notices, requests, demands, waivers and communications shall be deemed received upon (i) actual receipt thereof by the addressee, (ii) actual delivery thereof to the appropriate address or (iii) in the case of a facsimile transmission, upon transmission thereof by the sender and issuance by the transmitting machine of a confirmation slip that the number of pages constituting the notice have been transmitted without error. In the case of notices sent by facsimile transmission, the sender shall contemporaneously mail a copy of the notice to the addressee at the address provided for above. However, 36 such mailing shall in no way alter the time at which the facsimile notice is deemed received. Section 9.4 SEVERABILITY. Should any provision of this Agreement for any reason be declared invalid or unenforceable, such decision shall not affect the validity or enforceability of any of the other provisions of this Agreement, which remaining provisions shall remain in full force and effect and the application of such invalid or unenforceable provision to persons or circumstances other than those as to which it is held invalid or unenforceable shall be valid and enforced to the fullest extent permitted by law. Section 9.5 BINDING EFFECT; ASSIGNMENT. This Agreement and all of the provisions hereof shall be binding upon and shall inure to the benefit of the Parties and their respective successors and permitted assigns. Neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned, directly or indirectly, including, without limitation, by operation of law, by any Party hereto without the prior written consent of the other parties hereto. Notwithstanding anything herein to the contrary, this Section 9.5 shall not preclude and Buyer's consent shall not be required for the merger of Stamford, Fiberite Holdings and Fiberite immediately following the closing under the Stock Purchase Agreement and the transfer of Stamford's rights hereunder caused thereby. Section 9.6 BULK SALES LAW. Buyer hereby waives compliance by Fiberite with the requirements and provisions of any "bulk-transfer" laws of any jurisdiction that may otherwise be applicable with respect to the transactions contemplated by this Agreement. Section 9.7 NO THIRD PARTY BENEFICIARIES. This Agreement is solely for the benefit of Stamford, Fiberite and their respective successors and permitted assigns, with respect to the obligations of Buyer under this Agreement, and for the benefit of Buyer, and its respective successors and permitted assigns, with respect to the obligations of Stamford and Fiberite, under this Agreement, and this Agreement shall not be deemed to confer upon or give to any other third party any remedy, claim, liability, reimbursement, cause of action or other right. 37 Section 9.8 INTERPRETATION. (a) The article and Section headings contained in this Agreement are solely for the purpose of reference, are not part of the agreement of the parties and shall not in any way affect the meaning or interpretation of this Agreement. (b) As used in this Agreement, the term "person" shall mean and include an individual, a partnership, a joint venture, a corporation, a trust, an unincorporated organization and a government or any department or agency thereof. (c) As used in this Agreement, the term "Affiliate" shall have the meaning set forth in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934, as amended. Section 9.9 JURISDICTION AND CONSENT TO SERVICE. Without limiting the jurisdiction or venue of any other court, each of the Parties (i) agree that any suit, action or proceeding arising out of or relating to this Agreement may be brought solely in the state or federal courts of New York; (ii) consent to the exclusive jurisdiction of each such court in any suit, action or proceeding relating to or arising out of this Agreement; (iii) waive any objection which it may have to the laying of venue in any such suit, action or proceeding in any such court; and (iv) agree that service of any court paper may be made in such manner as may be provided under applicable laws or court rules governing service of process. Section 9.10 GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of New York (regardless of the laws that might otherwise govern under applicable principles of conflicts of laws thereof) as to all matters, including but not limited to matters of validity, construction, effect, performance and remedies. Section 9.11 ENTIRE AGREEMENT. This Agreement, the Disclosure Schedules, and the Exhibits and other documents referred to herein or delivered pursuant hereto which form a part hereof constitute the entire agreement among the parties with respect to the subject matter hereof and supersede all other prior agreements 38 and understandings, both written and oral, between the parties or any of them with respect to the subject matter hereof. Section 9.12 AMENDMENT, MODIFICATION AND WAIVER. This Agreement may be amended, modified or supplemented at any time only by mutual written agreement of Stamford and Buyer. Any failure of Stamford and Fiberite, on the one hand, or Buyer, on the other hand, to comply with any term or provision of this Agreement may be waived, with respect to Buyer, by Stamford and, with respect to Stamford or Fiberite, by Buyer, by an instrument in writing signed by or on behalf of the appropriate party, but such waiver or failure to insist upon strict compliance with such term or provision shall not operate as a waiver of, or estoppel with respect to, any subsequent or other failure to comply. Section 9.13 SPECIFIC PERFORMANCE. The parties acknowledge and agree that any breach of the terms of this Agreement would give rise to irreparable harm for which money damages would not be an adequate remedy and accordingly the parties agree that, in addition to any other remedies, each shall be entitled to enforce the terms of this Agreement by a decree of specific performance without the necessity of proving the inadequacy of money damages as a remedy. Section 9.14 COUNTERPARTS. This Agreement may be executed in counterparts, each of which shall be deemed to be an original, but all of which shall constitute one and the same agreement. Section 9.15 EFFECTIVE DATE. This Agreement shall be deemed an agreement between Stamford and Buyer until executed by Fiberite at which time it shall be deemed to be an agreement between Buyer, Stamford and Fiberite, and Stamford shall cause Fiberite to execute this Agreement immediately following the closing of the Stock Purchase Agreement (the "Effective Date"). Without limiting the generality of the foregoing, all representations, warranties, covenants or other obligations of any kind made or incurred by Fiberite as a result of the execution and delivery of this Agreement shall be deemed to have been made as of, and Fiberite shall deliver its Schedules applicable to the representations and warranties it is making at, the time of its delivery of a signature page hereto. 39 ARTICLE X CERTAIN DEFINITIONS For the purposes of this Agreement, the following words and phrases shall have the following meanings: "ACQUIRED ASSETS" has the meaning assigned in Section 1.1(a). "ACQUIRED BUSINESSES" means the entire business conducted by Fiberite as of the Closing Date, other than the Excluded Businesses. "ACQUIRED INTELLECTUAL PROPERTY" has the meaning assigned in Section 1.1(a)(ix). "ADMINISTRATOR" has the meaning assigned in Section 1.1(f). "AFFECTED EMPLOYEE" has the meaning assigned in Section 4.7(a). "AFFILIATE" has the meaning assigned in Section 9.8(c). "AGREEMENT" means this agreement, dated as of April 21, 1997, together with any amendments thereto, by and among Fiberite, Stamford and Buyer. "ALLOCABLE AMOUNT" has the meaning assigned in Section 4.12. "ALLOCATED LIABILITIES" has the meaning assigned in Section 1.1(f). "ALLOCATION STATEMENT" has the meaning assigned in Section 4.12. "ANTITRUST DIVISION" has the meaning assigned in Section 4.3. "ASSUMED LIABILITIES" has the meaning assigned in Section 1.1(d). 40 "BILL OF SALE AND ASSIGNMENT" means the duly executed bill of sale and assignment agreement, substantially in the form attached hereto as Exhibit B, which Stamford and Fiberite will deliver to Buyer effecting the sale, assignment, transfer and delivery of the Acquired Assets. "BUSINESS RECORDS" has the meaning assigned by Section 4.11. "BUYER" means Hexcel Corporation. "BUYER ALLOCATED LIABILITIES" has the meaning assigned by Section 1.1(f). "BUYER INDEMNITEE" has the meaning assigned by Section 8.2. "BUYER'S 401(K) PLANS" has the meaning assigned in Section 4.16. "CLAIM" has the meaning assigned by Section 8.5. "CLOSING" means the closing of the transactions described in Section 1.3. "CLOSING DATE" means the date of the Closing as determined pursuant to Section 1.3. "CODE" means the Internal Revenue Code of 1986, as amended. All citations to the Code, or to the Treasury Regulations promulgated thereunder, shall include any amendments or substitute or successor provisions thereto. "COMMON STOCK" means the shares of Common Stock, par value $.01 per share, of Fiberite Holdings. "COSTS" has the meaning assigned in Section 4.18. "DEEDS" has the meaning assigned in Section 1.1(b). "DOMESTIC SUBSIDIARY" has the meaning assigned in Section 1.1(a)(xvi). 41 "EFFECTIVE DATE" has the meaning assigned in Section 9.15. "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended. "EXCLUDED ASSETS" has the meaning assigned in Section 1.1(c). "EXCLUDED BUSINESSES" has the meaning assigned in Section 1.1(c)(ii). "EXCLUDED LIABILITIES" has the meaning assigned by Section 1.1(e). "FIBERITE" means Fiberite, Inc. "FIBERITE ALLOCATED LIABILITIES" has the meaning assigned in Section 1.1(f). "FIBERITE FRANCE" means Fiberite France SARL, a corporation formed under the laws of France. "FIBERITE HOLDINGS" means Fiberite Holdings, Inc., a Delaware corporation. "FIBERITE 401(K) PLANS" has the meaning assigned in Section 4.16. "FILING PARTY" has the meaning assigned in Section 4.20. "FIRPTA CERTIFICATE" has the meaning assigned in Section 1.4(d). "FTC" has the meaning assigned by Section 4.3. "GERMAN BUSINESSES" means the businesses conducted by the German Subsidiary. "GERMAN SUBSIDIARY" means Fiberite Europe GmbH. "GREENVILLE FACILITY" means the facility located at 4300 Jackson Street, Greenville, Texas. 42 "HSR ACT" has the meaning assigned in Section 2A.3(b). "INDEMNIFIED PARTY" has the meaning assigned in Section 8.4. "INDEMNIFYING PARTY" has the meaning assigned in Section 8.4. "INTELLECTUAL PROPERTY" shall mean throughout the world (i) Patents, (ii) Trademarks, (iii) Trade Names, (iv) Know-how, (v) shop rights and (vi) copyrights. "INVENTORY" has the meaning assigned by Section 1.1(a)(iv). "KNOW-HOW" shall mean all trade secrets, know-how (including product know-how and use and application know-how), formulas, processes, product designs, specifications, quality control procedures, manufacturing, engineering and other drawings, technology, technical information, safety information, lab journals, engineering data and design and engineering specifications, research records, market surveys and all promotional literature, customer and supplier lists and similar data. "LIENS" means all mortgages, pledges, security interests, liens, changes, options, easements, rights of way or other encumbrances. "LOSSES" has the meaning assigned in Section 8.2. "MATERIAL ADVERSE EFFECT" means an event which has a material adverse effect on the business, operations, financial condition or results of operations of the Acquired Businesses taken as a whole, or materially impairs the value or usefulness of the Acquired Assets taken as a whole. "NON-ASSIGNED CONTRACTS" has the meaning set forth in Section 4.14. "NON-FILING PARTY" has the meaning assigned in Section 4.20. 43 "ORANGE BUSINESSES" has the meaning assigned in Section 1.1(c)(ii). "ORANGE FACILITY" means the facility located at 645 North Cypress, Orange California. "OTHER INSTRUMENTS" has the meaning assigned in Section 1.1(b). "PARTIES" has the meaning set forth in the preamble. "PATENTS" shall mean patents (including all reissues, divisions, re-examinations, continuations, continuations in part and extensions thereof), patent applications and patent disclosures docketed and all other patent rights. "PERMITTED LIENS" means mechanics', carriers', workers', repairers', materialmens', warehousemens' and other similar Liens arising or incurred in the ordinary course of business consistent with past practice and which would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. "PERSON" has the meaning assigned in Section 9.8(b). "PLANS" means the Fiberite, Inc. Pension Plan, the Fiberite, Inc. Service Related Pension Plan, the Fiberite, Inc. 401(k) Plan I, and the Fiberite, Inc. 401(k) Plan II. "PRE-CLOSING ADJUSTMENT" has the meaning assigned by Section 4.22. "PRIOR OCCURRENCES" has the meaning assigned by Section 4.8. "PURCHASE PRICE" has the meaning set forth in Section 1.2(a). "RETURN" means any report, return or other information filed with or required to be supplied to a taxing authority in connection with Taxes. 44 "SCHEDULE(s)" means any schedule(s) included in the Disclosure Schedule. "SELLER INDEMNITEE" has the meaning assigned in Section 8.3 "SELLING STOCKHOLDERS" shall refer to the stockholders and optionholders of Fiberite Holdings existing immediately prior to the closing of the Stock Purchase Agreement. "STAMFORD" means Stamford FHI Acquisition Corp. "STOCK PURCHASE AGREEMENT" means the Stock Purchase and Sale Agreement, dated as of April 20, 1997 by and among Stamford, Fiberite and the Selling Stockholders. "TAXES" means all taxes, assessments, charges, duties, fees, levies or other governmental charges, including, without limitation, all Federal, state, local, foreign and other income, gross receipts, franchise, profits, capital gains, capital stock, transfer, sales, use, occupation, property, excise, severance, windfall profits, stamp, license, payroll, withholding, social security and other taxes, assessments, charges, duties, fees, levies or other governmental charges of any kind whatsoever (whether payable directly or by withholding and whether or not requiring the filing of a Return), and all estimated taxes, deficiency assessments, additions to tax, penalties and interest. "THIRD PARTIES" means any parties other than the Parties to this Agreement and their respective Affiliates. "TRADEMARKS" shall mean trademarks and service marks, registrations thereof, pending applications therefor and such unregistered rights as may exist through use. "TRADE NAMES" shall mean trade names, brand marks, trade dress, brand names, logos and all other names and slogans or product goodwill for which no trademark registration has been obtained and for which no application is pending. 45 "UNDERTAKING" means the duly executed undertaking, substantially in the form attached hereto as Exhibit C, whereby Buyer will assume and agree to pay and discharge the Assumed Liabilities. 46 IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the duly authorized officers of the parties hereto as of the date first above written. STAMFORD FHI ACQUISITION CORP. By: ----------------------------------- Title: -------------------------------- FIBERITE, INC. By: ----------------------------------- Title: -------------------------------- HEXCEL CORPORATION By: ----------------------------------- Title: -------------------------------- 47 EX-10.2 3 1997 EMPLOYEE STOCK PURCHASE PLAN HEXCEL CORPORATION 1997 EMPLOYEE STOCK PURCHASE PLAN 1. PURPOSE. The Plan is intended to provide Employees (as defined herein) of the Company and its Designated Subsidiaries, with the opportunity to apply a portion of their compensation to the purchase of Common Stock of the Company in accordance with the terms of the Plan, to promote and increase the ownership of Common Stock by such employees and to better align the interests of the Company's employees and its stockholders and to thereby increase overall stockholder value. 2. DEFINITIONS. (a) "BOARD" means the Board of Directors of the Company. (b) "BROKERAGE FIRM" means any brokerage firm selected by the Company, from time to time, to establish Investment Accounts for the Participants under the Plan. (c) "CODE" means the Internal Revenue Code of 1986, as amended. (d) "COMMITTEE" means a committee formed or designated by the Board to administer the Plan. (e) "COMMON STOCK" means the Common Stock, $0.01 par value, of the Company. (f) "COMPANY" means Hexcel Corporation, a Delaware corporation. (g) "COMPENSATION" means all cash compensation, to include regular straight time gross earnings, overtime, shift premium, cash bonuses and commissions. (h) "CONTINUOUS STATUS AS AN EMPLOYEE" means the absence of any interruption or termination of service as an Employee other than ordinary vacation and short-term disability absences. Continuous Status as an Employee shall not be considered interrupted in the case of a leave of absence agreed to in writing by the Company, provided that such leave is for a period of not more than 90 days or reemployment upon the expiration of such leave is guaranteed by contract or statute. (i) "CONTRIBUTIONS" means all amounts credited to the Plan Account of a Participant pursuant to the Plan. 1 (j) "DESIGNATED SUBSIDIARIES" means the Subsidiaries, which have been designated by the Committee from time to time in its sole discretion as eligible to participate in the Plan. (k) "EMPLOYEE" means any person, excluding any officer or director or other person or group of persons excluded from the Plan as provided herein, who is a direct employee and on the payroll of the Company or one of its Designated Subsidiaries and who is employed for at least thirty (30) hours per week and more than 1000 hours in a calendar year by the Company or one of its Designated Subsidiaries. The term Employee specifically excludes any person or group of persons who is classified by the Company or its Designated Subsidiary as a temporary employee, contract employee, reserve employee or similar non-direct or temporary designation. It is the intention of the Company that the definition of Employee in this Plan (as applied by the Committee in its sole discretion) shall be determinative for purposes of participation in the Plan, regardless of how a person may be characterized by the Company or its Designated Subsidiary for any other purpose. (l) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended. (m) "EXERCISE DATE" means the last day of each Offering Period of the Plan. (n) "INVESTMENT ACCOUNT" means an Employee Stock Purchase Plan account at the Brokerage Firm, that is established for each Participant and in which all shares of Common Stock purchased by the Participant pursuant to the Plan are held. (o) "OFFERING DATE" means the first business day of each Offering Period of the Plan. (p) "OFFERING PERIOD" means a period of three (3) calendar months. (q) "PARTICIPANT" means any Employee who is eligible to participate in the Plan who has delivered a Subscription Agreement to the Company, whose employment has not terminated and who has not delivered to the Company a Participation Termination Notice. (r) "PARTICIPATION TERMINATION NOTICE" has the meaning given thereto in Section 10 hereof. (s) "PLAN" means this Employee Stock Purchase Plan. (t) "PLAN ACCOUNT" means, with respect to each Participant, an account established by the Company to record Contributions to the Plan made by such Participant and the use of such Contributions as they are either (i) applied by the Company for the purchase of Common Stock under the Plan for the account of such Participant or (ii) repaid to such Participant pursuant to the Plan. 2 (u) "SUBSIDIARY" shall mean a corporation, domestic or foreign, of which more than 50% of the voting shares are held by the Company or a Subsidiary, whether or not such corporation now exists or is hereafter organized or acquired by the Company or a Subsidiary. 3. ELIGIBILITY. Any person who has been continuously employed as an Employee for six (6) months as of the Offering Date of a given Offering Period and has reached the age of majority in the state of his or her residence shall be eligible to participate in such Offering Period under the Plan, subject to the requirements of Section 5(a). 4. OFFERING PERIODS. The Plan shall be implemented by a series of Offering Periods, with a new Offering Period commencing on January 1 of each year (or at such other time or times as may be determined by the Committee), and subsequent Offering Periods will commence on the first day of each calendar quarter (i.e., April 1, July 1, October 1). The Plan shall continue until terminated in accordance with Section 22 hereof. The Committee shall have the power to change the duration and/or the frequency of Offering Periods with respect to future offerings if such change is announced at least fifteen (15) calendar days prior to the scheduled beginning of the first Offering period to be affected. 5. PARTICIPATION. (a) An Employee who is eligible to participate in the Plan pursuant to Section 3 hereof may become a participant in the Plan by completing a subscription agreement in the form provided by the Company (a "Subscription Agreement") and filing it with the appropriate representative of the Company or the Designated Subsidiary that employs such Employee in accordance with the terms of the Subscription Agreement at any time during the initial Offering Period of the Plan or, for subsequent Offering Periods, not later than fifteen (15) calendar days prior to any Offering Date, unless a later time for filing Subscription Agreements is established by the Committee for all eligible Employees with respect to a given Offering Period. Each eligible Employee's Subscription Agreement shall set forth either (1) the whole percentage of the Participant's Compensation (which shall be not less than 1% and not more than 10%) or (2) the whole dollar amount (that shall not be less than $5.00 and not more than an amount equal to 10%, of such Participant's Compensation) to be deducted by the Company from the Participant's Compensation as Contributions to the Plan. Each Subscription Agreement shall constitute the Employee's (i) election to participate in the Plan for all subsequent Offering Periods until such time as (1) the Company has received notice of termination of participation from such Employee pursuant to Section 10, (2) a new Subscription Agreement designating a different level of participation is delivered to the Company by such Employee or (3) such Employee's termination of employment, and (ii) authorization for the Company to withhold (in the manner determined by the Company or the applicable Subsidiary) any taxes that are required to be withheld by the Company or the 3 applicable Subsidiary due to the Employee's participation in the Plan or the exercise of any Option or purchase of any Common Stock under the Plan. (b) Payroll deductions with respect to each Participant shall commence on the first payday following the first Offering Date following the Company's receipt of the applicable Subscription Agreement and shall end on the last payday on or prior to the termination of such Employee's employment with the Company, unless sooner terminated by the participant as provided in Section 10, provided that, payroll deductions will begin on the first pay period commencing after the delivery of a Subscription Agreement for Participants who join the Plan during the initial Offering Period. To the extent that the Participant elects to have a percentage of his or her compensation deducted, payroll deductions shall automatically be increased or decreased to reflect changes in Compensation during such Offering Period, but a Participant shall not otherwise be entitled to increase or decrease his or her contribution rate during an Offering Period. 6. METHOD OF PAYMENT OF CONTRIBUTIONS. (a) The Participant shall elect to have payroll deductions made on each payday during the Offering Period either (1) in a whole percentage amount of between one percent (1%) and not more than ten percent (10%) of such Participant's Compensation on each such payday or (2) in a whole dollar amount (that shall be not less than $5.00 and not more than an amount equal to 10% of such Participant's Compensation) of such Participant's Compensation on each such payday, provided that the aggregate of such payroll deductions during the Offering Period shall not exceed ten percent (10%) of the Participant's aggregate Compensation during said Offering Period. All payroll deductions made with respect to a Participant shall be credited to his or her Plan Account. A Participant may not make any additional payments into his or her Plan Account or Investment Account. (b) A Participant may discontinue his or her participation in the Plan as provided in Section 10. A Participant may increase or decrease the rate of his or her Contributions for future Offering Periods by completing and filing with the Company a new Subscription Agreement no later than fifteen (15) calendar days prior to the beginning of the Offering Period for which such change will become effective. Subject to the prior sentence, the change in rate shall be effective as of the first pay period ending in the first new Offering Period following the date of filing of the new Subscription Agreement. 7. GRANT OF OPTION. On the Offering Date of each Offering Period, each eligible Employee participating in such Offering Period shall be granted an option to purchase on the Exercise Date during such Offering Period a number of shares of Common Stock determined by dividing such Employee's Contributions accumulated during such Offering Period prior to such Exercise Date and retained in the Participant's Plan Account 4 as of the Exercise Date by eighty-five percent (85%) of the closing price of the Common Stock as determined from the New York Stock Exchange Consolidated Transaction Tape on the Exercise Date or, if there were no sales of Common Stock on such date, on the next preceding date on which such closing price was recorded. 8. EXERCISE OF OPTION. Unless a Participant withdraws from the Plan as provided in Section 10, each Participant's option for the purchase of shares for a particular Offering Period will be exercised automatically on the Exercise Date of such Offering Period, and the maximum number of whole and fractional shares subject to option will be purchased for the Participant at the price described in Section 7 with the Contributions which were made to the Participant's Plan Account during such Offering Period. The shares of Common Stock purchased upon exercise of an option hereunder shall be deemed to be transferred to the Participant on the Exercise Date. A Participant's option to purchase shares of Common Stock hereunder will be exercised only during the Participant's lifetime. 9. DELIVERY. As promptly as reasonably practicable following each Exercise Date, the Company shall cause the shares purchased by each Participant to be credited to such Participant's Investment Account. The Company will deliver to the Brokerage Firm or its nominee a stock certificate or other evidence representing all of the full and fractional shares that are to be allocated to the Participant's Investment Accounts, rounded up to the nearest full share (and taking into account any excess shares or fractional shares which are then held by the Brokerage Firm from prior deliveries). Notwithstanding the prior sentence, in lieu of rounding the number of shares up to the nearest full share, the Company may round down to the nearest full share and pay to the Brokerage Firm an amount in cash equal to the value of the fractional share that would otherwise be delivered. Upon termination of the plan, the Brokerage Firm will redeliver to the Company all shares (including fractional shares) of Common Stock that are not allocated to Investment Accounts. 10. WITHDRAWAL; TERMINATION OF EMPLOYMENT. (a) A Participant may withdraw all but not less than all the Contributions credited to his or her Plan Account, which have not been applied to the purchase of Common Stock, prior to the Exercise Date of the Offering Period, by giving written notice to the Company (a "Participation Termination Notice") not less than ten (10) calendar days prior to the Exercise Date of such Offering Period. Any Participation Termination Notice delivered subsequent to the tenth calendar day prior to any Exercise Date shall not be effective during the Offering Period during which it was delivered, but will be effective as of the first day of the immediately succeeding Offering Period. Upon the effectiveness of an Employee's Participation Termination Notice, all of the Participant's Contributions credited to his or her Plan Account, which have not been applied to the Purchase of Common Stock, and any taxes that the Company or a Designated Subsidiary withheld in connection therewith, will be paid promptly to the Participant, without interest, and his or her outstanding option will automatically terminate. An Employee who terminates his or her participation in the Plan will not be again eligible to participate in the Plan until the 5 commencement of the first Offering Period following the expiration of the Offering Period during which the Participant's Participation Termination Notice becomes effective. (b) Upon termination of a Participant's Continuous Status as an Employee prior to the Exercise Date of the then current Offering Period for any reason, including retirement or death, the Contributions credited to his or her Plan Account, together with all taxes that the Company or a Designated Subsidiary has withheld in connection therewith, will be returned to him or her or, in the case of his or her death, to the person or persons entitled thereto under Section 14, without interest, and his or her outstanding option and future participation in the Plan will automatically terminate. (c) Other than as set forth in Section 10(a), a Participant's withdrawal from the Plan, whether voluntary or involuntary, will not affect his or her eligibility to participate in the Plan in the future should he or she again qualify for participation or in any similar plan which may hereafter be adopted by the Company. 11. INTEREST. No interest shall accrue on the Contributions of a Participant in the plan or any taxes withheld in connection therewith. 12. STOCK. (a) The maximum number of shares of Common Stock which shall be made available for sale under the Plan shall be 200,000 shares or such other number of shares as may, from time to time, be determined in the sole discretion of the Board, subject, however, to adjustment upon changes in capitalization of the Company as provided in Section 18. Such shares shall be reserved from the Company's authorized but unissued shares and/or treasury shares that are not otherwise reserved for issuance under any other plan or with respect to any convertible security. If the total number of shares which would otherwise be subject to options granted pursuant to Section 7 hereof on the Offering Date of an Offering Period exceeds the number of shares then available under the Plan (after deduction of all shares for which options have been exercised or are then outstanding), the Committee shall make a pro rata allocation of the shares remaining available for option grants in as uniform a manner as shall be practicable and as it shall determine to be equitable. Any amounts remaining in a Participant's Plan Account not applied to the purchase of Common Stock pursuant to this Section 12 shall be refunded on or promptly after the applicable Exercise Date. In such event, the Company shall give written notice of such reduction of the number of shares subject to the option to each Employee affected thereby and shall cease future withholdings and Contributions under the Plan. Only the number of shares that are issued pursuant to exercised Options shall reduce the number of shares available under the Plan. Shares that become subject to Options which are later terminated shall again be available under the Plan. 6 (b) Participants will have no interest (including any interest in any ordinary or special dividends) or voting right in shares of Common Stock that are subject to any option until such option has been exercised. (c) Upon the written request of the Employee delivered to the Brokerage Firm, the Brokerage Firm will (i) have a share certificate issued for any number of whole shares held in the Employees Investment Account as of the date of such notice and, (ii) if the Employee is no longer participating in the Plan, pay to the Employee in cash an amount equal to the value of any fractional shares held in the Employee's Investment Account as of the date of such notice. Upon termination of an Employee's employment with the Company for any reason, the Company will (i) cause the Brokerage Firm to have a share certificate issued for the full number of whole shares held in the Employee's Investment Account as of the date of such termination, and (ii) pay to the Employee in cash an amount equal to the value of any fractional shares held in the Employee's Investment Account as of the date of such termination. All amounts to be paid to an Employee pursuant to this Section 12(c) with respect to fractional shares shall be determined by reference to the closing price of the Common Stock determined from the New York Stock Exchange Consolidated Transaction Tape on the date of the Employee's notice to the Company or termination, as applicable, or, if there were no sales of the Common Stock on such date, on the next preceding day on which such closing price was recorded. With respect to the certification and delivery to the Employee of the shares held in the Employee's Investment Account, the Company shall pay the fee charged by the Brokeage Firm for such service for the issuance of not more than four certificates per Participant in any calendar year. 13. ADMINISTRATION. (a) Except as otherwise determined by the Board, the Committee shall administer the Plan. The Committee shall have the authority in its discretion, subject to and not inconsistent with the express provisions of the Plan and the determinations of the Board, to administer the Plan and to exercise all powers and authorities either specifically granted to it under the Plan or necessary or advisable in the administration of the Plan, including, without limitation, the authority to determine, from time to time, eligible Employees; to interpret and construe the Plan and the provisions of the Subscription Agreements; to prescribe, amend and rescind rules and regulations relating to the Plan; to determine the terms and provisions of the Subscription Agreements (which need not be identical) and to cancel or suspend the participation of any Employee or group of Employees, and to make all other determinations deemed necessary or advisable for the administration of the Plan. The Committee or the Board may make any modification or amendment to the Plan that it deems necessary or advisable in order to implement the Plan in a manner consistent with any law or regulation applicable to the Company or any Designated 7 Subsidiary. The Committee shall inform all Participants and Employees eligible to participate in the Plan, who would be affected thereby, of any such modification or amendment. (b) The Board shall fill all vacancies, however caused, in the Committee. The Board may from time to time appoint additional members to the Committee, and may at any time remove one or more Committee members and substitute others. The Committee may appoint a chairperson and a secretary and make such rules and regulations for the conduct of its business as it shall deem advisable, and shall keep minutes of its meetings. The Committee shall hold its meetings at such times and places (and its telephonic meetings at such times) as it shall deem advisable. The Committee may delegate to one or more of its members or to one or more agents such administrative duties as it may deem advisable, and the Committee or any person to whom it has delegated duties as aforesaid may employ one or more persons to render advice with respect to any responsibility the Committee or such person may have under the Plan. Except to the extent otherwise determined by the Board, all decisions, determinations and interpretations of the Committee shall be final and binding on all persons, including, without limitation, the Company, the Participants (or any person claiming any rights under the Plan from or through any Participant) and any stockholder. (c) No member of the Board or of the Committee shall be liable for any action or determination made in good faith, and the members of the Board or of the Committee shall be entitled to indemnification and reimbursement in the manner provided in the Company's Certificate of Incorporation, as it may be amended from time to time. 14. DESIGNATION OF BENEFICIARY. (a) A Participant may file a written designation of a beneficiary who is to receive any shares of Common Stock and cash, if any, from the Participant's Plan Account or Investment Account in the event of such Participant's death by delivering notice of such beneficiary to the Company. If a Participant is married and the designated beneficiary is not the spouse, spousal consent shall be required for such designation to be effective. (b) The Participant (subject to spousal consent) may change such designation of beneficiary at any time by written notice delivered to the Company. In the event of the death of a Participant and in the absence of a beneficiary validly designated under the Plan who is living at the time of such Participant's death, the Company shall deliver such shares and/or cash to the executor or administrator of the estate of the Participant, or if no such executor or administrator has been appointed (to the knowledge of the Company), the Company, in its discretion, may deliver such shares and/or cash to the spouse or to any one or more dependents or relatives of the Participant, 8 or if no spouse, dependent or relative is known to the Company, then to such other person as the Company may designate or as may be required by law. 15. TRANSFERABILITY. Neither Contributions credited to a Participant's Plan Account nor any rights with regard to the exercise of an option or to receive shares under the Plan may be assigned, transferred, pledged or otherwise disposed of in any way (other than by will, the laws of descent and distribution or as provided in Section 14 hereof) by the Participant. Any such attempt at assignment, transfer, pledge or other disposition shall be without effect, except that the Company may treat such act as an election to withdraw funds in accordance with Section 10. No Contribution made under this Plan or amount representing a Participant's Plan Account balance shall be subject to execution, attachment or process. 16. USE OF FUNDS. The Participants' rights with respect to Contributions made to the Plan and the balances, from time to time, in their respective Plan Accounts shall be those of general creditors of the Company or of the applicable Designated Subsidiary. All Contributions received or held by the Company or a Designated Subsidiary under the Plan may be used for any corporate purpose, and the Company or Designated Subsidiary, as applicable, shall not be obligated to segregate such Contributions. 17. REPORTS AND FEES OF INVESTMENT ACCOUNTS. Individual Investment Accounts will be maintained for each Participant. Statements of account will be given to Participants promptly following each Exercise Date, which statements will set forth the total amount of Contributions to the Plan Account during the most recently completed Offering Period, the per share purchase price and the number of shares purchased on the most recent Exercise Date, and the total number of shares and fractional shares held in such Participant's Investment Account. The Company shall pay the annual and any extraordinary maintenance fees for each Investment Account and the certification fees referenced in Section 12 above. The Participant will be responsible for paying all transaction fees and any certification fee not paid by the Company pursuant to Section 12 hereof. 18. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. (a) The number of shares of Common Stock covered by each unexercised option under the Plan and the number of shares of Common Stock which have been authorized for issuance under the Plan but which have not yet been issued and are not subject of an unexercised option (collectively, the "Reserves"), as well as the price per share of Common Stock covered by each option under the Plan for which the exercise price has been determined but which has not yet been exercised, shall be proportionately adjusted for any increase or decrease in the number of issued shares of Common Stock resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Common Stock, or any other increase or decrease in the number of shares of Common Stock effected without receipt of consideration by the Company; provided, however, that conversion of any convertible securities of the Company shall not be deemed to have been "effected without receipt of consideration". Such adjustments shall be made by the Board, whose 9 determination in that respect shall be final, binding and conclusive. Except as expressly provided herein, no issue by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock subject to an option. (b) In the event of the proposed dissolution or liquidation of the Company, the then current Offering Period will terminate immediately prior to the consummation of such proposed action, unless otherwise provided by the Committee. In the event of a proposed sale of all or substantially all of the assets of the Company, or the merger of the Company with or into another corporation, each option under the Plan shall be assumed or an equivalent option shall be substituted by such successor corporation or a parent or subsidiary of such successor corporation, unless the Committee determines, in the exercise of its sole discretion and in lieu of such assumption or substitution, to shorten the Offering Period then in progress by setting a new Exercise Date (the "New Exercise Date"). If the Committee shortens the Offering Period then in progress in lieu of assumption or substitution in the event of a merger or sale of assets, the Committee shall notify each participant in writing, at least ten (10) days prior to the New Exercise Date, that the Exercise Date for his or her option has been changed to the New Exercise Date and that his or her option will be exercised automatically on the New Exercise Date, unless prior to such date he or she has withdrawn from the Offering Period as provided in Section 10. For purposes of this Section, an option granted under the Plan shall be deemed to be assumed if, following the sale of assets or merger, the option confers the right to purchase, for each share of Common Stock subject to the option immediately prior to the sale of assets or merger, the consideration (whether stock, cash or other securities or property) received in the sale of assets or merger by holders of Common Stock for each share of Common Stock held on the effective date of the transaction (and if such holders were offered a choice of consideration, the type of consideration chosen by the holders of a majority of the outstanding shares of Common Stock). (c) The Committee may, if it so determines in the exercise of its sole discretion, also make provision for adjusting the Reserves, as well as the price per share of Common Stock covered by each outstanding option, in the event that the Company effects one or more reorganizations, recapitalizations, rights offerings or other increases or reductions of shares of its outstanding Common Stock, and in the event of the Company being consolidated with or merged into any other corporation. 19. AMENDMENT OR TERMINATION. The Board may at any time terminate or amend the Plan. Except as provided in Section 18, no such termination may affect options previously granted, nor may an amendment make any change in any option theretofore granted which adversely affects the rights of any participant. 10 20. NOTICES. All notices or other communications by a participant to the Company under or in connection with the Plan shall be deemed to have been duly given when received in the form specified by the Company at the location, or by the person, designated by the Company for the receipt thereof. 21. CONDITIONS UPON ISSUANCE OF SHARES (a) Shares shall not be issued with respect to an option unless the exercise of such option and the issuance and delivery of such shares pursuant thereto shall comply with all applicable provisions of law, domestic or foreign, including, without limitation, the Securities Act of 1933, as amended (the "Securities Act"), the Exchange Act, the rules and regulations promulgated thereunder, and the requirements of any stock exchange upon which the shares may then be listed, and shall be further subject to the approval of counsel for the Company with respect to such compliance. (b) As a condition to the exercise of an option, the Company may require the person exercising such option to represent and warrant at the time of any such exercise that the shares are being purchased only for investment and without any present intention to sell or distribute such shares if, in the opinion of counsel for the Company, such a representation is required by any of the aforementioned applicable provisions of law. If the issuance of any shares of Common Stock pursuant to the Plan is not so registered under the Securities Act, certificates for such shares shall bear a legend reciting the fact that such shares may only be transferred pursuant to an effective registration statement under the Securities Act or an opinion of counsel to the Company that such registration is not required. The Company may also issue "stop transfer" instructions with respect to such shares while they are subject to such restrictions. (c) The Company shall use its best efforts to have the shares issued under the Plan listed on each securities exchange on which the Common Stock is then listed as promptly as possible. The Company shall not be obligated to issue or sell any shares under the Plan until they have been listed on each securities exchange on which the Common Stock is then listed. (d) The Company will promptly file with the Securities and Exchange Commission a registration statement on Form S-8 covering the issuance of the shares of Common Stock pursuant to this Plan, cause such registration statement to become effective, and keep such registration statement effective for the period that this Plan is in effect. 22. TERM OF PLAN. The Plan became effective upon its adoption by the Board on May 22, 1997 and shall continue in effect until the earliest to occur of (i) purchase of all shares of Common Stock subject to the Plan, (ii) May 22, 2007, and (iii) the date the Plan is terminated pursuant to Section 19. 11 23. GOVERNING LAW. To the extent that federal laws do not otherwise control, the Plan shall be construed in accordance with and governed by the laws of the State of Delaware. 24. SAVINGS CLAUSE. This Plan is intended to comply in all aspects with applicable laws and regulations. In case any one or more of the provisions of this Plan shall be held invalid, illegal or unenforceable in any respect under applicable law and regulations, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby and the invalid, illegal or unenforceable provisions shall be deemed null and void; however, to the extent permissible by law, any provision which could be deemed null and void shall first be construed, interpreted or revised retroactively to permit this Plan to be construed in compliance with all applicable laws so as to foster the intent of this Plan. * * * * * * 12 EX-10.3 4 HEXCEL CORP INCENTIVE STOCK PLAN HEXCEL CORPORATION INCENTIVE STOCK PLAN, AS AMENDED AND RESTATED JANUARY 30, 1997 I. PURPOSE This Incentive Stock Plan, as approved by the stockholders of the Corporation on February 21, 1996, combined the Hexcel Corporation Long-Term Incentive Plan and the Hexcel Corporation 1995 Directors' Stock Option Plan and, subject to approval by the stockholders of the Corporation, is now amended and restated herein (as so amended and restated, the "Plan"). The Plan is intended to attract, retain and provide incentives to Employees, officers, Directors and consultants of the Corporation, and to thereby increase overall stockholders' value. The Plan generally provides for the granting of stock, stock options, stock appreciation rights, restricted shares, other stock-based awards or any combination of the foregoing to the eligible participants. II. DEFINITIONS (a) "Award" includes, without limitation, stock options (including Director Options and incentive stock options within the meaning of Section 422(b) of the Code) with or without stock appreciation rights, dividend equivalent rights, stock awards, restricted share awards, or other awards that are valued in whole or in part by reference to, or are otherwise based on, the Common Stock ("other Common Stock-based Awards"), all on a stand-alone, combination or tandem basis, as described in or granted under this Plan. (b) "Award Agreement" means a written agreement setting forth the terms and conditions of each Award made under this Plan. (c) "Beneficial Owner" (and variants thereof) shall have the meaning given in Rule 13d-3 promulgated under the Exchange Act. (d) "Board" means the Board of Directors of the Corporation. (e) "Ciba" shall mean Ciba-Geigy Limited, a Swiss corporation, or such corporation or corporations as are substituted for Ciba-Geigy Limited, together with their respective affiliates and any former affiliates holding Corporation voting securities pursuant to Section 4.01(b) of the Governance Agreement. (f) "Code" means the Internal Revenue Code of 1986, as amended from time to time. (g) "Committee" means the Executive Compensation Committee of the Board or such other committee of the Board as may be designated by the Board from time to time to administer this Plan. (h) "Common Stock" means the $.01 par value common stock of the Corporation. (i) "Corporation" means Hexcel Corporation, a Delaware corporation. (j) "Director" means a member of the Board. (k) "Director Option" means a stock option granted pursuant to Section VII hereof to a Director. (l) "Director Optionee" means a recipient of an Award of a Director Option. (m) "Employee" means an employee of the Corporation or a Subsidiary. (n) "Exchange Act" means the Securities Exchange Act of 1934, as amended. (o) "Fair Market Value" means the closing price for the Common Stock as reported in publications of general circulation from the New York Stock Exchange Consolidated Transactions Tape on such date, or, if there were no sales on the valuation date, on the next preceding date on which such closing price was recorded; provided, however, that the Committee may specify some other definition of Fair Market Value in good faith with respect to any particular Award. (p) "Governance Agreement" shall have the meaning given in the Strategic Alliance Agreement. (q) "Participant" means an Employee, officer, Director or consultant who has been granted an Award under the Plan. (r) "Person" shall have the meaning given in Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d) of the Exchange Act, but excluding Ciba for so long as Ciba is subject to the restrictions imposed by the Governance Agreement. (s) "Plan Year" means a calendar year. 2 (t) "Strategic Alliance Agreement" shall mean the Strategic Alliance Agreement among the Corporation, Ciba-Geigy Limited and Ciba-Geigy Corporation, dated as of September 29, 1995, as amended. (u) "Subsidiary" means any corporation or other entity, whether domestic or foreign, in which the Corporation has or obtains, directly or indirectly, a proprietary interest of more than 50% by reason of stock ownership or otherwise. III. ELIGIBILITY Any Employee, officer, Director or consultant of the Corporation or Subsidiary selected by the Committee is eligible to receive an Award pursuant to Section VI hereof. Additionally, Directors described in Section VII(a) hereof are eligible to receive Awards of Director Options pursuant to Section VII. IV. PLAN ADMINISTRATION (a) Except as otherwise determined by the Board, the Plan shall be administered by the Committee. The Board, or the Committee to the extent determined by the Board, shall periodically make determinations with respect to the participation of Employees, officers, Directors and consultants in the Plan and, except as otherwise required by law or this Plan, the grant terms of Awards, including vesting schedules, price, restriction or option period, dividend rights, post-retirement and termination rights, payment alternatives such as cash, stock, contingent awards or other means of payment consistent with the purposes of this Plan, and such other terms and conditions as the Board or the Committee deems appropriate which shall be contained in an Award Agreement with respect to a Participant. (b) The Committee shall have authority to interpret and construe the provisions of the Plan and any Award Agreement and make determinations pursuant to any Plan provision or Award Agreement which shall be final and binding on all persons. No member of the Committee shall be liable for any action or determination made in good faith, and the members shall be entitled to indemnification and reimbursement in the manner provided in the Corporation's Certificate of Incorporation, as it may be amended from time to time. The Committee shall have the authority at the time of the grant of any Award to provide for the conditions and circumstances under which such Award shall be forfeited. The Committee shall have the authority to accelerate the vesting of any Award and the time at which any Award becomes exercisable. 3 V. CAPITAL STOCK SUBJECT TO THE PROVISIONS OF THIS PLAN (a) The capital stock subject to the provisions of this Plan shall be shares of authorized but unissued Common Stock and shares of Common Stock held as treasury stock. Subject to adjustment in accordance with the provisions of Section XI, and subject to Section V(c) below, the maximum number of shares of Common Stock that shall be available for grants of Awards under this Plan shall be 4,012,533 (the number of shares remaining available under the Incentive Stock Plan immediately prior to its amendment and restatement on January 30, 1997 plus 3,850,000 additional shares). (b) The grant of a restricted share Award shall be deemed to be equal to the maximum number of shares which may be issued under the Award. Awards payable only in cash will not reduce the number of shares available for Awards granted under the Plan. (c) There shall be carried forward and be available for Awards under the Plan, in addition to shares available for grant under paragraph (a) of this Section V, all of the following: (i) shares represented by Awards which are cancelled, forfeited, surrendered, terminated, paid in cash or expire unexercised; and (ii) the excess amount of variable Awards which become fixed at less than their maximum limitations. VI. DISCRETIONARY AWARDS UNDER THIS PLAN As the Board or Committee may determine, the following types of Awards and other Common Stock-based Awards may be granted under this Plan on a stand-alone, combination or tandem basis: (A) STOCK OPTION. A right to buy a specified number of shares of Common Stock at a fixed exercise price during a specified time, all as the Committee may determine. (B) INCENTIVE STOCK OPTION. An Award which may be granted only to Employees in the form of a stock option which shall comply with the requirements of Code Section 422 or any successor section as it may be amended from time to time. The exercise price of any incentive stock option shall not be less than 100% of the Fair Market Value of the Common Stock on the date of grant of the incentive stock option Award. Subject to adjustment in accordance with the provisions of Section XI, the aggregate number of shares which may be subject to incentive stock option Awards under this Plan shall not exceed the maximum number of shares provided in paragraph (a) of Section V above. To the extent that the aggregate Fair 4 Market Value of Common Stock with respect to which options intended to be incentive stock options are exercisable for the first time by any individual during any calendar year exceeds $100,000, such options shall be treated as options which are not incentive stock options. (C) STOCK OPTION IN LIEU OF COMPENSATION ELECTION. A right given with respect to a year to a Director, officer or key Employee to elect to exchange annual retainers, fees or compensation for stock options. (D) STOCK APPRECIATION RIGHT. A right which may or may not be contained in the grant of a stock option or incentive stock option to receive the excess of the Fair Market Value of a share of Common Stock on the date the option is surrendered over the option exercise price or other specified amount contained in the Award Agreement. (E) RESTRICTED SHARES. A transfer of Common Stock to a Participant subject to forfeiture until such restrictions, terms and conditions as the Committee may determine are fulfilled. (F) DIVIDEND OR EQUIVALENT. A right to receive dividends or their equivalent in value in Common Stock, cash or in a combination of both with respect to any new or previously existing Award. (G) STOCK AWARD. An unrestricted transfer of ownership of Common Stock. (H) OTHER STOCK-BASED AWARDS. Other Common Stock-based Awards which are related to or serve a similar function to those Awards set forth in this Section VI. VII. FORMULA AWARDS UNDER THIS PLAN In addition to discretionary Awards (including, without limitation, options) that may be granted to Directors pursuant to Section VI hereof, Director Options shall be granted as provided below: (A) GRANTS OF DIRECTOR OPTIONS. (i) As of April 4, 1995, each Director shall be granted an Option to acquire 40,000 shares of Common Stock upon the terms and subject to the conditions set forth in the Plan and this Section VII. With respect to any individual who becomes a Director and who is not also a full-time employee of the Corporation or any Subsidiary (provided such individual has not previously received 5 a grant pursuant to this Section VII(a)(i)), such individual shall be granted as of the date of his election or appointment as a Director a Director Option to acquire (x) 40,000 shares of Common Stock if elected or appointed between April 4, 1995 and December 31, 1996 inclusive or, (y) 20,000 shares of Common Stock if elected or appointed on or after January 1, 1997, upon the terms and subject to the conditions set forth in the Plan and this Section VII. (ii) On April 4, 1996 and immediately after each annual meeting of stockholders of the Corporation held after January 1, 1997 and before February 7, 2005, each person who is not on such date also a full-time employee of the Corporation or any Subsidiary and who (x) is a Director on April 4, 1996 or (y) has been re-elected at such meeting, shall be granted a Director Option to acquire 2,000 shares of Common Stock upon the terms and subject to the conditions set forth in the Plan and this Section VII. (iii) If on any date when Options are to be granted pursuant to Section VII(a)(i) or (ii) the total number of shares of Common Stock as to which Director Options are to be granted exceeds the number of shares of Common Stock remaining available under the Plan, there shall be a PRO RATA reduction in the number of shares of Common Stock as to which each Director Option is granted on such day. (B) TERMS OF DIRECTOR OPTIONS. The terms of each Director Option granted under this Section VII shall be determined by the Board consistent with the provisions of the Plan, including the following: (i) The purchase price of the shares of Common Stock subject to each Director Option shall be equal to the Fair Market Value of such shares on the date such option is granted. (ii) Each Director Option shall be exercisable as to one-third of the shares subject thereto immediately upon the grant of the option and as to an additional one-third of such shares on the first and second anniversaries of the date of such grant. (iii) Shares of Common Stock obtained upon exercise of a Director Option may not be sold until six months after the date such option was granted. 6 (iv) Each Director Option shall expire ten years after the granting thereof. Each Director Option shall be subject to earlier expiration as expressly provided in Section VII(c) hereof. (C) DISABILITY, DEATH OR TERMINATION OF DIRECTOR STATUS; CHANGE IN CONTROL. (i) If a Director Optionee ceases to be a Director for any reason other than his disability or death, each Director Option held by him to the extent exercisable on the effective date of his ceasing to be a Director shall remain exercisable until the earlier to occur of (i) the first anniversary of such effective date and (ii) the expiration of the stated term of the Director Option; PROVIDED, HOWEVER, that if the Director Optionee is removed, withdraws or otherwise ceases to be a Director due to his fraud, dishonesty or intentional misrepresentation in connection with his duties as a Director or his embezzlement, misappropriation or conversion of assets or opportunities of the Corporation or any Subsidiary, all unexercised Director Options held by the Director Optionee shall expire forthwith. Each Director Option held by the Director Optionee to the extent not exercisable on the effective date of his ceasing to be a Director for any reason other than his disability or death shall expire forthwith. (ii) If a Director Optionee ceases to be a Director as a result of his disability or death, each Director Option held by him to the extent that the Director Option is exercisable on the effective date of his ceasing to be a Director shall remain exercisable by the Director Optionee or the Director Optionee's executor, administrator, legal representative or beneficiary, as the case may be, until the earlier to occur of (x) the third anniversary of such effective date and (y) the expiration of the stated term of the Director Option. Each Director Option held by the Director Optionee to the extent not exercisable on the effective date of his ceasing to be a Director as a result of his disability or death shall expire forthwith. (iii) In the event of a Change in Control (as hereinafter defined) while a Director Optionee is a Director, each Director Option held by the Director Optionee to the extent not then exercisable shall thereupon become exercisable. If a Change in Control occurs on or before the effective date of a Director Optionee's ceasing to be a Director, the provisions of this subsection (iii) shall govern with respect to the exercisability of the Director Options held by him as of the date on which the Director Optionee ceases to be a Director and the provisions of subsection (i) or (ii) of this Section VII(c) shall govern with respect to the period of time during which such Director Options shall remain exercisable. For purposes of this subsection (iii), "Change in Control" shall mean any of the following events: 7 (1)(a) any Person is or becomes the Beneficial Owner of 20% or more of either (i) the then outstanding Common Stock of the Corporation (the "Outstanding Common Stock") or (ii) the combined voting power of the then outstanding securities entitled to vote generally in the election of directors of the Corporation (the "Total Voting Power"); excluding, however, the following: (A) any acquisition by the Corporation or any of its affiliates or (B) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Corporation or any of its affiliates and (b) Ciba beneficially owns, in the aggregate, a lesser percentage of the Total Voting Power than such Person beneficially owns; or (2) a change in the composition of the Board such that the individuals who, as of January 30, 1997, constitute the Board (such individuals shall be hereinafter referred to as the "Incumbent Directors") cease for any reason to constitute at least a majority of the Board; PROVIDED, HOWEVER, for purposes of this definition, that any individual who becomes a director subsequent to such effective date, whose election, or nomination for election by the Corporation's stockholders, was made or approved pursuant to the Governance Agreement or by a vote of at least a majority of the Incumbent Directors (or directors whose election or nomination for election was previously so approved) shall be considered a member of the Incumbent Board; but, PROVIDED, FURTHER, that any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest (as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a person or legal entity other than the Board shall not be considered a member of the Incumbent Board; or (3) the approval by the stockholders of the Corporation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Corporation ("Corporate Transaction"); excluding, however, such a Corporate Transaction (a) pursuant to which all or substantially all of the individuals and entities who are the beneficial owners, respectively, of the Outstanding Common Stock and Total Voting Power immediately prior to such Corporate Transaction will beneficially own, directly or indirectly, more than 50%, respectively, of the outstanding common stock and the combined voting power of the then outstanding securities entitled to vote generally in the election of directors of the company resulting from such Corporate Transaction (including, 8 without limitation, a corporation which as a result of such transaction owns the Corporation or all or substantially all of the Corporation's assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership immediately prior to such Corporate Transaction of the Outstanding Common Stock and Total Voting Power, as the case may be, or (b) after which 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 does Ciba; or (4) Ciba shall become the Beneficial Owner of more than 57.5% of the Total Voting Power; or (5) the approval by the stockholders of the Corporation of a complete liquidation or dissolution of the Corporation. VIII. AWARD AGREEMENTS Each Award under the Plan shall be evidenced by an Award Agreement setting forth the terms and conditions of the Award and executed by the Corporation and Participant. IX. OTHER TERMS AND CONDITIONS (A) ASSIGNABILITY. Unless provided to the contrary in any Award, no Award shall be assignable or transferable except by will, by the laws of descent and distribution and during the lifetime of a Participant, the Award shall be exercisable only by such Participant. No Award granted under the Plan shall be subject to execution, attachment or process. (B) TERMINATION OF EMPLOYMENT OR OTHER RELATIONSHIP. Except as provided in Section VII(c) with respect to Director Options, the Committee shall determine the disposition of the grant of each Award in the event of the retirement, disability, death or other termination of a Participant's employment or other relationship with the Corporation or a Subsidiary. (C) RIGHTS AS A STOCKHOLDER. A Participant shall have no rights as a stockholder with respect to shares covered by an Award until the date the Participant is the holder of record. No adjustment will be made for dividends or other rights for which the record date is prior to such date. (D) NO OBLIGATION TO EXERCISE. The grant of an Award shall impose no obligation upon the Participant to exercise the Award. 9 (E) PAYMENTS BY PARTICIPANTS. The Committee may determine that Awards for which a payment is due from a Participant may be payable: (i) in U.S. dollars by personal check, bank draft or money order payable to the order of the Corporation, by money transfers or direct account debits; (ii) through the delivery or deemed delivery based on attestation to the ownership of shares of Common Stock with a Fair Market Value equal to the total payment due from the Participant; (iii) pursuant to a "cashless exercise" program if established by the Corporation; (iv) by a combination of the methods described in (i) through (iii) above; or (v) by such other methods as the Committee may deem appropriate. (F) WITHHOLDING. Except as otherwise provided by the Committee, (i) the deduction of withholding and any other taxes required by law will be made from all amounts paid in cash and (ii) in the case of payments of Awards in shares of Common Stock, the Participant shall be required to pay the amount of any taxes required to be withheld prior to receipt of such stock, or alternatively, a number of shares the Fair Market Value of which equals the amount required to be withheld may be deducted from the payment. (G) MAXIMUM AWARDS. The maximum number of shares of Common Stock that may be issued to any single Participant pursuant to options under this Plan is equal to the maximum number of shares provided for in paragraph (a) of Section V. X. TERMINATION, MODIFICATION AND AMENDMENTS (a) The Executive Compensation Committee may at any time terminate the Plan or from time to time make such modifications or amendments of the Plan as it may deem advisable; provided, however, that no amendments to the Plan which require stockholder approval under applicable law, rule or regulation shall become effective unless the same shall be approved by the requisite vote of the Corporation's stockholders. (b) No termination, modification or amendment of the Plan may adversely affect the rights conferred by an Award without the consent of the recipient thereof. (c) Notwithstanding anything herein to the contrary, the provisions of Section VII shall not be amended more than once every six months, other than to comport with changes in the Code, the Employee Retirement Income Security Act, or the rules thereunder. 10 XI. RECAPITALIZATION The aggregate number of shares of Common Stock as to which Awards may be granted to Participants, the number of shares thereof covered by each outstanding Award, and the price per share thereof in each such Award, shall all be proportionately adjusted for any increase or decrease in the number of issued shares of Common Stock resulting from a subdivision or consolidation of shares or other capital adjustment, or the payment of a stock dividend or other increase or decrease in such shares, effected without receipt of consideration by the Corporation, or other change in corporate or capital structure; provided, however, that any fractional shares resulting from any such adjustment shall be eliminated. The Committee shall also make the foregoing changes and any other changes, including changes in the classes of securities available, to the extent it is deemed necessary or desirable to preserve the intended benefits of the Plan for the Corporation and the Participants in the event of any other reorganization, recapitalization, merger, consolidation, spin-off, extraordinary dividend or other distribution or similar transaction. XII. NO RIGHT TO EMPLOYMENT Except as provided in Section VII with respect to Director Options, no person shall have any claim or right to be granted an Award, and the grant of an Award shall not be construed as giving a Participant the right to be retained in the employ of, or in the other relationship with, the Corporation or a Subsidiary. Further, the Corporation and each Subsidiary expressly reserve the right at any time to dismiss a Participant free from any liability, or any claim under the Plan, except as provided herein or in any Award Agreement issued hereunder. XIII. GOVERNING LAW To the extent that federal laws do not otherwise control, the Plan shall be construed in accordance with and governed by the laws of the State of Delaware. XIV. SAVINGS CLAUSE This Plan is intended to comply in all aspects with applicable laws and regulations. In case any one more of the provisions of this Plan shall be held invalid, illegal or unenforceable in any respect under applicable law and regulation, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby and the invalid, illegal or unenforceable provision shall be deemed null and void; however, to the extent permissible by law, any provision which could be deemed null and void shall first be construed, interpreted 11 or revised retroactively to permit this Plan to be construed in compliance with all applicable laws so as to foster the intent of this Plan. XV. EFFECTIVE DATE AND TERM The Hexcel Corporation Incentive Stock Plan is amended and restated herein on January 30, 1997. The effectiveness of such amendment and restatement is subject to approval by stockholders of the Corporation. AWARDS GRANTED UNDER THE AMENDED AND RESTATED PLAN PRIOR TO SUCH APPROVAL BY THE STOCKHOLDERS SHALL BE SUBJECT TO SUCH APPROVAL. THE PLAN SHALL TERMINATE ON FEBRUARY 8, 2005. NO AWARDS SHALL BE GRANTED AFTER THE TERMINATION OF THE PLAN. 12 EX-10.4 5 EMPLOYEE OPTION AGREEMENT EMPLOYEE OPTION AGREEMENT EMPLOYEE OPTION AGREEMENT, dated as of the Grant Date, by and between the Optionee and Hexcel Corporation (the "Corporation"). W I T N E S S E T H: WHEREAS, the Corporation has adopted the Hexcel Corporation Incentive Stock Plan (the "Plan"); and WHEREAS, the Executive Compensation Committee (the "Committee") of the Board of Directors of the Corporation (the "Board") has determined that it is desirable and in the best interest of the Corporation to grant to the Optionee a stock option as an incentive for the Optionee to advance the interests of the Corporation; NOW, THEREFORE, the parties agree as follows: 1. NOTICE OF GRANT; INCORPORATION OF PLAN. A Notice of Grant is attached hereto as Annex A and incorporated by reference herein. Unless otherwise provided herein, capitalized terms used herein and set forth in such Notice of Grant shall have the meanings ascribed to them in the Notice of Grant and capitalized terms used herein and set forth in the Plan shall have the meanings ascribed to them in the Plan. The Plan is incorporated by reference and made a part of this Employee Option Agreement, and this Employee Option Agreement shall be subject to the terms of the Plan, as the Plan may be amended from time to time, provided that any such amendment of the Plan must be made in accordance with Section X of the Plan. The Option granted herein constitutes an Award within the meaning of the Plan. 2. GRANT OF OPTION. Pursuant to the Plan and subject to the terms and conditions set forth herein and therein, the Corporation hereby grants to the Optionee the right and option (the "Option") to purchase all or any part of the Option Shares of the Corporation's common stock, $.01 par value per share (the "Common Stock"), which Option is not intended to qualify as an incentive stock option, as defined in Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"). 3. PURCHASE PRICE. The purchase price per share of the Option Shares shall be the Purchase Price. 4. TERM OF OPTION. (a) EXPIRATION DATE; TERM. Subject to Section 4(c) below, the Option shall expire on, and shall no longer be exercisable following, the tenth anniversary of the Grant Date. The ten-year period from the Grant Date to its tenth anniversary shall constitute the "Term" of the Option. (b) VESTING PERIOD; EXERCISABILITY. Subject to Section 4(c) below, the Option shall vest and become exercisable at the rate of 33-1/3% of the Option Shares on each of the first three anniversaries of the Grant Date. (c) TERMINATION OF EMPLOYMENT; CHANGE IN CONTROL. (i) For purposes of the grant hereunder, any transfer of employment by the Optionee among the Corporation and the Subsidiaries shall not be considered a termination of employment. If the Optionee's employment with the Corporation is terminated for Cause (as defined in the last Section hereof), the Option, whether or not then vested, shall be automatically terminated as of the date of such termination of employment. If the Optionee's employment with the Corporation shall terminate other than by reason of Retirement (as defined in the last Section hereof), Disability (as defined in the last Section hereof), death or Cause, the Option (to the extent then vested) may be exercised at any time within ninety (90) days after such termination (but not beyond the Term of the Option). The Option, to the extent not then vested, shall immediately expire upon such termination. If the Optionee dies or becomes Disabled (A) while employed by the Corporation or (B) within 90 days after the termination of his or her employment other than for Cause or Retirement, the Option (to the extent then vested) may be exercised at any time within one year after the Optionee's death or Disability (but not beyond the Term of the Option). The Option, to the extent not then vested, shall immediately expire upon such death or disability. If the Optionee's employment terminates by reason of Retirement, the Option shall (A) become fully and immediately vested and exercisable and (B) remain exercisable for three years from the date of such Retirement (but not beyond the Term of the Option). (ii) In the event of a Change in Control (as defined in the last Section hereof), the Option shall immediately become fully vested and exercisable and the post-termination periods of exercisability set forth in Section 4(i) hereof shall apply, except that the post-termination period of exercisability shall be extended and the Option shall remain exercisable for a period of three years from the date of such termination of employment, if, within two years after a Change in Control, (A) the Optionee's employment is terminated by the Company other than by reason of Retirement, Cause, Disability or death or (B) the Optionee terminates the Optionee's employment for Good Reason (as defined in the last Section hereof). 5 ADJUSTMENT UPON CHANGES IN CAPITALIZATION. (a) The aggregate number of Option Shares and the Purchase Price shall be appropriately adjusted by the Committee for any increase or decrease in the number of issued shares of Common Stock resulting from a subdivision or consolidation of shares or other capital adjustment, or the payment of a stock dividend or other increase or decrease in such shares, effected without receipt of consideration by the Corporation, or other change in corporate or capital structure. The Committee shall also make the foregoing changes and any other changes, including changes in the classes of securities available, to the extent reasonably necessary or desirable to preserve the intended benefits under this Employee Option Agreement in the event of any other reorganization, recapitalization, merger, consolidation, spin-off, extraordinary dividend or other distribution or similar transaction involving the Corporation. (b) Any adjustment under this Section 5 in the number of Option Shares and the Purchase Price shall apply to only the unexercised portion of the Option. If fractions of a share would result from any such adjustment, the adjustment shall be rounded down to the nearest whole number of shares. 6 METHOD OF EXERCISING OPTION AND WITHHOLDING. (a) The Option shall be exercised by the delivery by the Optionee to the Corporation at its principal office (or at such other address as may be established by the Committee) of written notice of the number of Option Shares with respect to which the Option is exercised, accompanied by payment in full of the aggregate Purchase Price for such Option Shares. Payment for such Option Shares shall be made (i) in U.S. dollars by personal check, bank draft or money order payable to the order of the Corporation, or by money transfers or direct account debits to an account designated by the Corporation; (ii) through the delivery of shares of Common Stock with a Fair Market Value equal to the total payment due from the Optionee; (iii) pursuant to a "cashless exercise" program if such a program is established by the Corporation; or (iv) by any combination of the methods described in (i) through (iii) above. (b) The Corporation's obligation to deliver shares of Common Stock upon the exercise of the Option shall be subject to the payment by the Optionee of applicable federal, state and local withholding tax, if any. The Corporation shall, to the extent permitted by law, have the right to deduct from any payment of any kind otherwise due to the Optionee any federal, state or local taxes required to be withheld with respect to such payment. 3 7 TRANSFER. Except as provided in this Section 7, the Option is not transferable otherwise than by will or the laws of descent and distribution, and the Option may be exercised during the Optionee's lifetime only by the Optionee. Any attempt to transfer the Option in contravention of this Section 7 is void AB INITIO. The Option shall not be subject to execution, attachment or other process. Notwithstanding the foregoing, the Optionee shall be permitted to transfer the Option to members of his or her immediate family (I.E., children, grandchildren or spouse), trusts for the benefit of such family members, and partnerships whose only partners are such family members; provided, however, that no consideration can be paid for the transfer of the Option and the transferee of the Option shall be subject to all conditions applicable to the Option prior to its transfer. 8 NO RIGHTS IN OPTION SHARES. The Optionee shall have none of the rights of a stockholder with respect to the Option Shares unless and until shares of Common Stock are issued upon exercise of the Option. 9 NO RIGHT TO EMPLOYMENT. Nothing contained herein shall be deemed to confer upon the Optionee any right to remain as an employee of the Corporation. 10 GOVERNING LAW/JURISDICTION. This Employee Option Agreement shall be governed by and construed in accordance with the laws of the State of Delaware without reference to principles of conflict of laws. 11 RESOLUTION OF DISPUTES. Any disputes arising under or in connection with this Employee Option Agreement shall be resolved by binding arbitration before a single arbitrator, to be held in New York in accordance with the commercial rules and procedures of the American Arbitration Association. Judgment upon the award rendered by the arbitrator shall be final and subject to appeal only to the extent permitted by law. Each party shall bear such party's own expenses incurred in connection with any arbitration; PROVIDED, HOWEVER, that the cost of the arbitration, including without limitation, reasonable attorneys' fees of the Optionee, shall be borne by the Corporation in the event the Optionee is the prevailing party in the arbitration. Anything to the contrary notwithstanding, each party hereto has the right to proceed with a court action for injunctive relief or relief from violations of law not within the jurisdiction of an arbitrator. 12 NOTICES. Any notice required or permitted under this Employee Option Agreement shall be deemed given when delivered personally, or when deposited in a United States Post Office, postage prepaid, addressed, as appropriate, to the Optionee at the last address specified in Optionee's employment records, or such other address as the Optionee may designate in writing to the Corporation, or to the Corporation, Attention: Corporate Secretary, or such other address as the Corporation may designate in writing to the Optionee. 4 13 FAILURE TO ENFORCE NOT A WAIVER. The failure of either party hereto to enforce at any time any provision of this Employee Option Agreement shall in no way be construed to be a waiver of such provision or of any other provision hereof. 14 COUNTERPARTS. This Employee Option Agreement may be executed in two or more counterparts, each of which shall be an original but all of which together shall represent one and the same agreement. 15 MISCELLANEOUS. This Employee Option Agreement cannot be changed or terminated orally. This Employee Option Agreement and the Plan contain the entire agreement between the parties relating to the subject matter hereof. The section headings herein are intended for reference only and shall not affect the interpretation hereof. 16 DEFINITIONS. For purposes of this Employee Option Agreement: (I) the term "Beneficial Owner" (and variants thereof) shall have the meaning given in Rule 13d-3 promulgated under the Exchange Act; (II) the term "Cause" shall mean (A) the willful and continued failure by the Optionee to substantially perform the Optionee's duties with the Corporation (other than any such failure resulting from the Optionee's incapacity due to physical or mental illness) after a written demand for substantial performance is delivered to the Optionee by the Corporation, which demand specifically identifies the manner in which the Corporation believes that the Optionee has not substantially performed the Optionee's duties, or (B) the willful engaging by the Optionee in conduct which is demonstrably and materially injurious to the Corporation or its subsidiaries, monetarily or otherwise. For purposes of clauses (A) and (B) of this definition, no act, or failure to act, on the Optionee's part shall be deemed "willful" unless done, or omitted to be done, by the Optionee not in good faith and without the reasonable belief that the Optionee's act, or failure to act, was in the best interest of the Corporation; (III) the term "Change in Control" shall mean any of the following events: (1)(a) any Person (as defined in this Section) is or becomes the Beneficial Owner of 20% or more of either (i) the then outstanding Common Stock of the Corporation (the "Outstanding Common Stock") or (ii) the combined voting power of the then outstanding securities entitled to vote generally in the election of directors of the Corporation (the "Total Voting Power"); excluding, however, the following: (A) any acquisition by the Corporation or any of its affiliates or (B) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Corporation or any of its affiliates and (b) Ciba (as defined in this 5 Section) beneficially owns, in the aggregate, a lesser percentage of the Total Voting Power than such Person beneficially owns; or (2) a change in the composition of the Board such that the individuals who, as of the effective date of this Employee Option Agreement, constitute the Board (such individuals shall be hereinafter referred to as the "Incumbent Directors") cease for any reason to constitute at least a majority of the Board; PROVIDED, HOWEVER, for purposes of this definition, that any individual who becomes a director subsequent to such effective date, whose election, or nomination for election by the Corporation's stockholders, was made or approved pursuant to the Governance Agreement (as defined in this Section) or by a vote of at least a majority of the Incumbent Directors (or directors whose election or nomination for election was previously so approved) shall be considered a member of the Incumbent Board; but, PROVIDED, FURTHER, that any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest (as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a person or legal entity other than the Board shall not be considered a member of the Incumbent Board; or (3) the approval by the stockholders of the Corporation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Corporation ("Corporate Transaction"); excluding, however, such a Corporate Transaction (a) pursuant to which all or substantially all of the individuals and entities who are the beneficial owners, respectively, of the Outstanding Common Stock and Total Voting Power immediately prior to such Corporate Transaction will beneficially own, directly or indirectly, more than 50%, respectively, of the outstanding common stock and the combined voting power of the then outstanding 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 Corporation or all or substantially all of the Corporation's assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership immediately prior to such Corporate Transaction of the Outstanding Common Stock and Total Voting Power, as the case may be, or (b) after which 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 does Ciba; or 6 (4) Ciba shall become the Beneficial Owner of more than 57.5% of the Total Voting Power; or (5) the approval by the stockholders of the Corporation of a complete liquidation or dissolution of the Corporation; (IV) the term "Ciba" shall mean Ciba-Geigy Limited, a Swiss corporation, or such corporation or corporations as are substituted for Ciba-Geigy Limited, together with their respective affiliates and any former affiliates holding Corporation voting securities pursuant to Section 4.01(b) of the Governance Agreement; (V) the term "Disability (or becoming Disabled)" shall mean that, as a result of the Optionee's incapacity due to physical or mental illness or injury, he or she shall not have performed all or substantially all of his or her usual duties as an employee of the Corporation for a period of more than one-hundred-fifty (150) days in any period of one-hundred-eighty (180) consecutive days; (VI) the term "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended from time to time; (VII) the term "Good Reason" for termination by the Optionee of the Optionee's employment shall mean the occurrence (without the Optionee's express written consent) of any one of the following acts by the Corporation, or failures by the Corporation to act, unless, in the case of any act or failure to act described in paragraphs (1), (5) or (6) below, such act or failure to act is corrected prior to the date of termination of the Optionee's employment: (1) a significant adverse alteration in the nature or status of the Optionee's responsibilities, position or authority from those in effect immediately prior to the Change in Control; (2) a reduction by the Corporation in the Optionee's annual base salary as in effect on the date hereof or as the same may be increased from time to time; (3) the relocation of the Optionee's principal place of employment to a location more than fifty (50) miles from the Optionee's principal place of employment immediately prior to the Change in Control or the Corporation's requiring the Optionee to work anywhere other than at such principal place of employment (or permitted relocation thereof) except for required travel on the Corporation's business to an extent substantially consistent with the Optionee's present business travel obligations; 7 (4) the failure by the Corporation to pay to the Optionee any portion of the Optionee's current compensation, or to pay to the Optionee any portion of an installment of deferred compensation under any deferred compensation program of the Corporation, within seven (7) days of the date such compensation is due; (5) the failure by the Corporation to continue in effect any compensation plan in which the Optionee participates immediately prior to the Change in Control which is material to the Optionee's total compensation, or any substitute plans adopted prior to the Change in Control, unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan, or the failure by the Corporation to continue the Optionee's participation therein (or in such substitute or alternative plan) on a basis not materially less favorable, both in terms of the amount or timing of payment of benefits provided and the level of the Optionee's participation relative to other participants, as existed immediately prior to the Change in Control; or (6) the failure by the Corporation to continue to provide the Optionee with benefits substantially similar to those enjoyed by the Optionee under any of the Corporation's pension, savings, life insurance, medical, health and accident, or disability plans in which the Optionee was participating immediately prior to the Change in Control (except for across-the-board changes similarly affecting all senior executives of the Corporation and all senior executives of any Person in control of the Corporation), the taking of any other action by the Corporation which would directly or indirectly materially reduce any of such benefits or deprive the Optionee of any material fringe benefit enjoyed by the Optionee at the time of the Change in Control, or the failure by the Corporation to provide the Optionee with the number of paid vacation days to which the Optionee is entitled on the basis of years of service with the Corporation in accordance with the Corporation's normal vacation policy in effect at the time of the Change in Control. The Optionee's right to terminate the Optionee's employment for Good Reason shall not be affected by the Optionee's incapacity due to physical or mental illness. The Optionee's continued employment shall not constitute consent to, or a waiver of rights with respect to, any act or failure to act constituting Good Reason hereunder. For purposes of any determination regarding the existence of Good Reason, any claim by the Optionee that Good Reason exists shall be presumed to be 8 correct unless the Corporation establishes to the Board by clear and convincing evidence that Good Reason does not exist; (VIII) the term "Governance Agreement" shall have the meaning given in the Strategic Alliance Agreement (as defined in this Section); (IX) the term "Person" shall have the meaning given in Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d) of the Exchange Act, but excluding Ciba for so long as Ciba is subject to the restrictions imposed by the Governance Agreement; (X) the term "Retirement" shall mean termination of the Optionee's employment, other than by reason of death or Cause, either (A) at or after age 65 or (B) at or after age 55 after five (5) years of employment by the Corporation (or a Subsidiary thereof); and (XI) the term "Strategic Alliance Agreement" shall mean the Strategic Alliance Agreement among the Corporation, Ciba-Geigy Limited and Ciba-Geigy Corporation, dated as of September 29, 1995, as amended. 9 ANNEX A NOTICE OF GRANT EMPLOYEE STOCK OPTION HEXCEL CORPORATION INCENTIVE STOCK PLAN The following employee of Hexcel Corporation, a Delaware corporation ("Hexcel") or a Subsidiary, has been granted an option to purchase shares of the Common Stock of Hexcel, $.01 par value, in accordance with the terms of this Notice of Grant and the Employee Option Agreement to which this Notice of Grant is attached. The following is a summary of the principal terms of the option which has been granted. The terms below shall have the meanings ascribed to them below when used in the Employee Option Agreement. - ----------------------------------------------------------------------------- Optionee - ----------------------------------------------------------------------------- Address of Optionee - ----------------------------------------------------------------------------- Employee Number - ----------------------------------------------------------------------------- Employee ID Number - ----------------------------------------------------------------------------- Foreign Sub Plan, if applicable - ----------------------------------------------------------------------------- Grant Date - ----------------------------------------------------------------------------- Purchase Price - ----------------------------------------------------------------------------- Aggregate Number of Shares Granted (the "Option Shares") - ----------------------------------------------------------------------------- IN WITNESS WHEREOF, the parties hereby agree to the terms of this Notice of Grant and the Employee Option Agreement to which this Notice of Grant is attached and execute this Notice of Grant and Employee Option Agreement as of the Grant Date. HEXCEL CORPORATION - ---------------------------------- Optionee By: ---------------------------------- Name: -------------------------------- Title: ------------------------------- EX-10.5 6 1997 PERFORMANCE ACCELERATED RES. STOCK UNIT AGRMT 1997 PERFORMANCE ACCELERATED RESTRICTED STOCK UNIT AGREEMENT This Performance Accelerated Restricted Stock Unit Agreement (the "Agreement"), is entered into as of the Grant Date, by and between Hexcel Corporation, a Delaware corporation (the "Company"), and the Grantee. Pursuant to the Hexcel Corporation Incentive Stock Plan (the "Plan"), the Executive Compensation Committee (the "Committee") of the Board of Directors of the Company (the "Board") has determined that the Grantee shall be granted Performance Accelerated Restricted Stock Units ("PARS") upon the terms and subject to the conditions hereinafter contained. Capitalized terms used but not defined herein shall have the meanings assigned to them in the Plan. 1. NOTICE OF GRANT; INCORPORATION OF PLAN. A Notice of Grant is attached hereto as Annex A and incorporated by reference herein. Unless otherwise provided herein, capitalized terms used in this Agreement and set forth in the Notice of Grant shall have the meanings ascribed to them in the Notice of Grant and capitalized terms used in this Agreement and set forth in the Plan shall have the meanings ascribed to them in the Plan. The Plan is incorporated by reference and made a part of this Agreement, and this Agreement shall be subject to the terms of the Plan, as the Plan may be amended from time to time, provided that any such amendment of the Plan must be made in accordance with Section X of the Plan. The PARS granted herein constitute an Award within the meaning of the Plan. 2. TERMS OF RESTRICTED STOCK. The grant of PARS provided in Section 1 hereof shall be subject to the following terms, conditions and restrictions: (a) The Grantee shall not possess any incidents of ownership (including, without limitation, dividend and voting rights) in shares of Common Stock in respect of the PARS until such PARS have vested and been distributed to the Grantee in the form of shares of Common Stock. (b) Except as provided in this Section 2 (b), the PARS and any interest therein may not be sold, assigned, transferred, pledged, hypothecated or otherwise disposed of, except by will or the laws of descent and distribution, prior to the distribution of the Common Stock in respect of such PARS and subject to the conditions set forth in the Plan and this Agreement. Any attempt to transfer PARS in contravention of this Section is void AB INITIO. PARS shall not be subject to execution, attachment or other process. Notwithstanding the foregoing, the Grantee shall be permitted to transfer PARS to members of this or her immediate family (I.E., children, grandchildren or spouse), trusts for the benefit of such family members, and partnerships whose only partners are such family members; provided, however, that no consideration can be paid for the transfer of the PARS and the transferee of the PARS shall be subject to all conditions applicable to the PARS (including all of the terms and conditions of this Agreement) prior to transfer. 3. VESTING AND CONVERSION OF PARS. The PARS shall vest on (a) January 1, 2004, or (b) on an earlier date or dates 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 (determined by reference to the Company's audited financial statements) ("EBIT") equal or exceed $86 million for any fiscal year of the Company, 33-1/3% (or, if applicable, an additional 33 1/3%) of the total number of PARS shall become vested; if EBIT for any fiscal year of the Company equals or exceeds $120 million, 66-2/3% (or, if applicable, up to an additional 66 2/3%) of the total number of PARS shall become vested; and if EBIT for any fiscal year of the Company equals or exceeds $158 million, 100% of the total number of PARS shall become vested; PROVIDED, HOWEVER, that no more than 100% of the total number of PARS may become vested. Upon the later to occur of (i) January 1, 2000 or (ii) the vesting of a certain number of PARS, such vested PARS shall be converted into an equivalent number of shares of Common Stock that will be immediately distributed to the Grantee; PROVIDED, HOWEVER, that, to the extent that (and only to the extent that) the Company would be precluded from deducting the associated compensation expense because of Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code"), such PARS shall be converted and distributed to the Grantee on the first business day of the first year (or years, if the first deferred distribution shall not include all of such PARS) in which the Company will not be so precluded; and PROVIDED FURTHER, that no PARS shall be converted and distributed to the Grantee unless the Grantee is an employee of the Company (or a Subsidiary) on December 31, 1999. On each dividend payment date with respect to the Common Stock subsequent to any PARS becoming fully vested but not yet converted and distributed by virtue of the immediately preceding proviso, the Company shall credit the Grantee with an additional number of fully vested whole and partial PARS (assuming each such PARS unit was a share of Common Stock) equal in value to the amount of dividends which the Grantee would have received on such dividend payment date if all such vested PARS (including PARS previously credited to the Grantee pursuant to this section) which had not yet been converted into shares had been so converted prior to the record date of such dividend. Such dividends will be credited as vested PARS as of the payment date of such dividends and such vested PARS shall thereafter be treated in the same manner as other PARS under this Agreement (the foregoing method of dividend crediting being referred to herein as being credited with the "Dividend Equivalent"). Upon the distribution of the shares of Common Stock in respect of the PARS, the Company shall issue to the Grantee or the Grantee's personal representative a stock certificate representing such shares of Common Stock, free of any 2 restrictions. 4 TERMINATION OF EMPLOYMENT; CHANGE OF CONTROL. (a) For purposes of the grant hereunder, any transfer of employment by the Grantee among the Company and its Subsidiaries shall not be considered a termination of employment. Notwithstanding any other provision contained herein or in the Plan, (i) if the Grantee dies or terminates employment due to Disability (as defined in the last Section hereof), all PARS shall vest, be converted into shares of Common Stock and be immediately distributed to the Grantee, (ii) if the Grantee's employment with the Company is involuntarily terminated other than for Cause (as defined in the last Section hereof), all PARS shall vest, be converted into shares of Common Stock and be immediately distributed to the Grantee, (iii) if the Grantee voluntarily terminates employment with the Company, all vested PARS shall be converted into shares of Common Stock and be immediately distributed to the Grantee, provided that the Grantee is an employee of the Company (or a Subsidiary) on December 31, 1999, and (iv) if the Grantee's employment with the Company terminates due to the Grantee's Retirement (as defined in the last Section hereof), all PARS shall vest, be converted in shares of Common Stock and be immediately distributed to the Grantee; PROVIDED, HOWEVER, that in each case an appropriate number of such PARS shall not be converted and distributed to the Grantee until the first business day of the first year in which the Company is not precluded from deducting the associated compensation expense under Section 162(m) of the Code, but only to the extent such number of PARS would not be deductible until such time; FURTHER, PROVIDED, that the Grantee shall, if applicable, be credited with the Dividend Equivalent with respect to such PARS. If the Grantee's employment with the Company is involuntarily terminated for Cause or the Grantee voluntarily terminates his employment with the Company, the Grantee shall forfeit all PARS which have not yet become vested as of the date of termination of employment. (b) In the event of a Change in Control (as defined in the last Section hereof), all PARS shall vest, be converted into shares of Common Stock and be immediately distributed to the Grantee. 5 EQUITABLE ADJUSTMENT. The aggregate number of shares of Common Stock subject to the PARS shall be proportionately adjusted for any increase or decrease in the number of issued shares of Common Stock resulting from a subdivision or consolidation of shares or other capital adjustment, or the payment of a stock dividend or other increase or decrease in such shares, effected without the receipt of consideration by the Company, or other change in corporate or capital structure. The Committee shall also make the foregoing changes and any other changes, including changes in the classes of secu- 3 rities available, to the extent reasonably necessary or desirable to preserve the intended benefits under this Agreement in the event of any other reorganization, recapitalization, merger, consolidation, spin-off, extraordinary dividend or other distribution or similar transaction involving the Company. 6 TAXES. The Grantee shall pay to the Company promptly upon request any taxes the Company reasonably determines it is required to withhold under applicable tax laws with respect to the PARS. Such payment shall be made as provided in Section IX(f) of the Plan. 7 NO GUARANTEE OF EMPLOYMENT. Nothing set forth herein or in the Plan shall confer upon the Grantee any right of continued employment for any period by the Company, or shall interfere in any way with the right of the Company to terminate such employment. 8 NOTICES. Any notice required or permitted under this Agreement shall be deemed given when delivered personally, or when deposited in a United States Post Office, postage prepaid, addressed, as appropriate, to the Grantee at the last address specified in Grantee's employment records, or such other address as the Grantee may designate in writing to the Company, or to the Company, Attention: Corporate Secretary, or such other address as the Company may designate in writing to the Grantee. 9 FAILURE TO ENFORCE NOT A WAIVER. The failure of either party hereto to enforce at any time any provision of this Agreement shall in no way be construed to be a waiver of such provision or of any other provision hereof. 10 GOVERNING LAW. This Agreement shall be governed by and construed according to the laws of the State of Delaware, without regard to the conflicts of laws provisions thereof. 11 INCORPORATION OF PLAN. The Plan is hereby incorporated by reference and made a part of this Agreement, and this Agreement shall be subject to the terms of the Plan, as the Plan may be amended from time to time, provided that any such amendment of the Plan must be made in accordance with Section X of the Plan. The PARS granted herein constitute Awards within the meaning of the Plan. 12 COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which shall be an original but all of which together shall represent one and the same agreement. 13 MISCELLANEOUS. This Agreement cannot be changed or terminated orally. This Agreement and the Plan contain the entire agreement between the parties relating to the subject matter hereof. The section headings herein are 4 intended for reference only and shall not affect the interpretation hereof. 14 DEFINITIONS. For purposes of this Agreement: (I) the term "Beneficial Owner" (and variants thereof) shall have the meaning given in Rule 13d-3 promulgated under the Exchange Act; (II) the term "Cause" shall mean (A) the willful and continued failure by the Grantee to substantially perform the Grantee's duties with the Company (other than any such failure resulting from the Grantee's incapacity due to physical or mental illness) after a written demand for substantial performance is delivered to the Grantee by the Company, which demand specifically identifies the manner in which the Company believes that the Grantee has not substantially performed the Grantee's duties, or (B) the willful engaging by the Grantee in conduct which is demonstrably and materially injurious to the Company or its subsidiaries, monetarily or otherwise. For purposes of clauses (A) and (B) of this definition, no act, or failure to act, on the Grantee's part shall be deemed "willful" unless done, or omitted to be done, by the Grantee not in good faith and without the reasonable belief that the Grantee's act, or failure to act, was in the best interest of the Company; (III) the term "Change in Control" shall mean any of the following events: (A)(i) any Person (as defined in this Section), is or becomes the Beneficial Owner 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 any of its affiliates and (ii) Ciba (as defined in this Section) beneficially owns, in the aggregate, a lesser percentage of the Total Voting Power than such Person beneficially owns; 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 (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 (as defined in this Section) or by a vote of at least a majority of the Incumbent Directors (or 5 directors whose election or nomination for election was previously so approved) shall be considered a member of the Incumbent Board; but, PROVIDED, FURTHER, that any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest (as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a person or legal entity other than the Board shall not be considered a member of the Incumbent Board; or (C) 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 (i) 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 (ii) after which 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 does Ciba; or (D) Ciba shall become the Beneficial Owner of more than 57.5% of the Total Voting Power; or (E) the approval by the stockholders of the Company of a complete liquidation or dissolution of the Company. (IV) the term "Ciba" shall mean Ciba-Geigy Limited, a Swiss corporation, or such corporation or corporations as are substituted for Ciba-Geigy Limited, together with their respective affiliates and any former affiliates holding Company voting securities pursuant to Section 4.01(b) of the Governance Agreement; (V) the term "Disability" shall mean that, as a result of the Grantee's incapacity due to physical or mental illness or injury, the Grantee shall not have performed all or substantially all of the Grantee's usual duties as an employee of the Company for 6 a period of more than one-hundred-fifty (150) days in any period of one-hundred-eighty (180) consecutive days; (VI) the term "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended; (VII) the term "Governance Agreement" shall have the meaning given in the Strategic Alliance Agreement (as defined in this Section); (VIII) the term "Person" shall have the meaning given in Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d) of the Exchange Act, but excluding Ciba for so long as Ciba is subject to the restrictions imposed by the Governance Agreement; (IX) the term "Retirement" shall mean termination of the Grantee's employment, other than by reason of death or Cause, either (A) at or after age 65 or (B) at or after age 55 after five (5) years of employment by the Company (or a Subsidiary thereof); and (X) the term "Strategic Alliance Agreement" shall mean the Strategic Alliance Agreement among the Company, Ciba-Geigy Limited and Ciba-Geigy Corporation, dated as of September 29, 1995, as amended. 7 ANNEX A NOTICE OF GRANT PERFORMANCE ACCELERATED RESTRICTED STOCK UNITS HEXCEL CORPORATION INCENTIVE STOCK PLAN The following employee of Hexcel Corporation, a Delaware corporation ("Hexcel") or a Subsidiary, has been granted performance accelerated restricted stock units in accordance with the terms of this Notice of Grant and the Agreement to which this Notice of Grant is attached. The terms below shall have the meanings ascribed to them below when used in the Agreement. - ----------------------------------------------------------------------------- Grantee - ----------------------------------------------------------------------------- Address of Grantee - ----------------------------------------------------------------------------- Employee Number - ----------------------------------------------------------------------------- Employee ID Number - ----------------------------------------------------------------------------- Foreign Sub Plan, if applicable - ----------------------------------------------------------------------------- Grant Date - ----------------------------------------------------------------------------- Aggregate Number of PARS Granted - ----------------------------------------------------------------------------- IN WITNESS WHEREOF, the parties hereby agree to the terms of this Notice of Grant and the Agreement to which this Notice of Grant is attached and execute this Notice of Grant and the Agreement as of the Grant Date. HEXCEL CORPORATION - ---------------------------------- Grantee By: ---------------------------------- Name: -------------------------------- Title: ------------------------------- 8 EX-10.6 7 PERFORMANCE ACCELERATED STOCK OPTION AGRMT/DIRECTR PERFORMANCE ACCELERATED STOCK OPTION AGREEMENT For Director OPTION AGREEMENT, dated as of the Grant Date, by and between the Optionee and Hexcel Corporation (the "Corporation"). W I T N E S S E T H: WHEREAS, the Corporation has adopted the Hexcel Corporation Incentive Stock Plan (the "Plan"); and WHEREAS, the Executive Compensation Committee (the "Committee") of the Board of Directors of the Corporation (the "Board") has determined that it is desirable and in the best interest of the Corporation to grant to the Optionee a stock option as an incentive for the Optionee to advance the interests of the Corporation; NOW, THEREFORE, the parties agree as follows: 1. NOTICE OF GRANT; INCORPORATION OF PLAN. A Notice of Grant is attached hereto as Annex A and incorporated by reference herein. Unless otherwise provided herein, capitalized terms used herein and set forth in such Notice of Grant shall have the meanings ascribed to them in the Notice of Grant and capitalized terms used herein and set forth in the Plan shall have the meanings ascribed to them in the Plan. The Plan is incorporated by reference and made a part of this Option Agreement, and this Option Agreement shall be subject to the terms of the Plan, as the Plan may be amended from time to time, provided that any such amendment of the Plan must be made in accordance with Section X of the Plan. The Option granted herein constitutes an Award within the meaning of the Plan. 2. GRANT OF OPTION. Pursuant to the Plan and subject to the terms and conditions set forth herein and therein, the Corporation hereby grants to the Optionee the right and option (the "Option") to purchase all or any part of the Option Shares of the Corporation's common stock, $.01 par value per share (the "Common Stock"), which Option is not intended to qualify as an incentive stock option, as defined in Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"). 3. PURCHASE PRICE. The purchase price per share of the Option Shares shall be the Purchase Price. 4. TERMS OF OPTION. (a) EXPIRATION DATE; TERM. Subject to Section 4(d) below, the Option shall expire on, and shall no longer be exercisable following, the tenth anniversary of the Grant Date. The ten-year period from the Grant Date to its tenth anniversary shall constitute the "Term" of the Option. (b) VESTING PERIOD; EXERCISABILITY. Subject to Sections 4(c) and 4(d) below, the Option shall vest and become exercisable as to fifteen percent (15%) of the Option Shares on the second anniversary of the Grant Date and shall vest and become exercisable with respect to the additional percentages of the Option Shares indicated below on each of the next seven anniversaries of the Grant Date: Grant Date Percentage Anniversary Vested ----------- ---------- 2nd 15% 3rd 15% 4th 15% 5th 15% 6th 15% 7th 10% 8th 10% 9th 5% (c) ACCELERATED VESTING BASED ON SHARE PRICE. Notwithstanding Section 4(b) hereof, if, on or before the third anniversary of the Grant Date, the closing price of Company common stock as reported on the New York Stock Exchange Consolidated Transactions Tape shall have equalled or exceeded Thirty-five Dollars ($35) per share for ten or more consecutive trading days, the Option shall become totally vested and exercisable immediately after the tenth such day. (d) TERMINATION OF SERVICE AS DIRECTOR; CHANGE IN CONTROL. (i) Except as provided in Section 4(d)(ii) hereof, if the Optionee's service as a member of the Board is terminated for any reason, the Option (to the extent then vested) may be exercised at any time within one year after such termination (but not beyond the Term of the Option). The Option, to the extent not then vested, shall immediately expire upon such termination. (ii) In the event of a Change in Control (as defined in the last Section hereof), the Option shall immediately become fully vested and exercisable and the post-termination period of exercisability set forth in Section 4(d)(i) hereof shall apply, except that the post-termination period of exercisability shall be extended and the Option shall remain exercisable for a period of three years from the date of such termination, if the Optionee's service as a member of the Board is terminated within two years after the Change in Control for any reason. 5 ADJUSTMENT UPON CHANGES IN CAPITALIZATION. (a) The aggregate number of Option Shares and the Purchase Price shall be appropriately adjusted by the Committee for any increase or decrease in the number of issued shares of Common Stock resulting from a subdivision or consolidation of shares or other capital adjustment, or the payment of a stock dividend or other increase or decrease in such shares, effected without receipt of consideration by the Corporation, or other change in corporate or capital structure. The Committee shall also make the foregoing changes and any other changes, including changes in the classes of securities available, to the extent reasonably necessary or desirable to preserve the intended benefits under this Option Agreement in the event of any other reorganization, recapitalization, merger, consolidation, spin-off, extraordinary dividend or other distribution or similar transaction involving the Corporation. (b) Any adjustment under this Section 5 in the number of Option Shares and the Purchase Price shall apply to only the unexercised portion of the Option. If fractions of a share would result from any such adjustment, the adjustment shall be rounded down to the nearest whole number of shares. 6 METHOD OF EXERCISING OPTION AND WITHHOLDING. (a) The Option shall be exercised by the delivery by the Optionee to the Corporation at its principal office (or at such other address as may be established by the Committee) of written notice of the number of Option Shares with respect to which the Option is exercised, accompanied by payment in full of the aggregate Purchase Price for such Option Shares. Payment for such Option Shares shall be made (i) in U.S. dollars by personal check, bank draft or money order payable to the order of the Corporation, or by money transfers or direct account debits to an account designated by the Corporation; (ii) through the delivery of shares of Common Stock with a Fair Market Value equal to the total payment due from the Optionee; (iii) pursuant to a "cashless exercise" program if such a program is established by the Corporation; or (iv) by any combination of the methods described in (i) through (iii) above. 3 (b) The Corporation's obligation to deliver shares of Common Stock upon the exercise of the Option shall be subject to the payment by the Optionee of applicable federal, state and local withholding tax, if any. The Corporation shall, to the extent permitted by law, have the right to deduct from any payment of any kind otherwise due to the Optionee any federal, state or local taxes required to be withheld with respect to such payment. 7 TRANSFER. Except as provided in this Section 7, the Option is not transferable otherwise than by will or the laws of descent and distribution, and the Option may be exercised during the Optionee's lifetime only by the Optionee. Any attempt to transfer the Option in contravention of this Section 7 is void AB INITIO. The Option shall not be subject to execution, attachment or other process. Notwithstanding the foregoing, the Optionee shall be permitted to transfer the Option to members of his or her immediate family (I.E., children, grandchildren or spouse), trusts for the benefit of such family members, and partnerships whose only partners are such family members; provided, however, that no consideration can be paid for the transfer of the Option and the transferee of the Option shall be subject to all conditions applicable to the Option prior to its transfer. 8 NO RIGHTS IN OPTION SHARES. The Optionee shall have none of the rights of a stockholder with respect to the Option Shares unless and until shares of Common Stock are issued upon exercise of the Option. 9 NO RIGHT TO CONTINUED SERVICE AS DIRECTOR. Nothing contained herein shall be deemed to confer upon the Optionee any right to continue to serve as a member of the Board. 10 GOVERNING LAW/JURISDICTION. This Option Agreement shall be governed by and construed in accordance with the laws of the State of Delaware without reference to principles of conflict of laws. 11 RESOLUTION OF DISPUTES. Any disputes arising under or in connection with this Option Agreement shall be resolved by binding arbitration before a single arbitrator, to be held in New York in accordance with the commercial rules and procedures of the American Arbitration Association. Judgment upon the award rendered by the arbitrator shall be final and subject to appeal only to the extent permitted by law. Each party shall bear such party's own expenses incurred in connection with any arbitration; PROVIDED, HOWEVER, that the cost of the arbitration, including without limitation, 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 NOTICES. Any notice required or permitted under this Option Agreement shall be deemed given when delivered personally, or when deposited in a United States Post Office, postage prepaid, addressed, as appropriate, to the Optionee at the last address specified in Optionee's records with the Corporation, or such other address as the Optionee may designate in writing to the Corporation, or to the Corporation, Attention: Corporate Secretary, or such other address as the Corporation may designate in writing to the Optionee. 13 FAILURE TO ENFORCE NOT A WAIVER. The failure of either party hereto to enforce at any time any provision of this Option Agreement shall in no way be construed to be a waiver of such provision or of any other provision hereof. 14 COUNTERPARTS. This Option Agreement may be executed in two or more counterparts, each of which shall be an original but all of which together shall represent one and the same agreement. 15 MISCELLANEOUS. This Option Agreement cannot be changed or terminated orally. This Option Agreement and the Plan contain the entire agreement between the parties relating to the subject matter hereof. The section headings herein are intended for reference only and shall not affect the interpretation hereof. 16. DEFINITIONS. For purposes of this Employee Option Agreement: (I) the term "Beneficial Owner" (and variants thereof) shall have the meaning given in Rule 13d-3 promulgated under the Exchange Act; (II) the term "Change in Control" shall mean any of the following events: (1)(a) any Person (as defined in this Section) is or becomes the Beneficial Owner of 20% or more of either (i) the then outstanding Common Stock of the Corporation (the "Outstanding Common Stock") or (ii) the combined voting power of the then outstanding securities entitled to vote generally in the election of directors of the Corporation (the "Total Voting Power"); excluding, however, the following: (A) any acquisition by the Corporation or any of its affiliates or (B) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Corporation or any of its affiliates and (b) Ciba (as defined in this Section) beneficially owns, in the aggregate, a lesser percentage of the Total Voting Power than such Person beneficially owns; or (2) a change in the composition of the Board such that the individuals who, as of the effective date of this Employee Option Agreement, constitute the Board (such individuals shall be hereinafter 5 referred to as the "Incumbent Directors") cease for any reason to constitute at least a majority of the Board; PROVIDED, HOWEVER, for purposes of this definition, that any individual who becomes a director subsequent to such effective date, whose election, or nomination for election by the Corporation's stockholders, was made or approved pursuant to the Governance Agreement (as defined in this Section) or by a vote of at least a majority of the Incumbent Directors (or directors whose election or nomination for election was previously so approved) shall be considered a member of the Incumbent Board; but, PROVIDED, FURTHER, that any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest (as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a person or legal entity other than the Board shall not be considered a member of the Incumbent Board; or (3) the approval by the stockholders of the Corporation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Corporation ("Corporate Transaction"); excluding, however, such a Corporate Transaction (a) pursuant to which all or substantially all of the individuals and entities who are the beneficial owners, respectively, of the Outstanding Common Stock and Total Voting Power immediately prior to such Corporate Transaction will beneficially own, directly or indirectly, more than 50%, respectively, of the outstanding common stock and the combined voting power of the then outstanding 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 Corporation or all or substantially all of the Corporation's assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership immediately prior to such Corporate Transaction of the Outstanding Common Stock and Total Voting Power, as the case may be, or (b) after which 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 does Ciba; or (4) Ciba shall become the Beneficial Owner of more than 57.5% of the Total Voting Power; or (5) the approval by the stockholders of the Corporation of a complete liquidation or dissolution of the Corporation; 6 (III) the term "Ciba" shall mean Ciba-Geigy Limited, a Swiss corporation, or such corporation or corporations as are substituted for Ciba-Geigy Limited, together with their respective affiliates and any former affiliates holding Corporation voting securities pursuant to Section 4.01(b) of the Governance Agreement; (IV) the term "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended from time to time; (V) the term "Governance Agreement" shall have the meaning given in the Strategic Alliance Agreement (as defined in this Section); (VI) the term "Person" shall have the meaning given in Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d) of the Exchange Act, but excluding Ciba for so long as Ciba is subject to the restrictions imposed by the Governance Agreement; and (VII) the term "Strategic Alliance Agreement" shall mean the Strategic Alliance Agreement among the Corporation, Ciba-Geigy Limited and Ciba-Geigy Corporation, dated as of September 29, 1995, as amended. 7 ANNEX A NOTICE OF GRANT STOCK OPTION HEXCEL CORPORATION INCENTIVE STOCK PLAN The following member of the Board of Directors of Hexcel Corporation, a Delaware corporation ("Hexcel"), has been granted an option to purchase shares of the Common Stock of Hexcel, $.01 par value, in accordance with the terms of this Notice of Grant and the Option Agreement to which this Notice of Grant is attached. The following is a summary of the principal terms of the option which has been granted. The terms below shall have the meanings ascribed to them below when used in the Option Agreement. - ------------------------------------------------------------------------------ Optionee - ------------------------------------------------------------------------------ Address of Optionee - ------------------------------------------------------------------------------ Grant Date - ------------------------------------------------------------------------------ Purchase Price - ------------------------------------------------------------------------------ Aggregate Number of Shares Granted (the "Option Shares") - ------------------------------------------------------------------------------ IN WITNESS WHEREOF, the parties hereby agree to the terms of this Notice of Grant and the Option Agreement to which this Notice of Grant is attached and execute this Notice of Grant and Option Agreement as of the Grant Date. HEXCEL CORPORATION - ---------------------------------- Optionee By: ---------------------------------- Name: -------------------------------- Title: ------------------------------- EX-10.7 8 PERFORMANCE ACCELERATED STOCK OPTION AGRMT/EMPLYEE PERFORMANCE ACCELERATED STOCK OPTION AGREEMENT For Employee EMPLOYEE OPTION AGREEMENT, dated as of the Grant Date, by and between the Optionee and Hexcel Corporation (the "Corporation"). W I T N E S S E T H: WHEREAS, the Corporation has adopted the Hexcel Corporation Incentive Stock Plan (the "Plan"); and WHEREAS, the Executive Compensation Committee (the "Committee") of the Board of Directors of the Corporation (the "Board") has determined that it is desirable and in the best interest of the Corporation to grant to the Optionee a stock option as an incentive for the Optionee to advance the interests of the Corporation; NOW, THEREFORE, the parties agree as follows: 1. NOTICE OF GRANT; INCORPORATION OF PLAN. A Notice of Grant is attached hereto as Annex A and incorporated by reference herein. Unless otherwise provided herein, capitalized terms used herein and set forth in such Notice of Grant shall have the meanings ascribed to them in the Notice of Grant and capitalized terms used herein and set forth in the Plan shall have the meanings ascribed to them in the Plan. The Plan is incorporated by reference and made a part of this Employee Option Agreement, and this Employee Option Agreement shall be subject to the terms of the Plan, as the Plan may be amended from time to time, provided that any such amendment of the Plan must be made in accordance with Section X of the Plan. The Option granted herein constitutes an Award within the meaning of the Plan. 2. GRANT OF OPTION. Pursuant to the Plan and subject to the terms and conditions set forth herein and therein, the Corporation hereby grants to the Optionee the right and option (the "Option") to purchase all or any part of the Option Shares of the Corporation's common stock, $.01 par value per share (the "Common Stock"), which Option is not intended to qualify as an incentive stock option, as defined in Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"). 3. PURCHASE PRICE. The purchase price per share of the Option Shares shall be the Purchase Price. 4. TERMS OF OPTION. (a) EXPIRATION DATE; TERM. Subject to Section 4(d) below, the Option shall expire on, and shall no longer be exercisable following, the tenth anniversary of the Grant Date. The ten-year period from the Grant Date to its tenth anniversary shall constitute the "Term" of the Option. (b) VESTING PERIOD; EXERCISABILITY. Subject to Sections 4(c) and 4(d) below, the Option shall vest and become exercisable as to fifteen percent (15%) of the Option Shares on the second anniversary of the Grant Date and shall vest and become exercisable with respect to the additional percentages of the Option Shares indicated below on each of the next seven anniversaries of the Grant Date: Grant Date Percentage Anniversary Vested ----------- ---------- 2nd 15% 3rd 15% 4th 15% 5th 15% 6th 15% 7th 10% 8th 10% 9th 5% (c) ACCELERATED VESTING BASED ON SHARE PRICE OR NORMAL RETIREMENT. Notwithstanding Section 4(b) hereof, if, on or before the third anniversary of the Grant Date, the closing price of Company common stock 2 as reported on the New York Stock Exchange Consolidated Transactions Tape shall have equalled or exceeded Thirty-five Dollars ($35) per share for ten or more consecutive trading days, the Option shall become totally vested and exercisable immediately after the tenth such day. Further, if, after the third anniversary of the Grant Date, the employment of the Optionee shall terminate by reason of Normal Retirement (as defined in the last Section hereof), the Option shall immediately become totally vested and exercisable. (d) TERMINATION OF EMPLOYMENT; CHANGE IN CONTROL. (i) For purposes of the grant hereunder, any transfer of employment by the Optionee among the Corporation and the Subsidiaries shall not be considered a termination of employment. If the Optionee's employment with the Corporation is terminated for Cause (as defined in the last Section hereof), the Option, whether or not then vested, shall be automatically terminated as of the date of such termination of employment. If the Optionee's employment with the Corporation shall terminate other than by reason of either Normal or Early Retirement (as defined in the last Section hereof), Disability (as defined in the last Section hereof), death or Cause, the Option (to the extent then vested) may be exercised at any time within ninety (90) days after such termination (but not beyond the Term of the Option). The Option, to the extent not then vested, shall immediately expire upon such termination. If the Optionee dies or becomes Disabled (A) while employed by the Corporation or (B) within 90 days after the termination of his or her employment other than for Cause or Normal or Early Retirement, the Option (to the extent then vested) may be exercised at any time within one year after the Optionee's death or Disability (but not beyond the Term of the Option). The Option, to the extent not then vested, shall immediately expire upon such death or Disability. If the Optionee's employment terminates by reason of Normal Retirement, the Option shall (A) become fully and immediately vested and exercisable and (B) remain exercisable for three years from the date of such Normal Retirement (but not beyond the Term of the Option). If the Optionee's employment terminates by reason of Early Retirement, the Option (to the extent then vested) may be exercised at any time within three years after such termination (but not beyond the 3 Term of the Option). The Option, to the extent not then vested, shall immediately expire upon such termination. (ii) In the event of a Change in Control (as defined in the last Section hereof), the Option shall immediately become fully vested and exercisable and the post-termination periods of exercisability set forth in Section 4(d)(i) hereof shall apply, except that the post-termination period of exercisability shall be extended and the Option shall remain exercisable for a period of three years from the date of such termination of employment, if, within two years after the Change in Control, (A) the Optionee's employment is terminated by the Company without Cause or (B) the Optionee terminates the Optionee's employment for Good Reason (as defined in the last Section hereof). 5. ADJUSTMENT UPON CHANGES IN CAPITALIZATION. (a) The aggregate number of Option Shares and the Purchase Price shall be appropriately adjusted by the Committee for any increase or decrease in the number of issued shares of Common Stock resulting from a subdivision or consolidation of shares or other capital adjustment, or the payment of a stock dividend or other increase or decrease in such shares, effected without receipt of consideration by the Corporation, or other change in corporate or capital structure. The Committee shall also make the foregoing changes and any other changes, including changes in the classes of securities available, to the extent reasonably necessary or desirable to preserve the intended benefits under this Employee Option Agreement in the event of any other reorganization, recapitalization, merger, consolidation, spin-off, extraordinary dividend or other distribution or similar transaction involving the Corporation. (b) Any adjustment under this Section 5 in the number of Option Shares and the Purchase Price shall apply to only the unexercised portion of the Option. If fractions of a share would result from any such adjustment, the adjustment shall be rounded down to the nearest whole number of shares. 4 6. METHOD OF EXERCISING OPTION AND WITHHOLDING. (a) The Option shall be exercised by the delivery by the Optionee to the Corporation at its principal office (or at such other address as may be established by the Committee) of written notice of the number of Option Shares with respect to which the Option is exercised, accompanied by payment in full of the aggregate Purchase Price for such Option Shares. Payment for such Option Shares shall be made (i) in U.S. dollars by personal check, bank draft or money order payable to the order of the Corporation, or by money transfers or direct account debits to an account designated by the Corporation; (ii) through the delivery of shares of Common Stock with a Fair Market Value equal to the total payment due from the Optionee; (iii) pursuant to a "cashless exercise" program if such a program is established by the Corporation; or (iv) by any combination of the methods described in (i) through (iii) above. (b) The Corporation's obligation to deliver shares of Common Stock upon the exercise of the Option shall be subject to the payment by the Optionee of applicable federal, state and local withholding tax, if any. The Corporation shall, to the extent permitted by law, have the right to deduct from any payment of any kind otherwise due to the Optionee any federal, state or local taxes required to be withheld with respect to such payment. 7. TRANSFER. Except as provided in this Section 7, the Option is not transferable otherwise than by will or the laws of descent and distribution, and the Option may be exercised during the Optionee's lifetime only by the Optionee. Any attempt to transfer the Option in contravention of this Section 7 is void AB INITIO. The Option shall not be subject to execution, attachment or other process. Notwithstanding the foregoing, the Optionee shall be permitted to transfer the Option to members of his or her immediate family (I.E., children, grandchildren or spouse), trusts for the benefit of such family members, and partnerships whose only partners are such family members; provided, however, that no consideration can be paid for the transfer of the Option and the transferee of the Option shall be subject to all conditions applicable to the Option prior to its transfer. 8. NO RIGHTS IN OPTION SHARES. The Optionee shall have none of the rights of a stockholder with respect to the Option Shares unless and until shares of Common Stock are issued upon exercise of the Option. 5 9. NO RIGHT TO EMPLOYMENT. Nothing contained herein shall be deemed to confer upon the Optionee any right to remain as an employee of the Corporation. 10. GOVERNING LAW/JURISDICTION. This Employee Option Agreement shall be governed by and construed in accordance with the laws of the State of Delaware without reference to principles of conflict of laws. 11. RESOLUTION OF DISPUTES. Any disputes arising under or in connection with this Employee Option Agreement shall be resolved by binding arbitration before a single arbitrator, to be held in New York in accordance with the commercial rules and procedures of the American Arbitration Association. Judgment upon the award rendered by the arbitrator shall be final and subject to appeal only to the extent permitted by law. Each party shall bear such party's own expenses incurred in connection with any arbitration; PROVIDED, HOWEVER, that the cost of the arbitration, including without limitation, reasonable attorneys' fees of the Optionee, shall be borne by the Corporation in the event the Optionee is the prevailing party in the arbitration. Anything to the contrary notwithstanding, each party hereto has the right to proceed with a court action for injunctive relief or relief from violations of law not within the jurisdiction of an arbitrator. 12. NOTICES. Any notice required or permitted under this Employee Option Agreement shall be deemed given when delivered personally, or when deposited in a United States Post Office, postage prepaid, addressed, as appropriate, to the Optionee at the last address specified in Optionee's employment records, or such other address as the Optionee may designate in writing to the Corporation, or to the Corporation, Attention: Corporate Secretary, or such other address as the Corporation may designate in writing to the Optionee. 13. FAILURE TO ENFORCE NOT A WAIVER. The failure of either party hereto to enforce at any time any provision of this Employee Option Agreement shall in no way be construed to be a waiver of such provision or of any other provision hereof. 14. COUNTERPARTS. This Employee Option Agreement may be executed in two or more counterparts, each of which shall be an original but all of which together shall represent one and the same agreement. 6 15. MISCELLANEOUS. This Employee Option Agreement cannot be changed or terminated orally. This Employee Option Agreement and the Plan contain the entire agreement between the parties relating to the subject matter hereof. The section headings herein are intended for reference only and shall not affect the interpretation hereof. 16. DEFINITIONS. For purposes of this Employee Option Agreement: (I) the term "Beneficial Owner" (and variants thereof) shall have the meaning given in Rule 13d-3 promulgated under the Exchange Act; (II) the term "Cause" shall mean (A) the willful and continued failure by the Optionee to substantially perform the Optionee's duties with the Corporation (other than any such failure resulting from the Optionee's incapacity due to physical or mental illness) after a written demand for substantial performance is delivered to the Optionee by the Corporation, which demand specifically identifies the manner in which the Corporation believes that the Optionee has not substantially performed the Optionee's duties, or (B) the willful engaging by the Optionee in conduct which is demonstrably and materially injurious to the Corporation or its subsidiaries, monetarily or otherwise. For purposes of clauses (A) and (B) of this definition, no act, or failure to act, on the Optionee's part shall be deemed "willful" unless done, or omitted to be done, by the Optionee not in good faith and without the reasonable belief that the Optionee's act, or failure to act, was in the best interest of the Corporation; (III) the term "Change in Control" shall mean any of the following events: (1)(a) any Person (as defined in this Section) is or becomes the Beneficial Owner of 20% or more of either (i) the then outstanding Common Stock of the Corporation (the "Outstanding Common Stock") or (ii) the combined voting power of the then outstanding securities entitled to vote generally in the election of directors of the Corporation (the "Total Voting Power"); excluding, however, the following: (A) any acquisition by the Corporation or any of its affiliates or (B) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Corporation or any of its affiliates and (b) Ciba (as 7 defined in this Section) beneficially owns, in the aggregate, a lesser percentage of the Total Voting Power than such Person beneficially owns; or (2) a change in the composition of the Board such that the individuals who, as of the effective date of this Employee Option Agreement, constitute the Board (such individuals shall be hereinafter referred to as the "Incumbent Directors") cease for any reason to constitute at least a majority of the Board; PROVIDED, HOWEVER, for purposes of this definition, that any individual who becomes a director subsequent to such effective date, whose election, or nomination for election by the Corporation's stockholders, was made or approved pursuant to the Governance Agreement (as defined in this Section) or by a vote of at least a majority of the Incumbent Directors (or directors whose election or nomination for election was previously so approved) shall be considered a member of the Incumbent Board; but, PROVIDED, FURTHER, that any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest (as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a person or legal entity other than the Board shall not be considered a member of the Incumbent Board; or (3) the approval by the stockholders of the Corporation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Corporation ("Corporate Transaction"); excluding, however, such a Corporate Transaction (a) pursuant to which all or substantially all of the individuals and entities who are the beneficial owners, respectively, of the Outstanding Common Stock and Total Voting Power immediately prior to such Corporate Transaction will beneficially own, directly or indirectly, more than 50%, respectively, of the outstanding common stock and the combined voting power of the then outstanding 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 Corporation or all or substantially all of the Corporation's 8 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 (b) after which 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 does Ciba; or (4) Ciba shall become the Beneficial Owner of more than 57.5% of the Total Voting Power; or (5) the approval by the stockholders of the Corporation of a complete liquidation or dissolution of the Corporation; (IV) the term "Ciba" shall mean Ciba-Geigy Limited, a Swiss corporation, or such corporation or corporations as are substituted for Ciba-Geigy Limited, together with their respective affiliates and any former affiliates holding Corporation voting securities pursuant to Section 4.01(b) of the Governance Agreement; (V) the term "Disability (or becoming Disabled)" shall mean that, as a result of the Optionee's incapacity due to physical or mental illness or injury, he or she shall not have performed all or substantially all of his or her usual duties as an employee of the Corporation for a period of more than one-hundred-fifty (150) days in any period of one-hundred-eighty (180) consecutive days; (VI) the term "Early Retirement" shall mean termination of the Optionee's employment, other than by reason of death or Cause, at or after age 55 after five (5) years of employment by the Corporation (or a Subsidiary thereof); (VII) the term "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended from time to time; (VIII) the term "Good Reason" for termination by the Optionee of the Optionee's employment shall mean the occurrence (without the Optionee's express written consent) of any one of the following acts by the Corporation, or failures by the Corporation to act, unless, in the 9 case of any act or failure to act described in paragraphs (1), (5) or (6) below, such act or failure to act is corrected prior to the date of termination of the Optionee's employment: (1) a significant adverse alteration in the nature or status of the Optionee's responsibilities, position or authority from those in effect immediately prior to the Change in Control; (2) a reduction by the Corporation in the Optionee's annual base salary as in effect on the date hereof or as the same may be increased from time to time; (3) the relocation of the Optionee's principal place of employment to a location more than fifty (50) miles from the Optionee's principal place of employment immediately prior to the Change in Control or the Corporation's requiring the Optionee to work anywhere other than at such principal place of employment (or permitted relocation thereof) except for required travel on the Corporation's business to an extent substantially consistent with the Optionee's present business travel obligations; (4) the failure by the Corporation to pay to the Optionee any portion of the Optionee's current compensation, or to pay to the Optionee any portion of an installment of deferred compensation under any deferred compensation program of the Corporation, within seven (7) days of the date such compensation is due; (5) the failure by the Corporation to continue in effect any compensation plan in which the Optionee participates immediately prior to the Change in Control which is material to the Optionee's total compensation, or any substitute plans adopted prior to the Change in Control, unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan, or the failure by the Corporation to continue the Optionee's participation therein (or in such substitute or alternative plan) on a basis not materially less favorable, both in terms of the amount or timing of payment of benefits provided and the level 10 of the Optionee's participation relative to other participants, as existed immediately prior to the Change in Control; or (6) the failure by the Corporation to continue to provide the Optionee with benefits substantially similar to those enjoyed by the Optionee under any of the Corporation's pension, savings, life insurance, medical, health and accident, or disability plans in which the Optionee was participating immediately prior to the Change in Control (except for across-the-board changes similarly affecting all senior executives of the Corporation and all senior executives of any Person in control of the Corporation), the taking of any other action by the Corporation which would directly or indirectly materially reduce any of such benefits or deprive the Optionee of any material fringe benefit enjoyed by the Optionee at the time of the Change in Control, or the failure by the Corporation to provide the Optionee with the number of paid vacation days to which the Optionee is entitled on the basis of years of service with the Corporation in accordance with the Corporation's normal vacation policy in effect at the time of the Change in Control. The Optionee's right to terminate the Optionee's employment for Good Reason shall not be affected by the Optionee's incapacity due to physical or mental illness. The Optionee's continued employment shall not constitute consent to, or a waiver of rights with respect to, any act or failure to act constituting Good Reason hereunder. For purposes of any determination regarding the existence of Good Reason, any claim by the Optionee that Good Reason exists shall be presumed to be correct unless the Corporation establishes to the Board by clear and convincing evidence that Good Reason does not exist; (IX) the term "Governance Agreement" shall have the meaning given in the Strategic Alliance Agreement (as defined in this Section); (X) the term "Normal Retirement" shall mean termination of the Optionee's employment, other than by reason of death or Cause, either at or after age 65; 11 (XI) the term "Person" shall have the meaning given in Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d) of the Exchange Act, but excluding Ciba for so long as Ciba is subject to the restrictions imposed by the Governance Agreement; and (X) the term "Strategic Alliance Agreement" shall mean the Strategic Alliance Agreement among the Corporation, Ciba-Geigy Limited and Ciba-Geigy Corporation, dated as of September 29, 1995, as amended. 12 ANNEX A NOTICE OF GRANT EMPLOYEE STOCK OPTION HEXCEL CORPORATION INCENTIVE STOCK PLAN The following employee of Hexcel Corporation, a Delaware corporation ("Hexcel"), or a Subsidiary thereof, has been granted an option to purchase shares of the Common Stock of Hexcel, $.01 par value, in accordance with the terms of this Notice of Grant and the Employee Option Agreement to which this Notice of Grant is attached. The following is a summary of the principal terms of the option which has been granted. The terms below shall have the meanings ascribed to them below when used in the Employee Option Agreement. - ------------------------------------------------------------------------------- Optionee - ------------------------------------------------------------------------------- Address of Optionee - ------------------------------------------------------------------------------- Employee Number - ------------------------------------------------------------------------------- Employee ID Number - ------------------------------------------------------------------------------- Foreign Sub Plan, if applicable - ------------------------------------------------------------------------------- Grant Date - ------------------------------------------------------------------------------- Purchase Price - ------------------------------------------------------------------------------- Aggregate Number of Shares Granted (the "Option Shares") - ------------------------------------------------------------------------------- IN WITNESS WHEREOF, the parties hereby agree to the terms of this Notice of Grant and the Employee Option Agreement to which this Notice of Grant is attached and execute this Notice of Grant and Employee Option Agreement as of the Grant Date. HEXCEL CORPORATIONHEXCEL CORPORATION - ---------------------------------- Optionee By: ---------------------------------- Name: -------------------------------- Title: ------------------------------- EX-10.8 9 RELOAD OPTION AGREEMENT RELOAD OPTION AGREEMENT RELOAD OPTION AGREEMENT, dated as of the Grant Date, by and between the Optionee and Hexcel Corporation (the "Corporation"). W I T N E S S E T H: WHEREAS, the Corporation has adopted the Hexcel Corporation Incentive Stock Plan (the "Plan"); and WHEREAS, the Optionee has previously received a Short-Term Option Agreement dated January 30, 1997 which provides for, upon exercise thereof, the grant of this Reload Option Agreement, subject to certain terms and conditions; and WHEREAS, the Optionee has exercised the Short-Term Option Agreement and is in possession of all or certain of the Common Stock (as defined below) issued to him upon the exercise thereof (the "Short-Term Option Shares"). NOW, THEREFORE, the parties agree as follows: 1. NOTICE OF GRANT; INCORPORATION OF PLAN. A Notice of Grant is attached hereto as Annex A and incorporated by reference herein. Unless otherwise provided herein, capitalized terms used herein and set forth in such Notice of Grant shall have the meanings ascribed to them in the Notice of Grant and capitalized terms used herein and set forth in the Plan shall have the meanings ascribed to them in the Plan. The Plan is incorporated by reference and made a part of this Employee Option Agreement, and this Employee Option Agreement shall be subject to the terms of the Plan, as the Plan may be amended from time to time, provided that any such amendment of the Plan must be made in accordance with Section X of the Plan. The Option granted herein constitutes an Award within the meaning of the Plan. 2. GRANT OF OPTION. Pursuant to the Plan and subject to the terms and conditions set forth herein and therein, the Corporation hereby grants to the Optionee the right and option (the "Option") to purchase all or any part of the Option Shares of the Corporation's common stock, $.01 par value per share (the "Common Stock"), which Option is not intended to qualify as an incentive stock option, as defined in Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"). 3. PURCHASE PRICE. The purchase price per share of the Option Shares shall be the Purchase Price. 4. TERM OF OPTION. (a) EXPIRATION DATE; TERM. Subject to Sections 4(c) and 4(d) hereof, the Option shall expire on, and shall no longer be exercisable following, the tenth anniversary of the Grant Date. The ten-year period from the Grant Date to its tenth anniversary shall constitute the "Term" of the Option. (b) VESTING PERIOD; EXERCISABILITY. Subject to Sections 4(c) and 4(d) hereof, the Option shall vest and become non-forfeitable (but not exercisable) at the rate of 33-1/3% of the Option Shares on each of the first three anniversaries of the Grant Date. The Option shall become exercisable on the fourth anniversary of the Grant Date or, if sooner, as provided in Section 4(c). (c) TERMINATION OF EMPLOYMENT; CHANGE IN CONTROL. (i) For purposes of the grant hereunder, any transfer of employment by the Optionee among the Corporation and the Subsidiaries shall not be considered a termination of employment. If the Optionee's employment with the Corporation is terminated for Cause (as defined in the last Section hereof), the Option, whether or not then vested, shall be automatically terminated as of the date of such termination of employment. If the Optionee's employment with the Corporation shall terminate other than by reason of Retirement (as defined in the last Section hereof), Disability (as defined in the last Section hereof), death or Cause, the Option (to the extent then vested) may be exercised at any time within ninety (90) days after such termination (but not beyond the Term of the Option). The Option, to the extent not then vested, shall immediately expire upon such termination. If the Optionee dies or becomes Disabled (A) while employed by the Corporation or (B) within 90 days after the termination of his or her employment other than for Cause or Retirement, the Option (to the extent then vested) may be exercised at any time within one year after the Optionee's death or Disability (but not beyond the Term of the Option). The Option, to the extent not then vested, shall immediately expire upon such death or disability. If the Optionee's employment terminates by reason of Retirement, the Option shall (A) become fully and immediately vested and exercisable and (B) remain exercisable for three years from the date of such Retirement (but not beyond the Term of the Option). (ii) In the event of a Change in Control (as defined in the last Section hereof), the Option shall immediately become fully vested and exercisable and the post-termination periods of exercisability set forth in Section 4(i) hereof shall apply, except that the post-termination period of exercisability shall be extended and the Option shall remain exercisable for a period of three years from the date of such termination of employment, if, within two years after a Change in Control, (A) the Optionee's employment is terminated by the Company other than by reason of Retirement, Cause, Disability or death or (B) the Optionee terminates the Optionee's employment for Good Reason (as defined in the last Section hereof). (d) AUTOMATIC CANCELLATION Subject to Section 4(c) hereof and only while the Optionee is employed by the Corporation, the Option shall be deemed automatically canceled (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), immediately upon any sale, disposition or 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 canceled 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. The Committee shall also make the foregoing changes and any other changes, including changes in the classes of securities available, to the extent reasonably necessary or desirable to preserve the intended benefits under this Reload Option Agreement in the event of any other reorganization, recapitalization, merger, consolidation, spin-off, extraordinary dividend or other distribution or similar transaction involving the Corporation. (b) Any adjustment under this Section 5 in the number of Option Shares and the Purchase Price shall apply to only the unexercised portion of the Option. If fractions of a share would result from any such adjustment, the adjustment shall be rounded down to the nearest whole number of shares. 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, or by money transfers or direct account debits to an account designated by the Corporation; (ii) through the delivery of shares of Common Stock with a Fair Market Value equal to the total payment due from the Optionee; (iii) pursuant to a "cashless exercise" program if such a program is established by the Corporation; or (iv) by any combination of the methods described in (i) through (iii) above. (b) The Corporation's obligation to deliver shares of Common Stock upon the exercise of the Option shall be subject to the payment by the Optionee of applicable federal, state and local withholding tax, if any. The Corporation shall, to the extent permitted by law, have the right to deduct from any payment of any kind otherwise due to the Optionee any federal, state or local taxes required to be withheld with respect to such payment. 7. TRANSFER. Except as provided in this Section 7, the Option is not transferable otherwise than by will or the laws of descent and distribution, and the Option may be exercised during the Optionee's lifetime only by the Optionee. Any attempt to transfer the Option in contravention of this Section 7 is void AB INITIO. The Option shall not be subject to execution, attachment or other process. Notwithstanding the foregoing, the Optionee shall be permitted to transfer the Option to members of his or her immediate family (I.E., children, grandchildren or spouse), trusts for the benefit of such family members, and partnerships whose only partners are such family members; provided, however, that no consideration can be paid for the transfer of the Option and the transferee of the Option shall be subject to all conditions applicable to the Option prior to its transfer. 8. NO RIGHTS IN OPTION SHARES. The Optionee shall have none of the rights of a stockholder with respect to the Option Shares unless and until shares of Common Stock are issued upon exercise of the Option. 9. NO RIGHT TO EMPLOYMENT. Nothing contained herein shall be deemed to confer upon the Optionee any right to remain as an employee of the Corporation. 10. GOVERNING LAW/JURISDICTION. This 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. 4 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 such party's own expenses incurred in connection with any arbitration; PROVIDED, HOWEVER, that the cost of the arbitration, including without limitation, reasonable attorneys' fees of the Optionee, shall be borne by the Corporation in the event the Optionee is the prevailing party in the arbitration. Anything to the contrary notwithstanding, each party hereto has the right to proceed with a court action for injunctive relief or relief from violations of law not within the jurisdiction of an arbitrator. 12. NOTICES. Any notice required or permitted under this Reload Option Agreement shall be deemed given when delivered personally, or when deposited in a United States Post Office, postage prepaid, addressed, as appropriate, to the Optionee at the last address specified in Optionee's employment records, or such other address as the Optionee may designate in writing to the Corporation, or to the Corporation, Attention: Corporate Secretary, or such other address as the Corporation may designate in writing to the Optionee. 13. FAILURE TO ENFORCE NOT A WAIVER. The failure of either party hereto to enforce at any time any provision of this Reload Option Agreement shall in no way be construed to be a waiver of such provision or of any other provision hereof. 14. COUNTERPARTS. This Reload Option Agreement may be executed in two or more counterparts, each of which shall be an original but all of which together shall represent one and the same agreement. 15. MISCELLANEOUS. This 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. 16. DEFINITIONS. For purposes of this Reload Option Agreement: (I) the term "Beneficial Owner" (and variants thereof) shall have the meaning given in Rule 13d-3 promulgated under the Exchange Act; (II) the term "Cause" shall mean (A) the willful and continued failure by the Optionee to substantially perform the Optionee's duties with the Corporation (other than any such failure resulting from the Optionee's incapacity due to 5 physical or mental illness) after a written demand for substantial performance is delivered to the Optionee by the Corporation, which demand specifically identifies the manner in which the Corporation believes that the Optionee has not substantially performed the Optionee's duties, or (B) the willful engaging by the Optionee in conduct which is demonstrably and materially injurious to the Corporation or its subsidiaries, monetarily or otherwise. For purposes of clauses (A) and (B) of this definition, no act, or failure to act, on the Optionee's part shall be deemed "willful" unless done, or omitted to be done, by the Optionee not in good faith and without the reasonable belief that the Optionee's act, or failure to act, was in the best interest of the Corporation; (III) the term "Change in Control" shall mean any of the following events: (1)(a) any Person (as defined in this Section) is or becomes the Beneficial Owner of 20% or more of either (I) the then outstanding Common Stock of the Corporation (the "Outstanding Common Stock") or (ii) the combined voting power of the then outstanding securities entitled to vote generally in the election of directors of the Corporation (the "Total Voting Power"); excluding, however, the following: (A) any acquisition by the Corporation or any of its affiliates or (B) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Corporation or any of its affiliates and (b) Ciba (as defined in this Section) beneficially owns, in the aggregate, a lesser percentage of the Total Voting Power than such Person beneficially owns; or (2) a change in the composition of the Board such that the individuals who, as of the effective date of this Employee Option Agreement, constitute the Board (such individuals shall be hereinafter referred to as the "Incumbent Directors") cease for any reason to constitute at least a majority of the Board; PROVIDED, HOWEVER, for purposes of this definition, that any individual who becomes a director subsequent to such effective date, whose election, or nomination for election by the Corporation's stockholders, was made or approved pursuant to the Governance Agreement (as defined in this Section) 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 6 entity other than the Board shall not be considered a member of the Incumbent Board; or (3) the approval by the stockholders of the Corporation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Corporation ("Corporate Transaction"); excluding, however, such a Corporate Transaction (a) pursuant to which all or substantially all of the individuals and entities who are the beneficial owners, respectively, of the Outstanding Common Stock and Total Voting Power immediately prior to such Corporate Transaction will beneficially own, directly or indirectly, more than 50%, respectively, of the outstanding common stock and the combined voting power of the then outstanding 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 Corporation or all or substantially all of the Corporation's assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership immediately prior to such Corporate Transaction of the Outstanding Common Stock and Total Voting Power, as the case may be, or (b) after which 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 does Ciba; or (4) Ciba shall become the Beneficial Owner of more than 57.5% of the Total Voting Power; or (5) the approval by the stockholders of the Corporation of a complete liquidation or dissolution of the Corporation; (IV) the term "Ciba" shall mean Ciba-Geigy Limited, a Swiss corporation, or such corporation or corporations as are substituted for Ciba-Geigy Limited, together with their respective affiliates and any former affiliates holding Corporation voting securities pursuant to Section 4.01(b) of the Governance Agreement; (V) the term "Disability (or becoming Disabled)" shall mean that, as a result of the Optionee's incapacity due to physical or mental illness or injury, he or she shall not have performed all or substantially all of his or her usual duties as an employee of the Corporation for a period of more than one-hundred-fifty (150) days in any period of one-hundred-eighty (180) consecutive days; 7 (VI) the term "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended from time to time; (VII) the term "Good Reason" for termination by the Optionee of the Optionee's employment shall mean the occurrence (without the Optionee's express written consent) of any one of the following acts by the Corporation, or failures by the Corporation to act, unless, in the case of any act or failure to act described in paragraphs (1), (5) or (6) below, such act or failure to act is corrected prior to the date of termination of the Optionee's employment: (1) a significant adverse alteration in the nature or status of the Optionee's responsibilities, position or authority from those in effect immediately prior to the Change in Control; (2) a reduction by the Corporation in the Optionee's annual base salary as in effect on the date hereof or as the same may be increased from time to time; (3) the relocation of the Optionee's principal place of employment to a location more than fifty (50) miles from the Optionee's principal place of employment immediately prior to the Change in Control or the Corporation's requiring the Optionee to work anywhere other than at such principal place of employment (or permitted relocation thereof) except for required travel on the Corporation's business to an extent substantially consistent with the Optionee's present business travel obligations; (4) the failure by the Corporation to pay to the Optionee any portion of the Optionee's current compensation, or to pay to the Optionee any portion of an installment of deferred compensation under any deferred compensation program of the Corporation, within seven (7) days of the date such compensation is due; (5) the failure by the Corporation to continue in effect any compensation plan in which the Optionee participates immediately prior to the Change in Control which is material to the Optionee's total compensation, or any substitute plans adopted prior to the Change in Control, unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan, or the failure by the Corporation to continue the Optionee's participation therein (or in such substitute or alternative plan) on a basis not materially less favorable, both in terms of the amount or timing of payment of benefits provided and the level of the 8 Optionee's participation relative to other participants, as existed immediately prior to the Change in Control; or (6) the failure by the Corporation to continue to provide the Optionee with benefits substantially similar to those enjoyed by the Optionee under any of the Corporation's pension, savings, life insurance, medical, health and accident, or disability plans in which the Optionee was participating immediately prior to the Change in Control (except for across-the-board changes similarly affecting all senior executives of the Corporation and all senior executives of any Person in control of the Corporation), the taking of any other action by the Corporation which would directly or indirectly materially reduce any of such benefits or deprive the Optionee of any material fringe benefit enjoyed by the Optionee at the time of the Change in Control, or the failure by the Corporation to provide the Optionee with the number of paid vacation days to which the Optionee is entitled on the basis of years of service with the Corporation in accordance with the Corporation's normal vacation policy in effect at the time of the Change in Control. The Optionee's right to terminate the Optionee's employment for Good Reason shall not be affected by the Optionee's incapacity due to physical or mental illness. The Optionee's continued employment shall not constitute consent to, or a waiver of rights with respect to, any act or failure to act constituting Good Reason hereunder. For purposes of any determination regarding the existence of Good Reason, any claim by the Optionee that Good Reason exists shall be presumed to be correct unless the Corporation establishes to the Board by clear and convincing evidence that Good Reason does not exist; (VIII) the term "Governance Agreement" shall have the meaning given in the Strategic Alliance Agreement (as defined in this Section); (IX) the term "Person" shall have the meaning given in Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d) of the Exchange Act, but excluding Ciba for so long as Ciba is subject to the restrictions imposed by the Governance Agreement; (X) the term "Retirement" shall mean termination of the Optionee's employment, other than by reason of death or Cause, either (A) at or after age 65 or (B) at or after age 55 after five (5) years of employment by the Corporation (or a Subsidiary thereof); and 9 (XI) the term "Strategic Alliance Agreement" shall mean the Strategic Alliance Agreement among the Corporation, Ciba-Geigy Limited and Ciba-Geigy Corporation, dated as of September 29, 1995, as amended. 10 ANNEX A NOTICE OF GRANT RELOAD STOCK OPTION HEXCEL CORPORATION INCENTIVE STOCK PLAN The following employee of Hexcel Corporation, a Delaware corporation ("Hexcel") or a Subsidiary, has been granted an option to purchase shares of the Common Stock of Hexcel, $.01 par value, in accordance with the terms of this Notice of Grant and the Reload Option Agreement to which this Notice of Grant is attached. The following is a summary of the principal terms of the option which has been granted. The terms below shall have the meanings ascribed to them below when used in the Reload Option Agreement. - ------------------------------------------------------------------------------ Optionee - ------------------------------------------------------------------------------ Address of Optionee - ------------------------------------------------------------------------------ Employee Number - ------------------------------------------------------------------------------ Employee ID Number - ------------------------------------------------------------------------------ Foreign Sub Plan, if applicable - ------------------------------------------------------------------------------ Grant Date - ------------------------------------------------------------------------------ Purchase Price - ------------------------------------------------------------------------------ Aggregate Number of Shares Granted (the "Option Shares") - ------------------------------------------------------------------------------ IN WITNESS WHEREOF, the parties hereby agree to the terms of this Notice of Grant and the Reload Option Agreement to which this Notice of Grant is attached and execute this Notice of Grant and Reload Option Agreement as of the Grant Date. HEXCEL CORPORATION - ---------------------------------- Optionee By: ---------------------------------- Name: -------------------------------- Title: ------------------------------- EX-10.9 10 HEXCEL CORPORATION MGMT STOCK PURCHASE PLAN HEXCEL CORPORATION MANAGEMENT STOCK PURCHASE PLAN 1. PURPOSES; TYPES OF GRANTS; CONSTRUCTION. The purposes of the Hexcel Corporation Management Stock Purchase Plan (the "Plan") are to attract and retain highly-qualified executives, to align executive and stockholder long-term interests by creating a direct link between annual incentive executive compensation and stockholder return and to enable executives to purchase stock by using a portion of their annual incentive compensation so that they can develop and maintain a substantial stock ownership position in Hexcel Corporation (the "Company"). 2. DEFINITIONS. As used in this Plan, the following words and phrases shall have the meanings indicated: (a) "Agreement" shall mean an agreement entered into between the Company and a Participant in connection with a grant under the Plan. (b) "Annual Bonus" shall mean the bonus earned by a Participant for any Company fiscal year under the Annual Plan. (c) "Annual Plan" shall mean the Hexcel Corporation Management Incentive Compensation Plan, as amended from time to time. (d) "Beneficial Owner" (and variants thereof) shall have the meaning given in Rule 13d-3 promulgated under the Exchange Act. (e) "Board" shall mean the Board of Directors of the Company. (f) "Cause" shall mean (i) the willful and continued failure by the Participant to substantially perform the Participant's duties with the Company (other than any such failure resulting from the Participant's incapacity due to physical or mental illness) after a written demand for substantial performance is delivered to the Participant by the Company, which demand specifically identifies the manner in which the Company believes that the Participant has not substantially per- formed the Participant's duties, or (ii) the willful engaging by the Participant in conduct which is demonstrably and materially injurious to the Company or its subsidiaries, monetarily or otherwise. For purposes of clauses (i) and (ii) of this definition, no act, or failure to act, on the Participant's part shall be deemed "willful" unless done, or omitted to be done, by the Participant not in good faith and without reasonable belief that the Participant's act, or failure to act, was in the best interest of the Company. (g) "Change in Control" shall have the meaning given in Article 6 hereof. (h) "Ciba" shall mean Ciba-Geigy Limited, a Swiss corporation, or such corporation or corporations as are substituted for Ciba-Geigy Limited, together with their respective affiliates and any former affiliates holding Company voting securities pursuant to Section 4.01(b) of the Governance Agreement. (i) "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time. (j) "Committee" shall mean the Executive Compensation Committee of the Board or such other committee of the Board as may be designated by the Board. (k) "Company" shall mean Hexcel Corporation, a corporation organized under the laws of the State of Delaware, or any successor corporation. (l) "Disability" shall mean that, as a result of the Participant's incapacity due to physical or mental illness or injury, the Participant shall not have performed all or substantially all of the Participant's usual duties as an employee for a period of more than one-hundred-fifty (150) days in any period of one-hundred-eighty (180) consecutive days. (m) "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended. (n) "Fair Market Value" per share of Stock shall be the average of the closing prices on the NYSE Consolidated Transactions Tape for the five trading days immediately preceding the relevant valuation date and "Fair Market Value" of a Restricted Stock Unit on any valuation date shall be deemed to be equal to the Fair Market Value of a share of Stock on such valuation date. (o) "Governance Agreement" shall have the meaning given in the Strategic Alliance Agreement. 2 (p) "Participant" shall mean a person who receives a grant of Restricted Stock Units under the Plan; all such grants are sometimes referred to herein as "purchases". (q) "Person", as used in Article 6 hereof, shall have the meaning given in Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d) of the Exchange Act, but excluding Ciba for so long as Ciba is subject to the restrictions imposed by the Governance Agreement. (r) "Plan" means this Hexcel Corporation Management Stock Purchase Plan, as amended from time to time. (s) "Restricted Period" shall have the meaning given in Sections 5(c) and 5(h) hereof. (t) "Restricted Stock Unit" or "Restricted Stock Units" shall have the meaning given in Section 5 hereof. (u) "Retirement" shall mean the termination of a Participant's employment (other than by reason of death or Cause) which occurs either (i) at or after age 65 or (ii) at or after age 55 after five (5) years of employment by the Company (or a Subsidiary thereof). (v) "Stock" shall mean shares of the common stock of the Company, par value $.01 per share. (w) "Strategic Alliance Agreement" shall mean the Strategic Alliance Agreement among Hexcel Corporation, Ciba-Geigy Limited and Ciba-Geigy Corporation, dated as of September 29, 1995, as amended. (x) "Subsidiary" shall mean any subsidiary of the Company (whether or not a subsidiary at the date the Plan is adopted) which is designated by the Committee to participate in the Plan. (y) "Term" shall have the meaning given in Article 14 hereof. 3. STOCK. The maximum number of shares of the Stock which shall be reserved for the grant of Restricted Stock Units under the Plan shall be 150,000, which number shall be subject to adjustment as provided in Article 7 hereof. Such shares 3 may be either authorized but unissued shares or shares that shall have been or may be reacquired by the Company. If any outstanding grant of Restricted Stock Units under the Plan should, for any reason be cancelled or be forfeited before all its restrictions lapse, the shares of Stock allocable to the cancelled or terminated portion of such grant shall (unless the Plan shall have been terminated) become available for subsequent grants under the Plan. 4. ELIGIBILITY. During the Term of the Plan any Participant in the Annual Plan can elect to receive up to fifty (50%) percent of the Participant's Annual Bonus in Restricted Stock Units granted pursuant to, and subject to the terms and conditions of, this Plan. Except as otherwise provided by the Committee in its discretion with respect to the first fiscal year of the Company in which (i) the Plan is in effect or (ii) a Participant participates in the Plan, any such election by a Participant must be made at least six months prior to the day the amount of the Participant's Annual Bonus is finally determined under the Annual Plan. Since the Restricted Stock Units are "purchased" with part or all of the Annual Bonus, all Restricted Stock Unit grants under this Plan are sometimes referred to herein as "purchases." For purposes of the Plan, the date of purchase of a Restricted Stock Unit shall be deemed to be the date the Annual Bonus (from which the purchase funds are derived) is payable. 5. RESTRICTED STOCK UNITS. Each grant of Restricted Stock Units under the Plan shall be evidenced by a written Agreement between the Company and the Participant, in such form as the Committee shall from time to time approve, and shall comply with the following terms and conditions (and with such other terms and conditions not inconsistent with the terms of this Plan as the Committee, in its discretion, shall establish): (a) NUMBER OF RESTRICTED STOCK UNITS. Each Agreement shall state the number of Restricted Stock Units to be subject to a grant. (b) PRICE. The price of each Restricted Stock Unit purchased under the Plan shall be eighty (80%) percent of its Fair Market Value on the date of purchase. Notwithstanding any other provision of the Plan, in no event shall the price per Restricted Stock Unit be less than the par value per share of Stock. (c) NORMAL VESTING; NORMAL END OF RESTRICTED PERIOD. Subject to Section 5(d) hereof, one-third (1/3) of Restricted Stock Units 4 purchased on a given date shall vest on each of the first three anniversaries of the date of purchase, but the Restricted Period of all Restricted Stock Units purchased on that date shall end on the third anniversary thereof. (d) ACCELERATION OF VESTING AND END OF RESTRICTED PERIOD. Notwithstanding Section 5(c) hereof, a Participant's Restricted Stock Units shall immediately become completely vested and their respective Restricted Periods shall end upon the first to occur of (x) a Change in Control, (y) the involuntary termination of the Participant's employment without Cause, or (z) the termination of a Participant's employment by reason of Retirement or the Participant's death or Disability. Additionally, the Committee shall have the authority to vest any or all of a Participant's Restricted Stock Units and to end their respective Restricted Periods at such earlier time or times and on such terms and conditions as the Committee shall deem appropriate. (e) PAYMENT AT END OF RESTRICTED PERIOD. Upon the end of the Restricted Period with respect to a Restricted Stock Unit, the Participant (or the Participant's estate, in the event of the Participant's death) will receive payment of all the Participant's Restricted Stock Units in the form of an equal number of unrestricted shares of Stock. (f) TERMINATION DURING THE RESTRICTED PERIOD AND VESTED RESTRICTED STOCK UNITS; PAYMENT. If the termination of the employment of a Participant occurs during the Restricted Period, the Participant (or the Participant's estate, in the event of the Participant's death) will receive unrestricted shares of Stock equal in number to the Participant's vested Restricted Stock Units. (g) TERMINATION DURING RESTRICTED PERIOD AND UNVESTED RESTRICTED STOCK UNITS; PAYMENT. If the termination of the employment of a Participant occurs during the Restricted Period, the Participant will receive a cash payment equal to eighty (80%) percent of the Fair Market Value of the Participant's unvested Restricted Stock Units on the date of their purchase. (h) RESTRICTIONS. Restricted Stock Units (whether or not vested) may not be sold, assigned, transferred, pledged, hypothecated or otherwise disposed of, except by will or the laws of descent and distribution, during the Restricted Period. The Committee may also impose such other restrictions and conditions on the shares as it deems appropriate. 6. CHANGE IN CONTROL OF THE COMPANY. 5 For purposes of the Plan, the term "Change in Control" shall mean any of the following events: (a) (i) any Person is or becomes the Beneficial Owner 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 any of its affiliates; and (ii) Ciba Beneficially Owns, in the aggregate, a lesser percentage of the Total Voting Power than such Person Beneficially Owns; or (b) a change in the composition of the Board such that the individuals who, as of the date of the adoption of the Plan by the Board, constitute the Board (such individuals shall be hereinafter referred to as the "Incumbent Directors") cease for any reason to constitute at least a majority of the Board; PROVIDED, HOWEVER, for purposes of this definition, that any individual who becomes a director subsequent to such date, whose election, or nomination for election by the Company's stockholders, was made or approved pursuant to the Governance Agreement or by a vote of at least a majority of the Incumbent Directors (or directors whose election or nomination for election was previously so approved) shall be considered a member of the Incumbent Board; but, PROVIDED, FURTHER, that any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest (as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a person or legal entity other than the Board shall not be considered a member of the Incumbent Board; or (c) 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 (i) 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 6 Power, as the case may be, or (ii) after which 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 does Ciba; or (d) Ciba shall become the Beneficial Owner of more than 57.5% of the Total Voting Power; or (e) the approval by the stockholders of the Company of a complete liquidation or dissolution of the Company. 7. EFFECT OF CERTAIN CHANGES. In the event of any extraordinary dividend, stock dividend, recapitalization, merger, consolidation, stock split, warrant or rights issuance, or combination or exchange of such shares, or other similar transactions, the number of shares of Stock available for grants and the number of such shares covered by outstanding grants shall be equitably adjusted by the Committee to reflect such event and preserve the value of such grants; provided, however, that any fractional shares resulting from such adjustment shall be eliminated. 8. PAYMENT OF WITHHOLDING TAXES. The Committee shall have discretion to permit or require a Participant, on such terms and conditions as it determines, to pay all or a portion of any taxes arising in connection with a purchase of Restricted Stock Units hereunder or the vesting or lapse of restrictions with respect thereto by having the applicable employer withhold shares of the Stock or by the Participant's delivering other shares of Stock having a then-current Fair Market Value equal to the amount of taxes to be withheld. 9. RIGHTS AS A STOCKHOLDER. A Participant or a transferee of a grant shall have no rights as a stockholder with respect to any shares of Stock which may become issuable pursuant to the grant until the date of the issuance of a stock certificate to him or her for such shares. No adjustment shall be made for dividends (whether ordinary or extraordinary, and whether in cash, securities or other property) or distribution of other rights for which the record date is prior to the date such stock certificate is issued, except as provided in Article 7 hereof. 10. NO RIGHTS TO EMPLOYMENT. 7 Nothing in the Plan or in any grant made or Agreement entered into pursuant hereto shall confer upon any Participant the right to continue in the employ of the Company or any Subsidiary or to be entitled to any remuneration or benefits not set forth in the Plan or such Agreement or to interfere with, or limit in any way, the right of the Company or any such Subsidiary to terminate such Participant's employment. Grants made under the Plan shall not be affected by any change in duties or position of a Participant as long as such Participant continues to be employed by the Company or any Subsidiary. 11. ADMINISTRATION. The Plan shall be administered by the Committee. The Committee shall have the authority in its discretion, subject to and not inconsistent with the express provisions of the Plan, to administer the Plan and to exercise all the powers and authorities either specifically granted to it under the Plan or necessary or advisable in the administration of the Plan, including, without limitation, the authority to grant Restricted Stock Units; to determine the persons to whom, and the time or times at which grants shall be granted; to determine the number of Restricted Stock Units to be covered by each grant; to interpret the Plan; to prescribe, amend and rescind rules and regulations relating to the Plan; to determine the terms and provisions of the Agreements (which need not be identical) and to cancel or suspend grants, as necessary; and to make all other determinations deemed necessary or advisable for the administration of the Plan. The Board shall fill all vacancies, however caused, in the Committee. The Board may from time to time appoint additional members to the Committee, and may at any time remove one or more Committee members and substitute others. The Committee may appoint a chairperson and a secretary and make such rules and regulations for the conduct of its business as it shall deem advisable, and shall keep minutes of its meetings. The Committee shall hold its meetings at such times and places (and its telephonic meetings at such times) as it shall deem advisable. The Committee may delegate to one or more of its members or to one or more agents such administrative duties as it may deem advisable, and the Committee or any person to whom it has delegated duties as aforesaid may employ one or more persons to render advice with respect to any responsibility the Committee or such person may have under the Plan. All decisions, determinations and interpretations of the Committee shall be final and binding on all persons, including the Company, the Participant (or any person claiming any rights under the Plan from or through any Participant) and any stockholder. No member of the Board or Committee shall be liable for any action taken or determination made in good faith with respect to the Plan or any grant hereunder. 8 12. AMENDMENT AND TERMINATION OF THE PLAN. The Board at any time and from time to time may suspend, terminate, modify or amend the Plan; provided, however, that an amendment for which the Board determines stockholder approval is necessary or appropriate under the circumstances then prevailing shall not be effective unless approved by the requisite vote of stockholders. Except as provided in Article 7 hereof, no suspension, termination, modification or amendment of the Plan may adversely affect any grant previously made to a Participant, unless the written consent of the Participant is obtained. 13. GOVERNING LAW. The Plan and all determinations made and actions taken pursuant hereto shall be governed by the laws of the State of Delaware. 14. EFFECTIVE DATE; APPROVAL OF STOCKHOLDERS; TERM. The Plan shall become effective January 1, 1997, subject to the approval of the shareholders of the Company. Unless the Plan is terminated earlier pursuant to Article 12 hereof, the Term of the Plan shall end on March 31, 2007 (or such earlier date as all Restricted Stock Units to be granted in connection with elections made under the Annual Plan with respect to the Company's 2006 fiscal year have been granted), and no grants shall be made thereafter. However, holdings of Restricted Stock Units granted hereunder may extend beyond such date, and the provisions of the Plan shall continue to apply to such Restricted Stock Units. 9 EX-10.10 11 FORM OF GRANT OF RES STOCK/HEXCEL CORP MGMT PLAN [FORM OF] GRANT OF RESTRICTED STOCK UNITS UNDER THE HEXCEL CORPORATION MANAGEMENT STOCK PURCHASE PLAN Grant Date: ___________, ____ 1. GRANT SUBJECT TO PLAN. This Grant (defined below) is made and accepted pursuant to the terms and provisions of the Hexcel Corporation Management Stock Purchase Plan (the "Plan") and expressly incorporates herein all of the terms and provisions of the Plan. Notwithstanding anything in this Grant to the contrary, in the event that any inconsistency arises between any term or provision of the Plan and any term or provision of this Grant, then the applicable term or provision of the Plan shall control. By acknowledging acceptance of this Grant the Grantee (defined below) also acknowledges receipt of a copy of the Plan at the time the Grantee made the election referred to in paragraph 2 below. All capitalized terms used herein and not otherwise defined herein have the meaning ascribed thereto in the Plan. 2. GRANT. Pursuant to Plan, and in accordance with the election made by the Grantee dated ___________ ,____, Hexcel Corporation (the "Company"), which term shall include its successors as provided in the Plan, in lieu of making a cash payment to the Grantee in respect of ___% of the Grantee's Annual Bonus for the ____ fiscal year, hereby grants to < [GRANTEE'S NAME] > (the "Grantee"), and Grantee hereby purchases from the Company, [______________] [(_____]) Restricted Stock Units (the "Restricted Stock Units") under the Plan, subject to the terms and conditions set forth herein and in the Plan (together, the "Grant"). The Purchase Price for each Restricted Stock Unit is $____, which represents 80% of the Fair Market Value of such unit on the date hereof. 3. NORMAL VESTING; NORMAL END OF RESTRICTED PERIOD. Subject to Paragraph 4 of this Grant, one-third (1/3) of the Restricted Stock Units shall vest on each of the first three anniversaries of the date hereof, but the Restricted Period shall end on the third anniversary hereof. 4. ACCELERATION OF VESTING AND END OF RESTRICTED PERIOD. The Restricted Stock Units shall immediately become completely vested and the Restricted Period shall end upon the first to occur of (a) a Change of Control, (b) the involuntary termination of Grantee's employment without Cause, or (c) the termination of Grantee's employment by reason of Retirement or the Grantee's death or Disability. 5. PAYMENT AT END OF RESTRICTED PERIOD. Upon termination of the Restricted Period with respect to the Restricted Stock Units, the Company will pay to the Grantee or the Grantee's estate (in the event of Grantee's death) a number of shares of unrestricted Stock equal to the number of Restricted Stock Units. 6. TERMINATION DURING RESTRICTED PERIOD. (a) VESTED RESTRICTED STOCK UNITS. If Grantee's employment is terminated during the Restricted Period for any reason, Grantee or Grantee's estate (in the event of Grantee's death) will receive a number of shares of unrestricted Stock equal to the number of vested Restricted Stock Units at the time of termination (giving effect to any vesting which may occur in connection with such termination). (b) UNVESTED RESTRICTED STOCK UNITS. If Grantee's employment is terminated during the Restricted Period for any reason, Grantee or Grantee's estate (in the event of Grantee's death) will receive a cash payment equal to 80% of the Fair Market Value of the unvested Restricted Stock Units on the Grant Date. 7. RESTRICTIONS. During the Restricted Period, the Grantee may not sell, assign, transfer, pledge, hypothecate, or otherwise dispose of Restricted Stock Units (whether vested or unvested), except by will or laws of descent and distribution. 8. NO RIGHTS AS STOCKHOLDER. Neither the Grantee nor any permitted transferee of the Grantee, shall have any rights as a stockholder with respect to any shares of Stock issuable pursuant to the Restricted Stock Units until the date on which a stock certificate (or certificates) representing such Stock is issued. 9. EQUITABLE ADJUSTMENT OF RESTRICTED SHARES. The number of shares of unrestricted Stock available pursuant to the Plan are subject to equitable adjustment as provided in Section 7 of the Plan. 2 10. NOTICES. Notices hereunder shall be mailed or delivered to the Company at its principal place of business, Two Stamford Plaza, 281 Tresser Boulevard, Stamford, Connecticut 06901, Attention: David Wong, Vice President, Corporate Affairs, and shall be mailed or delivered to the Grantee at the Grantee's address set forth below, or in either case at such other address as one party may subsequently furnish to the other party in writing. 11. NO RIGHTS TO EMPLOYMENT. This Grant shall not confer upon the Grantee any right with respect to continuance of employment by the Company or a Subsidiary, nor shall it interfere in any way with any right of the Grantee's employer to terminate the Grantee's employment at any time. 12. PAYMENT OF WITHHOLDING TAXES. The Committee shall have discretion to permit or require the Grantee, on such terms and conditions as it determines, to pay all or a portion of any taxes arising in connection with a purchase of Restricted Stock Units hereunder or the vesting or lapse of restrictions with respect thereto by having the Company withhold shares of Stock that would otherwise be exchanged for Restricted Stock Units or by the Grantee's delivering other shares of Stock having a then-current Fair Market Value equal to the amount of taxes to be withheld or to otherwise withhold amounts payable to the Grantee in accordance with applicable law. 13. GOVERNING LAW. This Grant and all matters related hereto shall be governed by the laws of the State of Delaware. * * * * * 3 HEXCEL CORPORATION By: __________________ Name: __________________ Title: __________________ Receipt of the foregoing Grant is hereby acknowledged and accepted and the terms and conditions of the Grant are hereby agreed to as of the Grant Date. GRANTEE ADDRESS _______________________ Name: __________________________ __________________________ __________________________ 4 EX-11 12 EXHIBIT 11 EXHIBIT 11 STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS - UNAUDITED The company reports net income (loss) per share data on a 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 the assumed conversion of the 7% convertible subordinated notes and convertible subordinated debentures, due 2003 and 2011, respectively, and (b) net income (loss) increased by the expenses on the notes and debentures, due 2003 and 2011, respectively. Computations of net income (loss) per share on the primary and fully diluted bases for the second quarter and first half of 1997 and 1996 were:
THE QUARTER ENDED JUNE 30, THE YEAR-TO-DATE ENDED JUNE 30, -------------------------- ------------------------------- (IN THOUSANDS, EXCEPT PER SHARE DATA) 1997 1996 1997 1996 - ---------------------------------------------------------------------------------------------------------------------------------- PRIMARY NET INCOME (LOSS) PER SHARE AND EQUIVALENT SHARE - ---------------------------------------------------------------------------------------------------------------------------------- Net income (loss) $ 15,135 $ (23,667) $ 23,361 $ (21,819) - ---------------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------------- Weighted average common shares outstanding 36,729 36,547 36,672 30,483 Weighted average common equivalent shares from stock options 1,175 - 1,245 - - ---------------------------------------------------------------------------------------------------------------------------------- Weighted average common shares and equivalent shares 37,904 36,547 37,917 30,483 - ---------------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------------- Primary net income (loss) per share and equivalent share (1) $ 0.40 $ (0.65) $ 0.62 $ (0.72) - ---------------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------------- FULLY DILUTED NET INCOME (LOSS) PER SHARE AND EQUIVALENT SHARE - ---------------------------------------------------------------------------------------------------------------------------------- Net income (loss) $ 15,135 $ (23,667) $ 23,361 $ (21,819) Interest and issuance costs - 7% convertible subordinated notes, due 2003 (3) 1,998 - 3,952 - Interest and issuance costs - 7% convertible subordinated debentures, due 2011 (2) - 295 - 590 - ---------------------------------------------------------------------------------------------------------------------------------- Adjusted net income (loss) $ 17,133 $ (23,372) $ 27,313 $ (21,229) - ---------------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------------- Weighted average common shares outstanding 36,729 36,547 36,672 30,483 Weighted average common equivalent shares Stock options 1,175 - 1,245 - 7% convertible subordinated notes, due 2003 (3) 7,241 - 7,241 - 7% convertible subordinated debentures, due 2011 (2) - 834 - 834 - ---------------------------------------------------------------------------------------------------------------------------------- Weighted average common shares and equivalent shares 45,145 37,381 45,158 31,317 - ---------------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------------- Primary net income (loss) per share and equivalent share (1) 0.38 $ (0.65) $ 0.60 $ (0.72) - ---------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------
(1) The computation of fully diluted net loss per share for the second quarter and first half of 1996 was antidilutive. Accordingly, the amounts reported for primary and fully diluted net loss per share are the same. (2) The calculation of fully diluted net income per share for the second quarter and first half of 1997, excludes the assumed conversion of the 7% convertible subordinated debentures, due 2011, because the computation is antidilutive. (3) The 7% convertible subordinated notes, due 2003, were issued in July 1997, and therefore are excluded from the 1996 calculations. EX-27 13 FINANCIAL DATA SCHEDULE
5 1,000 6-MOS DEC-31-1997 JAN-01-1997 JUN-30-1997 3,345 0 203,072 6,699 153,118 363,494 474,520 152,765 743,375 190,407 315,721 0 0 368 197,040 743,375 455,638 455,638 350,931 350,931 0 0 11,517 29,383 6,022 23,361 0 0 0 23,361 0.62 0.60
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