-----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, MeBzHTWnfBck4H51c2OLeqCXDJW8zkpGnU20A6y7+q5u3iPJug/r0i6k5ihduGR8 nHHwrpJKJbpy09UdYXy00Q== 0001047469-98-041282.txt : 19981118 0001047469-98-041282.hdr.sgml : 19981118 ACCESSION NUMBER: 0001047469-98-041282 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981116 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: SEC FILE NUMBER: 001-08472 FILM NUMBER: 98752135 BUSINESS ADDRESS: STREET 1: 281 TRESSER BOULEVARD STREET 2: C/O TWO STAMFORD PLZ CITY: STAMFORD STATE: CT ZIP: 06901 BUSINESS PHONE: 2039690666 MAIL ADDRESS: STREET 1: 5794 W LAS POSITAS BLVD CITY: PLEASANTON STATE: CA ZIP: 945888781 10-Q 1 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 September 30, 1998 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 November 11, 1998 ----- COMMON STOCK 36,305,076 ================================================================================ HEXCEL CORPORATION AND SUBSIDIARIES INDEX
PAGE PART I. FINANCIAL INFORMATION Item 1. Condensed Financial Statements and Accompanying Notes - Condensed Consolidated Balance Sheets -- September 30, 1998 (unaudited) and December 31, 1997 3 - Condensed Consolidated Statements of Operations (unaudited) -- The Quarter and Year-to-Date Periods Ended September 30, 1998 and 1997 4 - Condensed Consolidated Statements of Cash Flows (unaudited) -- The Year-to-Date Periods Ended September 30, 1998 and 1997 5 - Notes to Condensed Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 12 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 20 SIGNATURE 22
2 PART I. FINANCIAL INFORMATION Item 1. Condensed Financial Statements and Accompanying Notes HEXCEL CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS
- ----------------------------------------------------------------------------------------------------------------- UNAUDITED ----------------------------------------- SEPTEMBER 30, DECEMBER 31, (IN THOUSANDS, EXCEPT PER SHARE DATA) 1998 1997 - ----------------------------------------------------------------------------------------------------------------- ASSETS Current assets: Cash and cash equivalents $ 3,870 $ 9,033 Accounts receivable 206,591 181,192 Inventories 224,683 165,321 Prepaid expenses and other assets 7,551 6,665 Deferred tax asset 16,955 24,839 - ----------------------------------------------------------------------------------------------------------------- Total current assets 459,650 387,050 - ----------------------------------------------------------------------------------------------------------------- Property, plant and equipment 607,546 488,916 Less accumulated depreciation (185,971) (157,439) - ----------------------------------------------------------------------------------------------------------------- Net property, plant and equipment 421,575 331,477 Intangibles and other assets 513,313 93,059 - ----------------------------------------------------------------------------------------------------------------- Total assets $ 1,394,538 $ 811,586 - ----------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Notes payable and current maturities of long-term liabilities $ 18,185 $ 13,858 Accounts payable 83,009 70,011 Accrued liabilities 108,791 102,487 - ----------------------------------------------------------------------------------------------------------------- Total current liabilities 209,985 186,356 - ----------------------------------------------------------------------------------------------------------------- Long-term notes payable and capital lease obligations 803,195 304,546 Indebtedness to related parties 35,567 34,967 Other non-current liabilities 45,529 35,816 - ----------------------------------------------------------------------------------------------------------------- Total liabilities 1,094,276 561,685 - ----------------------------------------------------------------------------------------------------------------- Shareholders' equity: Preferred stock, no par value, 20,000 shares authorized, no shares issued or outstanding in 1998 and 1997 - - Common stock, $0.01 par value, 100,000 shares authorized, 371 369 shares issued and outstanding of 37,135 in 1998 and 36,891 in 1997 Additional paid-in capital 270,879 266,830 Retained earnings (accumulated deficit) 33,005 (15,541) Cumulative currency translation adjustment 6,660 (1,104) - ----------------------------------------------------------------------------------------------------------------- 310,915 250,554 Less- treasury stock, at cost, 847 shares in 1998, 35 shares in 1997 (10,653) (653) - ----------------------------------------------------------------------------------------------------------------- Total shareholders' equity 300,262 249,901 - ----------------------------------------------------------------------------------------------------------------- Total liabilities and shareholders' equity $ 1,394,538 $ 811,586 - ----------------------------------------------------------------------------------------------------------------- - -----------------------------------------------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS. 3 HEXCEL CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------------------------------------------- UNAUDITED ------------------------------------------------------------------- QUARTER ENDED SEPTEMBER 30, YEAR-TO-DATE ENDED SEPTEMBER 30, (IN THOUSANDS, EXCEPT PER SHARE DATA) 1998 1997 1998 1997 - --------------------------------------------------------------------------------------------------------------------- Net sales $ 255,303 $ 226,611 $ 785,581 $ 682,249 Cost of sales 193,456 171,644 586,417 522,577 - --------------------------------------------------------------------------------------------------------------------- Gross margin 61,847 54,967 199,164 159,672 Selling, general and administrative expenses 27,733 25,375 82,092 74,769 Research and technology expenses 5,840 4,828 16,906 13,524 Business acquisition and consolidation expenses 711 15,433 711 21,150 - --------------------------------------------------------------------------------------------------------------------- Operating income 27,563 9,331 99,455 50,229 Interest expense 9,456 6,771 23,167 18,288 - --------------------------------------------------------------------------------------------------------------------- Income before income taxes 18,107 2,560 76,288 31,941 Provision (benefit) for income taxes 6,609 (35,388) 27,742 (29,366) - --------------------------------------------------------------------------------------------------------------------- Net income $ 11,498 $ 37,948 $ 48,546 $ 61,307 - --------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------- Net income per share: Basic $ 0.31 $ 1.03 $ 1.32 $ 1.67 Diluted 0.29 0.87 1.15 1.48 Weighted average shares: Basic 36,671 36,843 36,800 36,711 Diluted 45,424 46,491 46,134 45,474 - --------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS. 4 HEXCEL CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
- ------------------------------------------------------------------------------------------------------------------- UNAUDITED ------------------------------------- YEAR-TO-DATE ENDED SEPTEMBER 30, (IN THOUSANDS) 1998 1997 - ------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 48,546 $ 61,307 Reconciliation to net cash provided (used) by operations: Depreciation and amortization 30,932 28,011 Deferred income taxes 7,475 (39,000) Write-off of purchased in-process technologies - 8,000 Business acquisition and consolidation payments (6,929) (27,342) Accrued business acquisition and consolidation expenses 711 21,150 Working capital changes and other (32,649) (71,185) - ------------------------------------------------------------------------------------------------------------------- Net cash provided (used) by operating activities 48,086 (19,059) - ------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures (41,703) (31,695) Cash paid for the Acquired Fabrics Business, net of $5,049 of acquired cash (453,027) - Cash paid for the Acquired Fiberite Assets - (37,000) Proceeds from sale of an interest in a joint venture - 5,000 Other (1,250) (2,000) - ------------------------------------------------------------------------------------------------------------------- Net cash used by investing activities (495,980) (65,695) - ------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from the senior and revolving credit facilities, and short-term 442,343 80,085 debt, net Proceeds (repayments) on long-term debt, net 554 (6,746) Purchase of treasury stock (10,000) - Activity under stock plans 4,051 4,938 - ------------------------------------------------------------------------------------------------------------------- Net cash provided by financing activities 436,948 78,277 - ------------------------------------------------------------------------------------------------------------------- Effect of exchange rate changes on cash and cash equivalents 5,783 1,643 - ------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------- Net decrease in cash and cash equivalents (5,163) (4,834) Cash and cash equivalents at beginning of year 9,033 7,975 - ------------------------------------------------------------------------------------------------------------------- Cash and cash equivalents at end of period $ 3,870 $ 3,141 - ------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS. 5 HEXCEL CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT PER SHARE DATA) 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 September 30, 1998, and the results of operations for the quarters and year-to-date periods ended September 30, 1998 and 1997, and the cash flows for the year-to-date periods ended September 30, 1998 and 1997. The condensed consolidated balance sheet of the Company as of December 31, 1997 was derived from the audited 1997 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 1998 presentation. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's 1997 Annual Report on Form 10-K. As discussed in Note 2, Hexcel acquired from Clark-Schwebel, Inc. and its subsidiaries (collectively "C-S") certain assets and assumed certain operating liabilities of its industrial fabrics business (the "Acquired Fabrics Business") on September 15, 1998. Accordingly, the condensed consolidated balance sheet as of September 30, 1998 includes the financial position of the Acquired Fabrics Business as of that date, and the condensed consolidated statements of operations and cash flows include the results of operations and cash flows of the Acquired Fabrics Business since the date of acquisition. NOTE 2 -- BUSINESS ACQUISITION On September 15, 1998, the Company acquired certain assets and assumed certain operating liabilities from C-S. The Acquired Fabrics Business is engaged in the manufacturing and sale of high-quality fiber glass fabrics, which are used in printed circuit boards found in electronic products, including computers, cellular telephones, televisions, automobiles and home appliances. The Acquired Fabrics Business also produces high performance specialty products for use in insulation, filtration, wall and facade claddings, ballistics and reinforcements for composite materials. The Acquired Fabrics Business operates four manufacturing facilities in the southeastern U.S. and has approximately 1,300 full time employees. As part of its purchase of the Acquired Fabrics Business, Hexcel also acquired from C-S significant equity ownership interests in two joint ventures: - - a 43.3% share in Asahi-Schwebel Co., Ltd. ("Asahi-Schwebel"), headquartered in Japan, which in turn has its own joint venture with Allied Signal in Taiwan; and - - a 50% share in Clark-Schwebel Tech-Fab Company, headquartered in the U.S. In addition, Hexcel has a contractual agreement to purchase a 43.6% share in CS-Interglas AG ("CS-Interglas"), together with fixed-price options to increase this equity interest to 84%. Hexcel's purchase of this joint venture interest will be consummated when German regulatory approval is obtained. CS-Interglas and Asahi-Schwebel are fiber glass fabric producers serving the European and Asian electronics and telecommunications industries. In addition, CS-Interglas and Asahi-Schwebel have announced plans to build and operate a jointly owned facility in the Philippines to serve the printed circuit board laminating market in Southeast Asia. Clark-Schwebel Tech-Fab manufactures non-woven materials for roofing, construction and other specialty applications. 6 The acquisition of the Acquired Fabrics Business was completed pursuant to an Asset Purchase Agreement dated July 25, 1998, as amended, by and among Hexcel, Stamford CS Acquisition Corp., and C-S (the "Asset Purchase Agreement"). Under the Asset Purchase Agreement, Hexcel acquired the net assets of the Acquired Fabrics Business other than certain excluded assets and liabilities, in exchange for approximately $453,000 in cash, subject to certain potential adjustments. Hexcel also agreed to lease $50,000 of property, plant and equipment used in the Acquired Fabrics Business from an affiliate of C-S, pursuant to a long-term lease with purchase options. The Company has accounted for the acquisition of the Acquired Fabrics Business using the purchase method of accounting. C-S currently owns 43.6% of the outstanding common stock of C-S Interglas and has options to purchase up to an additional 40% of the common stock in C-S Interglas. As part of the acquisition of the Acquired Fabrics Business, the Company paid $11,000 as a prepayment for the acquisition of C-S's interest in C-S Interglas. The Company has also agreed to pay an additional $19,000 to purchase the interest in C-S Interglas upon approval of the German Federal Cartel Commission. If such approval is not received on or before January 24, 1999, either the Company or C-S may terminate the Company's obligation to acquire the joint venture interest, in which case the Company's commitment to pay the additional $19,000 will be extinguished and the Company will be entitled to receive a share of the sales proceeds resulting from the disposition of the joint venture interest by C-S. In connection with the acquisition of the Acquired Fabrics Business, the Company obtained a new global credit facility (the "Senior Credit Facility") that provides for up to $910,000 of borrowing capacity. Borrowings under the Senior Credit Facility were used to: (a) fund the cash purchase price of approximately $453,000; (b) refinance the Company's previous revolving credit facility; and (c) provide for ongoing working capital and other financing requirements of the Company. HISTORICAL AND PRO FORMA FINANCIAL INFORMATION The assets acquired and the liabilities assumed or incurred in connection with the acquisition of the Acquired Fabrics Business were: Estimated fair value of assets acquired: Cash $ 5,049 Accounts receivable 20,249 Inventories 39,582 Net property, plant and equipment 70,000 Investments in joint ventures, intangibles and other assets 49,389 Goodwill 360,469 --------------------------------------------------------------------------------------------------------- Total assets acquired $ 544,738 --------------------------------------------------------------------------------------------------------- Estimated fair value of liabilities assumed or incurred: Accounts payable and accrued liabilities $ 32,523 Capital lease obligations 50,000 Other non-current liabilities 4,139 --------------------------------------------------------------------------------------------------------- Total liabilities assumed or incurred $ 86,662 --------------------------------------------------------------------------------------------------------- Estimated fair value of net assets acquired $ 458,076 --------------------------------------------------------------------------------------------------------- Less-cash acquired (5,049) --------------------------------------------------------------------------------------------------------- Net cash paid for the Acquired Fabrics Business $ 453,027 ---------------------------------------------------------------------------------------------------------
The allocations of purchase price to the assets acquired and liabilities assumed or incurred in connection with the purchase of the Acquired Fabrics Business are based on current estimates of fair values, and are subject to change until September 15, 1999. The estimated fair value of net assets acquired does not include the additional $19,000 needed to acquire the 43.6% C-S Interglas joint venture interest. 7 The pro forma net sales, net income and diluted earnings per share of Hexcel for the year-to-date periods ended September 30, 1998 and 1997, giving effect to the acquisition of the Acquired Fabrics Business as if the acquisition had occurred at the beginning of the periods presented, were:
- -------------------------------------------------------------------------------- THE YEAR-TO-DATE ENDED ----------------------------------- 9/30/98 9/30/97 - -------------------------------------------------------------------------------- Pro forma net sales $ 931,309 $ 862,655 Pro forma net income 48,434 61,854 Pro forma diluted earnings per share $ 1.15 $1.49 - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
NOTE 3 -- INVENTORIES Inventories as of September 30, 1998 and December 31, 1997 were:
- --------------------------------------------------------------------------------- 9/30/98 12/31/97 - --------------------------------------------------------------------------------- Raw materials $ 111,296 $ 90,429 Work in progress 63,625 47,953 Finished goods 49,762 26,939 - --------------------------------------------------------------------------------- Total inventories $ 224,683 $ 165,321 - --------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------
Inventories as of September 30, 1998, include $40,061 from the Acquired Fabrics Business. NOTE 4 -- NOTES PAYABLE, CAPITAL LEASE OBLIGATIONS AND INDEBTEDNESS TO RELATED PARTIES Notes payable, capital lease obligations and indebtedness to related parties as of September 30, 1998 and December 31, 1997 were:
- ----------------------------------------------------------------------------------------------------- 9/30/98 12/31/97 - ----------------------------------------------------------------------------------------------------- Senior credit facility $ 611,916 $ - Revolving credit facility - 158,267 European credit and overdraft facilities 13,620 13,909 Convertible subordinated notes, due 2003 114,435 114,450 Convertible subordinated debentures, due 2011 25,625 25,625 Various notes payable 548 680 - ----------------------------------------------------------------------------------------------------- Total notes payable 766,144 312,931 Capital lease obligations 55,236 5,473 Senior subordinated notes payable to various wholly-owned subsidiaries of Ciba Specialty Chemicals Corp., who beneficially owns 49.7% of the Company's outstanding stock, net of unamortized discount of $1,909 and $2,233 as of September 30, 1998 and December 31, 1997, respectively 35,567 34,967 - ----------------------------------------------------------------------------------------------------- Total notes payable, capital lease obligations and indebtedness to related parties $ 856,947 $ 353,371 - ----------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------- Notes payable and current maturities of long-term liabilities $ 18,185 $ 13,858 Long-term notes payable and capital lease obligations, less current maturities 803,195 304,546 Indebtedness to related parties 35,567 34,967 - ----------------------------------------------------------------------------------------------------- Total notes payable, capital lease obligations and indebtedness to related parties $ 856,947 $ 353,371 - -----------------------------------------------------------------------------------------------------
SENIOR CREDIT FACILITY In connection with the acquisition of the Acquired Fabrics Business (see Note 2) on September 15, 1998, Hexcel obtained the Senior Credit Facility to: (a) fund the purchase of the Acquired Fabrics Business; (b) refinance the Company's existing Revolving Credit Facility; and (c) provide for ongoing working capital and other financing requirements of the Company. The Senior Credit Facility provides for up to $910,000 of borrowing capacity. Depending on certain predetermined ratios and other conditions, interest on outstanding borrowings under the Senior Credit Facility is computed at an annual rate ranging from approximately 0.8 to 2.3% in excess of the applicable London interbank rate or, at the option of Hexcel, at 0 to 1.3% in excess of the base rate of the administrative agent for the lenders. In addition, the Senior Credit Facility is subject to a commitment fee ranging from 0.2 to 0.5% per annum of the total facility. The Senior Credit Facility is secured by a pledge of stock of certain of Hexcel's subsidiaries. In addition, the Company is subject to various financial covenants and restrictions under the Senior Credit Facility, and is generally prohibited from paying dividends or redeeming capital stock beyond certain specified limits. Approximately $690,000 of the Senior Credit Facility expires by September 2004, with the balance expiring in September 2005. The Senior Credit Facility replaced the Company's previous revolving credit facility which had provided up to $355,000 of borrowing capacity. Interest on outstanding borrowings depended upon certain predetermined ratios and other conditions and was computed at an annual rate ranging from approximately 0.3% to 1.1% in excess of the applicable London interbank rate or, at the option of Hexcel, at the base rate of the administrative agent for the lenders. In addition, the revolving credit facility was subject to a commitment fee ranging from approximately 0.2 to 0.4% per annum of the total facility. The revolving credit facility, prior to its replacement, would have expired in March 2003. CAPITAL LEASE OBLIGATION Hexcel also entered into a $50,000 capital lease for property, plant and equipment used in the Acquired Fabrics Business (see Note 2). The lease expires in September 2006 and includes various purchase options. NOTE 5 -- BUSINESS ACQUISITION AND CONSOLIDATION EXPENSES In 1996, Hexcel announced plans to consolidate the Company's operations over a period of three years. The objective of the program was 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 program was also intended to eliminate excess manufacturing capacity and redundant administrative functions. As of September 30, 1998, the primary remaining activities of the business consolidation program relate to the Company's European operations and certain customer qualifications of equipment transferred within the U.S. These qualification requirements increase the complexity, cost and time of moving equipment and rationalizing manufacturing activities. As a result, the Company continues to expect that the business consolidation program will take to the end of 1998 to complete. Total expenses for the business consolidation program, which remains unchanged since December 31, 1997, were $54,700. The Company anticipates no significant additional expenses in relation to this program. As of December 31, 1997 and September 30, 1998, accrued business consolidation costs, representing estimated cash expenditures remaining to complete the program, were approximately $12,000 and $7,900 respectively. 8 This business consolidation program does not include any activities that may result from the integration of the Company's Acquired Fabrics Business. As of September 30, 1998, the Company wrote off $711 of business acquisition and consolidation expenses relating to transaction costs for a proposed acquisition that was not consummated. NOTE 6 -- PROVISION FOR INCOME TAXES The effective income tax rate for the nine months ended September 30, 1998 was 36%. For the nine months ended September 30, 1997, the benefit for income taxes was $29,366, which included a $39,000 reversal of a U.S. tax valuation allowance. Prior to September 30, 1997, the Company had fully provided valuation allowances against its U.S. net deferred tax assets as there were uncertainties in generating sufficient future taxable income to realize these net deferred tax assets. On September 30, 1997, the Company reversed its U.S. tax valuation allowance as it was more likely than not that these tax assets would be realized. As a result, excluding the $39,000 U.S. valuation allowance reversal, no provision for U.S. federal income taxes had been recorded for the nine months ended September 30, 1997 due to the utilization of net operating loss carryforwards. Since September 30, 1997, U.S. Federal income taxes have been provided at approximately the statutory rate. NOTE 7 -- EARNINGS PER SHARE Computations of basic and diluted earnings per share are as follows:
- -------------------------------------------- --------------------------------- ------------------------------------- QUARTER ENDED SEPTEMBER 30, YEAR-TO-DATE ENDED SEPTEMBER 30, 1998 1997 1998 1997 - -------------------------------------------------------------------------------------------------------------------- Basic earnings per share: Net income $ 11,498 $ 37,948 $ 48,546 $ 61,307 Weighted average common shares outstanding 36,671 36,843 36,800 36,711 - -------------------------------------------------------------------------------------------------------------------- Basic earnings per share $ 0.31 $ 1.03 $ 1.32 $ 1.67 - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- Diluted earnings per share: Net income $ 11,498 $ 37,948 $ 48,546 $ 61,307 Effect of dilutive securities - Senior Subordinated Notes, due 2003 1,282 2,042 3,845 5,994 Senior Subordinated Debentures, due 2011 287 457 861 - - -------------------------------------------------------------------------------------------------------------------- Adjusted net income $ 13,067 $ 40,447 $ 53,252 $ 67,301 - -------------------------------------------------------------------------------------------------------------------- Weighted average common shares outstanding 36,671 36,843 36,800 36,711 Effect of dilutive securities - Stock options 681 1,573 1,262 1,522 Senior Subordinated Notes, due 2003 7,238 7,241 7,238 7,241 Senior Subordinated Notes, due 2011 834 834 834 - - -------------------------------------------------------------------------------------------------------------------- Adjusted weighted average common shares outstanding 45,424 46,491 46,134 45,474 - -------------------------------------------------------------------------------------------------------------------- Diluted earnings per share $ 0.29 $ 1.15 $ 0.87 $ 1.48 - -------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------
The Convertible Subordinated Debentures, due 2011, were excluded from the year-to-date period ended September 30, 1997 computation of diluted earnings per share, as they were antidilutive. For the quarter and year-to-date periods ended September 30, 1997, the net income effect of the Senior Subordinated Notes, due 2003, and for the quarter ended September 30, 1997, the net income effect of the Senior Subordinated Notes, due 2011, were not tax effected as a provision for U.S. income taxes was not recorded during these periods. 9 NOTE 8 -- COMPREHENSIVE INCOME Effective January 1, 1998, the Company adopted Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130"). SFAS 130 establishes standards for reporting comprehensive income and its components, including presentation in an annual financial statement that is displayed with the same prominence as other annual financial statements. Various components of comprehensive income may, for example, consist of foreign currency items, minimum pension liability adjustments and unrealized gains and losses on certain investments classified as available-for-sale. The Company's total comprehensive income was as follows:
- ------------------------------------------------------------------------------------------------------------------- QUARTER ENDED SEPTEMBER 30, YEAR-TO-DATE ENDED SEPTEMBER 30, 1998 1997 1998 1997 - ------------------------------------------------------------------------------------------------------------------- Net income $ 11,498 $ 37,948 $ 48,546 $ 61,307 Currency translation adjustment 8,080 (2,690) 7,764 (11,016) - ------------------------------------------------------------------------------------------------------------------- Total comprehensive income $ 19,578 $ 35,258 $ 56,310 $ 50,291 - ------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------
10 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS BUSINESS OVERVIEW
- ------------------------------------------- -------------------------------- ------------------------------------ QUARTER ENDED SEPTEMBER 30, YEAR-TO-DATE ENDED SEPTEMBER 30, (IN MILLIONS, EXCEPT PER SHARE DATA) 1998 1997 1998 1997 - ------------------------------------------- ----------------- --------------- ------------------- --------------- Sales $255.3 $226.6 $785.6 $682.2 Gross margin % 24.2% 24.3% 25.4% 23.4% Adjusted operating income % (a) 11.2% 10.9% 12.8% 10.5% Adjusted EBITDA (b) $39.4 $34.4 $131.1 $99.4 Net income $11.5 $37.9 $48.5 $61.3 Adjusted net income (c) $12.8 $10.6 $49.5 $32.8 - ------------------------------------------- ----------------- --------------- ------------------- --------------- - ------------------------------------------- ----------------- --------------- ------------------- --------------- Diluted earnings per share $0.29 $0.87 $1.15 $1.48 Adjusted diluted earnings per share (c) $0.32 $0.26 $1.18 $0.81 - ------------------------------------------- ----------------- --------------- ------------------- --------------- - ------------------------------------------- ----------------- --------------- ------------------- ---------------
(a) Excludes business acquisition and consolidation expenses (b) Excludes business acquisition and consolidation expenses and interest, taxes, depreciation and amortization (c) Excludes business acquisition and consolidation expenses and other acquisition related costs and assumes a U.S. tax provision of 36% for 1997 Hexcel continued to benefit from strong commercial aerospace and space and defense markets as sales, adjusted operating income and adjusted EBITDA all reached record levels for the Company's third quarter. Excluding acquisition-related charges and other nonrecurring items, adjusted earnings per share for the third quarter of 1998 increased 23% to $0.32 per diluted share, from $0.26 per share, for the same period in 1997. On September 15, 1998, the Company completed its acquisition of the industrial fabrics business (the "Acquired Fabrics Business") from Clark-Schwebel, Inc., and its subsidiaries ("C-S"). The acquisition of the Acquired Fabrics Business was a significant strategic transaction for Hexcel. It establishes the Company as a leading global materials supplier to the electronics and telecommunications industries, both of which have attractive long-term growth potential. Furthermore, it diversifies the Company's business beyond commercial aerospace, which now represents less than 50% of sales, compared with 65% of sales prior to the acquisition. The acquisition was accounted for using the purchase method of accounting, and accordingly, the results of operations of the Acquired Fabrics Business since the date of acquisition are included in the Company's 1998 third quarter results. Sales and adjusted EBITDA for the Acquired Fabrics Business for the approximate two week period ended September 30, 1998, were $7.0 million and $1.4 million, respectively. The estimated costs of integrating the Acquired Fabrics Business with the Company's existing fabrics operations will be finalized in the fourth quarter of 1998. The Company also expects a reduction in its previously anticipated capital expenditures related to its existing fabrics operations. A detailed discussion of the acquisition of the Acquired Fabrics Business is contained in Note 2 to the Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q. RECENT DEVELOPMENTS AND OUTLOOK Like many companies, Hexcel has been experiencing in recent months increased volatility in business and economic conditions in its markets, leading to reduced product demand and pricing pressures. A discussion of specific impacts in certain product lines and related company improvement initiatives follows. Notwithstanding this volatility, Hexcel remains focused on its mission of being a global, vertically integrated advanced materials company serving a variety of growth markets. The Company believes that through successful execution of its business and operating strategies, it can continue to build value for its customers while mitigating the challenging market conditions that it faces today. CARBON FIBERS: During October, the Company received notice of significant cancellations of certain carbon fiber orders due for delivery in the fourth quarter. Management believes that a number of the Company's customers, particularly in the space and defense market, built excess inventories in the last twelve months in response to significant shortages of carbon fiber supply in 1997. Now that carbon fiber supplies have increased, customers are starting to reduce their inventories and anticipate lower purchasing needs for the next twelve months. These factors are expected to result in surplus year-end inventories and a significant reduction in the production of carbon fiber products in 1999 as compared to 1998. The Company further expects that carbon fiber pricing in a number of applications is likely to be lower in 1999. Despite these shorter term impacts, the Company still anticipates growth in carbon fiber sales in 2000 and beyond as the new military aircraft and launch vehicle programs enter full scale production together with the benefit of new product applications that may be commercialized. COMPOSITE MATERIALS: As a result of the Asian economic crisis, the Company anticipates that demand for commercial aircraft will level off with a reduction in sales of wide-bodied aircraft offset by continued increases in sales of narrow-bodied aircraft. Nevertheless, the Company continues to benefit from the growth in Airbus aircraft production rates. In addition, the Company's customers have emphasized the need for cost and inventory reduction throughout the commercial aerospace supply chain. This is leading to pricing pressures from the Company's customers, which the Company expects to address, to the greatest extent possible, through cost reduction efforts, substitution of lower cost composite materials in our customers end products and price reductions from the Company's suppliers. FABRICS: Towards the end the third quarter of 1998 and in the fourth quarter to date, the Company experienced increased order volume for woven glass fiber products used in electronic printed circuit board applications signaling an end to the recent inventory correction in the electronics industry. However, intense competition from Asia and Eastern Europe continues to place pressure on the Company's prices for these products. The Company believes that the prices and margins for products of its fabrics business are likely to remain under pressure in 1999. The Company is actively pursuing opportunities for cost reduction and capital expenditure avoidance in the consolidation of the Acquired Fabrics Business with its existing fabrics operations in order to help offset these market trends. OTHER COMPANY INITIATIVES: In light of the factors discussed above, the Company will face greater challenges in 1999 than it has seen in the last three years. Accordingly, the Company plans to intensify its existing Lean Enterprise and business consolidation programs and implement an aggressive supply chain management program to achieve more rapid cost reductions throughout its organization. As a first step, the Company has initiated a reorganization of its business operations to focus on improved operating effectiveness and to integrate the Acquired Fabrics Business with its existing fabrics operations. This reorganization also includes the consolidation of Hexcel's composite materials business into a single global business unit. The Company anticipates finalizing certain of its accelerated and expanded consolidation and cost reduction plans by the end of the fourth quarter of 1998 and will recognize certain non-recurring costs in the financial results for that quarter. As has been the case with prior restructuring programs, these initiatives are expected to generate increasingly significant improvements in the Company's operating cost structure in 1999 and thereafter. In pursuing the above plans, the Company will continue to focus on its goal of generating $100 million in free cash flow in the fifteen month period ending December, 1999. This free cash flow will be used to repay debt and, following German regulatory approval, to fund expenditures related to the acquisition of the equity interests in CS-Interglas. 11 RESULTS OF OPERATIONS NET SALES: The following table summarizes net sales to third-party customers by product group and market segment for the quarters ended September 30, 1998 and 1997:
- -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- COMMERCIAL SPACE & GENERAL (IN MILLIONS) AEROSPACE DEFENSE ELECTRONICS INDUSTRIAL RECREATION TOTAL - -------------------------------------------------------------------------------------------------------------------- THIRD QUARTER 1998 NET SALES Fibers and Fabrics $ 5.7 $ 7.0 $ 14.8 $ 16.3 $ 4.4 $ 48.2 Composite Materials 110.1 22.5 - 13.9 8.5 155.0 Engineered Products 49.5 2.6 - - - 52.1 - -------------------------------------------------------------------------------------------------------------------- Total $ 165.3 $ 32.1 $ 14.8 $ 30.2 $ 12.9 $ 255.3 65% 12% 6% 12% 5% 100% - -------------------------------------------------------------------------------------------------------------------- THIRD QUARTER 1997 NET SALES (A) Fibers and Fabrics $ 4.2 $ 4.1 $ 10.0 $ 18.9 $ 3.5 $ 40.7 Composite Materials 96.3 15.5 - 14.1 12.5 138.4 Engineered Products 45.6 1.9 - - - 47.5 - -------------------------------------------------------------------------------------------------------------------- Total $ 146.1 $ 21.5 $ 10.0 $ 33.0 $ 16.0 $ 226.6 65% 9% 4% 15% 7% 100% - -------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------
(a) Certain amounts have been reclassified from those previously reported Net sales for the third quarter of 1998 increased by 13% to $255.3 million, from $226.6 million for the third quarter of 1997. Excluding sales attributable to the Acquired Fabrics Business, sales for the third quarter of 1998 were $248.3 million, or an increase of 10% over the third quarter of 1997. The sales growth was primarily due to strong sales of composite products to commercial aerospace customers, primarily in Europe, as well as to the space and defense markets. On a constant currency basis, third quarter 1998 sales would have been about $3 million lower than reported. Commercial aerospace net sales increased to $165.3 million for the third quarter of 1998, from $146.1 million for the third quarter of 1997, an increase of 13%. Approximately 46% of Hexcel's 1997 net sales were to Boeing, Airbus, and related subcontractors. The Company sells material on every model of commercial aircraft sold by Boeing and Airbus, with sales per aircraft ranging from $0.2 million to over $1.0 million per aircraft on the Boeing 777. Boeing and Airbus indicate combined current unfilled orders of more than 3,000 aircraft, with build rates expecting to peak in 1999 and 2001 for Boeing and Airbus, respectively. The Company believes that total commercial aircraft demand of about 800 planes per year appears sustainable for a number of years as compared to 820 planes expected to be delivered in 1998. Depending on the product, orders placed with Hexcel are received anywhere between one and eighteen months prior to delivery of the aircraft to the customer. As a result, the Company is expecting that sales in this segment will start leveling off from today's record levels. Space and defense net sales for the third quarter of 1998 increased 49% to $32.1 million, from $21.5 million for the third quarter of 1997. The increase reflects improved sales of composite materials to select military programs as well as the Company's acquisition of Fiberite, Inc.'s satellite business on September 30, 1997. Electronic sales increased $4.8 million, to $14.8 million for the third quarter of 1998, compared to $10.0 million for the third quarter of 1997. The increase reflects the Company's acquisition of the Acquired Fabrics Business. Despite a world-wide reduction in electronic industry sales volume experienced earlier this summer, primarily resulting from inventory adjustments, the Company has experienced a recent increase in sales orders which is consistent with predictions from industry analysts that the market is beginning to recover. However, pricing in this market remains subject to extreme pressures and the Company continues to concede to price reductions, particularily due to Asian and Eastern European competition. Any resulting price reductions are expected to be partially offset by lower material costs. 12 Net sales in the general industrial and recreational markets decreased marginally in the third quarter of 1998 as compared to the third quarter of 1997, primarily due to reduced customer demand for products in these markets. BACKLOG: The following tables summarize the backlog of orders to be delivered within twelve months, by product group as of September 30, 1998, December 31, 1997 and September 30, 1997:
- -------------------------------------------------------------------------------------------- NON- (IN MILLIONS) AEROSPACE(1) AEROSPACE(2) TOTAL - -------------------------------------------------------------------------------------------- AS OF SEPTEMBER 30, 1998 Fibers and Fabrics $ 13.2 $ 16.7 $ 29.9 Composite Materials 214.9 20.3 235.2 Engineered Products 156.8 0.4 157.2 - -------------------------------------------------------------------------------------------- Total $ 384.9 $ 37.4 $ 422.3 - -------------------------------------------------------------------------------------------- AS OF DECEMBER 31, 1997 Fibers and Fabrics $ 33.3 $ 24.4 $ 57.7 Composite Materials 273.2 19.1 292.3 Engineered Products 170.0 - 170.0 - -------------------------------------------------------------------------------------------- Total $ 476.5 $ 43.5 $ 520.0 - -------------------------------------------------------------------------------------------- AS OF SEPTEMBER 30, 1997 Fibers and Fabrics $ 45.6 $ 31.0 $ 76.6 Composite Materials 232.5 22.3 254.8 Engineered Products 162.2 - 162.2 - -------------------------------------------------------------------------------------------- TOTAL $ 440.3 $ 53.3 $ 493.6 - --------------------------------------------------------------------------------------------
(1) Includes commercial aerospace and space and defense markets (2) Includes electronics, general industrial and recreation markets Backlog for aerospace materials was $384.9 million as of September 30, 1998, a 19% decrease over backlog as of December 31, 1997 and a 13% decrease over backlog as of September 30, 1997. The decrease in backlog probably reflects a number of factors, including a continuing trend toward shorter lead times and better supply-chain management by the industry overall. In the light of changing conditions in the aerospace industry, twelve month backlog information may no longer be a material trend indicator. The Company continues to closely watch the economic situation in Asia, along with overall aircraft orders and production trends, to monitor future growth. Backlog for the non-aerospace markets was $37.4 million as of September 30, 1998, compared to $43.5 million as of December 31, 1997 and $53.3 million as of September 30, 1997. The decrease in backlog is primarily attributable to a decrease in orders from customers in the recreational market. Customers in the electrical, general industrial and recreational markets generally operate with little advance purchasing and thus, backlog is subject to certain fluctuations. The Acquired Fabrics Business also operates with nominal backlog. The Company's backlog in the non-aerospace markets for the next twelve months is therefore not necessarily a meaningful indicator of future sales. GROSS MARGIN: Gross margin for the third quarter of 1998 was $61.8 million, or 24.2% of net sales, compared to $55.0 million, or 24.3% of net sales, for the third quarter of 1997. As anticipated, the Company's gross margin percentage has leveled off as the current business consolidation program reaches completion and commercial aerospace growth flattens. The Company is, however, pursuing efforts to reduce its cost structure and increase its productivity through its "Lean Enterprise" initiatives, which will extend to all U.S. locations by year end and to the European facilities in 1999. The expected improvement in cost and productivity may be partially offset by customer demand for price reductions. 13 OPERATING INCOME: Operating income was $27.6 million in the third quarter of 1998, or 10.8% of net sales, compared with $9.3 million in the third quarter of 1997 or 4.1% of net sales. The aggregate increase in operating income reflects the higher sales volume and a $14.7 million decrease in business acquisition and consolidation expenses over the third quarter of 1997. Offsetting the latter are increases in selling, general and administrative ("SG&A") and research and technology ("R&T") expenses. SG&A expenses were $27.7 million, or 10.9% of net sales for the third quarter of 1998, compared with $25.4 million, or 11.1% of net sales for the third quarter of 1997. The increase in SG&A expenses primarily reflects higher sales levels. R&T expenses were $5.9 million, or 2.2% of net sales for the third quarter of 1998, compared with $4.9 million, or 2.0% of net sales for the third quarter of 1997. INTEREST EXPENSE: Interest expense was $9.5 million in the third quarter of 1998, compared with $6.8 million in the third quarter of 1997. The increase in interest expense is primarily due to the additional financing required for the Acquired Fabrics Business as well as a $1.1 million write-off of capitalized loan fees for the Company's previous credit facility. PROVISION FOR INCOME TAXES: The effective income tax rate for the quarter September 30, 1998 was 36%. For the quarter ended September 30, 1997, the benefit for income taxes was $35.4 million, which included a $39.0 million reversal of a U.S. tax valuation allowance. Prior to September 30, 1997, the Company had fully provided valuation allowances against its U.S. net deferred tax assets as there were uncertainties in generating sufficient future taxable income to realize these net deferred tax assets. On September 30, 1997, the Company reversed its U.S. tax valuation allowance as it was more likely than not that these tax assets would be realized. As a result, excluding the $39.0 million U.S. valuation allowance reversal, no provision for U.S. federal income taxes had been recorded for the nine months ended September 30, 1997 due to the utilization of net operating loss carryforwards. Going forward, the Company expects that its U.S. income tax rate will approximate the statutory rate. NET INCOME AND EARNINGS PER SHARE: Net income for the third quarter of 1998 was $11.5 million, or $0.29 per diluted share, compared with net income for the third quarter of 1997 of $37.9 million, or $0.87 per diluted share. Results for the 1998 third quarter include approximately $1.3 million of after-tax, acquisition-related charges. The 1997 third quarter results include $15.4 million of business acquisition and consolidation expenses and a non-recurring credit resulting from the reversal of a $39 million deferred tax reserve against the income tax provision. Excluding these items, and assuming an income tax rate of 36% on U.S. pretax income, adjusted earnings per share for the third quarter of 1998 and 1997 would have been $0.32 and $0.26 per diluted share, respectively. There were 45.4 million diluted weighted average shares of common stock outstanding during the third quarter of 1998, versus 46.5 million during the third quarter of 1997. The decrease in the number of diluted weighted average shares is primarily attributable to a decrease in the inclusion of stock options as a result of a decline in the Company's average stock price for the quarter relative to the average exercise price of stock options outstanding. A portion of the decrease is also attributable to the Company's repurchase of 0.8 million shares of its common stock, which were acquired during the third quarter of 1998. Refer to Note 7 of the accompanying condensed consolidated financial statements for the calculation and the number of shares used for diluted earnings per share. YEAR-TO-DATE NET SALES AND GROSS MARGIN: Net sales for the first nine months of 1998 were $785.6 million, compared with $682.2 million for the comparable 1997 period. Excluding sales attributable to the Acquired Fabrics Business, sales for the first nine months of 1998 were $778.6 million, an increase of 14% percent over the comparable 1997 period. On a constant currency basis, sales for the first nine months of 1998 would have been about $8 million higher than reported. Gross margin for the first nine months 14 of 1998 was $199.2 million, or 25.4% of sales, versus gross margin of $159.7 million, or 23.4% of sales, for the same period in 1997. These increases primarily reflect the same factors noted above. The following table summarizes net sales to third-party customers by product group and market segment for the year-to-date period ended September 30, 1998 and 1997:
- --------------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------------- COMMERCIAL SPACE & GENERAL (IN MILLIONS) AEROSPACE DEFENSE ELECTRONICS INDUSTRIAL RECREATION TOTAL - --------------------------------------------------------------------------------------------------------------------------- YEAR-TO-DATE ENDED SEPT. 30, 1998 Fibers and Fabrics $ 14.0 $ 21.6 $ 39.8 $ 47.4 $ 14.6 $ 137.4 Composite Materials 345.5 66.8 - 41.6 31.3 485.2 Engineered Products 155.2 7.7 - - - 162.9 - --------------------------------------------------------------------------------------------------------------------------- Total $ 514.7 $ 96.1 $ 39.8 $ 89.0 $ 45.9 $ 785.5 66% 12% 5% 11% 6% 100% - --------------------------------------------------------------------------------------------------------------------------- YEAR-TO-DATE ENDED SEPT. 30, 1997 (a) Fibers and Fabrics $ 18.0 $ 10.1 $ 37.6 $ 54.1 $ 8.0 $ 127.8 Composite Materials 289.0 45.8 - 46.7 44.9 426.4 Engineered Products 119.6 7.0 - 1.4 - 128.0 - --------------------------------------------------------------------------------------------------------------------------- Total $ 426.6 $ 62.9 $ 37.6 $ 102.2 $ 52.9 $ 682.2 63% 9% 6% 15% 8% 100% - --------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------
(a) Certain amounts have been reclassified from those previously reported OPERATING INCOME: Operating income for the first nine months of 1998 was $99.5 million, compared with $50.2 million for the same period in 1997. Excluding business acquisition and consolidation expenses of $0.7 million and $21.2 million incurred in the first nine months of 1998 and 1997, respectively, the improvement in operating income is the result of higher sales volume, partially offset by increases in SG&A and R&T expenses. SG&A expenses were $82.1 million, or 10.4% of sales, for the first nine months of 1998, compared to $74.8 million, or 11.0% of sales, for the same period in 1997. The increase in SG&A expenses is the result of higher sales volume. R&T expenses were $16.9 million, or 2.2% of sales, for the first nine months of 1998, compared to $13.5 million, or 2.0% of sales, for the comparable 1997 period. INTEREST EXPENSE: Interest expense was $23.2 million for the first nine months of 1998, compared with $18.3 million for the comparable 1997 period. The increase in interest expense is primarily due to the additional financing required for the Acquired Fabrics Business as well as working capital needs, and $1.6 million write-off of capitalized loan fees for the Company's previous credit facilities. PROVISION FOR INCOME TAXES: The effective income tax rate for the first nine months of 1998 was 36%. For the first nine months of 1997, the benefit for income taxes was $29.4 million, which included a $39.0 million reversal of a U.S. tax valuation allowance, as previously discussed. NET INCOME AND EARNINGS PER SHARE: The 1998 year-to-date net income was $48.5 million, or $1.15 per diluted share, versus $61.3 million, or $1.48 per diluted share, for the comparable period of 1997. Year-to-date results for the 1998 include approximately $1.3 million of after-tax, acquisition-related charges. The 1997 year-to-date results include $21.2 million of business acquisition and consolidation expenses and a non-recurring credit resulting from the reversal of a $39 million deferred tax reserve 15 against the income tax provision. Excluding these items, and assuming an income tax rate of 36% on U.S. pretax income, adjusted earnings per share for the year-to-date periods ended September 30, 1998 and 1997 would have been $1.18 and $0.81 per diluted share, respectively. There were approximately 46.1 million diluted weighted average shares of common stock outstanding during the first nine months of 1998, versus 45.5 million during the first nine months of 1997. The increase in the number of diluted weighted average shares primarily reflects the inclusion in the 1998 period of 0.8 million of potential common shares relating to the $25.6 million Convertible Subordinated Debentures, due 2011, which were antidilutive in the 1997 period. Refer to Note 7 to the accompanying condensed consolidated financial statements for the calculation and the number of shares used for diluted earnings per share. FINANCIAL CONDITION AND LIQUIDITY SENIOR CREDIT FACILITY In connection with the acquisition of the Acquired Fabrics Business on September 15, 1998, Hexcel obtained the Senior Credit Facility to: (a) fund the purchase of the Acquired Fabrics Business; (b) refinance the Company's existing Revolving Credit Facility; and (c) provide for ongoing working capital and other financing requirements of the Company. The Senior Credit Facility provides for up to $910 million of borrowing capacity. Depending on certain predetermined ratios and other conditions, interest on outstanding borrowings under the Senior Credit Facility is computed at an annual rate ranging from approximately 0.8 to 2.3% in excess of the applicable London interbank rate, or at the option of Hexcel, at 0 to 1.3% in excess of the base rate of the administrative agent for the lenders. In addition, the Senior Credit Facility is subject to a commitment fee ranging from 0.2 to 0.5% per annum of the total facility. As of September 30, 1998, the Company had approximately $295 million of available borrowings under the facility. The Senior Credit Facility is secured by a pledge of stock of certain of Hexcel's subsidiaries. In addition, the Company is subject to various financial covenants and restrictions under the Senior Credit Facility, and is generally prohibited from paying dividends or redeeming capital stock. Approximately $690,000 of the Senior Credit Facility expires by September 2004, with the balance expiring in September 2005. The Senior Credit Facility replaced the Company's existing revolving credit facility, which had provided up to $355 million of borrowing capacity. Interest on outstanding borrowings depended upon certain predetermined ratios and other conditions and was computed at an annual rate ranging from approximately 0.3% to 1.1% in excess of the applicable London interbank rate, or at the option of Hexcel, at the base rate of the administrative agent for the lenders. In addition, the revolving credit facility was subject to a commitment fee ranging from approximately 0.2 to 0.4% per annum of the total facility. The revolving credit facility, prior to its replacement, would have expired in March 2003. CAPITAL LEASE OBLIGATION Hexcel also entered into a $50 million capital lease for property, plant and equipment used in the Acquired Fabrics Business. The lease expires in September 2006 and includes various purchase options. 16 STOCK BUYBACK PLANS As of September 30, 1998, the Company completed its previously announced program to repurchase $10 million of its outstanding common stock. During the period from August 6, 1998 to September 10, 1998, Hexcel repurchased a total of 0.8 million shares at an average cost of $12.32 per share. On September 24, 1998, the Board of Directors approved a plan to repurchase up to an additional $10 million of its common stock. The Board of Directors may also approve additional stock buybacks from time to time subject to market conditions and the terms of the Company's credit agreements. The purchases may be made in the open market at prevailing prices or in privately negotiated transactions. EBITDA AND CASH FLOWS YEAR-TO-DATE, 1998: Adjusted EBITDA for the first nine months of 1998 was $131.1 million, a 32% increase over the comparable 1997 period. Net cash provided by operating activities was $48.1 million, as increased working capital of $32.6 million and restructuring payments of $6.9 million partially offset $48.5 million of net income and $38.4 million of non-cash depreciation and amortization and deferred income taxes. The increase in working capital reflects higher levels of accounts receivable and inventory due to higher sales volume, as well as reductions in accrued liabilities from peak year-end levels, primarily due to the payment of obligations in 1998 for capital projects and employee incentive and benefit programs incurred during 1997. Net cash used for investing activities was $496.0 million, reflecting the net cash paid for the Acquired Fabrics Business, net of cash acquired, of $453.0 million and capital expenditures of $41.7 million. Net cash provided by financing activities was $436.9 million, primarily reflecting $442.8 million of funds borrowed under the new Senior Credit Facility as well as $10.0 million of acquired treasury stock. YEAR-TO-DATE, 1997: Adjusted EBITDA for the first nine months of 1997 was $99.4 million. Net cash used for operating activities was $19.1 million, primarily as the result of the increase in working capital of $71.2 million, business acquisition and consolidation payments of $27.3 million, as well as the deferred income tax allowance reversal of $39.0 million, all of which more than offset $61.3 million of net income, $28.0 million of depreciation and amortization and $29.2 million of business acquisition and consolidation expenses. 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 $65.7 million. This primarily reflects $31.7 million of capital expenditures, $37.0 million related to the acquisition of the satellite business and a license of technology from Fiberite, Inc. and the receipt of $5.0 million in connection with the sale of a 50% equity interest in the Knytex joint venture. Net cash used for investing activities were funded by borrowings under the Revolving Credit Facility. 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. 17 CAPITAL EXPENDITURES Capital expenditures increased to $41.7 million in the first nine months of 1998, from $31.7 million in the first nine months of 1997. 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. BUSINESS CONSOLIDATION In 1996, Hexcel announced plans to consolidate the Company's operations over a period of three years. The objective of the program was 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 program was also intended to eliminate excess manufacturing capacity and redundant administrative functions. As of September 30, 1998, the primary remaining activities of the business consolidation program relate to the Company's European operations and certain customer qualifications of equipment transferred within the U.S. These qualification requirements increase the complexity, cost and time of moving equipment and rationalizing manufacturing activities. As a result, the Company continues to expect that the business consolidation program will take to the end of 1998 to complete. Total expenses for the business consolidation program, which remains unchanged since December 31, 1997, were $54.7 million. The Company anticipates no significant additional expenses in relation to this program. As of December 31, 1997 and September 30, 1998, accrued business consolidation costs, representing estimated cash expenditures remaining to complete the program, were approximately $12.0 million and $7.9 million, respectively. This business consolidation program does not include any activities that may result from the integration of the Company's Acquired Fabrics Business or due to changes in market conditions, as discussed above. As of September 30, 1998, the Company wrote-off $0.7 million of business acquisition and consolidation expenses relating to transaction costs for a proposed acquisition that was not consummated. YEAR 2000 Hexcel, like most other companies, is continuing to address whether its information technology systems and non-information technology devices with embedded microprocessors (collectively "Business Systems") will recognize and process dates starting with the year 2000 and beyond (the "Year 2000"). The Year 2000 issue can arise at any point in the Company's supply, manufacturing, processing, and distribution chains. The Company's actions on its Year 2000 issue are applicable to the Acquired Fabrics Business. In order to address the Year 2000 issue, the Company has developed and implemented a six phase plan divided into the following components: (1) inventory; (2) risk assessment and assigning priorities; (3) assessing compliance; (4) repairing or replacing; (5) testing; and (6) developing contingency plans. In addition, the Company established a central Year 2000 issue project office to coordinate and monitor progress towards achieving corporate-wide Year 2000 compliance. The Company is also using external consulting services, where appropriate, as part of its efforts to address its Year 2000 issue. With respect to the Company's Business Systems and its Year 2000 project, the Company expects that all of its locations will have completed the first two phases, including estimating remediation costs, by December 1998. Certain of the Company's locations are, however, in more advanced phases, including assessing compliance and repairing and replacing certain of their Business Systems. With the 18 Company's evaluation of its Business Systems still in progress, the Company is not in a position to state the total cost of remediation of all its Year 2000 issues nor has it determined the extent of contingency planning that may be required. Amounts expensed as of September 30, 1998 were immaterial. The Company has initiated formal communications with all of its significant suppliers and customers to determine the extent to which the Company maybe vulnerable to those third parties' failure to remediate their Year 2000 issues. To the extent that supplier responses to Year 2000 readiness are unsatisfactory, the Company will attempt to reduce risks of interruptions, with such options including changes in suppliers to those who have demonstrated Year 2000 readiness, and accumulation of inventory. The Company is also monitoring the status of its significant customers as a means of assessing risks and developing alternatives. The Company presently believes that by implementing its plans, including modifications to existing Business Systems and conversion to new or upgraded software and other systems, the Year 2000 issue will not pose significant operational problems for the Company. However, if necessary remediation actions are not completed in a timely manner, or the Company's suppliers and customers do not successfully address their Year 2000 issues, the Year 2000 issue could have a material impact on the operations, liquidity and financial condition of the Company. RECENTLY ISSUED ACCOUNTING STANDARDS In March 1998, the American Institute of Certified Public Accountants issued Statement of Position ("SOP") 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use". Effective for fiscal years beginning after December 15, 1998, this SOP requires that entities capitalize certain internal-use software costs once certain criteria are met. The Company does not expect SOP 98-1 to have a material impact on its consolidated financial statements. In April 1998, the American Institute of Certified Public Accountants issued Statement of Position ("SOP") 98-5, "Reporting on the Costs of Start-Up Activities". Effective for fiscal years beginning after December 15, 1998, this SOP requires start-up activities and organization costs be expensed as incurred. The Company does not expect SOP 98-5 to have a material impact on its consolidated financial statements. In June 1998, the Financial Accounting Standards Board issued Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"). This Statement requires companies to record derivatives on the balance sheet as assets and liabilities, measured at fair value. Gains or losses resulting from changes in the values of those derivatives would be accounted for depending on the use of the derivative and whether it qualifies for hedge accounting. SFAS 133 is not expected to have a material impact on Hexcel's consolidated financial statements. This Statement is effective for fiscal years beginning after June 15, 1999. Hexcel will adopt this accounting standard as required by January 1, 2000. RISKS, UNCERTAINTIES AND OTHER FACTORS WITH RESPECT TO "FORWARD-LOOKING STATEMENTS" Certain statements contained in "Management's Discussion and Analysis of Financial Condition and Results of Operations," that are not of historical fact, constitute "forward-looking statements". Such forward-looking statements include, but are not limited to: (a) expectations regarding consummation of the proposed acquisition of the CS-Interglas interest, including obtaining local regulatory approval; (b) expectations regarding cost savings and earnings resulting from the Acquired Fabrics Business; (c) estimates of commercial aerospace, including Boeing and Airbus, production rates; (d) expectations regarding the growth in the production of military aircraft and launch vehicle in 2000 and beyond; (e) expectations regarding the recovery of the electronics market; (f) expectations regarding the impact of pricing pressures from the Company's customers; (g) expectations regarding future sales based on current backlog; (h) expectations regarding sales growth, sales mix, gross margins, manufacturing productivity, capital expenditures and effective tax rates; (i) expectations regarding Hexcel's financial condition and liquidity, as well as future free cash flows; (j) the estimated total cost of the Company's business consolidation program and the estimated amount of cash expenditures to complete the program; (k) expectations regarding the costs and benefits of accelerating and expanding the Company's Lean Enterprise and business consolidation programs and implementing a supply chain management program; and (l) the Year 2000 issue and the impact it could have on the Company. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results to be materially different. Such factors include, but are not limited to, the following: obtaining local regulatory approval for the acquisition of the C-S Interglas joint venture interest; the integration of the Acquired Fabrics Business, without disruption to manufacturing, marketing and distribution activities; general economic and business conditions; changes in current pricing levels; changes in political, social and economic conditions and local regulations, particularly in Asia and Europe; foreign currency fluctuations; changes in aerospace build rates; the loss of any significant customers, particularly Boeing or Airbus; changes in sales mix; changes in government defense procurement budgets; technology; industry capacity; competition; disruptions of established supply channels; manufacturing capacity constraints; the availability, terms and deployment of capital; and the ability of the Company to accurately estimate the cost of systems preparation and successful implementation for Year 2000 compliance. Additional information regarding these factors is contained in the Company's Annual Report on Form 10-K for the year ended December 31, 1997. 19 PART II. OTHER INFORMATION Item 6. EXHIBITS AND REPORTS ON FORM 8-K (a) EXHIBITS: 2.1 Amendment No. 1 to Asset Purchase Agreement by and among Hexcel, Stamford CS Acquisition Corp., Clark-Schwebel Holdings, Inc., and Clark-Schwebel, Inc., dated as of September 15, 1998 (incorporated by reference to Exhibit 2.1 of the Company's Current Report on Form 8-K, filed on September 24, 1998). 10.1 Second Amended and Restated Credit Agreement, dated as of September 15, 1998, by and among Hexcel and certain of its subsidiaries as borrowers, the lenders from time to time parties thereto, Citibank, N.A. as documentation agent, and Credit Suisse First Boston as lead arranger and as administrative agent for the lenders. 10.2 Lease Agreement, dated as of September 15, 1998, by and among Clark-Schwebel Corporation (a wholly-owned subsidiary of Hexcel) as lessee, CSI Leasing Trust as lessor, and William J. Wade as co-trustee for CSI Leasing Trust. 10.3 Form of Exchange Performance Accelerated Stock Option Agreement. 10.4 Form of 1998 Employee Option Agreement. 10.5 Summary of Terms of Employment (effective as of July 15, 1998) between Hexcel and Harold E. Kinne, President and Chief Operating Officer of Hexcel. 10.6 Employment Agreement dated as of July 25, 1998 (effective date September 15, 1998) between Hexcel and Richard Wolfe, Executive V.P. of Manufacturing of Clark-Schwebel Corporation (a wholly-owned subsidiary of Hexcel). 10.7 Employment Agreement dated as of July 25, 1998 (effective date September 15, 1998) between Hexcel and Jack Schwebel, Co-Chairman of Clark-Schwebel Corporation (a wholly-owned subsidiary of Hexcel). 10.8 Employment Agreement dated as of July 25, 1998 (effective date September 15, 1998) between Hexcel and William D. Bennison, President of Clark-Schwebel Corporation (a wholly-owned subsidiary of Hexcel). 27. Financial Data Schedule.
20 (b) REPORTS ON FORM 8-K: Current Report on Form 8-K dated August 11, 1998 relating to the Company's stock buyback plan. Current Report on Form 8-K dated September 24, 1998 relating to the consummation of the acquisition of certain assets and assumption of certain operating liabilities of Clark-Schwebel, Inc. and its subsidiaries. Current Report on Form 8-K dated October 9, 1998 relating to the Company's stock buyback plan. Current Report on Form 8-K dated October 22, 1998 relating to the Company's third quarter 1998 sales, EBITDA and net income. Current Report on Form 8-K/A dated November 12, 1998 amending the Company's Current Report on Form 8-K dated September 24, 1998 to include the financial statements of Clark-Schwebel, Inc. and its subsidiaries. 21 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, 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) NOVEMBER 16, 1998 /s/ Wayne C. Pensky ----------------- ------------------------ (Date) Wayne C. Pensky, Corporate Controller and Chief Accounting Officer 22 EX-10.1 2 EXHIBIT 10.1 CONFORMED COPY - ------------------------------------------------------------------------------- HEXCEL CORPORATION AND CERTAIN OF ITS SUBSIDIARIES _________________________ $900,000,000 SYNDICATED CREDIT FACILITIES $10,000,000 EUROPEAN OVERDRAFT FACILITY _________________________ SECOND AMENDED AND RESTATED CREDIT AGREEMENT DATED AS OF SEPTEMBER 15, 1998 _________________________ CREDIT SUISSE FIRST BOSTON, as Administrative Agent and Lead Arranger CITIBANK, N.A., as Documentation Agent CREDIT | FIRST SUISSE | BOSTON [LOGO] - ------------------------------------------------------------------------------- TABLE OF CONTENTS
Page ---- SECTION 1. DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 1.1 Defined Terms. . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 1.2 Other Definitional Provisions. . . . . . . . . . . . . . . . . . . . 30 SECTION 2. AMOUNT AND TERMS OF TRANCHE A LOAN COMMITMENTS . . . . . . . . . . . 30 2.1 Tranche A Term Loans . . . . . . . . . . . . . . . . . . . . . . . . 30 2.2 Procedure for Tranche A Loan Borrowing . . . . . . . . . . . . . . . 31 2.3 Amortization of Tranche A Loans. . . . . . . . . . . . . . . . . . . 31 2.4 Use of Proceeds of Tranche A Loans . . . . . . . . . . . . . . . . . 31 SECTION 3. AMOUNT AND TERMS OF TRANCHE B LOAN COMMITMENTS . . . . . . . . . . . 31 3.1 Tranche B Term Loans . . . . . . . . . . . . . . . . . . . . . . . . 31 3.2 Procedure for Tranche B Loan Borrowing . . . . . . . . . . . . . . . 32 3.3 Amortization of Tranche B Loans. . . . . . . . . . . . . . . . . . . 32 3.4 Use of Proceeds of Tranche B Loans . . . . . . . . . . . . . . . . . 32 SECTION 4. AMOUNT AND TERMS OF REVOLVING CREDIT COMMITMENTS . . . . . . . . . . 32 4.1 Revolving Credit Commitments . . . . . . . . . . . . . . . . . . . . 32 4.2 Procedure for Revolving Credit Borrowing . . . . . . . . . . . . . . 33 4.3 Use of Proceeds of Revolving Credit Loans. . . . . . . . . . . . . . 33 SECTION 5. AMOUNT AND TERMS OF DOMESTIC LETTER OF CREDIT SUB-FACILITY . . . . . 34 5.1 L/C Commitment . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 5.2 Procedure for Issuance of Domestic Letters of Credit . . . . . . . . 35 5.3 Fees, Commissions and Other Charges. . . . . . . . . . . . . . . . . 35 5.4 L/C Participations . . . . . . . . . . . . . . . . . . . . . . . . . 36 5.5 Reimbursement Obligation of the Company. . . . . . . . . . . . . . . 37 5.6 Obligations Absolute . . . . . . . . . . . . . . . . . . . . . . . . 37 5.7 Domestic Letter of Credit Payments . . . . . . . . . . . . . . . . . 38 5.8 Application. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 5.9 Issuing Lender Reporting Requirements. . . . . . . . . . . . . . . . 38 5.10 Transitional Provisions. . . . . . . . . . . . . . . . . . . . . . . 39 SECTION 6. AMOUNT AND TERMS OF SWING LINE SUB-FACILITY. . . . . . . . . . . . . 39 6.1 Swing Line Commitments . . . . . . . . . . . . . . . . . . . . . . . 39 6.2 Procedure for Swing Line Loan Borrowing. . . . . . . . . . . . . . . 39 6.3 Refunding of Swing Line Loans. . . . . . . . . . . . . . . . . . . . 40 6.4 Unconditional Obligation to Refund Swing Line Loans. . . . . . . . . 41 6.5 Use of Proceeds of Swing Line Loans. . . . . . . . . . . . . . . . . 41 SECTION 7. AMOUNTS AND TERMS OF EUROPEAN FACILITY . . . . . . . . . . . . . . . 41 7.1 European Revolving Credit Facility . . . . . . . . . . . . . . . . . 41 7.2 Procedure for Borrowing Syndicated European Loans. . . . . . . . . . 42 7.3 Procedure for Borrowing Local European Loans . . . . . . . . . . . . 43 7.4 Contingent Currency Conversion . . . . . . . . . . . . . . . . . . . 43 7.5 Matters Relating to Local European Loans . . . . . . . . . . . . . . 44 7.6 Use of Proceeds of European Revolving Loans. . . . . . . . . . . . . 46 Page ---- 7.7 Termination of Foreign Borrower Status . . . . . . . . . . . . . . . 46 7.8 Resignation of Local Lender. . . . . . . . . . . . . . . . . . . . . 46 7.9 Designation of Additional Foreign Borrowers. . . . . . . . . . . . . 47 7.10 Reporting by Local Lenders . . . . . . . . . . . . . . . . . . . . . 48 7.11 Adjustment of European Loan Commitment . . . . . . . . . . . . . . . 48 SECTION 8. AMOUNT AND TERMS OF EUROPEAN LETTER OF CREDIT SUB-FACILITY . . . . . 49 8.1 European L/C Commitment. . . . . . . . . . . . . . . . . . . . . . . 49 8.2 Procedure for Issuance of European Letters of Credit . . . . . . . . 50 8.3 Fees, Commissions and Other Charges. . . . . . . . . . . . . . . . . 50 8.4 L/C Participations . . . . . . . . . . . . . . . . . . . . . . . . . 51 8.5 Reimbursement Obligation of the Borrowers. . . . . . . . . . . . . . 52 8.6 Obligations Absolute . . . . . . . . . . . . . . . . . . . . . . . . 52 8.7 European Letter of Credit Payments . . . . . . . . . . . . . . . . . 53 8.8 Application. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 8.9 Issuing Lender Reporting Requirements. . . . . . . . . . . . . . . . 53 8.10 Transitional Provisions. . . . . . . . . . . . . . . . . . . . . . . 54 SECTION 9. AMOUNTS AND TERMS OF EUROPEAN OVERDRAFT FACILITY . . . . . . . . . . 54 9.1 European Overdraft Facility. . . . . . . . . . . . . . . . . . . . . 54 9.2 Making of European Overdraft Loans . . . . . . . . . . . . . . . . . 54 9.3 Repayment of European Overdraft Loans. . . . . . . . . . . . . . . . 55 9.4 Use of Proceeds of European Overdraft Loans. . . . . . . . . . . . . 55 9.5 Adjustment of European Overdraft Commitment. . . . . . . . . . . . . 55 SECTION 10. PROVISIONS RELATING TO THE EXTENSIONS OF CREDIT; FEES AND PAYMENTS . 55 10.1 Repayment of Loans; Evidence of Debt . . . . . . . . . . . . . . . . 55 10.2 Facility Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 10.3 Optional Prepayments . . . . . . . . . . . . . . . . . . . . . . . . 57 10.4 Optional Termination or Reduction of Commitment. . . . . . . . . . . 58 10.5 Mandatory Reduction of Commitments and Prepayments . . . . . . . . . 58 10.6 Conversion and Continuation Options. . . . . . . . . . . . . . . . . 61 10.7 Minimum Amounts and Maximum Number of Tranches . . . . . . . . . . . 62 10.8 Interest Rates and Payment Dates . . . . . . . . . . . . . . . . . . 62 10.9 Computation of Interest and Fees . . . . . . . . . . . . . . . . . . 63 10.10 Inability to Determine Interest Rate . . . . . . . . . . . . . . . . 64 10.11 Pro Rata Treatment and Payments. . . . . . . . . . . . . . . . . . . 64 10.12 Illegality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 10.13 Requirements of Law. . . . . . . . . . . . . . . . . . . . . . . . . 66 10.14 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67 10.15 Indemnity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70 10.16 Certain Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70 10.17 Change of Lending Office . . . . . . . . . . . . . . . . . . . . . . 70 10.18 Overall Interest Rate for French Law . . . . . . . . . . . . . . . . 71 10.19 Additional Action in Certain Events. . . . . . . . . . . . . . . . . 71 10.20 European Monetary Union. . . . . . . . . . . . . . . . . . . . . . . 72 SECTION 11. REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . 72 -ii- Page ---- 11.1 Financial Condition. . . . . . . . . . . . . . . . . . . . . . . . . 73 11.2 No Change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74 11.3 Pro Forma Balance Sheet. . . . . . . . . . . . . . . . . . . . . . . 74 11.4 Corporate Existence; Compliance with Law . . . . . . . . . . . . . . 74 11.5 Corporate Power; Authorization; Enforceable Obligations. . . . . . . 75 11.6 No Legal Bar . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75 11.7 No Material Litigation . . . . . . . . . . . . . . . . . . . . . . . 75 11.8 No Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76 11.9 Ownership of Property; Liens . . . . . . . . . . . . . . . . . . . . 76 11.10 Intellectual Property. . . . . . . . . . . . . . . . . . . . . . . . 76 11.11 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76 11.12 Federal Regulations. . . . . . . . . . . . . . . . . . . . . . . . . 76 11.13 Employee Benefits. . . . . . . . . . . . . . . . . . . . . . . . . . 76 11.14 Investment Company Act; Other Regulations. . . . . . . . . . . . . . 77 11.15 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77 11.16 Environmental Matters. . . . . . . . . . . . . . . . . . . . . . . . 77 11.17 Collateral Documents . . . . . . . . . . . . . . . . . . . . . . . . 79 11.18 Accuracy and Completeness of Information . . . . . . . . . . . . . . 79 11.19 Projections. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80 11.20 Solvency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80 11.21 Government Contracts . . . . . . . . . . . . . . . . . . . . . . . . 80 11.22 Year 2000. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81 SECTION 12. CONDITIONS PRECEDENT . . . . . . . . . . . . . . . . . . . . . . . . 81 12.1 Conditions to Initial Loans. . . . . . . . . . . . . . . . . . . . . 81 12.2 Conditions to Each Loan. . . . . . . . . . . . . . . . . . . . . . . 84 SECTION 13. AFFIRMATIVE COVENANTS. . . . . . . . . . . . . . . . . . . . . . . . 84 13.1 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . 85 13.2 Certificates; Other Information. . . . . . . . . . . . . . . . . . . 85 13.3 Payment of Obligations . . . . . . . . . . . . . . . . . . . . . . . 86 13.4 Conduct of Business and Maintenance of Existence . . . . . . . . . . 86 13.5 Maintenance of Property; Insurance . . . . . . . . . . . . . . . . . 87 13.6 Inspection of Property; Books and Records; Discussions . . . . . . . 87 13.7 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87 13.8 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . 88 13.9 Additional Collateral. . . . . . . . . . . . . . . . . . . . . . . . 88 SECTION 14. NEGATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . 89 14.1 Financial Condition Covenants. . . . . . . . . . . . . . . . . . . . 89 14.2 Limitation on Indebtedness . . . . . . . . . . . . . . . . . . . . . 90 14.3 Limitation on Liens. . . . . . . . . . . . . . . . . . . . . . . . . 92 14.4 Limitation on Guarantee Obligations. . . . . . . . . . . . . . . . . 94 14.5 Limitation on Fundamental Changes. . . . . . . . . . . . . . . . . . 95 14.6 Limitation on Sale of Assets . . . . . . . . . . . . . . . . . . . . 95 14.7 Limitation on Restricted Payments. . . . . . . . . . . . . . . . . . 97 14.8 Limitation on Investments. . . . . . . . . . . . . . . . . . . . . . 97 14.9 Limitation on Transactions with Affiliates . . . . . . . . . . . . . 98 14.10 Limitation on Sales and Leasebacks . . . . . . . . . . . . . . . . . 99 14.11 Limitation on Changes in Fiscal Year or Accounting Treatment . . . . 99 14.12 Limitation on Negative Pledge Clauses. . . . . . . . . . . . . . . . 99 -iii- 14.13 Limitation on Lines of Business. . . . . . . . . . . . . . . . . . . 99 14.14 Limitation on Modification of Agreements and Payments on Account of Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99 14.15 No New Restrictions on Subsidiary Dividends. . . . . . . . . . . . . 100 SECTION 15. EVENTS OF DEFAULT. . . . . . . . . . . . . . . . . . . . . . . . . . 101 SECTION 16. THE ADMINISTRATIVE AGENT AND THE DOCUMENTATION AGENT . . . . . . . . 104 16.1 Appointment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104 16.2 Delegation of Duties . . . . . . . . . . . . . . . . . . . . . . . . 105 16.3 Exculpatory Provisions . . . . . . . . . . . . . . . . . . . . . . . 105 16.4 Reliance by Administrative Agent and Documentation Agent . . . . . . 105 16.5 Notice of Default. . . . . . . . . . . . . . . . . . . . . . . . . . 106 16.6 Non-Reliance on Administrative Agent, Documentation Agent and Other Lenders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106 16.7 Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . . 107 16.8 Agents in their Individual Capacities. . . . . . . . . . . . . . . . 107 16.9 Successor Agents . . . . . . . . . . . . . . . . . . . . . . . . . . 107 SECTION 17. MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 108 17.1 Amendments and Waivers . . . . . . . . . . . . . . . . . . . . . . . 108 17.2 Release of Collateral. . . . . . . . . . . . . . . . . . . . . . . . 109 17.3 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110 17.4 No Waiver; Cumulative Remedies . . . . . . . . . . . . . . . . . . . 111 17.5 Survival of Representations and Warranties . . . . . . . . . . . . . 111 17.6 Payment of Expenses and Taxes. . . . . . . . . . . . . . . . . . . . 111 17.7 Successors and Assigns; Participations and Assignments . . . . . . . 112 17.8 Adjustments; Set-off . . . . . . . . . . . . . . . . . . . . . . . . 115 17.9 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116 17.10 Certain Waivers. . . . . . . . . . . . . . . . . . . . . . . . . . . 116 17.11 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117 17.12 Integration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117 17.13 GOVERNING LAW. . . . . . . . . . . . . . . . . . . . . . . . . . . . 117 17.14 Submission To Jurisdiction; Waivers. . . . . . . . . . . . . . . . . 117 17.15 Acknowledgements . . . . . . . . . . . . . . . . . . . . . . . . . . 118 17.16 WAIVERS OF JURY TRIAL. . . . . . . . . . . . . . . . . . . . . . . . 119 17.17 Confidentiality. . . . . . . . . . . . . . . . . . . . . . . . . . . 119 17.18 Judgment Currency. . . . . . . . . . . . . . . . . . . . . . . . . . 119 17.19 Delayed Funding of European Revolving Loans. . . . . . . . . . . . . 120
SCHEDULES --------- Schedule I Lenders; Commitments Schedule II Addresses for Notices Schedule 5.10 Existing Domestic Letters of Credit Schedule 8.10 Existing European Letters of Credit Schedule 10.5 Permitted Property Sales and Estimated Net Proceeds Schedule 11.5 Approvals Schedule 11.7 Existing Litigation -iv- Schedule 11.15 Subsidiaries Schedule 11.16 Environmental Matters Schedule 12.1 International Counsel Schedule 14.2 Indebtedness Schedule 14.3 Liens Schedule 14.4 Guarantee Obligations Schedule 14.9 Permitted Transactions with Affiliates Schedule 14.14 Permitted Payments of Indebtedness
EXHIBITS -------- Exhibit A-1 Form of Tranche A Note Exhibit A-2 Form of Tranche B Note Exhibit A-3 Form of Revolving Credit Note Exhibit A-4 Form of Swing Line Note Exhibit B Form of Collateral Agreement Exhibit C Form of Opinion of Skadden, Arps, Slate, Meagher & Flom LLP Exhibit D-1 Form of Notice of Borrowing (Drawings) Exhibit D-2 Form of Notice of Borrowing (Conversions) Exhibit D-3 Form of Notice of Borrowing (Continuations) Exhibit E Form of Assignment and Acceptance Exhibit F Form of Compliance Certificate Exhibit G Form of Additional Borrower Joinder Agreement Exhibit H Form of Local Lender Joinder Agreement Exhibit I Form of Exemption Certificate
-v- SECOND AMENDED AND RESTATED CREDIT AGREEMENT, dated as of September 15, 1998, among: (a) HEXCEL CORPORATION, a Delaware corporation (with its successors and permitted assigns, the "COMPANY"); (b) the FOREIGN BORROWERS from time to time parties hereto (together with the Company, the "BORROWERS"); (c) the LENDERS from time to time parties hereto; (d) CITIBANK, N.A., a national banking association, as documentation agent (the "DOCUMENTATION AGENT"); and (e) CREDIT SUISSE FIRST BOSTON, a Swiss banking association ("CSFB"), as lead arranger (in such capacity, the "ARRANGER") and as administrative agent (in such capacity, the "ADMINISTRATIVE AGENT") for the Lenders. W I T N E S S E T H: WHEREAS, the Company was a party to the Credit Agreement, dated as of June 27, 1996 (as amended, supplemented or otherwise modified from time to time, the "FIRST AGREEMENT"), with the Foreign Borrowers from time to time parties thereto, the banks and other financial institutions from time to time parties thereto, Citibank, N.A., as collateral agent, and CSFB, as administrative agent; WHEREAS, the First Agreement was superseded by the Amended and Restated Credit Agreement, dated as of March 5, 1998 (as amended, supplemented or otherwise modified from time to time, the "EXISTING AGREEMENT"), among the Company, the Foreign Borrowers from time to time parties thereto, the banks and other financial institutions from time to time parties thereto, Citibank, N.A., as collateral agent, Citicorp Securities, Inc., as syndication agent, CSFB, as documentation agent and CSFB, as administrative agent; WHEREAS, the Company has requested that the Existing Agreement be amended as more fully described herein; WHEREAS, each of the parties to the Existing Agreement is agreeable to the requested amendments, but only upon the terms and subject to the conditions set forth herein, and each of the parties to the Existing Agreement, for convenience of reference, has agreed to restate the Existing Agreement as so amended; WHEREAS, each of the Lenders and the other parties hereto are agreeable to the terms and provisions of the Existing Agreement as amended and restated hereby; NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained, the parties to the Existing Agreement agree that the Existing Agreement shall be and hereby is amended and restated in its entirety and the parties hereto hereby agree as follows: SECTION 1. DEFINITIONS 2 1.1 DEFINED TERMS. As used in this Agreement, the following terms shall have the following meanings: "ABR": for any day, a rate PER ANNUM equal to the greater of (i) the Prime Rate in effect on such day and (ii) the Federal Funds Effective Rate in effect on such day plus 1/2 of 1%. Any change in the ABR due to a change in the Prime Rate or the Federal Funds Effective Rate shall be effective as of the opening of business on the effective day of such change in the Prime Rate or the Federal Funds Effective Rate, respectively. "ABR LOANS": Loans (including, without limitation, Swing Line Loans) the rate of interest applicable to which is based upon the ABR. "ACQUIRED BUSINESSES": the assets acquired pursuant to the Acquisition. "ACQUISITION": the acquisition by AcquisitionCo and its Subsidiaries of substantially all of the assets (other than certain fixed assets, equipment and real property) of Clark-Schwebel Holdings, Inc. and its Subsidiaries pursuant to the CS Asset Purchase Agreement. "ACQUISITIONCO": Clark-Schwebel Holding Corp., a Delaware corporation and a Wholly-owned Subsidiary of the Company, and any successors thereto. "ADDITIONAL BORROWER": as defined in subsection 7.9(a). "ADDITIONAL BORROWER JOINDER AGREEMENT": an Additional Borrower Joinder Agreement, substantially in the form of Exhibit G, delivered pursuant to subsection 7.9(b). "ADMINISTRATIVE AGENT": as defined in the preamble hereto. "AFFILIATE": as to any Person, any other Person (other than a Subsidiary) which, directly or indirectly, is in control of, is controlled by, or is under common control with, such Person. For purposes of this definition, "control" of a Person means the power, directly or indirectly, either to (a) vote 5% or more of the securities having ordinary voting power for the election of directors of such Person or (b) direct or cause the direction of the management and policies of such Person, whether by contract or otherwise; PROVIDED that Hexcel Foundation shall be deemed not to be an "Affiliate" of the Company or any of its Subsidiaries during such time as Hexcel Foundation maintains its status as a not-for-profit corporation for purposes of California law. "AGGREGATE COMMITMENT": the collective reference to the Aggregate Tranche A Loan Commitment (or, after the Closing Date, the aggregate principal amount of Tranche A Loans then outstanding and any availability for the borrowing of Subsequent Tranche A Loans), the Aggregate Tranche B Loan Commitment (or, after the Closing Date, the aggregate principal amount of Tranche B Loans then outstanding), the Aggregate Revolving Credit Commitment and the Aggregate European Loan Commitment. "AGGREGATE EUROPEAN LOAN COMMITMENT": $100,000,000, as such amount may be adjusted from time to time pursuant to this Agreement. "AGGREGATE OUTSTANDING EUROPEAN EXTENSIONS OF CREDIT": as to any European Lender at any time, an amount equal to the sum of (a) the aggregate outstanding principal amount of all Syndicated European Loans made by such European Lender and (b) such European Lender's 3 European Commitment Percentage of the European L/C Obligations and Local European Loans then outstanding. "AGGREGATE OUTSTANDING RC EXTENSIONS OF CREDIT": as to any Revolving Credit Lender at any time, an amount equal to the sum of (a) the aggregate outstanding principal amount of all Revolving Credit Loans made by such Revolving Credit Lender and (b) such Revolving Credit Lender's Revolving Credit Commitment Percentage of the Domestic L/C Obligations and Swing Line Loans then outstanding. "AGGREGATE REVOLVING CREDIT COMMITMENT": $250,000,000, as such amount may be adjusted from time to time pursuant to this Agreement. "AGGREGATE TRANCHE A LOAN COMMITMENT": $275,000,000, as such amount may be reduced from time to time pursuant to this Agreement. "AGGREGATE TRANCHE B LOAN COMMITMENT": $275,000,000, as such amount may be reduced from time to time pursuant to this Agreement. "AGREEMENT": this Credit Agreement, as amended, supplemented or otherwise modified from time to time. "APPLICABLE FACILITY FEE RATE": for each day, the rate per annum set forth below opposite the Leverage Ratio then in effect:
- ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- Leverage Ratio Facility Fee - --------------------------------------------------------- ------------------- Greater than or equal to 4.5 to 1.0 50.0 b.p. Greater than or equal to 4.0 to 1.0, but less than 37.5 b.p. 4.5 to 1.0 Greater than or equal to 3.5 to 1.0, but less than 35.0 b.p. 4.0 to 1.0 Greater than or equal to 3.0 to 1.0, but less than 30.0 b.p. 3.5 to 1.0 Greater than or equal to 2.5 to 1.0, but less than 25.0 b.p. 3.0 to 1.0 Less than 2.5 to 1.0 22.5 b.p. - ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------
; PROVIDED that, until the date which is the last day of the second complete fiscal quarter to end after the Closing Date, the Leverage Ratio shall (for purposes of this definition only) be deemed to be greater than 4.0 to 1.0, but less than 4.5 to 1.0. "APPLICABLE MARGIN": for each day, the rate per annum set forth under the relevant column heading below opposite the Leverage Ratio then in effect:
- ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- Applicable Margin ---------------------------------------------------------------------------- 4 ---------------------------------------------------------------------------- Tranche A Loans Revolving Credit Loans Swing Line Loans European Revolving Loans Tranche B Loans --------------------------------- ------------------------------- Leverage Ratio Eurocurrency Loans ABR Loans Eurocurrency Loans ABR Loans - ---------------------------------------------- ------------------ --------- ------------------ --------- Greater than or equal to 4.5 to 1.0 175 b.p. 75 b.p. 225 b.p. 125 b.p. Greater than or equal to 4.0 to 1.0, but less 150 b.p. 50 b.p. 200 b.p. 100 b.p. than 4.5 to 1.0 Greater than or equal to 3.5 to 1.0, but less 125 b.p. 25 b.p. 200 b.p. 100 b.p. than 4.0 to 1.0 Greater than or equal to 3.0 to 1.0, but less 100 b.p. 0 b.p. 175 b.p. 75 b.p. than 3.5 to 1.0 Greater than or equal to 2.5 to 1.0, but less 87.5 b.p. 0 b.p. 175 b.p. 75 b.p. than 3.0 to 1.0 Less than 2.5 to 1.0 75 b.p. 0 b.p. 175 b.p. 75 b.p. - ----------------------------------------------------------------------------------------------------------------------------------- - -----------------------------------------------------------------------------------------------------------------------------------
Notwithstanding the foregoing: (a) until the date which is the last day of the second complete fiscal quarter to end after the Closing Date, the Leverage Ratio shall (for purposes of this definition only) be deemed to be greater than 4.0 to 1.0, but less than 4.5 to 1.0; (b) the "Applicable Margin" from time to time for Swing Line Loans shall be the same as the "Applicable Margin" then in effect for ABR Loans; (c) the "Applicable Margin" from time to time for Eurocurrency Loans denominated in Optional Currencies shall be increased by any additional "associated reserve costs" (or analogous costs) not otherwise included in the Eurocurrency Rate; (d) the margins set forth above for Revolving Credit Loans, European Revolving Loans, Swing Line Loans, European Overdraft Loans and for purposes of calculating fees on Letters of Credit shall be reduced by the Applicable Facility Fee Rate then in effect; PROVIDED that the margin for ABR Loans shall not be less than zero; (e) for periods prior to the completion of four complete fiscal quarters following the Closing Date, the Leverage Ratio will be determined based upon PRO FORMA, combined EBITDA and indebtedness of the Company 5 and its Subsidiaries (including, without limitation, those acquired pursuant to the Acquisition). "APPLICATION": an application, in such form as the relevant Issuing Lender may specify from time to time, requesting such Issuing Lender to open a Letter of Credit. "APPROVED FUND": with respect to any Lender that is a fund that invests in commercial loans, any other fund that invests in commercial loans and is managed or advised by the same investment advisor as such Lender or by an Affiliate which is under common institutional control with such investment advisor. "ASSIGNEE": as defined in subsection 17.7(c). "ASSIGNMENT AGREEMENT": the Assignment and Agreement, dated as of September 15, 1998, made by the signatories thereto in favor of the Administrative Agent, as the same may be amended, supplemented or otherwise modified from time to time. "AVAILABLE EUROPEAN LOAN COMMITMENT": as to any European Lender, at any time, an amount equal to the excess, if any, of (a) such European Lender's European Loan Commitment over (b) the sum of (i) such European Lender's Aggregate Outstanding European Extensions of Credit, (ii) such European Lender's European Commitment Percentage of the amount equal to 29% of the Reserved Proceeds then outstanding and (iii) the aggregate principal amount of Indebtedness outstanding in reliance upon the provisions of subsection 14.2(g). "AVAILABLE REVOLVING CREDIT COMMITMENT": as to any Revolving Credit Lender, at any time, an amount equal to the excess, if any, of (a) such Revolving Credit Lender's Revolving Credit Commitment over (b) the sum of (i) such Revolving Credit Lender's Aggregate Outstanding RC Extensions of Credit and (ii) such Revolving Credit Lender's Revolving Credit Commitment Percentage of the amount equal to 71% of the Reserved Proceeds then outstanding. "BANKRUPTCY EVENT": any event described in Section 15(f)(i) or (ii). "BORROWERS": as defined in the preamble hereto. "BORROWING DATE": any Business Day specified in a Notice of Borrowing pursuant to subsection 2.2, 3.2, 4.2, 5.2, 6.2, 7.2, 7.3, 8.2 or 9.2 as a date on which the relevant Borrower requests one or more of the Lenders to make Loans hereunder. "BUSINESS DAY": a day other than a Saturday, Sunday or other day on which commercial banks are authorized or required by law to close in New York, New York and: 6 (a) in the case of Eurocurrency Loans, in London, England and in the case of Loans denominated in (i) Austrian shillings, in Vienna, Austria, (ii) Belgian francs, in Brussels, Belgium, (iii) Dutch guilders, in Amsterdam, The Netherlands, (iv) French francs, in Lyon, France, (v) German marks, in Frankfurt-am-Main, Germany, (vi) Italian lire, in Milan, Italy, (vii) Spanish pesetas, in Madrid, Spain, and (viii) any other currency (including, without limitation, the Euro), the principal financial center of the jurisdiction in which such Loan is being made; (b) in the case of any Local European Loan, in the jurisdiction of the relevant Local Lender; and (c) in the case of Letter of Credit transactions for a particular Issuing Lender, in the place where its office for issuance or administration of the pertinent Letter of Credit is located. "CAPITAL EXPENDITURE": an expenditure in respect of the purchase or other acquisition of fixed or capital assets (excluding any such asset acquired in connection with normal replacement and maintenance programs properly charged to current operations); PROVIDED, that (i) Capital Expenditures shall include (A) that portion of Financing Leases (other than the Lease Agreement and any Financing Leases of Interglas which are in existence on the date that Interglas becomes a Subsidiary of the Company) which is incurred and capitalized on the balance sheet of the Company and its Subsidiaries and (B) expenditures for equipment that is purchased simultaneously with the trade-in or disposal of existing equipment owned by the Company or any of its Subsidiaries, to the extent the gross purchase price of the purchased equipment exceeds the actual value attributed to such equipment at the time of such trade-in or disposal; and (ii) Capital Expenditures shall exclude expenditures made in connection with the replacement or restoration of Property, to the extent reimbursed or financed from insurance or condemnation proceeds. "CAPITAL STOCK": any and all shares, interests, participations or other equivalents (however designated) of capital stock of a corporation, any and all equivalent ownership interests in a Person (other than a corporation) and any and all warrants or options to purchase any of the foregoing. "CASH EQUIVALENTS": (a) securities with maturities of one year or less from the date of acquisition issued or fully guaranteed or insured by the United States Government or any agency thereof, (b) certificates of deposit and eurodollar time deposits with maturities of one year or less from the date of acquisition and overnight bank deposits of any Lender or of any commercial bank having capital and surplus in excess of $250,000,000, (c) repurchase obligations of any Lender or of any commercial bank satisfying the requirements of clause (b) of this definition, having a term of not more than 30 days with respect to securities issued or fully guaranteed or insured by the United States Government, (d) commercial paper of a domestic issuer rated at least A-2 by S&P or P-2 by Moody's, (e) securities with maturities of one year or less from the date of 7 acquisition issued or fully guaranteed by any state, commonwealth or territory of the United States, by any political subdivision or taxing authority of any such state, commonwealth or territory or by any foreign government, the securities of which state, commonwealth, territory, political subdivision, taxing authority or foreign government (as the case may be) are rated at least A by S&P or A by Moody's, (f) securities with maturities of one year or less from the date of acquisition backed by standby letters of credit issued by any Lender or any commercial bank satisfying the requirements of clause (b) of this definition or (g) shares of money market mutual or similar funds which invest exclusively in assets satisfying the requirements of clauses (a) through (f) of this definition. "CERCLA" means the Comprehensive Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C. Sections 9601 ET SEQ., as amended, any successor statutes, and any regulations or legally enforceable guidelines promulgated thereunder. "CERCLIS" is defined in subsection 11.16(f). "CHANGE OF CONTROL" means the occurrence of any of the following events: (i) (A) any "person" (as such term is used in Section 13(d) and 14(d) of the Exchange Act, but other than Specialty Chemicals and its Affiliates) beneficially owns, directly or indirectly, more than 25% of the total voting power of the voting stock of the Company and (B) the total voting power of the voting stock of the Company beneficially owned by such "person" exceeds that which is beneficially owned by the Specialty Chemicals and its Affiliates; or (ii) at any time, individuals who constitute the Board of Directors of the Company on the date hereof (together with any new directors whose election by such Board of Directors or whose nomination for election by the shareholders of the Company was approved pursuant to the Governance Agreement or by a vote of 66-2/3% of the directors of the Company then still in office who were either directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the Board of Directors then in office. "CHEMICAL HOLDINGS" means Ciba Specialty Chemical Holding Inc., a Swiss corporation, and its successors. "CLOSING DATE": the date on which the conditions precedent set forth in subsection 12.1 shall be satisfied. "CODE": the Internal Revenue Code of 1986, as amended from time to time. "COLLATERAL": all assets of the Credit Parties, now owned or hereinafter acquired, upon which a Lien is purported to be created by any Security Document (it being 8 understood that, on the Closing Date, the only such assets constituting "Collateral" shall be Capital Stock). "COLLATERAL AGREEMENT": the Collateral Agreement to be executed and delivered by the Company and each Subsidiary Guarantor, substantially in the form of Exhibit B, as the same may be amended, supplemented or otherwise modified from time to time. "COMMERCIAL DOMESTIC LETTER OF CREDIT": as defined in subsection 5.1(b). "COMMERCIAL EUROPEAN LETTER OF CREDIT": as defined in subsection 8.1(b). "COMMERCIAL LETTER OF CREDIT": a Commercial Domestic Letter of Credit or a Commercial European Letter of Credit, as the context shall require. "COMMITMENT": as to any Lender, its Tranche A Loan Commitment, its Tranche B Loan Commitment, its Revolving Credit Commitment or its European Loan Commitment, as the context shall require. "COMMITMENT PERCENTAGE": as to any Lender, its Tranche A Loan Commitment Percentage, its Tranche B Commitment Percentage, its Revolving Credit Commitment Percentage or its European Commitment Percentage, as the context shall require. "COMMITMENT PERIOD": the period from and including the date hereof to but not including the Termination Date or such earlier date on which both the Aggregate Revolving Credit Commitment and the Aggregate European Loan Commitment shall terminate as provided herein. "COMMONLY CONTROLLED ENTITY": an entity, whether or not incorporated, which is under common control with the Company within the meaning of Section 4001 of ERISA or is part of a group which includes the Company and which is treated as a single employer under Section 414 of the Code. "COMPANY": as defined in the preamble. "CONTAMINANT" means any pollutant, hazardous substance, radioactive substance, toxic substance, hazardous waste, radioactive waste, special waste, petroleum or petroleum-derived substance or waste, asbestos in any form or condition, polychlorinated biphenyls (PCBs), or any hazardous or toxic constituent thereof and includes, but is not limited to, these terms as defined under Environmental, Health or Safety Requirements of Law. "CONTRACTUAL OBLIGATION": as to any Person, any provision of any security issued by such Person or of any agreement, instrument or other undertaking to which such Person is a party or by which it or any of its property is bound. 9 "CREDIT DOCUMENTS": this Agreement, the Notes, the Applications and the Security Documents. "CREDIT PARTIES": the Company and each of its Subsidiaries (including, without limitation, each Foreign Borrower) which is a party to a Credit Document. "CS ASSET PURCHASE AGREEMENT": the Asset Purchase Agreement, dated as of July 25, 1998, among Stamford CS Acquisition Corp., Clark-Schwebel Holdings, Inc., Clark-Schwebel, Inc. and the Company, as the same may be amended, supplemented or otherwise modified from time to time in accordance with the provisions of subsections 12.1(c) and 14.14. "CSFB": as defined in the preamble. "CURRENCY CONVERSION NOTICE": as defined in subsection 7.4(a). "DEFAULT": any of the events specified in Section 15, whether or not any requirement for the giving of notice, the lapse of time, or both, or any other condition, has been satisfied. "DIC": the joint venture entered into between the Company and Dainippon Ink & Chemicals, Inc., pursuant to that certain Parent Company Agreement dated as of April 17, 1990 (as amended) under which the Company and Dainippon caused Hexcel Technologies, Inc. and DIC Technologies, Inc. (Wholly-owned Subsidiaries of the Company and Dainippon Ink & Chemicals, Inc., respectively) to enter into that certain Participants Agreement dated as of September 14, 1990 (as amended) pursuant to which Hexcel Technologies, Inc. and DIC Technologies, Inc. formed Hexcel-DIC Partnership ("HDP") and pursuant to which Hexcel Technologies, Inc. and DIC Technologies Inc., caused HDP to form DIC-Hexcel, Ltd. as a Wholly-owned Subsidiary of HDP. "DOCUMENTATION AGENT": as defined in the preamble hereto. "DOLLAR EQUIVALENT" means, with respect to any Optional Currency at the time of determination thereof, the equivalent of such currency in Dollars determined at the rate of exchange quoted by the Administrative Agent in New York, New York at 12:00 noon (New York time) on the last Business Day of the most recently completed calendar quarter (or, if the Administrative Agent so elects or any European Lender so requests, on the date of determination), to prime banks in New York City for the spot purchase in the New York foreign exchange market of such amount of Dollars with such Optional Currency. "DOLLARS" and "$": dollars in lawful currency of the United States of America. "DOMESTIC L/C COMMITMENT": $10,000,000. 10 "DOMESTIC L/C OBLIGATIONS": at any time, an amount equal to the sum of (a) the aggregate then undrawn and unexpired amount of the then outstanding Domestic Letters of Credit and (b) the aggregate amount of drawings under the Domestic Letters of Credit which have not then been reimbursed pursuant to subsection 5.5. "DOMESTIC LETTER OF CREDIT": as defined in subsection 5.1(a). "DOMESTIC SUBSIDIARY": any Subsidiary of the Company organized under the laws of any jurisdiction within the United States. "EBITDA": for any period on a combined basis for any Person, (i) the sum of the amounts for such period for such Person of (A) Net Income, (B) depreciation and amortization expense, (C) total Interest Expense, (D) charges for federal, state, local and foreign income taxes and (E) extraordinary losses (including restructuring charges and business acquisition and consolidation expenses) and other nonoperating expenses that have been deducted in the determination of such Net Income, MINUS (ii) the sum of (A) extraordinary gains not already excluded from the determination of such Net Income (including, without limitation, gains in connection with the sale of Property and gains based upon market valuation, GAAP valuation or sale of securities) and (B) interest and other nonoperating income. "ELIGIBLE ASSIGNEE" means (i) a commercial bank organized under the laws of the United States, or any State thereof, and, if such Eligible Assignee is to be a Revolving Credit Lender, European Lender or, during such time as the Subsequent Tranche A Loan remains available, a Tranche A Lender, having total assets in excess of $5,000,000,000; (ii) a finance company, insurance company, other financial institution or fund, reasonably acceptable to the Administrative Agent, that is regularly engaged in making, purchasing or investing in loans and, if such Eligible Assignee is to be a Revolving Credit Lender, European Lender or, during such time as the Subsequent Tranche A Loan remains available, a Tranche A Lender, having total assets in excess of $5,000,000,000; (iii) a savings and loan association or savings bank organized under the laws of the United States or any State thereof that has a net worth, determined in accordance with GAAP, in excess of $500,000,000; (iv) a commercial bank organized under the laws of any other country that is a member of the Organization for Economic Cooperation and Development (the "OECD"), or a political subdivision of any such country, and having total assets in excess of $5,000,000,000, as long as such bank is acting through a branch or agency located in the country in which it is organized, in the Cayman Islands or in another country that is also a member of the OECD; or (v) the central bank of any country that is a member of the OECD; and, in each case, is capable of making Loans in accordance with the terms hereof both in the United States and (if such Eligible Assignee is to be a European Lender) in each country in which an Optional Currency is the national currency. "ENVIRONMENTAL, HEALTH OR SAFETY REQUIREMENTS OF LAW" means all Requirements of Law derived from or relating to foreign, European Union, United States federal, state 11 and local laws or regulations relating to or addressing the environment, health or safety, including but not limited to any law, regulation, or order relating to the use, handling, or disposal of any Contaminant, any law, regulation, or order relating to Remedial Action and any law, regulation, or order relating to workplace or worker safety and health, and such Requirements of Law as are promulgated by the specifically authorized Governmental Authority responsible for administering such Requirements of Law, each as from time to time hereafter in effect. "ENVIRONMENTAL LIEN" means a Lien in favor of any Governmental Authority for any (i) liabilities under any Environmental, Health or Safety Requirements of Law, or (ii) damages arising from, or costs incurred by such Governmental Authority in response to, a Release or threatened Release of a Contaminant into the environment. "ENVIRONMENTAL PROPERTY TRANSFER ACTS" means any applicable Requirement of Law that, for environmental reasons, conditions, restricts, prohibits or requires any notification, Remedial Action or disclosure triggered by the closure of any Property, the transfer, sale or lease of any Property or deed or title for any Property or any change in the direct or indirect ownership or control of any Property, including, but not limited to, any so-called "Industrial Site Recovery Acts" or "Responsible Transfer Acts". "ERISA": the Employee Retirement Income Security Act of 1974, as amended from time to time. "EURO": the single currency of participating member states of the European Union. "EUROCURRENCY BASE RATE": the rate per annum determined by the Administrative Agent at approximately 11:00 a.m. (London time) on the date which is two Business Days prior to the beginning of the relevant Interest Period (as specified in the applicable Notice of Borrowing) by reference to the "British Bankers' Association Interest Settlement Rates" for deposits in Dollars or the relevant Optional Currency (as set forth by any service selected by the Administrative Agent which has been nominated by the British Bankers' Association as an authorized information vendor for the purpose of displaying such rates) for a period equal to such Interest Period (rounded, if necessary, upward to the nearest whole multiple of 1/16th of 1%); PROVIDED that (x) with respect to any European Overdraft Loans or any other Eurocurrency Loan having an Interest Period of seven (7) days or (y) to the extent that an interest rate is not ascertainable pursuant to the foregoing provisions of this definition, the "Eurocurrency Base Rate" shall be the interest rate per annum determined by the Administrative Agent (or, in the case of the European Overdraft Loans, by the European Overdraft Lender) to be the average (rounded upward to the nearest whole multiple of one-sixteenth of one percent (0.0625%) per annum, if such average is not such a multiple) of the rates per annum at which deposits in Dollars or the relevant Optional Currency are offered to major banks in the London interbank market in London, England by CSFB at approximately 11:00 a.m. 12 (London time) on the date which is two Business Days prior to the beginning of such Interest Period. "EUROCURRENCY LOANS": Loans the rate of interest applicable to which is based upon the Eurocurrency Rate. "EUROCURRENCY RATE": with respect to each day during each Interest Period pertaining to a Eurocurrency Loan, a rate per annum determined for such day in accordance with the following formula (rounded upward to the nearest 1/100th of 1%, if the Eurocurrency Reserve Requirements are greater than zero): Eurocurrency Base Rate ---------------------------------------- 1.00 - Eurocurrency Reserve Requirements "EUROCURRENCY RESERVE REQUIREMENTS" means, for any day, that percentage which is in effect on such day, as prescribed by the Federal Reserve Board for determining the maximum reserve requirement (including, without limitation, any emergency, supplemental or other marginal reserve requirement) for a member bank of the Federal Reserve System in New York, New York with deposits exceeding five billion Dollars in respect of Eurocurrency Liabilities (or in respect of any other category of liabilities which includes deposits by reference to which the interest rate on Eurocurrency Rate Loans is determined or any category of extensions of credit or other assets which includes loans by a non-United States office of any bank to United States residents). "EUROPEAN COMMITMENT PERCENTAGE": as to any European Lender at any time, the percentage which such European Lender's European Loan Commitment then constitutes of the Aggregate European Loan Commitment (or, at any time after the Aggregate European Loan Commitment shall have expired or terminated, the European Commitment Percentage of such European Lender immediately prior to such expiry or termination). "EUROPEAN L/C COMMITMENT": $20,000,000 (or the Local Equivalent thereof). "EUROPEAN L/C OBLIGATIONS": at any time, an amount equal to the sum of (a) the aggregate then undrawn and unexpired amount of the then outstanding European Letters of Credit and (b) the aggregate amount of drawings under the European Letters of Credit which have not then been reimbursed pursuant to subsection 8.5. "EUROPEAN LENDER": each bank or other financial institution holding a European Loan Commitment hereunder (or, after the last day of the Commitment Period, having any Aggregate Outstanding European Extensions of Credit hereunder); collectively, the "EUROPEAN LENDERS". "EUROPEAN LETTER OF CREDIT": as defined in subsection 8.1(a). 13 "EUROPEAN LOAN COMMITMENT": as to any European Lender, its obligation to make Syndicated European Loans to and/or issue or participate in Local European Loans and/or European Letters of Credit issued on behalf of the Borrowers hereunder in an aggregate principal and/or face amount at any one time outstanding not to exceed the amount set forth opposite such European Lender's name on Schedule I under the heading "European Loan Commitment". "EUROPEAN OVERDRAFT LENDER": Citibank, N.A. (and its successors and permitted assigns), in its capacity as the lender of the European Overdraft Loans. "EUROPEAN OVERDRAFT COMMITMENT": $10,000,000 (or the Local Equivalent thereof), as such amount may be adjusted from time to time in accordance with the provisions of subsection 9.5. "EUROPEAN OVERDRAFT LOANS": as defined in subsection 9.1. "EUROPEAN REVOLVING LOANS": as defined in subsection 7.1(a). "EVENT OF DEFAULT": any of the events specified in Section 15, PROVIDED that any requirement for the giving of notice, the lapse of time, or both, or any other condition, has been satisfied. "EXCHANGE ACT": the Securities Exchange Act of 1934 (as amended from time to time) and any successor statute. "EXISTING AGREEMENT": as defined in the recitals. "EXISTING TRANSACTION DOCUMENTS" means, collectively: (a) the Strategic Alliance Agreement, the Subordinated Ciba Notes, the Subordinated Ciba Notes Indenture, the Governance Agreement and all other agreements contemplated by, or entered into by the Company and its Subsidiaries pursuant to or in connection with, the Strategic Alliance Agreement; (b) the Asset Purchase Agreement relating to the acquisition by the Company of the assets constituting the composite products division of Hercules Incorporated and any other documents or agreements delivered thereunder or in connection therewith; (c) the Asset Purchase Agreement relating to the acquisition by the Company of the satellite division and certain other assets of Fiberite Holdings Inc. and any other documents or agreements delivered thereunder or in connection therewith; and (d) the CS Asset Purchase Agreement, the Lease Agreement and any other documents or agreements delivered thereunder or in connection therewith. 14 "FACILITY": each of (a) the Tranche A Loan Commitments and the Tranche A Loans made thereunder (the "TRANCHE A LOAN FACILITY"), (b) the Tranche B Loan Commitments and the Tranche B Loans made thereunder (the "TRANCHE B LOAN FACILITY"), (c) the Revolving Credit Commitments and the extensions of credit made thereunder (the "REVOLVING CREDIT FACILITY") and (d) the European Loan Commitments and the extensions of credit made thereunder (the "EUROPEAN LOAN FACILITY"). "FEDERAL FUNDS EFFECTIVE RATE": for any day, the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers, as published on the next succeeding Business Day by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of the quotations for the day of such transactions received by the Administrative Agent from three federal funds brokers of recognized standing selected by it. "FINANCING LEASE": any lease of property, real or personal, the obligations of the lessee in respect of which are required in accordance with GAAP to be capitalized on a balance sheet of the lessee. "FIXED CHARGES" means, for any period for any Person, the sum, without duplication, of the amounts for such period of (i) Interest Expense of such Person, (ii) the scheduled payments of principal on Indebtedness for borrowed money required to be paid during such period by such Person, including, without limitation, the principal component of Financing Lease obligations and (iii) cash dividends paid in respect of Capital Stock by such Person. "FIXED CHARGE COVERAGE RATIO" means the ratio of (i) EBITDA of the Company and its Subsidiaries for the most recently completed period of four consecutive fiscal quarters, MINUS Capital Expenditures paid by the Company and its Subsidiaries during such period, PLUS Net Proceeds of asset sales received during such period to the extent not included in the calculation of EBITDA for such period to (ii) Fixed Charges of the Company and its Subsidiaries for such period. "FOREIGN BORROWERS": subject to the provisions of subsection 7.7, the collective reference to each of: (i) Hexcel (U.K.) Limited, a corporation organized and existing under the laws of England and Wales ("HEXCEL-U.K."); (ii) Hexcel Composites Limited, a corporation organized and existing under the laws of the United Kingdom ("COMPOSITES-UK"); (iii) Hexcel S.A., a French societe anonyme ("HEXCEL-FRANCE"); (iv) Hexcel Fabrics S.A., a French societe anonyme ("FABRICS-FRANCE"); 15 (v) Hexcel Composites S.A., a French societe anonyme ("COMPOSITES-FRANCE"); (vi) Hexcel Composites S.A., a company organized and existing under the laws of Belgium ("HEXCEL-BELGIUM"); (vii) Salver S.r.l., a limited liability company organized and existing under the laws of Italy ("SALVER"); (viii) Hexcel Composites GmbH, a company organized and existing under the laws of Austria ("COMPOSITES-AUSTRIA"); (ix) Hexcel Composites S.A., a corporation organized and existing under the laws of Spain ("HEXCEL-SPAIN"); (x) Hexcel Composites GmbH, a corporation organized and existing under the laws of Germany ("HEXCEL-GERMANY"); and (xi) each other Foreign Borrower from time to time designated in accordance with the provisions of subsection 7.9. "FOREIGN BORROWER SUBLIMIT" means, with respect to (a) Composites-Austria, $2,000,000, (b) Salver, $4,000,000 and (c) each other Foreign Borrower, $35,000,000 (or, in each case, the Local Equivalent thereof), as any such amount may be modified from time to time for the relevant Foreign Borrower by the Company with the prior consent of the Administrative Agent and any affected Local Lender. "FOREIGN EMPLOYEE BENEFIT PLAN" means any employee benefit plan as defined in Section 3(3) of ERISA that is maintained or contributed to for the benefit of the employees of the Company or any Commonly Controlled Entity or any of the Company's Subsidiaries, but which is not covered by ERISA pursuant to ERISA Section 4(b)(4). "FOREIGN PENSION PLAN" means any Foreign Employee Benefit Plan that, under applicable local law, is required to be funded through a trust or other funding vehicle other than a trust or funding vehicle maintained by a Governmental Authority. "FOREIGN PLEDGE AGREEMENT": each pledge agreement (or analogous agreement) by and between the Company or a Domestic Subsidiary, as applicable, and the Documentation Agent pledging 65% of the ownership interest (other than shares required by applicable law to be owned by another Person for the qualification of directors or to satisfy minimum shareholder requirements) held directly by the Company or such Domestic Subsidiary (as the case may be) in each Material Subsidiary thereof that is a Foreign Subsidiary (other than Hexcel Chemical Products (U.K.) Limited, Hexcel Foreign Sales Corp. and Hexcel do Brasil Servicos S/C Ltda.), as each such pledge agreement may be amended, supplemented or otherwise modified from time to time. 16 "FOREIGN SUBSIDIARY": any Subsidiary of the Company organized under the laws of any jurisdiction outside the United States of America. "GAAP": generally accepted accounting principles in the United States of America as in effect from time to time; PROVIDED that, for purposes of determining compliance with the provisions of subsection 14.1, "GAAP" shall mean generally accepted account principles in the United States of America as in effect on December 31, 1997. "GOVERNANCE AGREEMENT" means the Governance Agreement dated as of February 29, 1996 by and between Chemical Holdings (as successor to Ciba-Geigy Limited) and the Company, as the same may be amended, supplemented or otherwise modified from time to time. "GOVERNMENTAL AUTHORITY": any nation or government, any state or other political subdivision thereof and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. "GUARANTEE OBLIGATION": as to any Person (the "GUARANTEEING PERSON"), any obligation of (a) the guaranteeing person or (b) another Person (including, without limitation, any bank under any letter of credit) to induce the creation of which the guaranteeing person has issued a reimbursement, counterindemnity or similar obligation, in either case guaranteeing or in effect guaranteeing any Indebtedness, leases, dividends or other similar obligations (the "PRIMARY OBLIGATIONS") of any other third Person (the "PRIMARY OBLIGOR") in any manner, whether directly or indirectly, including, without limitation, any obligation of the guaranteeing person, whether or not contingent, (i) to purchase any such primary obligation or any property constituting direct or indirect security therefor, (ii) to advance or supply funds (1) for the purchase or payment of any such primary obligation or (2) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency of the primary obligor, (iii) to purchase property, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation or (iv) otherwise to assure or hold harmless the owner of any such primary obligation against loss in respect thereof; PROVIDED, HOWEVER, that the term Guarantee Obligation shall not include endorsements of instruments for deposit or collection in the ordinary course of business. The amount of any Guarantee Obligation of any guaranteeing person shall be deemed to be the lower of (a) an amount equal to the stated or determinable amount of the primary obligation in respect of which such Guarantee Obligation is made and (b) the maximum amount for which such guaranteeing person may be liable pursuant to the terms of the instrument embodying such Guarantee Obligation, unless such primary obligation and the maximum amount for which such guaranteeing person may be liable are not stated or determinable, in which case the amount of such Guarantee Obligation shall be such guaranteeing person's maximum reasonably anticipated liability in respect thereof as determined by the Company in good faith. 17 "INDEBTEDNESS": of any Person at any date (and without duplication), (a) all indebtedness of such Person for borrowed money or for the deferred purchase price of property or services (other than current trade liabilities incurred in the ordinary course of business and payable in accordance with customary practices), (b) any other indebtedness of such Person which is evidenced by a note, bond, debenture or similar instrument, (c) all obligations of such Person under Financing Leases, (d) all obligations of such Person in respect of acceptances issued or created for the account of such Person and (e) all liabilities secured by any Lien on any property owned by such Person even though such Person has not assumed or otherwise become liable for the payment thereof; PROVIDED, HOWEVER, that (i) for purposes of calculating compliance with the financial covenants contained in subsection 14.1 only, the term "Indebtedness" shall include only such obligations which would be reflected in a consolidated balance sheet of the Company and its Subsidiaries prepared in accordance with GAAP and (ii) for purposes of Section 15(e) only, the term "Indebtedness" shall also include obligations under Interest Rate Agreements and obligations on account of currency hedging arrangements. "INITIAL INTERGLAS TRANSACTION": the acquisition by AcquisitionCo or any of its Subsidiaries of approximately 43.6% of the issued and outstanding Capital Stock of Interglas pursuant to the CS Asset Purchase Agreement. "INSOLVENCY": with respect to any Multiemployer Plan, the condition that such Plan is insolvent within the meaning of Section 4245 of ERISA. "INSOLVENT": pertaining to a condition of Insolvency. "INTEREST COVERAGE RATIO": for any period of four consecutive fiscal quarters, the ratio of (a) EBITDA of the Company and its Subsidiaries for such period to (b) total Interest Expense of the Company and its Subsidiaries for such period. "INTEREST EXPENSE": for any period on a combined basis for any Person, all of the following as determined in conformity with GAAP: (i) total interest expense, whether paid or accrued (without duplication) (including the interest component of Financing Lease obligations for such period), including, without limitation, all commissions, discounts and other fees and charges owed with respect to letters of credit and net costs under Interest Rate Agreements, but excluding, however, (w) amortization of discount, (x) capitalized debt issuance costs, (y) interest paid in property other than cash and (z) any other interest expense not payable in cash, MINUS (ii) any net payments received during such period under Interest Rate Agreements. "INTEREST PAYMENT DATE": (a) as to any ABR Loan, the third Business Day of each January, April, July and October for the period ending on (and including) the last day of the immediately preceding December, March, June or September, respectively, (b) as to any Eurocurrency Loan (including, in any event, any European Overdraft Loan) having an Interest Period of three months or less, the last day of such Interest Period and (c) as to any Eurocurrency Loan (including, in any event, any European Overdraft Loan) having 18 an Interest Period longer than three months, each day which is three months, or a whole multiple thereof, after the first day of such Interest Period (or, if such day is not a Business Day, the next succeeding Business Day) and the last day of such Interest Period; PROVIDED that interest payable on account of European Overdraft Loans shall be paid quarterly, on the last Business Day of each March, June, September and December. "INTEREST PERIOD": with respect to any Eurocurrency Loan: (a) initially, the period commencing on the borrowing or conversion date, as the case may be, with respect to such Eurocurrency Loan and ending one, two, three or six months thereafter (or, unless any affected Lender shall object thereto, nine months or seven days thereafter), as selected by the relevant Borrower in its Notice of Borrowing given with respect thereto; and (b) thereafter, each period commencing on the last day of the next preceding Interest Period applicable to such Eurocurrency Loan and ending one, two, three or six months thereafter (or, unless any affected Lender shall object thereto, nine months or seven days thereafter), as selected by the relevant Borrower by irrevocable notice to the Administrative Agent delivered by 11:00 a.m. (New York City time or, with respect to continuations of Loans denominated in Optional Currencies, London, England time) not less than three Business Days prior to the last day of the then current Interest Period with respect thereto; PROVIDED that, all of the foregoing provisions relating to Interest Periods are subject to the following: (1) if any Interest Period would otherwise end on a day that is not a Business Day, such Interest Period shall be extended to the next succeeding Business Day unless the result of such extension would be to carry such Interest Period into another calendar month in which event such Interest Period shall end on the immediately preceding Business Day; (2) any Interest Period that would otherwise extend beyond the Termination Date shall end on the Termination Date; (3) any Interest Period that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Business Day of a calendar month; and (4) the relevant Borrower shall select Interest Periods so as not to require a payment or prepayment of any Eurocurrency Loan during an Interest Period for such Loan; PROVIDED, FURTHER, that European Overdraft Loans shall have an Interest Period of one day. 19 "INTEREST RATE AGREEMENT": any interest rate swap, option, cap, collar or insurance or any other agreement or arrangement with any Lender (or any Affiliate or Subsidiary thereof) which is designed to provide protection against fluctuations in interest rates, and any renewals thereof or substitutions therefor. "INTERGLAS": CS Interglas AG, a German Aktiengesellschaft. "INTERGLAS TRANSACTION": the collective reference to the Initial Interglas Transaction and the Subsequent Interglas Transaction. "INVESTMENT": any (a) advance, loan, extension of credit or capital contribution to, (b) purchase of any stock, bonds, notes, debentures or other securities of or any assets constituting a business unit of, or similar investment in, or (c) for purposes of subsection 14.8(j) only, incurrence of any Guarantee Obligation with respect to obligations of, any Person. "ISSUING LENDER": with respect to any (a) Domestic Letter of Credit, CSFB or any other Revolving Credit Lender appointed by the Company (PROVIDED that such other Revolving Credit Lender is reasonably acceptable to the Administrative Agent and agrees to serve in the capacity of Issuing Lender), in its capacity as issuer thereof and (b) European Letter of Credit, CSFB or any other European Lender appointed by the Company (PROVIDED that such other European Lender is reasonably acceptable to the Administrative Agent and agrees to serve in the capacity of Issuing Lender), in its capacity as issuer thereof. "L/C FEE PAYMENT DATE": the last Business Day of each March, June, September, and December. "L/C OBLIGATIONS": at any time, the Domestic L/C Obligations or the European L/C Obligations, as the context may require. "L/C PARTICIPANTS": with respect to (a) any Domestic Letter of Credit, the collective reference to all the Revolving Credit Lenders, other than the Issuing Lender with respect thereto and (b) any European Letter of Credit, the collective reference to all the European Lenders, other than the Issuing Lender with respect thereto. "LEASE AGREEMENT": the Lease Agreement, dated as of a date on or about the Closing Date, between CSI Leasing Trust and Hexcel CS Corporation (to be renamed Clark-Schwebel Corporation on or about the Closing Date) as the same may be amended, supplemented or otherwise modified from time to time. "LENDERS": the collective reference to the Tranche A Lenders, the Tranche B Lenders, the Revolving Credit Lenders, the Swing Line Lender, the European Lenders, each Local Lender, the European Overdraft Lender and each Issuing Lender. 20 "LETTER OF CREDIT": a Domestic Letter of Credit or a European Letter of Credit, as the context shall require. "LEVERAGE RATIO": for any period of four consecutive fiscal quarters, the ratio of Indebtedness of the Company and its Subsidiaries on a consolidated basis as of the last day of such period to EBITDA of the Company and its Subsidiaries for such period. "LIABILITIES AND COSTS" means all liabilities, obligations, responsibilities, losses and damages with respect to or arising out of any of the following: personal injury, death, punitive damages, economic damages, consequential damages, treble damages, intentional, willful or wanton injury, damage or threat to the environment or public health or welfare, costs and expenses (including, without limitation, attorney, expert and consulting fees and costs of investigation, feasibility or Remedial Action studies), fines, penalties and monetary sanctions, voluntary disclosures made to, or settlements with, the United States Government, interest, direct or indirect, known or unknown, absolute or contingent, past, present or future, including interest, if any, thereon. "LIEN": any mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or other), charge or other security interest or any preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever (including, without limitation, any conditional sale or other title retention agreement and any Financing Lease having substantially the same economic effect as any of the foregoing). "LOAN": any Tranche A Loan, Tranche B Loan, Revolving Credit Loan, Swing Line Loan, European Revolving Loan or European Overdraft Loan, as the context shall require. "LOCAL EQUIVALENT" means, with respect to any amount of Dollars at the time of determination thereof, the equivalent of such currency in the relevant Optional Currency determined at the rate of exchange quoted by the Administrative Agent in New York, New York at 11:00 a.m. (local time) on the date of determination, to prime banks in the jurisdiction of the principal market for the trading of the relevant Optional Currency for the spot purchase in such foreign exchange market of such amount of such Optional Currency with such amount of Dollars. "LOCAL EUROPEAN LOAN": as defined in subsection 7.1(a)(ii). "LOCAL LENDER" means, with respect to Local European Loans borrowed by (a) Hexcel-Belgium, Credit Suisse First Boston, (b) Salver, Credit Suisse First Boston, (c) Composites-Austria, Credit Suisse First Boston, (d) Hexcel-Spain, Credit Suisse First Boston Aktiengesellschaft and (e) any Additional Borrower, the Lender (or Affiliate or Subsidiary thereof) which has delivered a Local Lender Joinder Agreement with respect to such Additional Lender, in each case in such Local Lender's capacity as the lender of such Local European Loans. 21 "LOCAL LENDER JOINDER AGREEMENT": a Local Lender Joinder Agreement, substantially in the form of Exhibit H, delivered pursuant to subsection 7.8(b) or 7.9(b). "LOCAL LOAN BORROWER": each Foreign Borrower as to which a Local Lender has agreed to make Local European Loans (which, initially, shall be Hexcel-Belgium, Salver, Composites-Austria and Hexcel-Spain). "MAJORITY FACILITY LENDERS": with respect to any Facility, the holders of more than 50% of the aggregate unpaid principal amount of the Term Loans or the Aggregate Outstanding RC Extensions of Credit or Aggregate Outstanding European Extensions of Credit, as the case may be, outstanding under such Facility (or, (i) in the case of the Revolving Credit Facility, prior to any termination of the Revolving Credit Commitments, the holders of more than 50% of the Aggregate Revolving Credit Commitments and (ii) in the case of the European Loan Facility, prior to any termination of the European Loan Commitments, the holders of more than 50% of the Aggregate European Loan Commitments). "MAJORITY LENDERS": at any time, the Revolving Credit Lenders, Tranche A Lenders, Tranche B Lenders and European Lenders (voting as a single class) having Commitments and (after the Closing Date) Tranche A Loans (and any availability for the borrowing of Subsequent Tranche A Loans) and Tranche B Loans which aggregate more than 50% of the Aggregate Commitment then in effect; PROVIDED that, in the event that the Aggregate Revolving Credit Commitment or the Aggregate European Loan Commitment shall have terminated, then the "Majority Lenders" shall be determined by reference to the Aggregate Outstanding RC Extensions of Credit of the Revolving Credit Lenders (rather than their Commitments) or the Aggregate Outstanding European Extensions of Credit of the European Lenders (rather than their Commitments), as the case may be. "MATERIAL ADVERSE EFFECT": a material adverse effect on (i) the business, condition (financial or otherwise), operations, performance, properties or prospects of the Company and its Subsidiaries, taken as a whole, (ii) the ability of the Borrowers or of the Subsidiary Guarantors, taken as a whole, to perform their obligations under the Credit Documents or (iii) the ability of the Lenders, the Documentation Agent or the Administrative Agent to enforce any material provision of the Credit Documents. "MATERIAL SUBSIDIARY": each Foreign Borrower and each other Subsidiary of the Company that has assets or annual revenues in excess of $2,500,000. "MOODY'S": Moody's Investors Service or any successor thereto. "MULTIEMPLOYER PLAN": a Plan which is a multiemployer plan as defined in Section 4001(a)(3) of ERISA. 22 "NET INCOME" means, for any period for any Person, the net income (or loss) after taxes for such period taken as a single accounting period, determined in conformity with GAAP. "NET PROCEEDS": with respect to any Net Proceeds Event or series of related Net Proceeds Events in which the aggregate proceeds is in excess of $1,000,000 (or the Local Equivalent thereof), (a) the gross cash consideration, and all cash proceeds (as and when received) of non-cash consideration (including, without limitation, any such cash proceeds in the nature of principal and interest payments on account of promissory notes or similar obligations), received by the Company and its Subsidiaries in connection with such Net Proceeds Event (other than any such proceeds of property which is subject to the Lease Agreement, to the extent that the Lease Agreement requires that such proceeds be applied in a manner other than that described in subsection 10.5 of this Agreement), MINUS (b) the sum, without duplication, of (i) any taxes which are paid or actually payable to any federal, state, local or foreign taxing authority by the Company and its Subsidiaries and are directly attributable to the receipt of such Net Proceeds, (ii) the amount of fees and commissions (including reasonable investment banking fees payable to Persons other than Affiliates of the Company) legal, accounting, consulting, survey, title and recording tax expenses and other costs and expenses directly incident to such Net Proceeds Event which are paid or payable by the Company and its Subsidiaries, (iii) the amount of such net cash proceeds which are attributable to (and payable to) minority interests, (iv) the amount of any reserve reasonably maintained by the Company and its Subsidiaries with respect to indemnification obligations owing pursuant to the definitive documentation pursuant to which the Net Proceeds Event is consummated (with any unused portion of such reserve to constitute Net Proceeds on the date upon which the indemnification obligations terminate) and (v) except with respect to a Net Proceeds Event of the type described in clause (c) of the definition of such term, the amount of Indebtedness (other than intercompany Indebtedness), if any, which is required to be repaid at the time or as a result of such Net Proceeds Event out of the proceeds thereof. "NET PROCEEDS EVENT": (a) the sale, transfer or other disposition by the Company or any of its Subsidiaries of any real or personal, tangible or intangible, property (including, without limitation, the sale or issuance of any Capital Stock, but other than inventory and obsolete or worn-out property which is sold, transferred or otherwise disposed of in the ordinary course of business and other than securities issued or sold in connection with director or employee stock option, stock purchase and incentive plans) of the Company or such Subsidiary to any Person (other than to the Company or any of its Subsidiaries), (b) the recovery by the Company and its Subsidiaries of amounts owing to them under property insurance policies and (c) the incurrence of any Indebtedness (other than Indebtedness incurred in reliance upon the provisions of clauses (a) through (j) or (l) of subsection 14.2) by the Company or any of its Subsidiaries. "NON-EXCLUDED TAXES": as defined in subsection 10.14(a). 23 "NOTE": a Tranche A Note, a Tranche B Note, a Revolving Credit Note or a Swing Line Note, as the context shall require; collectively, the "NOTES." "NOTICE OF BORROWING": with respect to (a) any borrowing of Loans, a Notice of Borrowing (Drawings), substantially in the form of Exhibit D-1, (b) any conversion of Loans, a Notice of Borrowing (Conversions), substantially in the form of Exhibit D-2 and (c) any continuation of Eurocurrency Loans, a Notice of Borrowing (Continuations), substantially in the form of Exhibit D-3 hereto. "NPL": as defined in subsection 11.16(f). "OBLIGATIONS" means, to the extent arising hereunder, under the Notes, under any other Credit Document or under interest rate or currency hedging agreements, all Loans, advances, debts, liabilities and obligations owing by (as applicable) the Borrowers or any Domestic Subsidiary that has executed the Collateral Agreement to the Administrative Agent, any Lender, any Affiliate or Subsidiary of the Documentation Agent or any Lender or any Person entitled to indemnification pursuant to subsection 17.6, of any kind or nature, present or future, whether or not evidenced by any note, guaranty or other instrument, whether or not for the payment of money, whether arising (i) under or in connection with any cash management services provided by the Administrative Agent or any Affiliate or Subsidiary of the Administrative Agent, or (ii) by reason of (A) an extension of credit, (B) opening or amendment of a Letter of Credit or payment of any draft drawn thereunder, (C) loan, (D) guaranty or (E) indemnification or (iii) in any other manner, whether direct or indirect (including those acquired by assignment), absolute or contingent, due or to become due, now existing or hereafter arising and however acquired. The term includes, without limitation, all interest, charges, expenses, fees, reasonable attorneys' fees and disbursements and any other sum chargeable to the Borrowers hereunder or under any other Credit Document. "OPTIONAL CURRENCY": the lawful currency of (i) in the case of Foreign Borrowers other than Local Loan Borrowers: France (French francs), Germany (Deutschemarks), the United Kingdom (British pounds sterling ("Euro sterling")); and (ii) in the case of Local Loan Borrowers, in addition to the currencies listed under (i) above, the lawful currency of Austria (Austrian shillings), Belgium (Belgian francs), The Netherlands (Dutch guilders), Italy (Italian lire), Spain (Spanish pesetas) or any other jurisdiction which the Company has requested in writing to have designated as an "Optional Currency" and as to which each affected Revolving Credit Lender or Local Lender (or the European Overdraft Lender, in the case of European Overdraft Loans to be made in such currency) has agreed in writing to such designation. For purposes hereof, the term "Optional Currency" shall include (to the extent not otherwise included herein) the Euro. "PARTICIPANT": as defined in subsection 17.7(b). "PBGC": the Pension Benefit Guaranty Corporation established pursuant to Subtitle A of Title IV of ERISA. 24 "PERMITTED BELGIAN CAPITAL": Investments made by the Company and its Subsidiaries in Hexcel-Belgium and acquisitions by the Company and its Subsidiaries of assets of Hexcel-Belgium in order to provide capital to Hexcel-Belgium; PROVIDED that (a) the aggregate principal amount of such Investments (other than Investments taking the form of intercompany loans) and acquisitions shall not exceed $20,000,000 (or the Local Equivalent thereof) and (b) the aggregate principal amount of such Investments which take the form of intercompany loans shall not at any one time exceed the amount equal to $20,000,000 (or the Local Equivalent thereof). "PERMITTED LEASE INDEBTEDNESS": obligations under Financing Leases and purchase money Indebtedness in an aggregate amount not to exceed $90,000,000 incurred, acquired or assumed (or, in the case of Interglas, in existence on the date Interglas becomes a Subsidiary of the Company) by AcquisitionCo or its Subsidiaries in connection with the Acquisition or the Interglas Transaction (PROVIDED that, except with respect to the Financing Lease existing pursuant to the Lease Agreement, such Financing Leases and purchase money Indebtedness existed at the time of the Acquisition (or, in the case of Interglas, at the time of the Interglas Transaction) and were not created in anticipation thereof) and any refinancings, refundings, renewals or extensions thereof; PROVIDED that (x) the aggregate principal amount of replacement Indebtedness or Financing Leases is not greater than the principal amount of the Indebtedness or Financing Leases being so replaced and (y) the terms of such replacement Indebtedness or Financing Leases, as applicable, are, in the aggregate, no less favorable to the Company than the terms of the Indebtedness or Financing Leases, as applicable, being so replaced. "PERMITTED SUBORDINATED INDEBTEDNESS": the collective reference to (a) the Subordinated Debentures, (b) the Subordinated Convertible Notes and (c) the Subordinated Ciba Notes. "PERSON": an individual, partnership, corporation, business trust, joint stock company, trust, unincorporated association, joint venture, Governmental Authority or other entity of whatever nature. "PLAN": at a particular time, any employee benefit plan which is covered by ERISA and in respect of which the Company or a Commonly Controlled Entity is (or, if such plan were terminated at such time, would under Section 4069 of ERISA be deemed to be) an "employer" as defined in Section 3(5) of ERISA. "PRIME RATE": the rate of interest per annum publicly announced from time to time by the Administrative Agent as its prime rate in effect at its principal office in New York City. "PROPERTY" means any real or personal property, including plant, building, facility, structure, underground storage tank or unit, equipment, inventory, general intangible, receivable, or other asset owned, leased or operated by the Company or any of its 25 Subsidiaries, as applicable (including any surface water thereon or adjacent thereto, and soil and groundwater thereunder). "REFUNDED SWING LINE LOANS": as defined in subsection 6.3(a). "REGISTER": as defined in subsection 17.7(d). "REGULATION U": Regulation U of the Board of Governors of the Federal Reserve System as in effect from time to time. "REIMBURSEMENT OBLIGATION": the obligation of the Company to reimburse the Issuing Lender pursuant to subsection 5.5 for amounts drawn under Domestic Letters of Credit issued by it or subsection 8.5 for amounts drawn under European Letters of Credit issued by it, as the case may be. "RELEASE" means release, spill, emission, leaking, pumping, injection, deposit, disposal, discharge, dispersal, leaching or migration into the indoor or outdoor environment or into or out of any Property, including the movement of Contaminants through or in the air, soil, surface water, groundwater or Property. "REMEDIAL ACTION" means actions required to (i) clean up, remove, treat or in any other way address Contaminants in the indoor or outdoor environment; (ii) prevent the Release or threat of Release or minimize the further Release of Contaminants; or (iii) investigate and determine if a remedial response is needed and to design such a response and post-remedial investigation, monitoring, operation and maintenance and care. "REORGANIZATION": with respect to any Multiemployer Plan, the condition that such plan is in reorganization within the meaning of Section 4241 of ERISA. "REPORTABLE EVENT": any of the events set forth in Section 4043(b) of ERISA, other than those events as to which the thirty day notice period is waived under subsections .13, .14, .16, .18, .19 or .20 of PBGC Reg. Section 2615. "REQUIRED LENDERS": at any time, the Revolving Credit Lenders, Tranche A Lenders, Tranche B Lenders and European Lenders (voting as a single class) having Commitments and (after the Closing Date) Tranche A Loans (and any availability for the borrowing of Subsequent Tranche A Loans) and Tranche B Loans which aggregate more than 66-2/3% of the Aggregate Commitment then in effect; PROVIDED that, in the event that the Aggregate Revolving Credit Commitment or the Aggregate European Loan Commitment shall have terminated, then the "Required Lenders" shall be determined by reference to the Aggregate Outstanding RC Extensions of Credit of the Revolving Credit Lenders (rather than their Commitments) or the Aggregate Outstanding European Extensions of Credit of the European Lenders (rather than their Commitments), as the case may be. 26 "REQUIREMENT OF LAW": as to any Person, the Certificate of Incorporation and By-Laws or other organizational or governing documents of such Person, and any law, treaty, rule or regulation or determination of an arbitrator or a court or other Governmental Authority, in each case applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject. "RESERVED PROCEEDS": at any date, the aggregate amount of Net Proceeds received by the Company and its Subsidiaries on account of any Net Proceeds Event described in clause (a) or (b) of the definition of such term which was consummated or recovered (as the case may be) within the immediately preceding 365 days, other than any such Net Proceeds which (x) have been reinvested in assets similar to those from which such Net Proceeds were derived during such 365-day period or (y) have been applied in accordance with the terms of subsection 10.5(g) (it being understood that amounts not so applied pursuant to the provisions of clause (i) or (ii) of the proviso to subsection 10.5(g) shall be deemed not to constitute "Reserved Proceeds"). "RESPONSIBLE OFFICER": with respect to: (a) any Borrower, the chief executive officer, chief operating officer or chief financial officer of the Company or, with respect to financial matters, chief financial officer, treasurer or controller of such Borrower; and (b) any Borrower (other than the Company) which does not have any of the relevant officers described in clause (a) above, the senior manager, financial manager or equivalent position (as applicable) of such Borrower. "REVOLVING CREDIT COMMITMENT": as to any Revolving Credit Lender, its obligation to make Revolving Credit Loans to and/or issue or participate in Swing Line Loans and/or Domestic Letters of Credit issued on behalf of the Borrowers hereunder in an aggregate principal and/or face amount at any one time outstanding not to exceed the amount set forth opposite such Revolving Credit Lender's name on Schedule I under the heading "Revolving Credit Commitment". "REVOLVING CREDIT COMMITMENT PERCENTAGE": as to any Revolving Credit Lender at any time, the percentage which such Revolving Credit Lender's Revolving Credit Commitment then constitutes of the Aggregate Revolving Credit Commitment (or, at any time after the Aggregate Revolving Credit Commitment shall have expired or terminated, the Revolving Credit Commitment Percentage of such Revolving Credit Lender immediately prior to such expiry or termination). "REVOLVING CREDIT LENDER": each bank or other financial institution holding a Revolving Credit Commitment hereunder (or, after the last day of the Commitment Period, having any Aggregate Outstanding RC Extensions of Credit hereunder); collectively, the "REVOLVING CREDIT LENDERS". 27 "REVOLVING CREDIT LOANS": as defined in subsection 4.1. "REVOLVING CREDIT NOTE": as defined in subsection 10.1(e). "SECURITY DOCUMENTS": the collective reference to the Collateral Agreement, the Foreign Pledge Agreements and all other security documents hereafter delivered to the Administrative Agent or the Documentation Agent granting a Lien on any asset or assets of any Person to secure the Loans and other obligations and liabilities of any Borrower hereunder and under any of the other Credit Documents or to secure any guarantee thereof. "SINGLE EMPLOYER PLAN": any Plan which is covered by Title IV of ERISA, but which is not a Multiemployer Plan. "SOLVENT", when used with respect to any Person, means that at the time of determination, (A) (i) the fair market value of its assets is in excess of the total amount of its liabilities (including, without limitation, contingent liabilities), and (ii) the present fair saleable value of its assets is greater than its probable liability on its existing debts as such debts become absolute and matured, and (iii) it is then able and expects to be able to pay its debts (including, without limitation, contingent debts and other commitments) as they mature, and (iv) it has capital sufficient to carry on its business as conducted and as proposed to be conducted; and (B) with respect to Hexcel-U.K. and Composites-UK only, such Person is not unable to pay its debts within the meaning of Section 123 of the Insolvency Act of 1986, and will not become unable to pay its debts within the meaning of that Section in consequence of its entry into the Credit Agreement, any other Credit Document or any other agreement or instrument executed and delivered or to be executed and delivered pursuant hereto or thereto or in connection herewith or therewith or any of the transactions contemplated hereby or thereby. "SPECIALTY CHEMICALS": the collective reference to Chemical Holdings and Ciba Specialty Chemicals Corporation, a Delaware corporation, and their successors. "S&P": Standard & Poor's Rating Services or any successor thereto. "STANDBY DOMESTIC LETTER OF CREDIT": as defined in subsection 5.1(b). "STANDBY EUROPEAN LETTER OF CREDIT": as defined in subsection 8.1(b). "STANDBY LETTER OF CREDIT": a Standby Domestic Letter of Credit or a Standby European Letter of Credit, as the context shall require. "STRATEGIC ALLIANCE AGREEMENT" means the Strategic Alliance Agreement dated as of September 29, 1995 and amended as of December 12, 1995 and as of February 28, 1996, among the Company and Specialty Chemicals (as successor to Ciba-Geigy Limited 28 and Ciba-Geigy Corporation), as such agreement may be amended, supplemented or otherwise modified from time to time in accordance with subsection 14.14. "SUBORDINATED CIBA NOTES": the Increasing Rate Senior Subordinated Notes, due 2003, issued or to be issued by the Company in an aggregate principal amount not to exceed $43,000,000 (as such amount may be adjusted in accordance with the Strategic Alliance Agreement) and governed by the terms of the Subordinated Ciba Notes Indenture. "SUBORDINATED CIBA NOTES INDENTURE": the Indenture, dated as of February 29, 1996, between the Company and First Trust of California, N.A., as trustee, as such agreement has been amended pursuant to (a) the First Supplemental Indenture, dated as of June 27, 1996, thereto, (b) the Second Supplemental Indenture, dated as of March 3, 1998, thereto, and (c) the Third Supplemental Indenture, dated as of the Closing Date, thereto, and as such agreement may be further amended, supplemented or otherwise modified from time to time in accordance with the terms of this Agreement. "SUBORDINATED CONVERTIBLE NOTES": the 7% Convertible Subordinated Notes, due 2003, issued by the Company in the aggregate original principal amount of up to $115,000,000 and governed by the terms of the Subordinated Convertible Notes Indenture. "SUBORDINATED CONVERTIBLE NOTES INDENTURE": the Indenture, dated as of July 24, 1996, between the Company and First Trust of California, National Association, as trustee, as such agreement may be amended, supplemented or otherwise modified from time to time in accordance with the terms of this Agreement. "SUBORDINATED DEBENTURES": the 7% Convertible Subordinated Debentures, due 2011, issued by the Company in the aggregate original principal amount of up to $35,000,000 and governed by the terms of the Subordinated Debenture Indenture. "SUBORDINATED DEBENTURE INDENTURE": the Indenture, dated as of August 1, 1986, between the Company and The Bank of California, N.A., as trustee, as such agreement may be amended, supplemented or otherwise modified from time to time in accordance with the terms of this Agreement. "SUBSEQUENT INTERGLAS TRANSACTION": the collective reference to (a) the exercise by the Company or any of its Subsidiaries of the options presently held by the Company to acquire all or any part of approximately 40.2% of the Capital Stock of Interglas which is not presently owned by the Acquired Businesses for consideration (assuming the acquisition of the entire 40.2%) of up to 75,300,000 deutsche marks which is approximately $42,300,000 at today's exchange rate, (b) the refinancing of approximately 100,400,000 deutsche marks which is approximately $56,300,000 at today's exchange rate of outstanding Indebtedness and profit participation capital of Interglas and (c) the 29 purchase, redemption or other acquisition of up to $25,000,000 of publicly held Capital Stock of Interglas. "SUBSIDIARY": as to any Person, a corporation, partnership or other entity of which shares of stock or other ownership interests having ordinary voting power (other than stock or such other ownership interests having such power only by reason of the happening of a contingency) to elect a majority of the board of directors or other managers of such corporation, partnership or other entity are at the time owned, or the management of which is otherwise controlled, directly or indirectly through one or more intermediaries, or both, by such Person; PROVIDED, that Hexcel Foundation shall not be deemed a Subsidiary of the Company for as long as it maintains its status as a not-for-profit corporation for purposes of California law. Unless otherwise qualified, all references to a "Subsidiary" or to "Subsidiaries" in this Agreement shall refer to a Subsidiary or Subsidiaries of the Company. "SUBSIDIARY GUARANTOR": each Subsidiary of the Company which is party to the Collateral Agreement. "SWING LINE COMMITMENT": at any date, the obligation of the Swing Line Lender to make Swing Line Loans pursuant to subsection 6.1 in the amount referred to therein. "SWING LINE LENDER": CSFB. "SWING LINE LOANS": as defined in subsection 6.1. "SWING LINE NOTE": as defined in subsection 10.1(e). "SYNDICATED EUROPEAN LOAN": as defined in subsection 7.1(a)(i). "TERMINATION DATE": (a) with respect to the Aggregate Tranche A Loan Commitment, the Aggregate Revolving Credit Commitment, the Aggregate European Loan Commitment, the European Overdraft Commitment and (in each such case) any Loans and Letters of Credit thereunder, September 14, 2004, and (b) with respect to the Aggregate Tranche B Loan Commitment and any Loans thereunder, September 14, 2005. "TERM LOAN REPAYMENT DATE": the first date after the Closing Date upon which the Tranche A Loans and the Tranche B Loans have been paid in full. "TRANCHE": the collective reference to Eurocurrency Loans having then current Interest Periods which begin on the same date and end on the same later date (whether or not such Loans shall originally have been made on the same day); Tranches may be identified as "EUROCURRENCY TRANCHES". "TRANCHE A COMMITMENT PERCENTAGE": as to any Tranche A Lender (a) at any time prior to or on the Closing Date, the percentage which the Tranche A Loan 30 Commitment of such Tranche A Lender then constitutes of the Aggregate Tranche A Loan Commitment or (b) at any time after the Closing Date, the percentage which the sum of (i) the outstanding Tranche A Loan of such Tranche A Lender and (ii) the portion (if any) of the Tranche A Loan Commitment of such Tranche A Lender available for the borrowing of Subsequent Tranche A Loans, then constitutes of the aggregate principal amount of Tranche A Loans then outstanding. "TRANCHE A LENDER": at any date, each bank or other financial institution which holds (prior to the Closing Date) a Tranche A Loan Commitment or (from and after the Closing Date) a Tranche A Loan Commitment (if any) or a Tranche A Loan hereunder; collectively, the "TRANCHE A LENDERS". "TRANCHE A LOAN": as defined in subsection 2.1. "TRANCHE A LOAN COMMITMENT": as to any Tranche A Lender, its obligation to make Tranche A Loans to the Company hereunder in an aggregate principal amount not to exceed the amount set forth opposite such Tranche A Lender's name on Schedule I under the heading "Tranche A Loan Commitment". "TRANCHE A NOTE": as defined in subsection 10.1(e). "TRANCHE B COMMITMENT PERCENTAGE": as to any Tranche B Lender (a) at any time prior to or on the Closing Date, the percentage which the Tranche B Loan Commitment of such Tranche B Lender then constitutes of the Aggregate Tranche B Loan Commitment or (b) at any time after the Closing Date, the percentage which the Tranche B Loan of such Tranche B Lender then constitutes of the aggregate principal amount of Tranche B Loans then outstanding. "TRANCHE B LENDER": at any date, each bank or other financial institution which holds (prior to the Closing Date) a Tranche B Loan Commitment or (from and after the Closing Date) a Tranche B Loan hereunder; collectively, the "TRANCHE B LENDERS". "TRANCHE B LOAN": as defined in subsection 3.1. "TRANCHE B LOAN COMMITMENT": as to any Tranche B Lender, its obligation to make Tranche B Loans to the Company hereunder in an aggregate principal amount not to exceed the amount set forth opposite such Tranche B Lender's name on Schedule I under the heading "Tranche B Loan Commitment". "TRANCHE B NOTE": as defined in subsection 10.1(e). "TRANSFEREE": as defined in subsection 17.7(f). "TYPE": as to any Loan, its nature as an ABR Loan or a Eurocurrency Loan. 31 "UNIFORM CUSTOMS": the Uniform Customs and Practice for Documentary Credits (1993 Revision), International Chamber of Commerce Publication No. 500, as the same may be amended from time to time. "WHOLLY-OWNED SUBSIDIARY": with respect to any Person, a corporation, company having limited liability or societe anonyme, 100% (or in the case of any entity which is organized under the laws of a jurisdiction outside of the United States of America, 98%) of the Capital Stock of which is owned, directly or indirectly, by such Person (other than shares required by applicable law to be owned by another Person for the qualification of directors or to satisfy minimum shareholder requirements). 1.2 OTHER DEFINITIONAL PROVISIONS. (a) Unless otherwise specified therein, all terms defined in this Agreement shall have the defined meanings when used in any Notes or any certificate or other document made or delivered pursuant hereto. (b) As used herein and in any Notes, and any certificate or other document made or delivered pursuant hereto, accounting terms relating to the Company and its Subsidiaries not defined in subsection 1.1 and accounting terms partly defined in subsection 1.1, to the extent not defined, shall have the respective meanings given to them under GAAP. (c) The words "hereof", "herein" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement, and Section, subsection, Schedule and Exhibit references are to this Agreement unless otherwise specified. (d) The meanings given to terms defined herein shall be equally applicable to both the singular and plural forms of such terms. SECTION 2. AMOUNT AND TERMS OF TRANCHE A LOAN COMMITMENTS 2.1 TRANCHE A TERM LOANS. Subject to the terms and conditions hereof, each Tranche A Lender severally agrees to make up to two term loans to the Company, with (x) the first such term loan (the "INITIAL TRANCHE A LOAN") to be made on the Closing Date and (y) the second such term loan (the "SUBSEQUENT TRANCHE A LOAN"; together with the Initial Tranche A Loan, the "TRANCHE A LOANS") to be made on any Business Day prior to January 31, 1999; PROVIDED that (i) the aggregate principal amount of Tranche A Loans made by any Tranche A Lender shall not exceed the Tranche A Loan Commitment of such Tranche A Lender, (ii) the aggregate principal amount of Subsequent Tranche A Loans to be made by all Tranche A Lenders shall not exceed $30,000,000 and (iii) the Subsequent Tranche A Loans may be utilized by the Company to pay consideration for the Acquisition and the Subsequent Interglas Transaction as well as any costs, fees and expenses related thereto. The Tranche A Loans may from time to time be (a) Eurocurrency Loans, (b) ABR Loans or (c) a combination thereof, as determined by the Company and notified to the Administrative Agent in accordance with subsections 2.2 and 10.6; PROVIDED that the Tranche A Loans to be made on the Closing Date 32 initially shall be made as ABR Loans and, until the date which is 30 days following the Closing Date, shall be maintained as either (i) Eurocurrency Loans having an Interest Period of not longer than one month or (ii) ABR Loans. 2.2 PROCEDURE FOR TRANCHE A LOAN BORROWING. The Company shall give the Administrative Agent its irrevocable Notice of Borrowing (which notice must be received by the Administrative Agent prior to 10:00 A.M., New York City time, one Business Day prior to the Closing Date) requesting that the Tranche A Lenders make the Tranche A Loans on the Closing Date and specifying the amount to be borrowed. Upon receipt of such Notice of Borrowing, the Administrative Agent shall promptly notify each Tranche A Lender thereof. Each Tranche A Lender will make the amount of its Tranche A Commitment Percentage of such borrowing available to the Administrative Agent for the account of the Company at the office of the Administrative Agent specified in subsection 17.3 prior to 1:00 P.M., New York City time, on the Closing Date in funds immediately available to the Administrative Agent. Such Tranche A Loans will then be made available to the Company by the Administrative Agent crediting the account of the Company on the books of such office with the aggregate of the amounts made available to the Administrative Agent by the Tranche A Lenders and in like funds as received by the Administrative Agent. 2.3 AMORTIZATION OF TRANCHE A LOANS. (a) The Borrower shall repay the Tranche A Loans on the last Business Day of each fiscal quarter occurring during a period set forth below by the amount set forth below opposite such period:
--------------------------------------------------------------------- --------------------------------------------------------------------- Total for Period Amount Period ----------------------------------- ----------- ----------- December 31, 1999 $10,000,000 $ January 1, 2000 - December 31, 2000 0 10,000,000 January 1, 2001 - December 31, 2001 7,500,000 30,000,000 January 1, 2002 - December 31, 2002 8,750,000 35,000,000 January 1, 2003 - December 31, 2003 15,000,000 60,000,000 January 1, 2004 - June 30, 2004 16,250,000 65,000,000 25,000,000 50,000,000 --------------------------------------------------------------------- ---------------------------------------------------------------------
(b) The Borrower shall repay any then-outstanding Tranche A Loans on the Termination Date. 2.4 USE OF PROCEEDS OF TRANCHE A LOANS. Subject to the provisions of subsection 2.1, the proceeds of the Tranche A Loans shall be utilized by the Company only to (a) finance a portion of the consideration paid by the Company and its Subsidiaries on account of the Acquisition, (b) pay any fees and expenses relating thereto and (c) refinance certain existing Indebtedness of the Company and its Subsidiaries. 33 SECTION 3. AMOUNT AND TERMS OF TRANCHE B LOAN COMMITMENTS 3.1 TRANCHE B TERM LOANS. Subject to the terms and conditions hereof, each Tranche B Lender severally agrees to make a term loan (a "TRANCHE B LOAN") to the Company on the Closing Date in an amount not to exceed the amount of the Tranche B Loan Commitment of such Tranche B Lender then in effect. The Tranche B Loans may from time to time be (a) Eurocurrency Loans, (b) ABR Loans or (c) a combination thereof, as determined by the Company and notified to the Administrative Agent in accordance with subsections 3.2 and 10.6; PROVIDED that the Tranche B Loans to be made on the Closing Date initially shall be made as ABR Loans and, until the date which is 30 days following the Closing Date, shall be maintained as either (i) Eurocurrency Loans having an Interest Period of not longer than one month or (ii) ABR Loans. 3.2 PROCEDURE FOR TRANCHE B LOAN BORROWING. The Company shall give the Administrative Agent its irrevocable Notice of Borrowing (which notice must be received by the Administrative Agent prior to 10:00 A.M., New York City time, one Business Day prior to the Closing Date) requesting that the Tranche B Lenders make the Tranche B Loans on the Closing Date and specifying the amount to be borrowed. Upon receipt of such Notice of Borrowing, the Administrative Agent shall promptly notify each Tranche B Lender thereof. Each Tranche B Lender will make the amount of its Tranche B Commitment Percentage of such borrowing available to the Administrative Agent for the account of the Company at the office of the Administrative Agent specified in subsection 17.3 prior to 1:00 P.M., New York City time, on the Closing Date in funds immediately available to the Administrative Agent. Such Tranche B Loans will then be made available to the Company by the Administrative Agent crediting the account of the Company on the books of such office with the aggregate of the amounts made available to the Administrative Agent by the Tranche B Lenders and in like funds as received by the Administrative Agent. 3.3 AMORTIZATION OF TRANCHE B LOANS. (a) The Borrower shall repay the Tranche B Loans on the last Business Day of each fiscal quarter occurring during a period set forth below by the amount set forth below opposite such period:
--------------------------------------------------------------------- --------------------------------------------------------------------- Total for Period Amount Period ----------------------------------- ----------- ------------ December 31, 1999 - June 30, 2004 $ 250,000 $ 4,750,000 July 1, 2004 - June 30, 2005 50,000,000 200,000,000 --------------------------------------------------------------------- ---------------------------------------------------------------------
(b) The Borrower shall repay any then-outstanding Tranche B Loans on the Termination Date. 3.4 USE OF PROCEEDS OF TRANCHE B LOANS. The proceeds of the Tranche B Loans shall be utilized by the Company only to (a) finance a portion of the consideration paid by the Company and its Subsidiaries on account of the Acquisition, (b) pay any fees and expenses 34 relating thereto and (c) refinance certain existing Indebtedness of the Company and its Subsidiaries. SECTION 4. AMOUNT AND TERMS OF REVOLVING CREDIT COMMITMENTS 4.1 REVOLVING CREDIT COMMITMENTS. (a) Subject to the terms and conditions hereof, each Revolving Credit Lender severally agrees to make revolving credit loans ("REVOLVING CREDIT LOANS") to the Company from time to time during the Commitment Period; PROVIDED that, after giving effect to the making of such Revolving Credit Loan and the use of proceeds thereof, (i) the Aggregate Outstanding RC Extensions of Credit of all Revolving Credit Lenders shall not exceed the Aggregate Revolving Credit Commitment then in effect and (ii) the Available Revolving Credit Commitment of such Revolving Credit Lender shall not be less than zero. During the Commitment Period the Company may use the Aggregate Revolving Credit Commitment by borrowing, prepaying the Revolving Credit Loans in whole or in part, and reborrowing, all in accordance with the terms and conditions hereof. (b) The Revolving Credit Loans may from time to time be (i) Eurocurrency Loans, (ii) ABR Loans or (iii) a combination thereof, as determined by the Company and notified to the Administrative Agent in accordance with subsections 4.2 and 10.6, PROVIDED that (x) no Revolving Credit Loan shall be made as a Eurocurrency Loan after the day that is one month prior to the Termination Date and (y) any Revolving Credit Loans to be made on the Closing Date initially shall be made as ABR Loans and, until the date which is 30 days following the Closing Date, shall be maintained as either (i) Eurocurrency Loans having an Interest Period of not more than one month or (ii) ABR Loans. 4.2 PROCEDURE FOR REVOLVING CREDIT BORROWING. The Company may borrow Revolving Credit Loans under the Aggregate Revolving Credit Commitment during the Commitment Period on any Business Day, PROVIDED that the Company shall give the Administrative Agent irrevocable notice (which notice must be received by the Administrative Agent prior to 11:00 A.M., New York City time, (a) three Business Days prior to the requested Borrowing Date, if all or any part of the requested Revolving Credit Loans are to be initially Eurocurrency Loans or (b) one Business Day prior to the requested Borrowing Date, otherwise), specifying (i) the amount to be borrowed, (ii) the requested Borrowing Date, (iii) whether the borrowing is to be of Eurocurrency Loans, ABR Loans or a combination thereof and (iv) if the borrowing is to be entirely or partly of Eurocurrency Loans, the amount of such Type of Loan and the length of the initial Interest Period therefor. Each borrowing under the Aggregate Revolving Credit Commitment (other than any borrowing of Swing Line Loans or of Revolving Credit Loans the proceeds of which are used to refund Swing Line Loans) shall be in an amount equal to (x) in the case of ABR Loans, $2,000,000 or a whole multiple of $1,000,000 in excess thereof (or, if the then Available Revolving Credit Commitments are less than $2,000,000, such lesser amount) and (y) in the case of Eurocurrency Loans, $2,000,000 or a whole multiple of $1,000,000 in excess thereof. Upon receipt of any such notice from the Company, the Administrative Agent shall promptly notify each Revolving Credit Lender thereof. Each Revolving Credit Lender will make the amount of its Revolving Credit Commitment Percentage 35 of each borrowing available to the Administrative Agent for the account of the Company at the office of the Administrative Agent specified in subsection 17.3 prior to 1:00 P.M., New York City time, on the Borrowing Date requested by the Company in funds immediately available to the Administrative Agent. Such borrowing will then be made available to the Company by the Administrative Agent crediting the account of the Company on the books of such office with the aggregate of the amounts made available to the Administrative Agent by the Revolving Credit Lenders and in like funds as received by the Administrative Agent. 4.3 USE OF PROCEEDS OF REVOLVING CREDIT LOANS. The proceeds of the Revolving Credit Loans shall be utilized by the Company for general corporate purposes of the Company and its Subsidiaries, including, without limitation, to finance a portion of the consideration paid by the Company and its Subsidiaries on account of the Acquisition and the Subsequent Interglas Transaction. SECTION 5. AMOUNT AND TERMS OF DOMESTIC LETTER OF CREDIT SUB-FACILITY 5.1 L/C COMMITMENT. (a) Subject to the terms and conditions hereof, each Issuing Lender, in reliance on the agreements of the other Revolving Credit Lenders set forth in subsection 5.4(a), agrees to issue letters of credit ("DOMESTIC LETTERS OF CREDIT") for the account of the Company on any Business Day during the Commitment Period in such form as may be approved from time to time by such Issuing Lender; PROVIDED that such Issuing Lender shall have no obligation to issue any Domestic Letter of Credit if, after giving effect to such issuance,(i) the Domestic L/C Obligations would exceed the Domestic L/C Commitment,(ii) the Available Revolving Credit Commitment of any Revolving Credit Lender would be less than zero or (iii) the Aggregate Outstanding RC Extensions of Credit of all Revolving Credit Lenders would exceed the Aggregate Revolving Credit Commitment then in effect. (b) Each Domestic Letter of Credit shall (i) be denominated in Dollars, (ii) be (x) a standby letter of credit (a "STANDBY DOMESTIC LETTER OF CREDIT") issued to support obligations of the Company or any of its Subsidiaries, contingent or otherwise, or to finance the working capital and business needs of the Company or any of its Subsidiaries in the ordinary course of business (including, without limitation, to secure or support lines of credit obtained by Foreign Subsidiaries in accordance with the terms hereof) or (y) a commercial letter of credit (a "COMMERCIAL DOMESTIC LETTER OF CREDIT") issued in respect of the purchase of goods or services by the Company and its Subsidiaries in the ordinary course of business and (iii) expire no later than the earlier of (x) the date that is 12 months after the date of its issuance and (y) five Business Days prior to the Termination Date; PROVIDED that any Domestic Letter of Credit with an expiration date occurring up to twelve months after such Domestic Letter of Credit's date of issuance may be automatically renewable for subsequent 12-month periods (but in no event to a date which is later than five Business Days prior to the Termination Date) unless the Issuing Lender with respect to such Domestic Letter of Credit shall have given 60 days' prior written notice to the Company and the beneficiary of such Domestic Letter of Credit that it will not be renewed. Notwithstanding the foregoing, at the request of the Company and with the consent of 36 the Administrative Agent, any Domestic Letter of Credit issued for the account of the Company may have an expiration date which is later than the date set forth in clause (iii)(x) and (y) above, PROVIDED that (x) the Company agrees that, from and after the Termination Date, it shall provide to the Administrative Agent, as collateral security for the Domestic L/C Obligations on account of such Domestic Letter of Credit, an amount of cash which is equal to at least 105% of the face amount thereof and (y) no Domestic Letter of Credit shall terminate more than one year after the Termination Date. (c) Each Domestic Letter of Credit shall be subject to the Uniform Customs and, to the extent not inconsistent therewith, the laws of the State of New York. (d) No Issuing Lender shall at any time be obligated to issue any Domestic Letter of Credit hereunder if such issuance would conflict with, or cause such Issuing Lender or any L/C Participant to exceed any limits imposed by, any applicable Requirement of Law. 5.2 PROCEDURE FOR ISSUANCE OF DOMESTIC LETTERS OF CREDIT. The Company may request that an Issuing Lender issue a Domestic Letter of Credit at any time during the Commitment Period by delivering to such Issuing Lender (with a copy to the Administrative Agent) at its address for notices specified herein an Application therefor, completed to the satisfaction of the Issuing Lender, and such other certificates, documents and other papers and information as the Issuing Lender may reasonably request. Upon receipt of any Application, the Issuing Lender will process such Application and the certificates, documents and other papers and information delivered to it in connection therewith in accordance with its customary procedures and shall promptly issue the Domestic Letter of Credit requested thereby (but in no event shall the Issuing Lender be required to issue any Domestic Letter of Credit earlier than three Business Days after its receipt of the Application therefor and all such other certificates, documents and other papers and information relating thereto) by issuing the original of such Domestic Letter of Credit to the beneficiary thereof or as otherwise may be agreed by such Issuing Lender and the Company. Each Issuing Lender shall furnish to the Company and the Administrative Agent a copy of each Domestic Letter of Credit issued by such Issuing Lender, promptly following the issuance thereof. 5.3 FEES, COMMISSIONS AND OTHER CHARGES. (a) The Company shall pay to the Administrative Agent, for the ratable account of the relevant Issuing Lender and the L/C Participants, a letter of credit fee with respect to each Standby Domestic Letter of Credit, computed for the period from and including the date of issuance of such Domestic Letter of Credit to the expiration date of such Standby Domestic Letter of Credit, at a rate per annum equal to the Applicable Margin then in effect for Revolving Credit Loans which are Eurocurrency Loans (calculated on the basis of the actual number of days elapsed over a 360-day year) of the aggregate face amount of Standby Domestic Letters of Credit outstanding (of which 1/4 of 1% of such aggregate face amount shall be for the account of the Issuing Lender with respect thereto and the remainder of such amount shall be for the ratable account of such Issuing Lender and the L/C Participants). Such fee shall be payable to the Administrative Agent, for the ratable account of the Revolving Credit Lenders, in arrears, on each L/C Fee Payment Date (commencing on 37 December 31, 1998) to occur following the issuance of such Standby Domestic Letter of Credit for the period since the last payment was made. (b) The Company shall pay to the Administrative Agent, for the ratable account of the relevant Issuing Lender and the L/C Participants, a letter of credit fee with respect to each Commercial Domestic Letter of Credit at a flat rate equal to 50% of the Applicable Margin then in effect for Revolving Credit Loans which are Eurocurrency Loans (calculated on the basis of the actual number of days elapsed over a 360-day year) of the aggregate face amount of such Commercial Domestic Letter of Credit outstanding (of which 1/4 of 1% of such aggregate face amount shall be for the account of the Issuing Lender with respect thereto and the remainder of such amount shall be for the ratable account of such Issuing Lender and the L/C Participants). Such fee shall be payable to the Administrative Agent, for the ratable account of the Revolving Credit Lenders, in arrears, on each L/C Fee Payment Date (commencing on December 31, 1998) to occur following the issuance of such Commercial Domestic Letter of Credit for the period since the last payment was made. (c) In addition to the foregoing fees and commissions, the Company shall pay or reimburse the Issuing Lender for such normal and customary costs and expenses as are incurred or charged by such Issuing Lender in issuing, effecting payment under, amending or otherwise administering any Domestic Letter of Credit issued by it. (d) The Administrative Agent shall, promptly following its receipt thereof, distribute to the relevant Issuing Lender and the L/C Participants all fees and commissions received by the Administrative Agent for their respective accounts pursuant to this subsection. 5.4 L/C PARTICIPATIONS. (a) Each Issuing Lender irrevocably agrees to grant and hereby grants to each L/C Participant, and, to induce such Issuing Lender to issue Domestic Letters of Credit hereunder, each L/C Participant irrevocably agrees to accept and purchase and hereby accepts and purchases from such Issuing Lender, on the terms and conditions hereinafter stated, for such L/C Participant's own account and risk an undivided interest equal to such L/C Participant's Revolving Credit Commitment Percentage from time to time in effect in such Issuing Lender's obligations and rights under each Domestic Letter of Credit issued by such Issuing Lender hereunder and the amount of each draft paid by such Issuing Lender thereunder. Each L/C Participant unconditionally and irrevocably agrees with such Issuing Lender that, if a draft is paid under any Domestic Letter of Credit issued by such Issuing Lender for which such Issuing Lender is not reimbursed in full by the Company in accordance with the terms of this Agreement, such L/C Participant shall pay to such Issuing Lender upon demand at such Issuing Lender's address for notices specified herein an amount equal to such L/C Participant's then Revolving Credit Commitment Percentage of the amount of such draft, or any part thereof, which is not so reimbursed; PROVIDED that, if such demand is made prior to 12:00 Noon, New York City time, on a Business Day, such L/C Participant shall make such payment to such Issuing Lender prior to the end of such Business Day and otherwise such L/C Participant shall make such payment on the next succeeding Business Day. 38 (b) If any amount required to be paid by any L/C Participant to an Issuing Lender pursuant to paragraph 5.4(a) in respect of any unreimbursed portion of any payment made by such Issuing Lender under any Domestic Letter of Credit is paid to such Issuing Lender within three Business Days after the date such payment is due, such L/C Participant shall pay to such Issuing Lender on demand an amount equal to the product of (i) such amount, times (ii) the daily average Federal funds rate, as quoted by such Issuing Lender, during the period from and including the date such payment is required to the date on which such payment is immediately available to such Issuing Lender, times (iii) a fraction the numerator of which is the number of days that elapse during such period and the denominator of which is 360. If any such amount required to be paid by any L/C Participant pursuant to paragraph 5.4(a) is not in fact made available to such Issuing Lender by such L/C Participant within three Business Days after the date such payment is due, such Issuing Lender shall be entitled to recover from such L/C Participant, on demand, such amount with interest thereon calculated from such due date at the rate per annum applicable to ABR Loans hereunder. A certificate of an Issuing Lender submitted to any L/C Participant with respect to any amounts owing to such Issuing Lender under this subsection shall be conclusive in the absence of manifest error. (c) Whenever, at any time after an Issuing Lender has made payment under any Domestic Letter of Credit issued by it and has received from any L/C Participant its Revolving Credit Commitment Percentage of such payment in accordance with subsection 5.4(a), such Issuing Lender receives any payment related to such Domestic Letter of Credit (whether directly from the Company or otherwise, including proceeds of collateral applied thereto by such Issuing Lender), or any payment of interest on account thereof, such Issuing Lender will promptly distribute to such L/C Participant its Revolving Credit Commitment Percentage thereof; PROVIDED, HOWEVER, that in the event that any such payment received by such Issuing Lender and distributed to the L/C Participants shall be required to be returned by such Issuing Lender, each such L/C Participant shall return to such Issuing Lender the portion thereof previously distributed by such Issuing Lender to it. (d) Notwithstanding anything to the contrary contained in this subsection 5.4, no Revolving Credit Lender shall be required to acquire a participating interest in a Domestic Letter of Credit if an Event of Default shall have occurred and be continuing at the time such Domestic Letter of Credit was issued and such Revolving Credit Lender shall have notified the Administrative Agent in writing, at least one Business Day prior to the issuance date with respect to such Domestic Letter of Credit, that such Event of Default has occurred and that such Revolving Credit Lender will not acquire participations in Domestic Letters of Credit issued while such Event of Default is continuing. 5.5 REIMBURSEMENT OBLIGATION OF THE COMPANY. (a) The Company agrees to reimburse the relevant Issuing Lender on the same Business Day on which a draft is presented under any Domestic Letter of Credit issued by such Issuing Lender for the account of the Company and paid by such Issuing Lender, PROVIDED that such Issuing Lender provides notice to the Company prior to 12:00 Noon, New York City time, on such Business Day and otherwise the Company will reimburse the Issuing Lender on the next succeeding Business Day; PROVIDED, FURTHER, that the failure to provide such notice shall not affect the absolute and unconditional 39 obligation of the Company to reimburse the relevant Issuing Lender for any draft paid under any Domestic Letter of Credit issued by it. Each Issuing Lender shall provide notice to the Company on such Business Day as a draft is presented and paid by such Issuing Lender indicating the amount of (i) such draft so paid and (ii) any taxes, fees, charges or other costs or expenses incurred by such Issuing Lender in connection with such payment. Each such payment shall be made to such Issuing Lender at its address for notices specified herein in Dollars and in immediately available funds. (b) Interest shall be payable on any and all amounts remaining unpaid by the Company under this subsection from the date such amounts become payable until payment in full at the rate which would be payable on any outstanding Loans that are ABR Loans which were then overdue. (c) Each drawing under any Domestic Letter of Credit shall constitute a request by the Company to the Administrative Agent for a borrowing of ABR Loans in the amount of such drawing. The Borrowing Date with respect to such borrowing shall be the date of such drawing. 5.6 OBLIGATIONS ABSOLUTE. (a) The obligations of the Company under subsection 5.5(a) shall be absolute and unconditional under any and all circumstances and irrespective of any set-off, counterclaim or defense to payment which the Company may have or have had against the relevant Issuing Lender, any L/C Participant or any beneficiary of a Domestic Letter of Credit. (b) The Company also agrees with each Issuing Lender that such Issuing Lender shall not be responsible for, and the Company's Reimbursement Obligations under subsection 5.5(a) shall not be affected by, among other things, (i) the validity or genuineness of documents or of any endorsements thereon, even though such documents shall in fact prove to be invalid, fraudulent or forged, or (ii) any dispute between or among the Company and any beneficiary of any Domestic Letter of Credit or any other party to which such Domestic Letter of Credit may be transferred or (iii) any claims whatsoever of the Company against any beneficiary of such Domestic Letter of Credit or any such transferee. (c) Neither the Issuing Lender with respect to any Domestic Letter of Credit nor any L/C Participant with respect thereto shall be liable for any error, omission, interruption or delay in transmission, dispatch or delivery of any message or advice, however transmitted, in connection with such Domestic Letter of Credit, except for errors or omissions caused by such Issuing Lender's gross negligence, bad faith or willful misconduct. (d) The Company agrees that any action taken or omitted by the Issuing Lender under or in connection with any Domestic Letter of Credit issued by it or the related drafts or documents, if done in the absence of gross negligence, bad faith or willful misconduct and in accordance with the standards of care specified in the Uniform Commercial Code of the State of New York, shall be binding on the Company and shall not result in any liability of such Issuing Lender or any L/C Participant to the Company. 40 5.7 DOMESTIC LETTER OF CREDIT PAYMENTS. If any draft shall be presented for payment under any Domestic Letter of Credit, the responsibility of the Issuing Lender thereof to the Company in connection with such draft shall, in addition to any payment obligation expressly provided for in such Domestic Letter of Credit, be limited to determining that the documents (including each draft) delivered under such Domestic Letter of Credit in connection with such presentment are in conformity with such Domestic Letter of Credit. 5.8 APPLICATION. To the extent that any provision of any Application related to any Domestic Letter of Credit is inconsistent with the provisions of this Section 5, the provisions of this Section 5 shall apply. 5.9 ISSUING LENDER REPORTING REQUIREMENTS. Each Issuing Lender shall, no later than the fifth Business Day following the last day of each calendar month and on the last Business Day of each calendar quarter (or, to the extent that the Administrative Agent so agrees, not more than two Business Days thereafter), provide to the Administrative Agent and the Company separate schedules for Commercial Domestic Letters of Credit and Standby Domestic Letters of Credit issued by such Issuing Lender, in form and substance reasonably satisfactory to the Administrative Agent, setting forth the aggregate Domestic L/C Obligations outstanding to such Issuing Lender at the end of each month or calendar quarter, as the case may be, and any information requested by the Administrative Agent or the Company relating to the date of issue, account party, amount, expiration date and reference number of each Domestic Letter of Credit issued by it. Promptly following receipt by the Administrative Agent of the quarterly schedule, the Administrative Agent shall provide to each Revolving Credit Lender a report containing such information. 5.10 TRANSITIONAL PROVISIONS. Schedule 5.10 lists certain letters of credit issued prior to the date hereof by the Revolving Credit Lenders for the account of the Company. On the Closing Date, (i) such letters of credit, to the extent outstanding, shall be automatically and without further action by the parties thereto converted to Domestic Letters of Credit Issued pursuant to this Section 5 for the account of the Company and subject to the provisions hereof, and for this purpose the fees specified in Section 5.3 shall be payable (in substitution for any fees set forth in the reimbursement agreement relating to such letters of credit) as if such letters of credit had been issued on the Closing Date and (ii) the face amount of such letters of credit shall be included in the calculation of the aggregate amount of outstanding Domestic L/C Obligations. No letter of credit converted in accordance with this subsection 5.10 shall be amended, extended or renewed without the prior written consent of the Administrative Agent. To the extent that any fees with respect to the letters of credit listed on Schedule 5.10 were paid in advance to the issuing bank under such letter of credit, the Administrative Agent shall use reasonable efforts (but shall otherwise not be obligated) to obtain a PRO RATA refund for the Company of such fees to the extent such fees were paid in respect of any time period during which such letter of credit shall be a letter of credit on account of the provisions of this subsection. Notwithstanding anything set forth in Section 5.2(c)(A), to the extent that any letter of credit listed on Schedule 5.10 has an expiration date in excess of one year, such letter of credit shall continue in full force and effect pursuant to the terms hereof after the Closing Date through its stated expiration date 41 (but shall be cash collateralized upon terms reasonably satisfactory to the relevant Issuing Lender during the period from the Termination Date through such stated expiration date). SECTION 6. AMOUNT AND TERMS OF SWING LINE SUB-FACILITY 6.1 SWING LINE COMMITMENTS. (a) Subject to the terms and conditions hereof, the Swing Line Lender agrees to make swing line loans (the "SWING LINE LOANS") to the Company on any Business Day from time to time during the Commitment Period in an aggregate principal amount not to exceed $15,000,000 at any one time outstanding; PROVIDED that, after giving effect to the making of such Swing Line Loan, the Aggregate Outstanding RC Extensions of Credit of all Revolving Credit Lenders shall not exceed the Aggregate Revolving Credit Commitment then in effect. Amounts borrowed under this subsection 6.1 may be repaid and, to but excluding the Termination Date, reborrowed. (b) All Swing Line Loans shall be made and maintained as ABR Loans and, notwithstanding the provisions of subsection 10.6, shall not be entitled to be converted into Eurocurrency Loans; PROVIDED that nothing contained in this subsection 6.1 shall prohibit the conversion into Eurocurrency Loans of any Revolving Credit Loans the proceeds of which are utilized to refund Swing Line Loans. 6.2 PROCEDURE FOR SWING LINE LOAN BORROWING. The Company may borrow under the Swing Line Commitment during the Commitment Period on any Business Day; PROVIDED that the Company shall give the Administrative Agent irrevocable notice (which notice must be received by the Administrative Agent prior to 1:30 P.M., New York City time), on the requested borrowing date (which shall be a Business Day) specifying the amount of each requested Swing Line Loan, which shall be in a minimum amount of $500,000 or a multiple of $100,000 in excess thereof. Upon receipt of any such notice from the Company the Administrative Agent shall promptly notify the Swing Line Lender thereof. The Swing Line Lender will make the amount of its Swing Line Loan available to the Administrative Agent for the account of the Company at the office of the Administrative Agent specified in subsection 17.3 prior to 2:30 P.M., New York City time, on the Borrowing Date requested by the Company in funds immediately available to the Administrative Agent. The proceeds of each Swing Line Loan will then be made immediately available to the Company by the Administrative Agent crediting the account of the Company on the books of such office with the amount made available to the Administrative Agent by the Swing Line Lender and in like funds as received by the Administrative Agent. 6.3 REFUNDING OF SWING LINE LOANS. (a) The Administrative Agent, at any time in its sole and absolute discretion, may (or, upon the request of the Swing Line Lender, shall) on behalf of the Company (which hereby irrevocably directs the Administrative Agent to act on its behalf) request that each Revolving Credit Lender make a Revolving Credit Loan in an amount equal to such Revolving Credit Lender's Revolving Credit Commitment Percentage of the then outstanding principal amount of Swing Line Loans (the "REFUNDED SWING LINE LOANS") on the date such notice is given (regardless of whether the Refunded Swing Line Loans comply with the 42 minimum borrowing provisions of subsection 4.2). In the event that the Swing Line Lender makes its request for refunding of the Swing Line Loans, each Revolving Credit Lender shall make the proceeds of its Revolving Credit Loan available in immediately available funds to the Administrative Agent, for the benefit of the Swing Line Lender, at the office of the Administrative Agent specified in subsection 17.3 prior to 11:00 A.M., New York City time, on the first Business Day following such request (or, if such request is made prior to 10:00 A.M., New York City time, on any date, then the proceeds of such Revolving Credit Loans shall instead be so made available to the Administrative Agent prior to 2:00 P.M., New York City time, on the date of such request); PROVIDED, HOWEVER, that in the event that any Bankruptcy Event shall have occurred and be continuing, the Revolving Credit Lenders shall not make such Revolving Credit Loans and the provisions of subsection 6.3(b) shall apply. (b) If, prior to the making of a Revolving Credit Loan pursuant to subsection 6.3(a), a Bankruptcy Event shall have occurred and be continuing, each Revolving Credit Lender will, on the date such Revolving Credit Loan was to have been made, purchase from the Swing Line Lender an undivided participating interest in the Swing Line Loan to be refunded in an amount equal to its Revolving Credit Commitment Percentage of such Swing Line Loan to be refunded. Each Revolving Credit Lender will immediately transfer to the Administrative Agent, in immediately available funds, the amount of its participation. (c) Whenever, at any time after the Swing Line Lender has received from any Revolving Credit Lender such Revolving Credit Lender's participating interest in a Swing Line Loan to be refunded pursuant to subsection 6.3(b), the Swing Line Lender receives any payment on account thereof, the Swing Line Lender will distribute to such Revolving Credit Lender its participating interest in such amount (appropriately adjusted, in the case of interest payments, to reflect the period of time during which such Revolving Credit Lender's participating interest was outstanding and funded) in like funds as received; PROVIDED, HOWEVER, that in the event that such payment received by the Swing Line Lender is required to be returned, such Revolving Credit Lender will return to the Swing Line Lender any portion thereof previously distributed by the Swing Line Lender to it in like funds as such payment is required to be returned by the Swing Line Lender (together with such Revolving Credit Lender's ratable share of any interest required to be paid by the Swing Line Lender upon such return). (d) Notwithstanding anything to the contrary contained in this subsection 6.3, no Revolving Credit Lender shall be required to make a Revolving Credit Loan pursuant to subsection 6.3(a) or acquire a participation pursuant to subsection 6.3(b) in a Swing Line Loan if an Event of Default shall have occurred and be continuing at the time such Swing Line Loan was made and such Revolving Credit Lender shall have notified the relevant Swing Line Lender and the Administrative Agent in writing, at least one Business Day prior to the time such Swing Line Loan was made, that such Event of Default has occurred and that such Revolving Credit Lender will not acquire participations in Swing Line Loans made while such Event of Default is continuing. 6.4 UNCONDITIONAL OBLIGATION TO REFUND SWING LINE LOANS. Each Revolving Credit Lender's obligation to make Revolving Credit Loans and to purchase participating 43 interests in accordance with subsections 6.3(b) and (c) above shall be absolute and unconditional and shall not be affected by any circumstance, including, without limitation, (i) any set-off, counterclaim, recoupment, defense or other right which such Revolving Credit Lender may have against the Swing Line Lender, the Company or any other Person for any reason whatsoever; (ii) the occurrence or continuance of any Default or Event of Default; (iii) any adverse change in the condition (financial or otherwise) of the Company or any other Person; (iv) any breach of this Agreement by the Company or any other Person; (v) any inability of the Company to satisfy the conditions precedent to borrowing set forth in this Agreement on the date upon which such Revolving Credit Loan is to be made or participating interest is to be purchased or (vi) any other circumstance, happening or event whatsoever, whether or not similar to any of the foregoing. If any Revolving Credit Lender does not make available to the Administrative Agent the amount required pursuant to subsections 6.3(b) and (c) above, as the case may be, the Administrative Agent shall be entitled to recover such amount on demand from such Revolving Credit Lender, together with interest thereon for each day from the date of non-payment until such amount is paid in full at the Federal Funds Effective Rate for the first two Business Days and at ABR thereafter. 6.5 USE OF PROCEEDS OF SWING LINE LOANS. The proceeds of Swing Line Loans hereunder shall be used by the Company for any purpose for which the proceeds of Revolving Credit Loans may be used. SECTION 7. AMOUNTS AND TERMS OF EUROPEAN FACILITY 7.1 EUROPEAN REVOLVING CREDIT FACILITY. (a) Subject to the terms and conditions set forth herein: (i) each European Lender hereby severally and not jointly agrees to make revolving credit loans (each individually, a "SYNDICATED EUROPEAN LOAN" and, collectively, the "SYNDICATED EUROPEAN LOANS") to (A) the Borrowers in Dollars and (b) the Foreign Borrowers (including, without limitation, the Local Loan Borrowers) in any one or more of the Optional Currencies, (in each case) from time to time during the period from the Closing Date to the Termination Date in accordance with the provisions of subsection 7.2; and (ii) each Local Lender hereby severally and not jointly agrees to make revolving credit loans (each individually, a "LOCAL EUROPEAN LOAN" and, collectively, the "LOCAL EUROPEAN LOANS"; together with the Syndicated European Loans, the "EUROPEAN REVOLVING LOANS") to its respective Local Loan Borrower in Dollars and any one or more of the Optional Currencies from time to time during the period from the Closing Date to the Termination Date in accordance with the provisions of subsection 7.3; PROVIDED that, after giving effect to the making of such European Revolving Loans and the simultaneous use of proceeds thereof, (x) each European Lender's Aggregate Outstanding European Extensions of Credit shall not exceed its European Loan Commitment then in effect, 44 (y) the Aggregate Outstanding European Extensions of Credit of all European Lenders shall not exceed the Aggregate European Loan Commitment then in effect and (z) the aggregate outstanding amount of European Revolving Loans and European Letters of Credit made to such Foreign Borrower shall not exceed at any time its Foreign Borrower Sublimit then in effect. Any European Loans borrowed by the Foreign Borrowers in Dollars shall be made and maintained as Eurocurrency Loans. (b) Amounts borrowed pursuant to this subsection 7.1 may be repaid and, to but excluding the Termination Date, reborrowed. 7.2 PROCEDURE FOR BORROWING SYNDICATED EUROPEAN LOANS. The Borrowers may borrow Eurocurrency Loans under the Aggregate European Loan Commitment pursuant to subsection 7.1 during the Commitment Period on any Business Day, PROVIDED that the relevant Borrower shall give the Administrative Agent irrevocable notice (which notice must be received by the Administrative Agent prior to 11:00 A.M., London, England time, three Business Days prior to the requested Borrowing Date), specifying (i) the amount to be borrowed, (ii) the requested Borrowing Date, (iii) whether the borrowing is to be made in Dollars or in an Optional Currency (and, if applicable, specifying the relevant Optional Currency) (PROVIDED that the Company shall be permitted to borrow under the Aggregate European Loan Commitment only in Dollars) and (iv) the length of the initial Interest Period therefor. Each borrowing of Syndicated European Loans that is denominated in Dollars shall be in an aggregate minimum amount of $2,000,000 or a whole multiple of $1,000,000 in excess of that amount and each such borrowing that is denominated in an Optional Currency shall be in an integral multiple of 100,000 units in such Optional Currency and equal to or greater than the Local Equivalent of $2,000,000. Upon receipt of any such notice from the relevant Borrower, the Administrative Agent shall promptly notify each European Lender thereof. Each European Lender will make the amount of its European Commitment Percentage of each borrowing available to the Administrative Agent for the account of such Borrower prior to 11:00 A.M. (New York City time, in the case of borrowings by the Company, or London, England time, otherwise) on the Borrowing Date requested by such Borrower in funds immediately available to the Administrative Agent in the relevant currency. Such borrowing will then be made available to the relevant Borrower by the Administrative Agent crediting the account of such Borrower with the Administrative Agent with the aggregate of the amounts made available to the Administrative Agent by the European Lenders and in like funds as received by the Administrative Agent. 7.3 PROCEDURE FOR BORROWING LOCAL EUROPEAN LOANS. The Local Loan Borrowers may borrow under the Aggregate European Loan Commitment pursuant to subsection 7.1 during the Commitment Period on any Business Day, PROVIDED that the relevant Local Loan Borrower shall give the Administrative Agent irrevocable notice (which notice must be received by the Administrative Agent prior to 11:00 A.M. (local time in the jurisdiction in which the relevant Local European Loan is to be made) three Business Days prior to the requested Borrowing Date), specifying (i) the amount to be borrowed, (ii) the requested Borrowing Date, (iii) whether the borrowing is to be made in Dollars or in an Optional Currency (and, if applicable, specifying the relevant Optional Currency) and (iv) the length of the initial Interest Period therefor. Each borrowing of Local European Loans that is denominated in Dollars shall be in an aggregate minimum amount of $100,000 or a whole multiple thereof and each such borrowing that is denominated in an Optional Currency shall be in an aggregate 45 minimum amount equal to at least 50,000 units in such Optional Currency or a whole multiple of 10,000 units in excess thereof (and equal to or greater than the Local Equivalent of $100,000). Upon receipt of any such notice from the relevant Local Loan Borrower, the Administrative Agent shall promptly notify the relevant Local Lender thereof. The Local Lender will make the amount of such borrowing available to the relevant Local Loan Borrower by initiating a transfer prior to 11:00 A.M. (local time) to the account specified by the Local Loan Borrower on the Borrowing Date requested by such Local Loan Borrower in funds immediately available to such Local Loan Borrower in the relevant currency. 7.4 CONTINGENT CURRENCY CONVERSION. (a) Upon the occurrence and during the continuance of any Event of Default, the Administrative Agent may (or, upon the request of the European Lenders holding the majority of the Aggregate European Loan Commitment, shall) request from time to time that any one or more of the European Revolving Loans made in Optional Currencies be converted into Dollars, by delivering to the European Lenders, the Company and any affected Local Lenders a notice to such effect (a "CURRENCY CONVERSION NOTICE"); PROVIDED that, in the event that any of the events specified in Section 15(f) has occurred and is continuing, no actual Currency Conversion Notice shall be required, but rather such Currency Conversion Notice shall be deemed to have been delivered (automatically and without any action by any Person) immediately prior to the occurrence of such event. (b) In the event that a Currency Conversion Notice is delivered or deemed to be delivered, all European Revolving Loans specified therein promptly shall be converted by each European Lender or Local Lender (as applicable) into Dollars at the actual exchange rate at which such European Lender or Local Lender (as the case may be) would be able to obtain the applicable amount of the relevant Optional Currency. Promptly following such conversion, each affected European Lender and Local Lender shall notify the Administrative Agent of the exchange rate utilized by it in making its conversion (which rate shall be deemed to be correct, in the absence of manifest error) and the amount in Dollars of its relevant European Revolving Loans (after giving effect to such conversion). The Administrative Agent promptly shall notify each European Lender, the Company and each affected Local Lender of the aggregate outstanding principal amount (in Dollars) of such converted European Revolving Loan and shall provide the Company with the conversion data provided to the Administrative Agent by each such European Lender and Local Lender. From and after such conversion, (i) all such specified European Revolving Loans shall be deemed to be outstanding in Dollars as ABR Loans and (ii) all amounts from time to time accruing, and all amounts from time to time payable, on account of such converted European Revolving Loans (including, without limitation, any interest and other amounts which were accrued but unpaid on the date of such conversion) shall be payable in Dollars as if such European Revolving Loan originally had been made in Dollars. 7.5 MATTERS RELATING TO LOCAL EUROPEAN LOANS. (a) Each European Lender hereby unconditionally and irrevocably agrees to purchase (in the currency in which the relevant Local European Loan is outstanding) from time to time an undivided participating interest in its 46 European Commitment Percentage of such portion of the Local European Loans then outstanding as the Administrative Agent may at any time request; PROVIDED that: (i) the Administrative Agent hereby agrees that, unless an Event of Default has occurred and is continuing, it will not request any such purchase of participating interests unless the Administrative Agent has given to the relevant Borrower and the affected European Lenders and Local Lenders at least three Business Days' prior notice thereof; (ii) the Administrative Agent hereby agrees that it will request that the European Lenders purchase such participating interest in the Local European Loans made by any Local Lender promptly following receipt by the Administrative Agent of a written certification from such Local Lender that an Event of Default described in Section 15(a) has occurred and is continuing with respect to the Local European Loans made by such Local Lender and requesting that such request be made by the Administrative Agent; and (iii) in the event that any of the events specified in Section 15(f) shall have occurred with respect to any Borrower who has Local European Loans then outstanding, each European Lender shall be deemed to have purchased, automatically and without request, such participating interest in the Local European Loans made to such Borrower. Any such request by the Administrative Agent shall be made in writing to each European Lender and shall specify the relevant currency and the amount thereof required from such European Lender in order to effect the purchase by such European Lender of a participating interest in the amount equal to its European Commitment Percentage TIMES the aggregate then outstanding principal amount of the relevant Local European Loans (together with accrued interest thereon and other amounts owing in connection therewith). Promptly upon receipt of such request, each European Lender shall deliver to the Administrative Agent (in immediately available funds and in the requested currency) the amount so specified by the Administrative Agent. The Administrative Agent shall promptly deliver to the relevant Local Lender all amounts actually received by the Administrative Agent in like funds as received. Promptly following receipt thereof, such Local Lender will deliver to each European Lender (through the Administrative Agent) a certificate evidencing the participating interest in the Local European Loans purchased by such European Lender. From and after such purchase, all amounts from time to time accruing, and all amounts from time to time payable, on account of such Local European Loans (including, without limitation, any interest and other amounts which were accrued but unpaid on the date of such purchase) shall (other than with respect to the portion of the Applicable Margin which, pursuant to subsection 10.8(d), is expressly stated to be paid for the account of the Local Lender) be distributed by such Local Lender to the Administrative Agent, for the accounts of the European Lenders, on account of such participating interests. The failure of any European Lender to deposit the amount described above with the Administrative Agent on the date when due shall not relieve any other European Lender of its obligations hereunder to purchase its participating interest or prejudice any rights that the relevant Local Lender may have against such European Lender as a result of any such default by such European Lender. No European Lender shall be responsible for any failure by any other European Lender to perform its 47 obligation to purchase such participating interest hereunder nor shall the European Loan Commitment of any European Lender be increased or decreased as a result of any such failure. (b) Whenever, at any time after a Local Lender has received from any European Lender such European Lender's participating interest in a Local European Loan pursuant to subsection 7.5(a), such Local Lender receives any payment on account thereof, such Local Lender will distribute to the Administrative Agent, for the account of such European Lender, such European Lender's participating interest in such amount (appropriately adjusted, in the case of interest payments, to reflect the period of time during which such European Lender's participating interest was outstanding) in like funds as received; PROVIDED, HOWEVER, that in the event that such payment received by such Local Lender is required to be returned, such European Lender will return to such Local Lender any portion thereof previously distributed by such Local Lender for the account of such European Lender in like funds as such payment is required to be returned by such Local Lender. (c) Each European Lender's obligation to purchase participating interests pursuant to clause (a) above shall be irrevocable, shall not be subject to any qualification or exception whatsoever except willful misconduct, bad faith or gross negligence of the Local Lender, and shall be honored in accordance with this Section 7 (irrespective of the satisfaction of the applicable conditions described in Section 12) under all circumstances, including, without limitation, (A) any lack of validity or enforceability hereof or of any of the other Credit Documents, (B) the existence of any claim, setoff, defense or other right that any Borrower may have at any time against the Local Lender, any other Lender, the Administrative Agent or any other Person, whether in connection herewith, or with any Local European Loan, the transactions contemplated herein or any unrelated transactions, (C) the surrender or impairment of any security for the performance or observance of any of the terms of any of the Credit Documents; (D) the occurrence of any Event of Default or Default or (E) any other circumstance, happening or event whatsoever, whether or not similar to any of the foregoing. (d) Notwithstanding anything to the contrary contained herein, (i) each Local European Loan borrowed by Salver shall be due and payable (but any such payment need not be accompanied by a reduction of European Loan Commitments) on the date that is 17 months from the date of its borrowing hereunder (or, if feasible, the last day of the Commitment Period) and (ii) the Local Lender with respect to Salver shall be entitled to terminate its commitment to serve as such Local Lender on the date which is 17 months after the Closing Date and on each date which is 17 months thereafter by giving written notice to the Company, Salver and the Administrative Agent not less than 30 days prior to the effective date of such termination. In the event that the Administrative Agent receives notice from such Local Lender of its election to terminate its commitment to serve as such, then either (x) the Administrative Agent may, prior to the effective date of such termination, designate an alternate Local Lender to serve in such capacity (which alternate Local Lender must be willing, in its sole discretion, to serve in such capacity in accordance with the terms of this Agreement and must provide to the Administrative Agent such alternate Local Lender's written agreement to perform the obligations of the Local Lender with respect to Salver hereunder and to be bound hereby) or (y) the right of Salver to receive Local European Loans shall be terminated (subject to reinstatement in the event that an 48 alternate Local Lender is at any time thereafter appointed) and all Local European Loans then outstanding to Salver shall be due and payable on such date of termination. From and after the date upon which an alternate Local Lender is appointed in accordance with the terms hereof, such alternate Local Lender shall be deemed to be the Local Lender to Salver for all purposes under this Agreement and the other Credit Documents. 7.6 USE OF PROCEEDS OF EUROPEAN REVOLVING LOANS. Proceeds of the European Revolving Loans shall be used for any purpose for which Revolving Credit Loans would be available to the Company; PROVIDED, that (i) European Revolving Loans made to Composites-UK and Hexcel-Spain shall not be used to repay any loans (or refinancings thereof) used to acquire Composites-UK and Hexcel-Spain, respectively, and (ii) European Revolving Loans made to Composites-France and Fabrics-France shall not be used by Composites-France or Fabrics-France to repay any Indebtedness (or refinancings thereof) used to acquire Brochier SA or Confection et Diffusion de Stores et Rideaux. 7.7 TERMINATION OF FOREIGN BORROWER STATUS. The Company may terminate its designation of a Foreign Borrower as a Borrower, by written notice to the Administrative Agent, which notice shall be executed by the Company and the relevant Foreign Borrower. Once notice of such termination is received by the Administrative Agent (and all amounts owing by such Foreign Borrower have been paid in full), such Foreign Borrower shall immediately cease to be a "Foreign Borrower" for purposes of this Agreement (other than any indemnities and similar obligations of such Foreign Borrower which expressly survive the termination of this Agreement). 7.8 RESIGNATION OF LOCAL LENDER. (a) In the event that the European Loan Commitment of a Local Lender shall at any time terminate (otherwise than on termination of the Aggregate European Loan Commitment) or a Local Lender shall assign all of its European Loan Commitment in accordance with the provisions of subsection 17.7(c) or a Local Lender shall otherwise so elect, such Local Lender shall resign as "Local Lender" by giving written notice of its resignation to the Company, the relevant Foreign Borrower and the Administrative Agent, with such resignation becoming effective on the date which is the earlier of (i) the date upon which a European Lender reasonably acceptable to the Administrative Agent and the Company is designated as a substitute Local Lender in accordance with the provisions of subsection 7.8(b) and (ii) such other date upon which such Local Lender, the Company and the relevant Foreign Borrower otherwise agree; PROVIDED that such effective date shall in no event be later than the date which is 60 days following the date upon which such written notice is delivered to the Company. Any Local European Loans made by such Local Lender which are outstanding on such termination date shall be due and payable on such termination date. (b) In the event that any Local Lender shall cease to serve as such pursuant to subsection 7.8(a), the Company may designate another European Lender reasonably acceptable to the Administrative Agent to serve as "Local Lender" with respect to the relevant Foreign Borrower; PROVIDED that no European Lender shall be so designated without its agreement (in its sole discretion) to serve as the "Local Lender" with respect to such Foreign Borrower hereunder. Upon any such designation and the receipt by the Administrative Agent of a Local Lender 49 Joinder Agreement, duly executed and delivered by such designated Local Lender, such European Lender shall be deemed to be the "Local Lender" with respect to such Foreign Borrower for all purposes under this Agreement and the other Credit Documents. (c) During any period when no substitute Local Lender has been duly appointed in accordance with the terms of subsection 7.8(b), the right of the relevant Foreign Borrower to borrow Local European Loans shall be suspended. 7.9 DESIGNATION OF ADDITIONAL FOREIGN BORROWERS. (a) The Company may from time to time request that any one or more Foreign Subsidiaries which are Wholly-owned Subsidiaries of the Company be designated as a "Foreign Borrower" hereunder (each such additional Foreign Borrower, an "ADDITIONAL BORROWER") by providing written notice to the Administrative Agent specifying (i) the identity of such Foreign Subsidiary, (ii) the jurisdiction of its incorporation and (iii) whether such Foreign Subsidiary is to be a Local Loan Borrower and, if so, the European Lender (or Affiliate or Subsidiary thereof) which is to serve as the Local Lender with respect thereto (which Local Lender shall have agreed, in its sole discretion, to serve in such capacity). The Administrative Agent shall promptly notify each European Lender of such request. Within five Business Days following the receipt of such notice, each European Lender shall notify the Administrative Agent in writing whether such designation is acceptable to such European Lender (in its sole discretion) and the Administrative Agent promptly shall notify the Company thereof. (b) In the event that such designation is acceptable to the European Lenders holding the majority of the Aggregate European Loan Commitment, the Company shall cause the requested Additional Borrower to deliver to the Administrative Agent (i) an Additional Borrower Joinder Agreement, (ii) a Local Lender Joinder Agreement, (iii) any documents, instruments and agreements required pursuant to subsection 13.9 and (iv) such other documents, instruments, agreements and legal opinions as the Administrative Agent reasonably may request (including, in any event, an opinion of local counsel in the relevant jurisdiction as to the applicable matters covered by the opinions delivered on the Closing Date with respect to the Foreign Borrowers). (c) From and after the date upon which the Administrative Agent has received the documents (all of which shall be in form and substance reasonably satisfactory to the Administrative Agent) described in subsection 7.9(b), the requested Additional Borrower shall be a Foreign Borrower for all purposes hereunder and (if applicable) the European Lender designated to serve as Local Lender in the relevant jurisdiction with respect to such Additional Borrower shall be a Local Lender for all purposes hereunder. (d) Notwithstanding the foregoing provisions of this subsection 7.9, Interglas may (at the option of the Company) be designated as an Additional Borrower hereunder at any time from and after the date upon which 80% or more of the Capital Stock of Interglas is owned by the Company and the Company has taken the actions otherwise described in this subsection 7.9 for the designation of an Additional Borrower; PROVIDED that the designation of Interglas as an Additional Borrower shall not require the consent of the European Lenders contemplated by clause (a) hereof or that Interglas be a Wholly-owned Subsidiary of the Company. 50 7.10 REPORTING BY LOCAL LENDERS. Within five Business Days following the last day of each March, June, September and December, each Local Lender shall deliver to the Administrative Agent a statement showing the average daily principal amount of Local European Loans in each currency during the calendar quarter most recently ended and the principal amount of Local European Loans in each currency which was outstanding on the last day of such quarter. Promptly following receipt thereof, the Administrative Agent shall provide to each European Lender a report containing such information. 7.11 ADJUSTMENT OF EUROPEAN LOAN COMMITMENTS. (a) Upon the written request of the Company from time to time and with the consent of the Administrative Agent, the Aggregate European Loan Commitment may be increased and the Aggregate Revolving Credit Commitment shall be simultaneously decreased to the extent that one or more of the Revolving Credit Lenders (in its sole discretion) is willing to convert its Revolving Credit Commitment into a European Loan Commitment; PROVIDED that, after giving effect to such increase in the Aggregate European Loan Commitment and such related decrease in the Aggregate Revolving Credit Commitment, the sum of the Aggregate European Loan Commitment and the Aggregate Revolving Credit Commitment shall be unchanged (it being understood that such reallocation shall alter the Revolving Credit Commitment Percentages of the Revolving Credit Lenders and the European Commitment Percentages of the European Lenders). (b) In the event that the Company desires to effect a reallocation in accordance with the provisions of clause (a) above, the Company shall provide to the Administrative Agent written notice to such effect, specifying (i) the aggregate amount to be reallocated from the Aggregate Revolving Credit Commitment to the Aggregate European Loan Commitment, (ii) the identity of each Revolving Credit Lender which has agreed to convert all or a portion of its Revolving Credit Commitment into a European Loan Commitment and the amount which each such Revolving Credit Lender has agreed to so convert and (iii) the requested effective date for such conversion (which date shall be not less than 15 Business Days following the date of such notice). The Administrative Agent shall provide a copy of such notice to each European Lender and each Revolving Credit Lender and, within five Business Days following the delivery by the Administrative Agent of such notice, each such Revolving Credit Lender which has been identified by the Company as being agreeable to such conversion shall provide a written confirmation to the Administrative Agent of its agreement to do so. (c) From and after the requested effective date, (i) the Aggregate Revolving Credit Commitment shall be decreased and the Aggregate European Loan Commitment shall be increased by the amount of the Revolving Credit Commitments which the Revolving Credit Lenders specified in such notice from the Borrower have confirmed to the Administrative Agent that they are willing to convert to European Loan Commitments and (ii) Schedule I hereto shall be deemed to be amended to reflect such conversion. Promptly following such requested effective date, the Administrative Agent shall provide to each Tranche A Lender, Tranche B Lender, Revolving Credit Lender and European Lender an updated Schedule I reflecting such conversion. 51 SECTION 8. AMOUNT AND TERMS OF EUROPEAN LETTER OF CREDIT SUB-FACILITY 8.1 EUROPEAN L/C COMMITMENT. (a) Subject to the terms and conditions hereof, each Issuing Lender, in reliance on the agreements of the other European Lenders set forth in subsection 8.4(a), agrees to issue letters of credit ("EUROPEAN LETTERS OF CREDIT") for the account of the Borrowers on any Business Day during the Commitment Period in such form as may be approved from time to time by such Issuing Lender; PROVIDED that such Issuing Lender shall have no obligation to issue any European Letter of Credit if, after giving effect to such issuance,(i) the European L/C Obligations would exceed the European L/C Commitment,(ii) the Available European Loan Commitment of any European Lender would be less than zero, (iii) the Aggregate Outstanding European Extensions of Credit of all European Lenders would exceed the Aggregate European Loan Commitment then in effect or (iv) the aggregate outstanding amount of European Revolving Loans and European Letters of Credit made to such Foreign Borrower would exceed at any time its Foreign Borrower Sublimit then in effect. (b) Each European Letter of Credit shall (i) be denominated in Dollars or (other than in the case of European Letters of Credit issued for the account of the Company, which shall be denominated only in Dollars) in an Optional Currency, (ii) be (x) a standby letter of credit (a "STANDBY EUROPEAN LETTER OF CREDIT") issued to support obligations of the Company or any of its Subsidiaries, contingent or otherwise, or to finance the working capital and business needs of the Company or any of its Subsidiaries in the ordinary course of business (including, without limitation, to secure or support lines of credit obtained by Foreign Subsidiaries in accordance with the terms hereof) or (y) a commercial letter of credit (a "COMMERCIAL EUROPEAN LETTER OF CREDIT") issued in respect of the purchase of goods or services by the Company and its Subsidiaries in the ordinary course of business and (iii) expire no later than the earlier of (x) the date that is 12 months after the date of its issuance and (y) five Business Days prior to the Termination Date; PROVIDED that any European Letter of Credit with an expiration date occurring up to twelve months after such European Letter of Credit's date of issuance may be automatically renewable for subsequent 12-month periods (but in no event to a date which is later than five Business Days prior to the Termination Date) unless the Issuing Lender with respect to such European Letter of Credit shall have given 60 days' prior written notice to the relevant Borrower and the beneficiary of such European Letter of Credit that it will not be renewed. Notwithstanding the foregoing, at the request of any Borrower and with the consent of the Administrative Agent, any European Letter of Credit issued for the account of such Borrower may have an expiration date which is later than the date set forth in clause (iii)(x) and (y) above, PROVIDED that (x) such Borrower agrees that, from and after the Termination Date, it shall provide to the Administrative Agent, as collateral security for the European L/C Obligations on account of such European Letter of Credit, an amount of cash which is equal to at least 105% of the face amount thereof and (y) no European Letter of Credit shall terminate more than one year after the Termination Date. (c) Each European Letter of Credit shall be subject to the Uniform Customs and, to the extent not inconsistent therewith, the laws of the jurisdiction in which such European Letter of Credit is issued. 52 (d) No Issuing Lender shall at any time be obligated to issue any European Letter of Credit hereunder if such issuance would conflict with, or cause such Issuing Lender or any L/C Participant to exceed any limits imposed by, any applicable Requirement of Law. 8.2 PROCEDURE FOR ISSUANCE OF EUROPEAN LETTERS OF CREDIT. Any Borrower may request that an Issuing Lender issue a European Letter of Credit at any time during the Commitment Period by delivering to such Issuing Lender (with a copy to the Administrative Agent) at its address for notices specified herein an Application therefor, completed to the satisfaction of the Issuing Lender, and such other certificates, documents and other papers and information as the Issuing Lender may reasonably request. Upon receipt of any Application, the Issuing Lender will process such Application and the certificates, documents and other papers and information delivered to it in connection therewith in accordance with its customary procedures and shall promptly issue the European Letter of Credit requested thereby (but in no event shall the Issuing Lender be required to issue any European Letter of Credit earlier than three Business Days after its receipt of the Application therefor and all such other certificates, documents and other papers and information relating thereto) by issuing the original of such European Letter of Credit to the beneficiary thereof or as otherwise may be agreed by such Issuing Lender and such Borrower. Each Issuing Lender shall furnish to the Company and the Administrative Agent a copy of each European Letter of Credit issued by such Issuing Lender, promptly following the issuance thereof. 8.3 FEES, COMMISSIONS AND OTHER CHARGES. (a) The Borrowers shall pay to the Administrative Agent, for the ratable account of the relevant Issuing Lender and the L/C Participants, a letter of credit fee with respect to each Standby European Letter of Credit, computed for the period from and including the date of issuance of such Standby European Letter of Credit to the expiration date of such Standby European Letter of Credit, at a rate per annum equal to the Applicable Margin then in effect for European Revolving Loans (calculated on the basis of the actual number of days elapsed over a 360-day year) of the aggregate face amount of Standby European Letters of Credit outstanding (of which 1/4 of 1% of such aggregate face amount shall be for the account of the Issuing Lender with respect thereto and the remainder of such amount shall be for the ratable account of such Issuing Lender and the L/C Participants). Such fee shall be payable to the Administrative Agent, for the ratable account of the European Lenders, in arrears, on each L/C Fee Payment Date (commencing on December 31, 1998) to occur following the issuance of such Standby European Letter of Credit for the period since the last payment was made. (b) The Borrowers shall pay to the Administrative Agent, for the ratable account of the relevant Issuing Lender and the L/C Participants, a letter of credit fee with respect to each Commercial European Letter of Credit at a flat rate equal to 50% of the Applicable Margin then in effect for European Revolving Loans which are Eurocurrency Loans (calculated on the basis of the actual number of days elapsed over a 360-day year) of the aggregate face amount of such Commercial European Letter of Credit outstanding (of which 1/4 of 1% of such aggregate face amount shall be for the account of the Issuing Lender with respect thereto and the remainder of such amount shall be for the ratable account of such Issuing Lender and the L/C Participants). Such fee shall be payable to the Administrative Agent, for the ratable account of the European 53 Lenders, in arrears, on each L/C Fee Payment Date (commencing on December 31, 1998) to occur following the issuance of such Commercial European Letter of Credit for the period since the last payment was made. (c) In addition to the foregoing fees and commissions, the Borrowers shall pay or reimburse the Issuing Lender for such normal and customary costs and expenses as are incurred or charged by such Issuing Lender in issuing, effecting payment under, amending or otherwise administering any European Letter of Credit issued by it. (d) The Administrative Agent shall, promptly following its receipt thereof, distribute to the relevant Issuing Lender and the L/C Participants all fees and commissions received by the Administrative Agent for their respective accounts pursuant to this subsection. 8.4 L/C PARTICIPATIONS. (a) Each Issuing Lender irrevocably agrees to grant and hereby grants to each L/C Participant, and, to induce such Issuing Lender to issue European Letters of Credit hereunder, each L/C Participant irrevocably agrees to accept and purchase and hereby accepts and purchases from such Issuing Lender, on the terms and conditions hereinafter stated, for such L/C Participant's own account and risk an undivided interest equal to such L/C Participant's European Commitment Percentage from time to time in effect in such Issuing Lender's obligations and rights under each European Letter of Credit issued by such Issuing Lender hereunder and the amount of each draft paid by such Issuing Lender thereunder. Each L/C Participant unconditionally and irrevocably agrees with such Issuing Lender that, if a draft is paid under any European Letter of Credit issued by such Issuing Lender for which such Issuing Lender is not reimbursed in full by the relevant Borrower in accordance with the terms of this Agreement, such L/C Participant shall pay to such Issuing Lender upon demand at such Issuing Lender's address for notices specified herein an amount equal to such L/C Participant's then European Commitment Percentage of the amount of such draft, or any part thereof, which is not so reimbursed; PROVIDED that, if such demand is made prior to 12:00 Noon, London time, on a Business Day, such L/C Participant shall make such payment to such Issuing Lender prior to the end of such Business Day and otherwise such L/C Participant shall make such payment on the next succeeding Business Day. (b) If any amount required to be paid by any L/C Participant to an Issuing Lender pursuant to paragraph 8.4(a) in respect of any unreimbursed portion of any payment made by such Issuing Lender under any European Letter of Credit is paid to such Issuing Lender within three Business Days after the date such payment is due, such L/C Participant shall pay to such Issuing Lender on demand an amount equal to the product of (i) such amount, times (ii) the annual interest rate reasonably determined by the Issuing Lender to reflect the cost of funds to such Issuing Lender in maintaining such unreimbursed amount during the period from and including the date such payment is required to the date on which such payment is immediately available to such Issuing Lender, times (iii) a fraction the numerator of which is the number of days that elapse during such period and the denominator of which is 360. If any such amount required to be paid by any L/C Participant pursuant to paragraph 8.4(a) is not in fact made available to such Issuing Lender by such L/C Participant within three Business Days after the date such payment is due, such Issuing Lender shall be entitled to recover from such L/C Par- 54 ticipant, on demand, such amount with interest thereon calculated from such due date at the rate per annum applicable to Syndicated European Loans in the relevant currency hereunder. A certificate of an Issuing Lender submitted to any L/C Participant with respect to any amounts owing to such Issuing Lender under this subsection shall be conclusive in the absence of manifest error. (c) Whenever, at any time after an Issuing Lender has made payment under any European Letter of Credit issued by it and has received from any L/C Participant its European Commitment Percentage of such payment in accordance with subsection 8.4(a), such Issuing Lender receives any payment related to such European Letter of Credit (whether directly from the relevant Borrower or otherwise, including proceeds of collateral applied thereto by such Issuing Lender), or any payment of interest on account thereof, such Issuing Lender will promptly distribute to such L/C Participant its European Commitment Percentage thereof; PROVIDED, HOWEVER, that in the event that any such payment received by such Issuing Lender and distributed to the L/C Participants shall be required to be returned by such Issuing Lender, each such L/C Participant shall return to such Issuing Lender the portion thereof previously distributed by such Issuing Lender to it. (d) Notwithstanding anything to the contrary contained in this subsection 8.4, no European Lender shall be required to acquire a participating interest in a European Letter of Credit if an Event of Default shall have occurred and be continuing at the time such European Letter of Credit was issued and such European Lender shall have notified the Administrative Agent in writing, at least one Business Day prior to the issuance date with respect to such European Letter of Credit, that such Event of Default has occurred and that such European Lender will not acquire participations in European Letters of Credit issued while such Event of Default is continuing. 8.5 REIMBURSEMENT OBLIGATION OF THE BORROWERS. (a) Each Borrower agrees to reimburse the relevant Issuing Lender on the same Business Day on which a draft is presented under any European Letter of Credit issued by such Issuing Lender for the account of such Borrower and paid by such Issuing Lender, PROVIDED that such Issuing Lender provides notice to such Borrower prior to 12:00 Noon, local time at the address for notices specified herein with respect to such Borrower, on such Business Day and otherwise such Borrower will reimburse the Issuing Lender on the next succeeding Business Day; PROVIDED, FURTHER, that the failure to provide such notice shall not affect the absolute and unconditional obligation of such Borrower to reimburse the relevant Issuing Lender for any draft paid under any European Letter of Credit issued by it. Each Issuing Lender shall provide notice to such Borrower on such Business Day as a draft is presented and paid by such Issuing Lender indicating the amount of (i) such draft so paid and (ii) any taxes, fees, charges or other costs or expenses incurred by such Issuing Lender in connection with such payment. Each such payment shall be made to such Issuing Lender at its address for notices specified herein in lawful money of the currency in which such European Letter of Credit was denominated and in immediately available funds. (b) Interest shall be payable on any and all amounts remaining unpaid by the relevant Borrower under this subsection from the date such amounts become payable until 55 payment in full at the rate reasonably determined by the Issuing Lender as reflecting its cost of funds for the maintenance of such extension of credit on an overnight basis PLUS 2% above the Applicable Margin then in effect for ABR Loans. (c) Each drawing under any European Letter of Credit shall constitute a request by the relevant Borrower to the Local European Lender for the relevant currency for a borrowing of Local European Loans in the amount of such drawing (or, if there is no such Local European Lender, to the Administrative Agent for such a borrowing of Syndicated European Loans). The Borrowing Date with respect to such borrowing shall be the date of such drawing. 8.6 OBLIGATIONS ABSOLUTE. (a) The obligations of each Borrower under subsection 8.5(a) shall be absolute and unconditional under any and all circumstances and irrespective of any set-off, counterclaim or defense to payment which such Borrower may have or have had against the relevant Issuing Lender, any L/C Participant or any beneficiary of a European Letter of Credit. (b) Each Borrower also agrees with each Issuing Lender that such Issuing Lender shall not be responsible for, and such Borrower's Reimbursement Obligations under subsection 8.5(a) shall not be affected by, among other things, (i) the validity or genuineness of documents or of any endorsements thereon, even though such documents shall in fact prove to be invalid, fraudulent or forged, or (ii) any dispute between or among such Borrower and any beneficiary of any European Letter of Credit or any other party to which such European Letter of Credit may be transferred or (iii) any claims whatsoever of such Borrower against any beneficiary of such European Letter of Credit or any such transferee. (c) Neither the Issuing Lender with respect to any European Letter of Credit nor any L/C Participant with respect thereto shall be liable for any error, omission, interruption or delay in transmission, dispatch or delivery of any message or advice, however transmitted, in connection with such European Letter of Credit, except for errors or omissions caused by such Issuing Lender's gross negligence, bad faith or willful misconduct. (d) Each Borrower agrees that any action taken or omitted by the Issuing Lender under or in connection with any European Letter of Credit issued by it for the account of such Borrower or the related drafts or documents, if done in the absence of gross negligence, bad faith or willful misconduct and in accordance with the standards of care specified in the Uniform Commercial Code of the State of New York, shall be binding on such Borrower and shall not result in any liability of such Issuing Lender or any L/C Participant to such Borrower. 8.7 EUROPEAN LETTER OF CREDIT PAYMENTS. If any draft shall be presented for payment under any European Letter of Credit, the responsibility of the Issuing Lender thereof to the relevant Borrower in connection with such draft shall, in addition to any payment obligation expressly provided for in such European Letter of Credit, be limited to determining that the documents (including each draft) delivered under such European Letter of Credit in connection with such presentment are in conformity with such European Letter of Credit. 56 8.8 APPLICATION. To the extent that any provision of any Application related to any European Letter of Credit is inconsistent with the provisions of this Section 8, the provisions of this Section 8 shall apply. 8.9 ISSUING LENDER REPORTING REQUIREMENTS. Each Issuing Lender shall, no later than the fifth Business Day following the last day of each calendar month and on the last Business Day of each calendar quarter (or, to the extent that the Administrative Agent so agrees, not more than two Business Days thereafter), provide to the Administrative Agent and the Company separate schedules for Commercial European Letters of Credit and Standby European Letters of Credit issued by such Issuing Lender, in form and substance reasonably satisfactory to the Administrative Agent, setting forth the aggregate European L/C Obligations outstanding to such Issuing Lender at the end of each month or calendar quarter, as the case may be, and any information requested by the Administrative Agent or the Company relating to the date of issue, account party, amount, expiration date and reference number of each European Letter of Credit issued by it. Promptly following receipt by the Administrative Agent of the quarterly schedule, the Administrative Agent shall provide to each European Lender a report containing such information. 8.10 TRANSITIONAL PROVISIONS. Schedule 8.10 lists certain letters of credit issued prior to the date hereof for the account of the Borrowers. On the Closing Date, (i) such letters of credit, to the extent outstanding, shall be automatically and without further action by the parties thereto converted to European Letters of Credit issued pursuant to this Section 8 for the account of the Borrower who presently is the account party thereunder and subject to the provisions hereof, and for this purpose the fees specified in Sections 8.3 shall be payable (in substitution for any fees set forth in the reimbursement agreement relating to such letters of credit) as if such letters of credit had been issued on the Closing Date and (ii) the face amount of such letters of credit shall be included in the calculation of the aggregate amount of outstanding European L/C Obligations. No letter of credit converted in accordance with this subsection 8.10 shall be amended, extended or renewed without the prior written consent of the Administrative Agent. To the extent that any fees with respect to the letters of credit listed on Schedule 8.10 were paid in advance to the issuing bank under such letter of credit, the Administrative Agent shall use reasonable efforts (but shall otherwise not be obligated) to obtain a PRO RATA refund for the relevant Borrower of such fees to the extent such fees were paid in respect of any time period during which such letter of credit shall be a letter of credit on account of the provisions of this subsection. Notwithstanding anything set forth in Section 8.2(c)(A), to the extent that any letter of credit listed on Schedule 8.10 has an expiration date in excess of one year, such letter of credit shall continue in full force and effect pursuant to the terms hereof after the Closing Date through its stated expiration date (but shall be cash collateralized upon terms reasonably satisfactory to the relevant Issuing Lender during the period from the Termination Date through such stated expiration date). SECTION 9. AMOUNTS AND TERMS OF EUROPEAN OVERDRAFT FACILITY 57 9.1 EUROPEAN OVERDRAFT FACILITY. Subject to the terms and conditions set forth herein, the European Overdraft Lender shall make loans (the "EUROPEAN OVERDRAFT LOANS") to the Foreign Borrowers from time to time during the period from the day immediately following the Closing Date to the Termination Date, up to an aggregate principal amount at any time outstanding which shall not exceed the European Overdraft Commitment then in effect; PROVIDED that (x) except to the extent that the European Overdraft Lender shall otherwise agree, Composites-Austria shall not, in the aggregate, have the right to borrow more than $250,000 (or the Local Equivalent thereof) at any one time under the European Overdraft Commitment and (y) except to the extent that the European Overdraft Lender otherwise shall so agree, Salver shall not have the right to borrow any amounts under the European Overdraft Commitment. All European Overdraft Loans shall be payable on the Termination Date with accrued interest thereon and shall be secured by the Collateral and shall, except as expressly provided in this Section 9, otherwise be subject to all the terms and conditions applicable to Syndicated European Loans, except that each European Overdraft Loan shall be denominated in a single Optional Currency and shall not be subject to a minimum borrowing requirement. 9.2 MAKING OF EUROPEAN OVERDRAFT LOANS. All European Overdraft Loans shall be made available to the Foreign Borrowers at the office of the European Overdraft Lender in London in immediately available funds on the Borrowing Date applicable thereto. The European Overdraft Lender shall not make any European Overdraft Loan in the period commencing on the first Business Day after it has notice that one or more of the conditions precedent contained in subsection 12.2 shall not on such date be satisfied, and ending when such conditions are satisfied, and the European Overdraft Lender shall not otherwise be required to determine that, or take notice whether, the conditions precedent set forth in subsection 12.2 hereof have been satisfied in connection with the making of any European Overdraft Loan. 9.3 REPAYMENT OF EUROPEAN OVERDRAFT LOANS. Each Foreign Borrower shall repay the outstanding European Overdraft Loans owing by it to the European Overdraft Lender at any time, but in no event later than the earlier of (A) demand by the European Overdraft Lender and (B) the Termination Date. 9.4 USE OF PROCEEDS OF EUROPEAN OVERDRAFT LOANS. The proceeds of the European Overdraft Loans may be used to provide for ongoing working capital needs in the ordinary course of the business of the Foreign Borrowers and their respective Subsidiaries and for any other lawful corporate purposes not prohibited hereunder. 9.5 ADJUSTMENT OF EUROPEAN OVERDRAFT COMMITMENT. (a) Upon the written request of the Company from time to time and with the consent of each of the Administrative Agent and the European Overdraft Lender (in their respective sole discretion) the European Overdraft Commitment of the European Overdraft Lender may be increased to an amount not in excess of $25,000,000. Any such increase in the European Overdraft Commitment shall be accompanied by a reduction in the European Commitment of Citibank, N.A. to the extent required by subsection 10.5(f); PROVIDED that, after giving effect to such decrease in the European Commitment of Citibank, N.A., the sum of the European Commitment of Citibank, N.A. and the European Overdraft Commitment shall be unchanged (it being understood that such reduction in 58 the European Commitment of Citibank, N.A. shall alter the European Commitment Percentage of each European Lender). (b) Upon the written request of the Company from time to time and with the consent of each of the Administrative Agent and the European Overdraft Lender (such consents not to be unreasonably withheld), the European Overdraft Commitment of the European Overdraft Lender may be reduced and the European Commitment of Citibank, N.A. may be increased by an amount not to exceed the amount of such reduction; PROVIDED that, after giving effect to such increase in the European Commitment of Citibank, N.A., the sum of the European Commitment of Citibank, N.A. and the European Overdraft Commitment shall be unchanged (it being understood that such increase in the European Commitment of Citibank, N.A. shall alter the European Commitment Percentage of each European Lender). SECTION 10. PROVISIONS RELATING TO THE EXTENSIONS OF CREDIT; FEES AND PAYMENTS 10.1 REPAYMENT OF LOANS; EVIDENCE OF DEBT. (a) Each Borrower hereby unconditionally promises to pay to (i) with respect to Swing Line Loans, the Swing Line Lender, (ii) with respect to Local European Loans in which the purchase of participating interests have not been funded pursuant to subsection 7.5(a), the relevant Local Lender, (iii) with respect to European Overdraft Loans, the European Overdraft Lender and (iv) otherwise, the Administrative Agent, the then unpaid principal amount of each Loan borrowed by it on the applicable Termination Date (or such earlier date on which such Loans become due and payable hereunder). Each Borrower hereby further agrees to pay interest on the unpaid principal amount of the Loans from time to time owing by it from the date hereof until payment in full thereof at the rates PER ANNUM, and on the dates, set forth in subsection 10.8. (b) Each Lender (including, without limitation, the European Overdraft Lender) shall maintain in accordance with its usual practice an account or accounts evidencing indebtedness of each Borrower to such Lender resulting from each Loan of such Lender from time to time, including the amounts of principal and interest payable and paid to such Lender from time to time under this Agreement. (c) The Administrative Agent shall maintain the Register pursuant to subsection 17.7(d), and a subaccount therein for each Lender, in which shall be recorded (i) the amount of Loan made hereunder, the Type thereof, each Interest Period applicable thereto and the Borrower with respect thereto, (ii) the amount of any principal or interest due and payable or to become due and payable from each Borrower to each Lender hereunder and (iii) both the amount of any sum received by the Administrative Agent hereunder from any Borrower and each applicable Lender's share thereof; PROVIDED that the Administrative Agent shall have no obligation to record in the Register any matters with respect to European Overdraft Loans. (d) The entries made in the Register and the accounts of each Lender maintained pursuant to subsection 10.1(b) shall, to the extent permitted by applicable law, be PRIMA FACIE 59 evidence of the existence and amounts of the obligations of the Borrowers therein recorded; PROVIDED, HOWEVER, that the failure of any Lender or the Administrative Agent to maintain the Register or any such account, or any error therein, shall not in any manner affect the obligation of each Borrower to repay (with applicable interest) the Loans made to such Borrower by such Lender in accordance with the terms of this Agreement. (e) Each relevant Borrower agrees that, upon request of any such Lender through the Administrative Agent, such Borrower will execute and deliver to such Lender: (i) in the case of a Tranche A Lender, a promissory note of such Borrower evidencing the Tranche A Loans of such Tranche A Lender, substantially in the form of Exhibit A-1 with appropriate insertions as to date and principal amount (a "TRANCHE A NOTE"); (ii) in the case of a Tranche B Lender, a promissory note of such Borrower evidencing the Tranche B Loans of such Tranche B Lender, substantially in the form of Exhibit A-2 with appropriate insertions as to date and principal amount (a "TRANCHE B NOTE"); (iii) in the case of a Revolving Credit Lender, a promissory note of such Borrower evidencing the Revolving Credit Loans of such Revolving Credit Lender, substantially in the form of Exhibit A-3 with appropriate insertions as to date and principal amount (a "REVOLVING CREDIT NOTE"); and (iv) in the case of the Swing Line Lender, a promissory note of such Borrower evidencing the Swing Line Loans, substantially in the form of Exhibit A-4 with appropriate insertions as to date and principal amount (a "SWING LINE NOTE"). No promissory notes shall be provided with respect to any European Revolving Loans or the European Overdraft Facility. 10.2 FACILITY FEE. (a) The Borrowers shall pay to the Administrative Agent, for the account of: (i) each Revolving Credit Lender, a facility fee computed on the average daily amount of the Revolving Credit Commitment of such Revolving Credit Lender during the period for which payment is made; (ii) each European Lender, a facility fee computed on the average daily amount of the European Loan Commitment of such European Lender during the period for which payment is made; and (iii) for each Tranche A Lender, a facility fee computed on the average daily amount of the Tranche A Loan Commitment remaining available for the making of Subsequent Tranche A Loans during the period for which payment is made. 60 Such facility fee shall (x) accrue for each day during the period from and including the first day of the Commitment Period to and including the Termination Date, (y) be payable at the rate PER ANNUM equal to the Applicable Facility Fee Rate and (z) be payable (A) quarterly, in arrears, on the last Business Day of each March, June, September and December, commencing on December 31, 1998, for the period ending on (and including) the last day of such December, March, June or September, respectively, and (B) on the Termination Date. (b) The Borrowers shall pay to the European Overdraft Lender a facility fee for each day during the period from and including the first day of the Commitment Period to and including the Termination Date, computed at the rate PER ANNUM equal to the Applicable Facility Fee Rate on the average daily amount of the European Overdraft Commitment during the period for which payment is made. Such facility fee shall be payable (A) quarterly in arrears on the last Business Day of each March, June, September and December, commencing on December 31, 1998, for the period ending on (and including) the last day of the immediately preceding December, March, June or September, respectively, and (B) on the Termination Date. 10.3 OPTIONAL PREPAYMENTS. (a) Each Borrower may at any time and from time to time prepay the Loans made to it (other than (x) the Swing Line Loans, as to which the provisions of subsection 10.3(b) shall apply and (y) the European Overdraft Loans, as to which the provisions of subsection 9.3 shall apply), in whole or in part, without premium or penalty, upon at least three Business Days' (or, in the case of prepayments of ABR Loans, same day's) irrevocable notice to the Administrative Agent (which notice must be received by the Administrative Agent prior to (x) in the case of Loans denominated in Dollars, 11:00 A.M., New York City time, and (y) in the case of Loans denominated in Optional Currencies, 11:00 A.M., London time, on the date upon which such notice is due), specifying whether such prepayment is to be applied to the Tranche A Loans, the Tranche B Loans, the Revolving Credit Loans or the European Revolving Loans (and, if European Revolving Loans, whether such Loans are Syndicated European Loans or Local European Loans and the currency in which such Loans are denominated) hereunder and, in any event, the date and amount of prepayment and whether the prepayment is of Eurocurrency Loans, ABR Loans or a combination thereof, and, if of a combination thereof, the amount allocable to each. Upon receipt of any such notice, the Administrative Agent shall promptly notify each affected Lender thereof. If any such notice is given, the amount specified in such notice shall be due and payable on the date specified therein, together with any amounts payable pursuant to subsection 10.15 and, except in the case of prepayments of Revolving Credit Loans which are ABR Loans, accrued interest to such date on the amount prepaid. Partial prepayments shall be (i) in the case of Loans denominated in Dollars, in an aggregate principal amount of $1,000,000 or a whole multiple of $1,000,000 in excess thereof, (ii) in the case of Syndicated European Loans denominated in any Optional Currency, in an aggregate principal amount equal to an integral multiple of 100,000 units of such Optional Currency and equal to or greater than the Local Equivalent of $2,000,000 and (iii) in the case of Local European Loans denominated in any Optional Currency, in an aggregate principal amount equal to an integral multiple of 50,000 units of such Optional Currency and equal to or greater than the Local Equivalent of $100,000. Partial prepayments of the Tranche A Loans and the Tranche B Loans shall be applied ratably to the remaining installments thereof. 61 (b) The Company may at any time and from time to time prepay, in whole or in part and without premium or penalty, any Swing Line Loans then owing by it on any Business Day; PROVIDED that the Company has given irrevocable notice to the Administrative Agent not later than 1:00 P.M., New York City time, on the date of such prepayment. Partial prepayments of Swing Line Loans shall be in a minimum amount of $1,000,000 or a multiple of $100,000 in excess thereof. 10.4 OPTIONAL TERMINATION OR REDUCTION OF COMMITMENTS. The Company shall have the right, upon not less than three Business Days' notice to the Administrative Agent, to (a) terminate any of the Aggregate Tranche A Loan Commitment, the Aggregate Tranche B Loan Commitment, the Aggregate Revolving Credit Commitment or the Aggregate European Loan Commitment or (b) from time to time, to reduce the amount of any thereof; PROVIDED that no such termination or reduction of the Aggregate Revolving Credit Commitment or the Aggregate European Loan Commitment shall be permitted if, after giving effect thereto and to any prepayments of the Loans thereunder made on the effective date of such termination or reduction, the Aggregate Outstanding RC Extensions of Credit (in the case of any termination or reduction of the Aggregate Revolving Credit Commitment) or the Aggregate Outstanding European Extensions of Credit (in the case of any termination or reduction of the Aggregate European Loan Commitment) would exceed the Aggregate Revolving Credit Commitment or the Aggregate European Loan Commitment, as the case may be, then in effect. Any such reduction shall be in an amount equal to the Local Equivalent of $1,000,000 or a whole multiple thereof and shall reduce permanently the Aggregate Revolving Credit Commitment then in effect. 10.5 MANDATORY REDUCTION OF COMMITMENTS AND PREPAYMENTS. (a) Each of the Aggregate Revolving Credit Commitment and the Aggregate European Loan Commitment shall terminate on the Termination Date. (b) If the Aggregate Outstanding RC Extensions of Credit of all Revolving Credit Lenders shall at any time exceed the Aggregate Revolving Credit Commitment then in effect (including, without limitation, as a result of any reduction or termination of the Aggregate Revolving Credit Commitment pursuant to subsection 10.4 or this subsection 10.5), the Borrowers shall immediately repay the Aggregate Outstanding RC Extensions of Credit by the amount of such excess, with such prepayment being applied, FIRST, to the then outstanding Swing Line Loans, SECOND, to the then outstanding Revolving Credit Loans and, THIRD, to cash collateralize the then outstanding L/C Obligations thereunder. (c) If the Aggregate Outstanding European Extensions of Credit of all European Lenders shall at any time exceed the Aggregate European Loan Commitment then in effect (including, without limitation, as a result of any reduction or termination of the Aggregate European Loan Commitment pursuant to subsection 10.4 or this subsection 10.5), the Borrowers shall immediately repay the Aggregate Outstanding European Extensions of Credit by the amount of such excess, with such prepayment being applied, FIRST, to the then outstanding European Revolving Loans (in such order as the Company shall elect) and, SECOND, to cash collateralize the then outstanding L/C Obligations thereunder. 62 (d) If the aggregate outstanding principal amount of European Overdraft Loans shall at any time exceed the European Overdraft Commitments then in effect, the Foreign Borrowers shall, within five Business Days, repay the European Overdraft Loans by the amount of such excess. (e) If any Foreign Borrower shall at any time cease to be a "Foreign Borrower" hereunder, such Foreign Borrower shall immediately (i) repay all European Revolving Loans owing by it (together with accrued interest and any other amounts owing in respect thereof) and (ii) provide to the relevant Issuing Lender cash collateral (on terms reasonably satisfactory to such Issuing Lender and the Administrative Agent) in the amount equal to 105% of then outstanding face amount of the European Letters of Credit issued by such Issuing Lender for the account of such Foreign Borrower. (f) If the European Overdraft Commitment shall at any time be increased pursuant to subsection 9.5(a), the European Loan Commitment of Citibank, N.A. immediately shall be temporarily reduced (subject to reinstatement in accordance with the provisions of subsection 9.5(b)) by 100% of the amount of such increase and the Aggregate Outstanding European Extensions of Credit owing to Citibank, N.A. immediately shall be prepaid by the amount necessary to cause such Aggregate Outstanding European Extensions of Credit to equal Citibank, N.A.'s European Commitment Percentage of (after giving effect to such reduction of its European Loan Commitment) the Aggregate Outstanding European Extensions of Credit of all European Lenders. (g) The Aggregate Commitment shall be reduced by the amount equal to 100% of any Net Proceeds (other than Reserved Proceeds) derived by the Company and its Subsidiaries from any Net Proceeds Event; PROVIDED, HOWEVER, that: (x) no such reduction shall be required with respect to the first $25,000,000 of Net Proceeds derived from any Net Proceeds Event received by the Company and its Subsidiaries during any period of 365 consecutive days (other than any Net Proceeds Event on account of the sale, transfer or other disposition of assets described in clause (y) below); (y) no such reduction shall be required with respect to any Net Proceeds received on account of the sale, transfer or other disposition of any property listed on Schedule 10.5; and (z) in the event that such Net Proceeds Event is of the type described in clause (c) of the definition of such term and the Leverage Ratio in effect on the date of such Net Proceeds Event was not more than 3.0 to 1.0, the Aggregate Commitment shall be reduced by 50% (rather than 100%) of such Net Proceeds. Any reduction of the Aggregate Commitment pursuant to this clause (g) shall be applied: 63 FIRST, to the Aggregate Tranche A Loan Commitment (or, from and after the Closing Date, the Tranche A Loans then outstanding) and the Aggregate Tranche B Loan Commitment (or, from and after the Closing Date, the Tranche B Loans then outstanding), with such application to be ratably between such Commitments and ratably among the remaining installments of each; PROVIDED that, at the Company's option, up to $125,000,000 of Net Proceeds received by the Company on or before December 31, 1998 from a Net Proceeds Event of the type described in clause (c) of the definition of such term may be applied first to the Aggregate Tranche B Loan Commitment (or, from and after the Closing Date, the Tranche B Loans then outstanding), with such application to be ratably among the remaining installments thereof; and SECOND, to the Aggregate Revolving Credit Commitment and the Aggregate European Loan Commitment, with such application to be ratably between such Commitments; PROVIDED that with respect to any amount being applied pursuant to this clause SECOND as a result of such amount ceasing to be Reserved Proceeds, 71% of such amount shall be applied to reduce the Aggregate Revolving Credit Commitment and the remaining 29% of such amount shall be applied to reduce the Aggregate European Loan Commitment; PROVIDED that, unless the Company otherwise elects, prepayments made pursuant to this subsection 10.5(g) shall be applied to the Loans under any Commitment, FIRST, to ABR Loans and, SECOND, to Eurocurrency Loans. Notwithstanding anything to the contrary contained in this clause (g), any Reserved Proceeds shall cease to be Reserved Proceeds (unless previously reinvested in accordance with the definition of such term) on the earlier to occur of (i) the 366th day following such occurrence and (ii) to the extent that an Event of Default is then continuing, the date upon which the Administrative Agent or the Majority Lenders shall request such application. Upon any such amount ceasing to be Reserved Proceeds, such amount shall be applied to reduce the Aggregate Commitment in accordance with the provisions of this clause (g). (h) Notwithstanding anything to the contrary contained herein, in the event that a Borrower would incur costs pursuant to subsection 10.15 as a result of any payment due as a result of any commitment reduction or prepayment required to be made pursuant to this subsection 10.5, such Borrower may deposit the amount of such payment with the Administrative Agent, for the benefit of the Lenders who would have received such payment, in a cash collateral account, until the end of the applicable Interest Period at which time such payment shall be made. Each Borrower hereby grants to the Administrative Agent, for the benefit of such Lenders, a security interest in all amounts in which such Borrower has any right, title or interest which are from time to time on deposit in such cash collateral account and expressly waives all rights (which rights such Borrower hereby acknowledges and agrees are vested exclusively in the Administrative Agent) to exercise dominion or control over any such amounts. 64 10.6 CONVERSION AND CONTINUATION OPTIONS.(a) Each Borrower may elect from time to time to convert Eurocurrency Loans to ABR Loans by delivering to the Administrative Agent an irrevocable Notice of Borrowing by 11:00 A.M., New York City time, at least one Business Day prior to the requested date of conversion; PROVIDED that any such conversion of Eurocurrency Loans may only be made on the last day of an Interest Period with respect thereto. Each Borrower may elect from time to time to convert ABR Loans to Eurocurrency Loans by delivering to the Administrative Agent an irrevocable Notice of Borrowing by 11:00 A.M., New York City time, at least three Business Days' prior to the requested conversion date. Any such Notice of Borrowing with respect to a conversion to Eurocurrency Loans shall specify the length of the initial Interest Period or Interest Periods therefor. Upon receipt of any such Notice of Borrowing, the Administrative Agent shall promptly notify each affected Lender thereof. All or any part of outstanding Eurocurrency Loans and ABR Loans may be converted as provided herein, PROVIDED that (i) no Loan may be converted into a Eurocurrency Loan when any Event of Default has occurred and is continuing and the Administrative Agent has or the Required Lenders have determined that such a conversion is not appropriate, (ii) no Revolving Credit Loan may be converted into a Eurocurrency Loan after the date that is one month prior to the Termination Date and (iii) no European Revolving Loan which is denominated in an Optional Currency or Local European Loan may be converted into an ABR Loan. Notwithstanding anything to the contrary contained herein, Swing Line Loans shall at all times be maintained as ABR Loans and shall not be converted to Eurocurrency Loans hereunder. (b) Any Eurocurrency Loans may be continued as such upon the expiration of the then current Interest Period with respect thereto by the relevant Borrower delivering to the Administrative Agent an irrevocable Notice of Borrowing, in accordance with the applicable provisions of the term "Interest Period" set forth in subsection 1.1, setting forth (among other things) the length of the next Interest Period to be applicable to such Loans, PROVIDED that (i) no Loan may be continued as a Eurocurrency Loan when any Event of Default has occurred and is continuing and the Administrative Agent has or the Required Lenders have determined that such a continuation is not appropriate and (ii) no Revolving Credit Loan may be continued as a Eurocurrency Loan after the date that is one month prior to the Termination Date and PROVIDED, FURTHER, that if a Borrower shall fail to give such notice or if such continuation is not permitted, such Loans shall (x) in the case of any Loan to the Company or any Syndicated European Loan denominated in Dollars, be automatically converted to ABR Loans on the last day of such then expiring Interest Period and (y) in each other case, bear interest at a rate equal to the rate determined by the Administrative Agent (in its reasonable discretion and notified to the relevant Borrower) as reflecting a reasonable cost of funds for the maintenance by the relevant Lenders of such Loan on an overnight basis PLUS (in the case of this clause (y)) the Applicable Margin then in effect with respect to Eurocurrency Loans. Upon receipt of any such Notice of Borrowing, the Administrative Agent shall promptly notify each affected Lender thereof. 10.7 MINIMUM AMOUNTS AND MAXIMUM NUMBER OF TRANCHES. All borrowings, conversions and continuations of Loans hereunder and all selections of Interest Periods hereunder shall be in such amounts and be made pursuant to such elections so that, after giving effect thereto, the aggregate principal amount of the Loans comprising each Eurocurrency Tranche shall be equal to (a) in the case of Loans denominated in Optional Currencies, 100,000 65 units in such Optional Currency and at least the Local Equivalent of $2,000,000 and (b) in the case of all other Loans, $2,000,000 or a whole multiple of $1,000,000 in excess thereof. In no event shall there be more than 10 Eurocurrency Tranches outstanding to the Company at any time or more than 15 Eurocurrency Tranches outstanding to the Foreign Borrowers (in the aggregate) at any time. Notwithstanding the foregoing, the provisions of this Section 10.7 shall not apply to European Overdraft Loans. 10.8 INTEREST RATES AND PAYMENT DATES. (a) Each Eurocurrency Loan shall bear interest for each day during each Interest Period with respect thereto at a rate per annum equal to the Eurocurrency Rate determined for such day plus the Applicable Margin with respect thereto. Interest on each Eurocurrency Loan shall be payable in the currency in which such Eurocurrency Loan is denominated. (b) Each ABR Loan (including, without limitation, each Swing Line Loan) shall bear interest at a rate per annum equal to the ABR plus the Applicable Margin with respect thereto. Interest on each ABR Loan shall be payable in Dollars. (c) If all or a portion of (i) any principal of any Loan, (ii) any interest payable thereon, (iii) any facility fee or (iv) any other amount payable hereunder shall not be paid when due (whether at the stated maturity, by acceleration or otherwise), the principal of the Loans and any such overdue interest, facility fee or other amount shall bear interest at a rate per annum which is (x) in the case of principal, the rate that would otherwise be applicable thereto pursuant to the foregoing provisions of this subsection plus 2% or (y) in the case of any such overdue interest, facility fee or other amount (including, without limitation, fees and commissions on Letters of Credit), the rate which would have been applicable thereto if such amount were principal of a Loan denominated in the relevant currency (with any such amount which is denominated in Dollars being treated as if it were an ABR Loan) plus 2%, in each case from the date of such non-payment until such overdue principal, interest, facility fee or other amount is paid in full (as well after as before judgment). (d) Interest shall be payable in arrears on each Interest Payment Date (PROVIDED that interest accruing pursuant to paragraph (c) of this subsection shall be payable from time to time on demand) and shall be payable (w) in the case of interest on account of Swing Line Loans, to the Swing Line Lender (for its own account), (x) in the case of interest on Local European Loans, to the relevant Local Lender (for its own account), (y) in the case of interest on European Overdraft Loans, to the European Overdraft Lender (for its own account) and (z) otherwise, to the Administrative Agent (for the ratable account of the Lenders holding the obligations on account of which such interest was paid). (e) Each Local Lender hereby agrees that, in consideration of the agreement of the European Lenders to purchase participating interests in the Local European Loans made by it, such Local Lender shall pay to the Administrative Agent (for the ratable account of the European Lenders) promptly upon receipt by such Local Lender of any interest payment hereunder a fee in the amount equal to (x) the Applicable Margin for Eurocurrency Loans on the average daily principal amount of its Local European Loans during the period for which payment is due MINUS 66 (y) the amount equal to 1/4 of 1% on such average daily principal amount (which amount shall be retained by such Local Lender, for its own account); PROVIDED, HOWEVER, that, in the event that the European Lenders have funded the purchase of participating interests in such Local European Loans pursuant to subsection 7.5(a), such Local Lender instead shall pay to the Administrative Agent, for the account of each European Lender which has so funded such purchase, the amount equal to such European Lender's European Commitment Percentage of the full amount (other than the amount equal to 1/4 of 1% PER ANNUM on the average daily principal amount on which such interest is being paid, which amount shall be retained by the relevant Local Lender as an administrative fee) of the interest paid to such Local Lender by the relevant Borrower. In addition to the foregoing amounts, the relevant Borrower also shall pay to each relevant Lender any amounts due pursuant to subsection 10.15. 10.9 COMPUTATION OF INTEREST AND FEES. (a) Facility fees and, other than when calculated on the basis of the Prime Rate, interest shall be calculated on the basis of a 360-day year for the actual days elapsed; and, when calculated on the basis of the Prime Rate, interest shall be calculated on the basis of a 365- (or 366-, as the case may be) day year for the actual days elapsed; PROVIDED that interest on all Eurocurrency Loans denominated in Belgian francs or British pounds sterling ("Euro sterling") shall be calculated on the basis of a 365- (or 366-, as the case may be) day year for the actual days elapsed. The Administrative Agent shall as soon as practicable notify the relevant Borrower and the affected Lenders of each determination of a Eurocurrency Rate. Any change in the interest rate on a Loan or the Applicable Facility Fee Rate resulting from a change in (i) the ABR or the Eurocurrency Reserve Requirements shall become effective as of the opening of business on the day on which such change becomes effective and (ii) the Leverage Ratio of the Company and its Subsidiaries shall become effective as of the opening of business on the date upon which the Administrative Agent receives the financial statements required to be delivered pursuant to subsection 13.1 which evidence such change in the Leverage Ratio. The Administrative Agent shall as soon as practicable notify the relevant Borrower and the affected Lenders of the effective date and the amount of each such change in interest rate. (b) Each determination of an interest rate by the Administrative Agent pursuant to any provision of this Agreement shall be conclusive and binding on the Borrowers and the Lenders in the absence of manifest error. The Administrative Agent shall, at the request of any Borrower, deliver to such Borrower a statement showing the quotations used by the Administrative Agent in determining any interest rate pursuant to subsection 10.9(a) which is applicable to the Loans of such Borrower and, with respect to Loans made to French Borrowers or in French Francs, the overall interest rate ("taux effectif global") applicable to such Loans. 10.10 INABILITY TO DETERMINE INTEREST RATE. If prior to the determination of the Eurocurrency Rate with respect to any Interest Period: (a) the Administrative Agent shall have determined (which determination shall be conclusive and binding upon the Borrowers) that, by reason of circumstances affecting the relevant market, adequate and reasonable means do not exist for ascertaining the Eurocurrency Rate for such Interest Period; 67 (b) the Administrative Agent shall have received notice from any Lender that deposits in Dollars or the applicable Optional Currency, as applicable, in the principal amounts of the Eurocurrency Rate Loans to which such Interest Period is to be applicable are not generally available in the London interbank market for a period equal to such Interest Period; or (c) the Administrative Agent shall have received notice from the Required Lenders that the Eurocurrency Rate to be determined for such Interest Period will not adequately and fairly reflect the cost to such Lenders (as conclusively certified by such Lenders) of making or maintaining their affected Loans during such Interest Period, the Administrative Agent shall give telecopy or telephonic notice thereof to the Company and the affected Lenders as soon as practicable thereafter. If such notice is given, then: (x) with respect to Loans (other than Local European Loans) denominated in Dollars, (i) any Eurocurrency Loans requested to be made on the first day of such Interest Period shall be made as ABR Loans, (ii) any ABR Loans that were to have been converted on the first day of such Interest Period to Eurocurrency Loans shall be converted to or continued as ABR Loans and (z) any outstanding Eurocurrency Loans shall be converted, on the first day of such Interest Period, to ABR Loans; and (y) with respect to any other Loans, any Eurocurrency Loans requested to be made or continued on the first day of such Interest Period shall thereafter (and until such notice has been withdrawn) bear interest at the rate determined by the Administrative Agent (or, in the case of European Overdraft Loans or Local European Loans, the European Overdraft Lender or the relevant Local Lender, as the case may be) as reflecting a reasonable cost of funds for the maintenance by the relevant Lenders of such Loan on an overnight basis PLUS the Applicable Margin then in effect with respect to Eurocurrency Loans. Until such notice has been withdrawn by the Administrative Agent, no further Eurocurrency Loans under the Aggregate Revolving Credit Commitment shall be made or continued as such, nor shall the relevant Borrower have the right to convert Loans to Eurocurrency Loans. 10.11 PRO RATA TREATMENT AND PAYMENTS. (a) Each borrowing (other than a borrowing of Swing Line Loans, Local European Loans or European Overdraft Loans) by a Borrower hereunder, each payment by a Borrower on account of any facility fee hereunder and any reduction of the Commitments shall be made PRO RATA according to the respective relevant Commitment Percentages of the Lenders holding the affected obligations. Each payment (including each prepayment) by a Borrower on account of principal of and (subject to the provisions of subsection 10.12) interest on the Loans (other than the Swing Line Loans, the European Overdraft Loans or any Local European Loans in which the purchase of participating interests has not been funded pursuant to subsection 7.5(a)) shall be made PRO RATA according to the respective outstanding principal amounts of such Loans then held by the Lenders. Except as otherwise set forth herein, all payments (including prepayments) to be made by any Borrower 68 hereunder, whether on account of principal, interest, fees or otherwise, shall be made without set off or counterclaim and shall be made prior to 1:00 P.M., New York City time (with respect to amounts denominated in Dollars) or London time (with respect to other amounts), on the due date thereof to the Administrative Agent, for the account of the applicable Lenders, at the Administrative Agent's office specified in subsection 17.3 (or at such other office as the Administrative Agent may from time to time specify), in immediately available funds and in the currency in which the underlying obligation is denominated (PROVIDED that facility fees payable pursuant to subsection 10.2 shall be payable in Dollars). The Administrative Agent shall distribute such payments to the Lenders holding obligations on account of which such amounts were paid promptly upon receipt in like funds as received. If any payment hereunder becomes due and payable on a day other than a Business Day, such payment shall be extended to the next succeeding Business Day, and, with respect to payments of principal, interest thereon shall be payable at the then applicable rate during such extension. (b) Unless the Administrative Agent shall have been notified in writing by any Lender prior to a borrowing that such Lender will not make the amount that would constitute its relevant Commitment Percentage of such borrowing available to the Administrative Agent, the Administrative Agent may assume that such Lender is making such amount available to the Administrative Agent, and the Administrative Agent may, in reliance upon such assumption, make available to the relevant Borrower a corresponding amount. If such amount is not made available to the Administrative Agent by the required time on the Borrowing Date therefor, such Lender shall pay to the Administrative Agent, on demand, such amount with interest thereon at a rate equal to the daily average Federal Funds Effective Rate (or, in the case of amounts denominated in Optional Currencies, the rate PER ANNUM reasonably determined by the Administrative Agent to reflect the cost of funds to it in maintaining such Lender's unfunded portion of the Loan) for the period until such Lender makes such amount immediately available to the Administrative Agent. A certificate of the Administrative Agent submitted to any Lender with respect to any amounts owing under this subsection 10.11 shall be conclusive in the absence of manifest error. If such Lender's relevant Commitment Percentage of such borrowing is not made available to the Administrative Agent by such Lender within three Business Days of such Borrowing Date, the Administrative Agent shall also be entitled to recover such amount with interest thereon calculated from such Borrowing Date at the rate per annum applicable to ABR Loans hereunder (or, in the case of amounts denominated in Optional Currencies, the higher of (x) the rate PER ANNUM reasonably determined by the Administrative Agent to reflect the cost of funds to it in maintaining such Lender's unfunded portion of the Loan for the period until such Lender makes such amount immediately available to the Administrative Agent and (y) the rate then applicable to the relevant European Revolving Loan hereunder). (c) Notwithstanding anything to the contrary contained herein, in the event that the Administrative Agent shall make any payment to a Lender on account of amounts owing to such Lender by a Borrower hereunder and the Administrative Agent either (i) shall not receive the corresponding amount from such Borrower or (ii) shall be required to be return such amount to such Borrower, such Lender shall (upon the request of the Administrative Agent) promptly return to the Administrative Agent the amount of such payment. 69 (d) For the purposes of this Agreement, the Dollar Equivalent of a European Revolving Loan which is denominated in an Optional Currency or any L/C Obligations denominated in an Optional Currency shall be determined by the Administrative Agent upon receipt from any Borrower of the Notice of Borrowing requesting a European Revolving Loan or any Application for a European Letter of Credit, and such Dollar Equivalent shall be recalculated on each date that it shall be necessary to determine the Available European Loan Commitment or any or all of the Aggregate Outstanding European Extensions of Credit outstanding on such date (it being understood that such calculation or recalculation may, under the circumstances described in the definition of the term "Dollar Equivalent" in Section 1.1, be made based upon an exchange rate in effect on the last Business Day of the most recently ended calendar quarter). 10.12 ILLEGALITY. Notwithstanding any other provision herein, if the adoption of or any change in any Requirement of Law or in the interpretation or application thereof shall make it unlawful for any Lender to make or maintain Eurocurrency Loans as contemplated by this Agreement, (a) the commitment of such Lender hereunder to make Eurocurrency Loans, continue Eurocurrency Loans as such and convert ABR Loans to Eurocurrency Loans shall forthwith be cancelled and (b) such Lender's Loans then outstanding as Eurocurrency Loans, if any, shall be converted automatically to: (i) in the case of Loans denominated in Dollars, ABR Loans; and (ii) otherwise, a rate equal to the rate determined by the Administrative Agent (or, in the case of Local European Loans, the relevant Lender) in its reasonable discretion and notified to the relevant Borrower as reflecting a reasonable cost of funds for the maintenance by the relevant Lenders of such Loan on an overnight basis PLUS (in the case of this clause (ii)) the Applicable Margin then in effect with respect to Eurocurrency Loans which are European Revolving Loans; in each case on the respective last days of the then current Interest Periods with respect to such Loans or within such earlier period as required by law. If any such conversion of a Eurocurrency Loan occurs on a day which is not the last day of the then current Interest Period with respect thereto, the relevant Borrower shall pay to the relevant Lenders such amounts, if any, as may be required pursuant to subsection 10.15. 10.13 REQUIREMENTS OF LAW. (a) If the adoption of or any change in any Requirement of Law or in the interpretation or application thereof or compliance by any Lender with any request or directive (whether or not having the force of law) from any central bank or other Governmental Authority made subsequent to the date hereof: (i) shall subject any Lender to any tax of any kind whatsoever with respect to this Agreement, any Note, any Letter of Credit, any Application or any Eurocurrency Loan made by it, or change the basis of taxation of payments to such Lender in respect thereof (except for Non-Excluded Taxes covered by subsection 10.14 and changes in the rate of tax on the overall net income of such Lender); 70 (ii) shall impose, modify or hold applicable any reserve, special deposit, compulsory loan or similar requirement against assets held by, deposits or other liabilities in or for the account of, advances, loans or other extensions of credit by, or any other acquisition of funds by, any office of such Lender which is not otherwise included in the determination of the Eurocurrency Rate hereunder; or (iii) shall impose on such Lender any other condition; and the result of any of the foregoing is to increase the cost to such Lender, by an amount which such Lender deems to be material, of making, converting into, continuing or maintaining Eurocurrency Loans or issuing or participating in Letters of Credit or to reduce any amount receivable hereunder in respect thereof, then, in any such case, the Company shall promptly pay (or cause to be paid) to such Lender such additional amount or amounts as will compensate such Lender for such increased cost or reduced amount receivable. (b) If any Lender shall have determined that the adoption of or any change in any Requirement of Law regarding capital adequacy or in the interpretation or application thereof or compliance by such Lender or any corporation controlling such Lender with any request or directive regarding capital adequacy (whether or not having the force of law) from any Governmental Authority made subsequent to the date hereof shall have the effect of reducing the rate of return on such Lender's or such corporation's capital as a consequence of its obligations hereunder or under any Letter of Credit to a level below that which such Lender or such corporation could have achieved but for such adoption, change or compliance (taking into consideration such Lender's or such corporation's policies with respect to capital adequacy) by an amount deemed by such Lender to be material, then from time to time, the Company shall promptly pay (or cause to be paid) to such Lender such additional amount or amounts as will compensate such Lender for such reduction. For purposes of clarification, the parties hereto expressly agree that the introduction of, changeover to and operation of the Euro shall constitute a change in a Requirement of Law regarding capital adequacy to which the provisions of this subsection 10.13 shall apply. (c) If any Lender becomes entitled to claim any additional amounts pursuant to this subsection, it shall promptly notify the Company (with a copy to the Administrative Agent) of the event by reason of which it has become so entitled. A certificate as to any additional amounts payable pursuant to this subsection (accompanied by a statement as to the amount of such compensation and a summary of the basis for such demand with detailed calculations) submitted by such Lender to the Company (with a copy to the Administrative Agent) shall be conclusive in the absence of manifest error. The agreements in this subsection shall survive the termination of this Agreement and the payment of the Loans and all other amounts payable hereunder. 10.14 TAXES. (a) All payments made by the Borrowers under this Agreement and any Notes shall be made free and clear of, and without deduction or withholding for or on account of, any present or future income, stamp or other taxes, levies, imposts, duties, charges, fees, deductions or withholdings, now or hereafter imposed, levied, collected, withheld or 71 assessed by any Governmental Authority, excluding net income taxes, franchise taxes (imposed in lieu of net income taxes) and branch profits taxes imposed on the Administrative Agent or any Lender as a result of a present or former connection between the Administrative Agent or such Lender and the jurisdiction of the Governmental Authority imposing such tax or any political subdivision or taxing authority thereof or therein (other than any such connection arising solely from the Administrative Agent or such Lender having executed, delivered or performed its obligations or received a payment under, or enforced, this Agreement or any Note). If any such non-excluded taxes, levies, imposts, duties, charges, fees deductions or withholdings ("NON-EXCLUDED TAXES") are required to be withheld from any amounts payable to the Administrative Agent or any Lender hereunder or under any Note, the amounts so payable to the Administrative Agent or such Lender shall be increased to the extent necessary to yield to the Administrative Agent or such Lender (after payment of all Non-Excluded Taxes) interest or any such other amounts payable hereunder at the rates or in the amounts specified in this Agreement, PROVIDED, HOWEVER, that the Borrowers shall be entitled to deduct and withhold and shall not be required to increase any such amounts payable to any Lender that is not a United States person as defined in section 7701(a)(30) of the Code (a "NON-U.S. LENDER") if such Lender fails to comply with the requirements of paragraph (b) of this subsection. Whenever any Non-Excluded Taxes are payable by a Borrower, as promptly as possible thereafter such Borrower shall send to the Administrative Agent for its own account or for the account of such Lender, as the case may be, a certified copy of an original official receipt received by such Borrower showing payment thereof. If such Borrower fails to pay any Non-Excluded Taxes when due to the appropriate taxing authority or fails to remit to the Administrative Agent the required receipts or other required documentary evidence, such Borrower shall indemnify the Administrative Agent and the Lenders for any incremental taxes, interest or penalties that may become payable by the Administrative Agent or any Lender as a result of any such failure. The agreements in this subsection shall survive the termination of this Agreement and the payment of the Loans and all other amounts payable hereunder. (b) Each Non-U.S. Lender shall: (i) deliver to the Company and the Administrative Agent (a) if such Lender is a "bank" within the meaning of Section 881(c)(3)(A) of the Code, (A) two duly completed copies of United States Internal Revenue Service Form 1001 or 4224, or successor applicable form, as the case may be, and (B) two duly completed copies of Internal Revenue Service Form W-8 or W-9, or successor applicable form, as the case may be, or (b) if such Lender is not a "bank" within the meaning of Section 881(c)(3)(A) of the Code, is unable to provide the Forms specified in (a) and intends to claim exemption from U.S. Federal withholding tax under Section 871(h) or 881(c) of the Code with respect to payment of "portfolio interest", a Form W-8, or any subsequent versions thereof or successors thereto (and, if such Non-U.S. Lender delivers a Form W-8, a certificate substantially in the form of Exhibit I, properly completed and duly executed by such Non-U.S. Lender claiming complete exemption from, or a reduced rate of, U.S. Federal withholding tax on payments of interest by the Borrower under this Agreement and the other Credit Documents; 72 (ii) deliver to the Company and the Administrative Agent two further copies of any such form or certification on or before the date that any such form or certification expires or becomes obsolete and after the occurrence of any event requiring a change in the most recent form previously delivered by it to the Company; and (iii) obtain such extensions of time for filing and complete such forms or certifications as may reasonably be requested by the Company or the Administrative Agent; unless in any such case an event (including, without limitation, any change in treaty, law or regulation) has occurred prior to the date on which any such delivery would otherwise be required which renders all such forms inapplicable or which would prevent such Lender from duly completing and delivering any such form with respect to it and such Lender so advises the Company and the Administrative Agent. Such Lender shall certify (i) in the case of a Form 1001 or 4224, that it is entitled to receive payments from the Company under this Agreement without deduction or withholding of any United States federal income taxes and (ii) in the case of a Form W-8 or W-9, that it is entitled to an exemption from United States backup withholding tax. Each Person that shall become a Lender or a Participant pursuant to subsection 17.7 shall, upon the effectiveness of the related transfer, be required to provide all of the forms and statements required pursuant to this subsection, provided that in the case of a Participant such Participant shall furnish all such required forms and statements to the Lender from which the related participation shall have been purchased. (c) Each of the Lenders and the Administrative Agent agrees, within a reasonable time after receiving a written request from the Company, to provide the Company and the Administrative Agent with such certificates as are reasonably required and take such other actions as are reasonably necessary to claim such exemptions as such Lender, the Administrative Agent or Affiliate or Subsidiary may be entitled to claim in respect of all or a portion of any Non-Excluded Taxes that are otherwise required to be paid or deducted or withheld pursuant to this subsection 10.14 in respect of any payments under this Agreement or under the Notes. (d) To the extent that the undertaking to indemnify and reimburse the Administrative Agent and the Lenders set forth in this subsection may be invalid and/or unenforceable because it is violative of any law or public policy, such Borrower shall contribute the maximum portion that it is permitted to pay under applicable law to the payment of the Non-Excluded Taxes imposed on the Administrative Agent and the Lenders and the remaining portion shall be an Obligation hereunder and under the other Credit Documents. (e) If a Lender or the Administrative Agent shall become aware that it is entitled to receive a refund (including interest and penalties, if any) in respect of Non-Excluded Taxes as to which it has been indemnified by a Borrower pursuant to this subsection 10.14, it shall promptly notify in writing such Borrower of the availability of such refund (including interest and penalties, if any) and shall, within 30 days after receipt of a request by such Borrower, apply for such refund at such Borrower's expense; PROVIDED that neither the Lender nor the Administrative Agent shall have any liability to any Borrower for any failure to provide such 73 notice if such right to receive such refund could reasonably be attributed to factors unrelated to the transactions under this Agreement or if such failure results from a good faith error on the part of such Lender or the Administrative Agent. (f) Each Lender confirms to the Administrative Agent (on the date hereof, or, in the case of a Lender which becomes a party hereto by assignment or transfer, on the date on which the relevant transfer or assignment become effective) that either: (i) it is not resident for tax purposes in the United Kingdom and is beneficially entitled to its participation in the relevant Loans and interest thereon; or (ii) it is a bank as defined for the purposes of Section 349 of the Income & Corporation Taxes Act 1988 of the United Kingdom and is beneficially entitled to its participation in the relevant Loans and the interest thereon, and each Lender in favor of the Administrative Agent agrees to notify the Administrative Agent if there is any change in its position from that set out above. 10.15 INDEMNITY. Each Borrower agrees to indemnify each Lender and to hold each Lender harmless from any loss or expense which such Lender may sustain or incur as a consequence of (a) failure by such Borrower to make a borrowing of, conversion into or continuation of Eurocurrency Loans after such Borrower has given a notice requesting the same in accordance with the provisions of this Agreement, (b) failure by such Borrower to make any prepayment after such Borrower has given a notice thereof in accordance with the provisions of this Agreement or (c) the making of a prepayment of Eurocurrency Loans on a day which is not the last day of an Interest Period with respect thereto. Such indemnification may include an amount equal to the excess, if any, of (i) the amount of interest which would have accrued on the amount so prepaid, or not so borrowed, converted or continued, for the period from the date of such prepayment or of such failure to borrow, convert or continue to the last day of such Interest Period (or, in the case of a failure to borrow, convert or continue, the Interest Period that would have commenced on the date of such failure) in each case at the applicable rate of interest for such Loans provided for herein (excluding, however, the Applicable Margin included therein, if any) over (ii) the amount of interest (as reasonably determined by such Lender) which would have accrued to such Lender on such amount by placing such amount on deposit for a comparable period with leading banks in the interbank eurocurrency market. Any Lender requesting indemnification pursuant to this subsection 10.15 shall deliver to the applicable Borrower, concurrently with such demand, a written statement in reasonable detail as to such losses and expenses, and such statement shall be conclusive in the absence of manifest error. This covenant shall survive the termination of this Agreement and the payment of the Loans and all other amounts payable hereunder. 10.16 CERTAIN FEES. The Company agrees to pay to the Administrative Agent and to the Documentation Agent, for their own accounts, the non-refundable fees previously agreed to with the Administrative Agent and the Documentation Agent in the manner and on the dates so previously agreed. 74 10.17 CHANGE OF LENDING OFFICE. (a) Each Lender agrees that if it makes any demand for payment under subsection 10.12 or 10.14(a), or if any adoption or change of the type described in subsection 10.13 shall occur with respect to it, it will use reasonable efforts (consistent with its internal policy and legal and regulatory restrictions and so long as such efforts would not be disadvantageous to it, as determined in its sole discretion) to designate a different lending office if the making of such a designation would reduce or obviate the need for a Borrower to make payments under subsection 10.12 or 10.14(a), or would eliminate or reduce the effect of any adoption or change described in subsection 10.13. (b) Notwithstanding anything to the contrary contained herein, no Lender shall be entitled to receive any amount under subsections 10.12, 10.13 or 10.14(a) as a result of the transfer of any Eurocurrency Loan to a lending office which is greater than such Lender would have been entitled to receive immediately prior thereto, unless (i) the transfer occurred at a time when circumstances giving rise to the claim for such greater amount did not exist and (ii) such claim would have arisen even if such transfer had not occurred. 10.18 OVERALL INTEREST RATE FOR FRENCH LAW. Given the variable rates of interest applicable to the Loans, the overall interest rate ("taux effectif global"), as governed by the French Usury Law of December 28, 1966 and the Decree of September 4, 1985, cannot be calculated at the time of execution of this Agreement. 10.19 ADDITIONAL ACTION IN CERTAIN EVENTS. In the event that any Lender shall seek reimbursement for amounts owing pursuant to subsection 10.12, 10.13 or 10.14(a), the Company may (after the relevant Borrower has paid the amounts owing pursuant to such subsections), either: (a) require such Lender to assign, in whole (but not in part), without recourse, its Commitments, Loans and other extensions of credit hereunder in accordance with the provisions of subsection 17.7 (except that the Company shall be liable to the Administrative Agent for any registration and processing fee payable under subsection 17.7(e)) to one or more Assignees identified to such Lender by the Company and (if not already a Lender) reasonably satisfactory to the Administrative Agent; PROVIDED that no Lender shall be required to effect any such assignment until such Lender shall have received from such Assignees one or more payments which, in an aggregate, are at least equal to the aggregate outstanding principal amount of the Loans and Reimbursement Obligations owing to such Lender and all accrued interest and other amounts (including, without limitation, any amounts owing pursuant to subsection 10.15) owing hereunder; or (b) upon five Business Days' prior written notice to the Administrative Agent and such Lender, terminate the Commitments of such Lender and prepay in full all Loans and Reimbursement Obligations owing to, such Lender, together with all accrued interest and other amounts (including, without limitation, any amounts owing pursuant to subsection 10.15) owing hereunder; PROVIDED that (i) no such termination and prepayment shall be permitted if, after giving effect thereto, the Aggregate Outstanding RC Extensions of Credit or the Aggregate Outstanding European Extensions of Credit of any Lender shall 75 exceed its Revolving Credit Commitment or European Loan Commitment (as the case may be) then in effect, (ii) no such termination and repayment shall be permitted under this clause (b) at any time when any Default or Event of Default has occurred and is continuing; and, PROVIDED, FURTHER, that (x) prior to any such replacement or termination, such Lender shall not have taken action under Section 10.17 so as to eliminate the continued need for payment of amounts of the type requested to be reimbursed and (y) such replacement or termination does not conflict with any Requirement of Law. From and after the effectiveness of any termination of Commitments contemplated by clause (b) above, (x) any participating interests held by such terminated Lender in Letters of Credit or Local European Loans shall be allocated ratably among the remaining Revolving Credit Lenders or European Lenders (as applicable) and (y) the Revolving Credit Commitment Percentages of the remaining Revolving Credit Lenders or the European Commitment Percentages of the remaining European Lenders shall be ratably adjusted. 10.20 EUROPEAN MONETARY UNION. (a) If, as a result of the implementation of European monetary union, (i) any Optional Currency ceases to be lawful currency of the nation issuing the same and is replaced by the Euro or (ii) any Optional Currency and the Euro are at the same time recognized by the central bank or comparable authority of the nation issuing such currency as lawful currency of such nation and the Administrative Agent or the Required Lenders (or, in the case of European Overdraft Loans or Local European Loans, the European Overdraft Lender or the relevant Local Lender, as the case may be) shall so request in a notice delivered to the Company, then any amount payable hereunder in such Optional Currency shall instead by payable in the Euro and the amount so payable shall be determined by converting the amount payable in such Optional Currency to the Euro at the exchange rate recognized by the European Central Bank for the purpose of implementing European monetary union. (b) The Company agrees, at the request of any European Lender, any Local Lender or the European Overdraft Lender, to compensate such Lender for any reasonable loss, cost, expense or reduction in return that shall be incurred or sustained by such Lender (other than through such Lender's gross negligence, bad faith or willful misconduct) as a result of the implementation of European monetary union, that would not have been incurred or sustained but for the transactions provided for herein and that, to the extent that such loss, cost, expense or reduction is of a type generally applicable to extensions of credit similar to the extensions of credit hereunder, is generally being requested from borrowers subject to similar provisions. A certificate of such Lender setting forth (x) the amount or amounts necessary to compensate such Lender (y) describing the nature of the loss or expense sustained or incurred by such Lender as a consequence thereof and (z) setting forth a reasonably detailed explanation of the calculation thereof shall be delivered to the Company and shall be conclusive absent manifest error. The Company shall pay such Lender the amount shown as due on any such certificate within 10 days after receipt thereof. 76 (c) The Company agrees, at the request of the Required Lenders (or, with respect to matters relating to the European Overdraft Loans or Local European Loans, the European Overdraft Lender or the relevant Local Lender, as the case may be), at the time of or at any time following the implementation of European monetary union, to enter into an agreement amending this Agreement in such manner as the Required Lenders (or the European Overdraft Lender or the relevant Local Lender, as the case may be) reasonably shall request in order to reflect the implementation of such monetary union to place the parties hereto in the position they would have been in had such monetary union not been implemented. SECTION 11. REPRESENTATIONS AND WARRANTIES To induce the Administrative Agent and the Lenders to enter into this Agreement and to make its Loans and other extensions of credit hereunder, the Company hereby represents and warrants (and, to the extent that any such representation and warranty concerns matters relating to any other Borrower or any of its Subsidiaries, such Borrower hereby represents and warrants) to each Lender and the Administrative Agent as follows: 11.1 FINANCIAL CONDITION. (a) The condensed, consolidated balance sheet of the Company and its consolidated Subsidiaries as at December 31, 1997 and the related consolidated statements of income and of cash flows for the fiscal year ended on such date, reported on by Price Waterhouse LLP, copies of which have heretofore been furnished to each Lender, are complete and correct and present fairly the consolidated financial condition of the Company and its consolidated Subsidiaries as at such date, and the consolidated results of their operations and their consolidated cash flows for the fiscal year then ended. The unaudited condensed, consolidated balance sheet of the Company and its consolidated Subsidiaries as at each of March 31, 1998 and June 30, 1998 and the related unaudited consolidated statements of income and of cash flows for the respective three- and six-month periods ended on such dates, certified by a Responsible Officer, copies of which have heretofore been furnished to each Lender, are complete and correct and present fairly the consolidated financial condition of the Company and its consolidated Subsidiaries as at such dates, and the consolidated results of their operations and their consolidated cash flows for the respective three- and six-month periods then ended (subject to normal year-end audit adjustments). All such financial statements, including the related schedules and notes thereto, have been prepared in accordance with GAAP applied consistently throughout the periods involved (except as approved by such accountants or Responsible Officer, as the case may be, and as disclosed therein). (b) To the Company's knowledge, the unaudited consolidated balance sheet of the Acquired Businesses as at December 31, 1997 and the related consolidated statements of income and of cash flows for the fiscal year ended on such date, copies of which have heretofore been furnished to each Lender, are complete and correct and present fairly the consolidated financial condition of the Acquired Businesses as at such date, and the consolidated results of their operations and their consolidated cash flows for the fiscal year then ended. To the Company's knowledge, the unaudited consolidated balance sheet of the Acquired Businesses as at each of March 31, 1998 and June 30, 1998 and the related unaudited consolidated statements of income 77 and of cash flows for the respective three- and six-month periods ended on such dates, copies of which have heretofore been furnished to each Lender, are complete and correct and present fairly the consolidated financial condition of the Acquired Businesses as at such dates, and the consolidated results of their operations and their consolidated cash flows for the respective three- and six-month periods then ended (subject to normal year-end audit adjustments). To the Company's knowledge, all such financial statements, including the related schedules and notes thereto, have been prepared in accordance with GAAP applied consistently throughout the periods involved (except as disclosed therein). (c) Neither the Company nor any of its consolidated Subsidiaries had, at the date of the most recent balance sheet referred to above, any material Guarantee Obligation, contingent liability or liability for taxes, or any long-term lease or unusual forward or long-term commitment, including, without limitation, any interest rate or foreign currency swap or exchange transaction, which is not reflected in the foregoing statements or in the notes thereto. (d) During the period from December 31, 1997 to and including the date hereof, there has been no sale, transfer or other disposition by the Company or any of its consolidated Subsidiaries of any material part of its business or property and no purchase or other acquisition (other than the Acquisition and the Interglas Transaction) of any business or property (including any Capital Stock of any other Person) material in relation to the consolidated financial condition of the Company and its consolidated Subsidiaries at December 31, 1997. 11.2 NO CHANGE. Since December 31, 1997, there has been no development or event which has had or could reasonably be expected to have a Material Adverse Effect; PROVIDED that, to the extent that the representation and warranty contained in this subsection 11.2 is being made on the Closing Date or on the borrowing date for any extension of credit made within 30 days following the Closing Date in order to finance the purchase of all or any portion of the Capital Stock or assets of the Acquired Businesses (including, without limitation, the Initial Interglas Transaction and, to the extent it occurs within 30 days after the Closing Date, the Subsequent Interglas Transaction), the term "Material Adverse Effect" shall be deemed to mean the occurrence or discovery by the Administrative Agent or any Lender of one or more conditions and events which (individually or in the aggregate) have had or would be reasonably likely to have a material adverse effect upon (a) the assets, business, operations or financial condition of the Company and its Subsidiaries taken as a whole or the Acquired Businesses, other than any such effects described in this proviso which are attributable to general economic conditions or to other changes generally affecting Persons in the same business as the Company and its Subsidiaries or the Acquired Businesses, as the case may be or (b) the ability of the Lenders, the Documentation Agent or the Administrative Agent to enforce the material provisions of the Credit Documents. 11.3 PRO FORMA BALANCE SHEET. The Company has heretofore furnished to the Lenders an unaudited PRO FORMA consolidated balance sheet as of June 30, 1998, adjusted to reflect the consummation of the Acquisition (or any part thereof which has been consummated on the Closing Date) and the other transactions which are contemplated to occur on the Closing Date. Such PRO FORMA balance sheet has been prepared based upon good faith assumptions 78 believed by the Company to be reasonable at the time made and present the Company's good faith estimate of the consolidated financial position of the Company and its Subsidiaries as of June 30, 1998 on a PRO FORMA basis, assuming that the Acquisition (or any part thereof which has been consummated on the Closing Date) and such other transactions had occurred on such date. 11.4 CORPORATE EXISTENCE; COMPLIANCE WITH LAW. Each of the Company and its Subsidiaries (a) is duly organized, validly existing and (to the extent applicable) in good standing under the laws of the jurisdiction of its organization, (b) has the corporate power and authority, and the legal right, to own and operate its property, to lease the property it operates as lessee and to conduct the business in which it is currently engaged, (c) is duly qualified as a foreign corporation and in good standing (or, with respect to Foreign Subsidiaries, maintains the analogous status) under the laws of each jurisdiction where its ownership, lease or operation of property or the conduct of its business requires such qualification, except to the extent that the failure to maintain such status could not, in the aggregate, reasonably be expected to have a Material Adverse Effect and (d) is in compliance with all Requirements of Law except to the extent that the failure to comply therewith could not, in the aggregate, reasonably be expected to have a Material Adverse Effect. 11.5 CORPORATE POWER; AUTHORIZATION; ENFORCEABLE OBLIGATIONS. The Company and each other Credit Party has the corporate power and authority, and the legal right, to make, deliver and perform the Credit Documents to which it is a party and, in the case of each Borrower, to borrow hereunder and has taken all necessary corporate action to authorize the borrowings on the terms and conditions of this Agreement and any Notes or Applications and to authorize the execution, delivery and performance of the Credit Documents to which it is a party. Except to the extent described on Schedule 11.5, no consent or authorization of, filing with, notice to or other act by or in respect of, any Governmental Authority or any other Person is required in connection with the borrowings hereunder or with the execution, delivery, performance, validity or enforceability of the Credit Documents to which the Company and each other Credit Party is a party. Subject to the requirements listed on Schedule 11.5, this Agreement has been, and each other Credit Document to which it is a party will be, duly executed and delivered on behalf of the Company and each other Credit Party. This Agreement constitutes, and each other Credit Document to which it is a party when executed and delivered will constitute, a legal, valid and binding obligation of the Company and each other Credit Party enforceable against the Company and each other Credit Party, as the case may be, in accordance with its terms, subject to the effects of bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws relating to or affecting creditors' rights generally, general equitable principles (whether considered in a proceeding in equity or at law) and an implied covenant of good faith and fair dealing. 11.6 NO LEGAL BAR. The execution, delivery and performance of each Credit Document, the incurrence or issuance of and use of the proceeds of the Loans and of drawings under the Letters of Credit and the transactions contemplated by the Credit Documents (a) will not violate any material Requirement of Law or any material Contractual Obligation applicable to or binding upon the Company or any of its Subsidiaries or any of their respective properties or assets, in any manner and (b) will not result in the creation or imposition of any Lien on any 79 properties or assets of the Company or any of its Subsidiaries pursuant to any Requirement of Law applicable to it, as the case may be, or any of its Contractual Obligations, except for the Liens arising under the Security Documents. 11.7 NO MATERIAL LITIGATION. Except to the extent described in Schedule 11.7, no litigation by, investigation by, or proceeding of or before any arbitrator or any Governmental Authority is pending or, to the knowledge of the Company, threatened by or against the Company or any of its Subsidiaries, or against any of its or their respective properties or revenues, with respect to any Credit Document, the Loans made hereunder, the use of proceeds thereof, or any drawings under a Letter of Credit and the other transactions contemplated hereby or which could reasonably be expected to have a Material Adverse Effect and all applicable waiting periods have expired without any action being taken or threatened by any Governmental Authority which would restrain, prevent or otherwise impose material adverse conditions on the transactions contemplated hereby or thereby or which would be reasonably likely to have a Material Adverse Effect. 11.8 NO DEFAULT. None of the Company or any of its Subsidiaries is in default under or with respect to any of its Contractual Obligations in any respect which could reasonably be expected to have a Material Adverse Effect. No Default or Event of Default has occurred and is continuing. 11.9 OWNERSHIP OF PROPERTY; LIENS. Each of the Company and its Subsidiaries has good record and marketable title in fee simple to, or a valid leasehold interest in, all its real property, and good title to, or a valid leasehold interest in, all its other property, and none of such property is subject to any Lien except as permitted by subsection 14.3. 11.10 INTELLECTUAL PROPERTY. The Company and each of its Subsidiaries owns, or is licensed to use, all trademarks, tradenames, copyrights, technology, know-how and processes necessary for the conduct of its business as currently conducted except for those the failure to own or license which could not reasonably be expected to have a Material Adverse Effect (the "INTELLECTUAL PROPERTY"). No material claim has been asserted and is pending by any Person challenging or questioning the use of any such Intellectual Property or the validity or effectiveness of any such Intellectual Property, nor does the Company know of any valid basis for any such claim. The use of such Intellectual Property by the Company and its Subsidiaries does not infringe on the rights of any Person, except for such claims and infringements that, in the aggregate, could not reasonably be expected to have a Material Adverse Effect. 11.11 TAXES. Each of the Company and its Subsidiaries has filed or caused to be filed all material tax returns which, to the knowledge of the Company, are required to be filed and has paid all taxes shown to be due and payable on said returns or on any assessments made against it or any of its property and all other taxes, fees or other charges imposed on it or any of its property by any Governmental Authority (other than any the amount or validity of which are currently being contested in good faith by appropriate proceedings and with respect to which reserves in conformity with GAAP have been provided on the books of the Company or its Subsidiaries, as the case may be); no tax Lien has been filed; to the knowledge of the Company, 80 no claim is being asserted, with respect to any such tax, fee or other charge which would reasonably be likely to have a Material Adverse Effect. 11.12 FEDERAL REGULATIONS. No part of the proceeds of any Loans will be used for "purchasing" or "carrying" any "margin stock" within the respective meanings of each of the quoted terms under Regulation U of the Board of Governors of the Federal Reserve System as now and from time to time hereafter in effect. If requested by any Lender or the Administrative Agent, the Company will furnish to the Administrative Agent and each Lender a statement to the foregoing effect in conformity with the requirements of FR Form U-1 or G-1 (as applicable) referred to in said Regulation U. 11.13 EMPLOYEE BENEFITS. (a) Neither a Reportable Event nor an "accumulated funding deficiency" (within the meaning of Section 412 of the Code or Section 302 of ERISA) has occurred during the five-year period prior to the date on which this representation is made or deemed made with respect to any Plan, and each Plan has complied in all material respects with the applicable provisions of ERISA and the Code. No termination of a Single Employer Plan has occurred, and no Lien in favor of the PBGC or a Plan has arisen, during such five-year period. The present value of all accrued benefits under each Single Employer Plan (based on those assumptions used to fund such Plans) did not, as of the last annual valuation date prior to the date on which this representation is made or deemed made, exceed the value of the assets of such Plan allocable to such accrued benefits by more than $1,000,000. Neither the Company nor any Commonly Controlled Entity has had a complete or partial withdrawal from any Multiemployer Plan, and neither the Company nor any Commonly Controlled Entity would become subject to any liability under ERISA if the Company or any such Commonly Controlled Entity were to withdraw completely from all Multiemployer Plans as of the valuation date most closely preceding the date on which this representation is made or deemed made. No such Multiemployer Plan is in Reorganization or Insolvent. (b) Each Foreign Employee Benefit Plan is in compliance in all material respects with all Requirements of Law applicable thereto and the respective requirements of the governing documents for such Foreign Employee Benefit Plan. The aggregate of the liabilities to provide all of the accrued benefits under any Foreign Pension Plan does not exceed the current fair market value of the assets held in the trust or other funding vehicle for such Foreign Employee Benefit Plan by an amount in excess of $5,000,000. With respect to any Foreign Employee Benefit Plan maintained by a Borrower, any of its Subsidiaries or any Commonly Controlled Entity (other than a Foreign Pension Plan), reasonable reserves have been established in accordance with prudent business practice or where required by ordinary accounting practices in the jurisdiction in which such Foreign Employee Benefit Plan is maintained. The aggregate unfunded liabilities, after giving effect to any reserves for such liabilities, with respect to such Foreign Employee Benefit Plans are not material. There are no actions, suits or claims (other than routine claims for benefits) pending or, to the knowledge of such Borrower, threatened against such Borrower, any of its Subsidiaries or any Commonly Controlled Entity with respect to any Foreign Employee Benefit Plan that would subject such Borrower, any of its Subsidiaries or an Commonly Controlled Entity to a liability in excess of $5,000,000. 81 11.14 INVESTMENT COMPANY ACT; OTHER REGULATIONS. No Borrower is an "investment company", or a company "controlled" by an "investment company", within the meaning of the Investment Company Act of 1940, as amended. No Borrower is subject to regulation under any Federal or State statute or regulation (other than Regulation X of the Board of Governors of the Federal Reserve System) which limits its ability to incur Indebtedness. 11.15 SUBSIDIARIES. On the Closing Date, the Subsidiaries of the Company, their jurisdiction of incorporation and the percentage of the Capital Stock thereof which is owned (directly or indirectly) by the Company shall be as set forth on Schedule 11.15. 11.16 ENVIRONMENTAL MATTERS. Except as set forth on Schedule 11.16: (a) none of the Company, any of its Subsidiaries or any of their respective operations or present or past Property are subject to any investigation by, or any judicial or administrative proceeding, order, judgment, settlement, decree or other agreement alleging or addressing (i) a material violation of any Environmental, Health or Safety Requirement of Law; (ii) any Remedial Action; or (iii) any material claims or Liabilities and Costs arising from the Release or threatened Release of a Contaminant into the environment, nor has the Company or any of its Subsidiaries received any notice of the foregoing, except, in each case, for any matter that, individually or in the aggregate is not reasonably likely to have a Material Adverse Effect; (b) none of the Company or any of its Subsidiaries is or has been the owner or operator of any Property that has any of the following that would reasonably be likely to have a Material Adverse Effect: (i) any past or present on-site generation, treatment, recycling, storage or disposal of any hazardous waste, as that term is defined under 40 C.F.R. Part 261 or any state or local equivalent; (ii) any past or present landfill, waste-pile, underground storage tank or surface impoundment; (iii) any asbestos-containing material or any Contaminant; (iv) any polychlorinated biphenyls (PCBs) used in hydraulic oils, electrical transformers or other equipment; (c) no Environmental Lien has attached to any Property of the Company or any of its Subsidiaries that would reasonably be likely to have a Material Adverse Effect; (d) there have been no Releases of any Contaminants into the environment in reportable quantities by the Company or any of its Subsidiaries or any other Person that would reasonably be likely to have a Material Adverse Effect; 82 (e) neither the Company nor any of its Subsidiaries has any contingent liability in connection with any Release or threatened Release of any Contaminants into the environment that would reasonably be likely to have a Material Adverse Effect; (f) neither the Company nor any of its Subsidiaries has disposed of or sent or directly arranged for the transport of any waste or Contaminant at or to any site listed or proposed for listing on the National Priorities List ("NPL") pursuant to CERCLA or on the Comprehensive Environmental Response Compensation Liability Information System List ("CERCLIS"), or any similar state list, or any other location the effect of which would reasonably be likely to have a Material Adverse Effect; (g) no present or past Property of the Company or any of its Subsidiaries is listed or proposed for listing on the NPL pursuant to CERCLA or on the CERCLIS or any similar state list of sites requiring Remedial Action, and the Company and its Subsidiaries are unaware of any conditions on such Property that would qualify such Property for inclusion on any such list, except, in either case, where such listing would not reasonably be likely to have a Material Adverse Effect; (h) neither the Company nor any of its Subsidiaries is subject to any Environmental Property Transfer Act as a result of the transactions contemplated by the Credit Documents or, to the extent such acts are applicable to any such property, the Company or the relevant Subsidiary has fully complied with the requirements of such acts, except where the failure to comply would not reasonably be likely to have a Material Adverse Effect; (i) neither the Company nor any of its Subsidiaries has assumed, either contractually or by operation of law, any liabilities or potential liabilities under any Environmental, Health or Safety Requirements of Law except where (i) such assumption would not reasonably be likely to have a Material Adverse Effect or (ii) the Company has received a written indemnity with respect to such liabilities or potential liabilities (as the case may be) from a Person (other than the Company or any of its Subsidiaries) who would reasonably be expected to pay in full all reasonable claims in respect of such indemnity; and (j) The Company and each of its Subsidiaries has obtained, and is in compliance with, all permits, approvals, registrations, authorization licenses, variances, facility security clearances and personnel security clearances, and all permissions required from a Governmental Authority required under any Environmental, Health or Safety Requirements of Law, except where the failure to obtain or comply therewith would not, in the aggregate, reasonably be likely to have a Material Adverse Effect. 11.17 COLLATERAL DOCUMENTS. (a) Upon execution and delivery thereof by the parties thereto, each Security Document (other than the Foreign Pledge Agreements) will be effective to create in favor of the Documentation Agent, for the ratable benefit of the Lenders, a legal, valid and enforceable security interest in the Collateral described therein and, when the 83 Documentation Agent has received the stock certificates evidencing the Capital Stock pledged thereunder (together with the related stock power), the security interests granted pursuant thereto shall constitute a perfected first lien on, and security interest in, all right, title and interest of the pledgor party thereto in the Collateral described therein. (b) Upon execution and delivery thereof by the parties thereto, each Foreign Pledge Agreement will be effective to create in favor of the Documentation Agent, for the ratable benefit of the Lenders, a legal, valid and enforceable security interest in not less than 65% of the Capital Stock of each Foreign Subsidiary which is directly owned by the Company or a Domestic Subsidiary and, when the actions (if any) specified in the legal opinion delivered in connection with such Foreign Pledge Agreement have been duly taken, the security interests granted pursuant thereto shall constitute a perfected first lien on, and security interest in, all right, title and interest of the pledgor party thereto in such Capital Stock. 11.18 ACCURACY AND COMPLETENESS OF INFORMATION. The factual statements contained in the financial statements referred to in subsection 11.1(a) and (b), the Credit Documents (including the schedules thereto) and any other certificates or documents furnished or to be furnished to the Administrative Agent, the Documentation Agent or any Lender from time to time in connection with this Agreement, taken as a whole, do not and will not, to the best knowledge of the Company and its Subsidiaries, as of the date when made, contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements contained therein not misleading in light of the circumstances in which the same were made, all except as otherwise qualified herein or therein, such knowledge qualification being given only with respect to factual statements made by Persons other than the Company or any of its Subsidiaries. Notwithstanding the foregoing, any representation or warranty contained in this subsection 11.18 with respect to factual matters concerning the Acquired Businesses is made only "to the best knowledge" of the Company. 11.19 PROJECTIONS. Each of the Company's business plans and all other financial projections and related materials and documents delivered to the Lenders pursuant hereto were prepared in good faith on the basis of the assumptions accompanying them, and such projections and assumptions as of the date of preparation thereof were, and as of the Closing Date are, reasonable in light of the then current and foreseeable business conditions and prospects of the Company and its Subsidiaries and represented management's opinion of the Company's and its Subsidiaries' projected financial performance based on the information available to the Company at the time so furnished, it being understood that (a) such projections are subject to significant uncertainties and contingencies, many of which are beyond the control of the Company, and that no assurance is or can be given that the projections actually will be realized and (b) any representation or warranty contained in this subsection 11.19 with respect to financial projections prepared by the Acquired Businesses and delivered to the Lenders prior to the Closing Date is made only "to the best knowledge" of the Company. 11.20 SOLVENCY. Each Borrower is, and after giving effect to the incurrence of all Indebtedness and obligations being incurred in connection herewith will be, Solvent. 84 11.21 GOVERNMENT CONTRACTS. (a) None of the Company or any of its Subsidiaries is party to any Contractual Obligation or subject to any Requirement of Law as a result of any conflict of interest by, between or among the Company or such Subsidiaries or otherwise that would result in the termination of any contract with any Governmental Authority or that would impose any limitation on the ability of the Company or such Subsidiary to perform any such contract, except where such termination or limitation is not reasonably likely to have a Material Adverse Effect, or to continue its business substantially as presently conducted and proposed to be conducted. (b)(i) None of the Company, any of its Subsidiaries or any of their respective directors or executive officers is (or during the last three years has been) under administrative, civil or criminal investigation or indictment by any Governmental Authority, with respect to any alleged irregularity, misstatement or omission arising under or relating to any contract with a Governmental Authority; and (ii) during the last three years, none of the Company or any of its Subsidiaries has conducted or initiated any internal investigation or made a voluntary disclosure to the United States Government with respect to any alleged irregularity, misstatement or omission arising under or relating to a contract with any Governmental Authority, in each case except (with respect to such matters occurring after the Closing Date) as disclosed in writing to the Lenders. (c) Except (with respect to such matters occurring after the Closing Date) as disclosed in writing to the Lenders, none of the Company or any of its Subsidiaries or any of their respective directors or executive officers is (or during the last three years has been) suspended or debarred from doing business with the United States Government or is (or during such period was) the subject of a finding of nonresponsibility or ineligibility for United States Government contracting. 11.22 YEAR 2000. The computer and management information systems of the Company and its Subsidiaries will be programmed and/or reprogrammed prior to December 31, 1999, such that the occurrence of January 1, 2000 will not cause malfunctions of such computer and management information systems which would, in the aggregate, reasonably be expected to have a Material Adverse Effect. The costs to the Company and its Subsidiaries that have not been incurred as of the date hereof for such programming and/or reprogramming could not reasonably be expected to have a Material Adverse Effect. SECTION 12. CONDITIONS PRECEDENT 12.1 CONDITIONS TO INITIAL LOANS. The agreement of each Lender to make the initial Loans and other extensions of credit requested to be made by it is subject to the satisfaction, immediately prior to or concurrently with the making of such Loan or other extension of credit (and, in any event, on or prior to September 30, 1998), of the following conditions precedent: 85 (a) CREDIT DOCUMENTS. The Administrative Agent shall have received (i) this Agreement, executed and delivered by a duly authorized officer of each Borrower, (ii) the Collateral Agreement, executed and delivered by a duly authorized officer of the Company and each Subsidiary Guarantor and (iii) the Assignment Agreement, duly executed by the parties specified therein. (b) RELATED AGREEMENTS. The Administrative Agent shall have received true and correct copies, certified as to authenticity by the Company, of each of (i) the CS Asset Purchase Agreement, (ii) the Lease Agreement and (iii) such other documents or instruments as may be reasonably requested by the Administrative Agent. (c) THE ACQUISITION. The Administrative Agent and the Lenders shall be satisfied that (i) the CS Asset Purchase Agreement and all related documentation (including, without limitation, the Lease Agreement) shall have been duly executed and delivered by the parties thereto and (other than with respect to such documentation as has been delivered to the Administrative Agent and the Lenders for review prior to the Closing Date and remains unmodified) are in form and substance reasonably satisfactory to the Administrative Agent and the Lenders, (ii) all conditions precedent to the consummation of the Acquisition (other than the payment of the purchase price for the Acquired Businesses and the Interglas Transaction) under the CS Asset Purchase Agreement and the related documentation shall have been satisfied in all material respects (and no modification or waiver of any such condition shall have been made without the consent of the Administrative Agent), (iii) the Acquisition has been, or substantially simultaneously with the making of the initial extensions of credit hereunder on the Closing Date, will be, consummated and (iv) the fees and expenses of the Company and its Subsidiaries on account of the Acquisition shall not exceed $15,000,000 in the aggregate. (d) CAPITAL STRUCTURE. The Administrative Agent and the Lenders shall be satisfied that, after giving effect to the consummation of the Acquisition and the other transactions contemplated to occur on the Closing Date (but without giving effect to the consummation of the Subsequent Interglas Transaction), the Company and its Subsidiaries shall have (i) not more than $718,300,000 in aggregate principal amount of senior Indebtedness then outstanding, (ii) not more than $893,000,000 in aggregate principal amount of Indebtedness then outstanding and (iii) PRO FORMA, combined EBITDA of not less than $200,000,000 for the period of four consecutive fiscal quarters most recently ended. (e) FINANCIAL PROJECTIONS. The Administrative Agent shall have received financial projections of the Borrower (giving effect on a PRO FORMA basis to the Acquisition and the other transactions contemplated to occur on the Closing Date and during the relevant periods covered thereby), displaying on an annual basis the projected balance sheets as at the end of each of each fiscal year to be completed during the period from the Closing Date through December 31, 2005, and the related projected statements of income and cash flow for each such period. 86 (f) CORPORATE PROCEEDINGS OF THE COMPANY. The Administrative Agent shall have received a copy of the resolutions, in form and substance satisfactory to the Administrative Agent, of the Board of Directors of the Company authorizing (i) the execution, delivery and performance of this Agreement and the other Credit Documents to which it is a party, (ii) the borrowings contemplated hereunder and (iii) the granting by it of the Liens created pursuant to the Security Documents to which it is a party, certified by the Secretary or an Assistant Secretary of the Company as of the Closing Date, which certificate shall be in form and substance satisfactory to the Administrative Agent and shall state that the resolutions thereby certified have not been amended, modified, revoked or rescinded. (g) COMPANY INCUMBENCY CERTIFICATE. The Administrative Agent shall have received a Certificate of the Company, dated the Closing Date, as to the incumbency and signature of the officers of the Company executing any Credit Document satisfactory in form and substance to the Administrative Agent. (h) CORPORATE PROCEEDINGS OF CREDIT PARTIES. The Administrative Agent shall have received a copy of the resolutions, in form and substance satisfactory to the Administrative Agent, of the Board of Directors of each Credit Party (other than the Company) which is a party to a Credit Document authorizing (i) the execution, delivery and performance of the Credit Documents to which it is a party and (ii) the granting by it of the Liens created pursuant to the Security Documents (if any) to which it is a party, certified by the Secretary or an Assistant Secretary (or another competent officer or a director) of each such Subsidiary as of the Closing Date, which certificate shall be in form and substance satisfactory to the Administrative Agent and shall state that the resolutions thereby certified have not been amended, modified, revoked or rescinded. (i) CREDIT PARTY INCUMBENCY CERTIFICATES. The Administrative Agent shall have received a certificate of each Credit Party (other than the Company), dated the Closing Date, as to the incumbency and signature of the officers of such Credit Party executing any Credit Document, satisfactory in form and substance to the Administrative Agent. (j) CORPORATE DOCUMENTS. The Administrative Agent shall have received true and complete copies of the certificate of incorporation and by-laws of the Company, certified as of the Closing Date as complete and correct copies thereof by the Secretary or an Assistant Secretary of the Company. (k) LEGAL OPINIONS. The Administrative Agent shall have received the following executed legal opinions: (i) the executed legal opinion of Skadden, Arps, Slate, Meagher & Flom LLP, counsel to the Company and the other Credit Parties, substantially in the form of Exhibit C; 87 (ii) the executed legal opinions of counsel described on Schedule 12.1, which opinions shall be in form and substance reasonably acceptable to the Administrative Agent. Each such legal opinion shall cover such other matters incident to the transactions contemplated by this Agreement as the Administrative Agent may reasonably require. The Company hereby directs each of its special counsel, Skadden, Arps, Slate, Meagher & Flom LLP, and each of the foreign counsel to the Borrowers to prepare and deliver to the Administrative Agent, the Documentation Agent and the Lenders, its opinions. (l) PLEDGED STOCK; STOCK POWERS. The Documentation Agent shall have received the certificates representing the shares pledged pursuant to the Collateral Agreement and each Foreign Pledge Agreement (it being understood that the Capital Stock of each of Composites-Austria, Hexcel-France and Salver is represented by uncertificated securities and that the Capital Stock of Hexcel-Belgium exists in registered form), together with (if legally possible) an undated stock power for each such certificate executed in blank by a duly authorized officer of the pledgor thereof. (m) ACTIONS TO PERFECT LIENS. The Administrative Agent shall have received evidence in form and substance satisfactory to it that all filings, recordings, registrations and other actions necessary or, in the opinion of the Administrative Agent, desirable to perfect the Liens created by the Security Documents shall have been completed. (n) NO CONSENTS. The Company and its Subsidiaries shall have obtained all consents and approvals of Governmental Authorities and third parties necessary or reasonably advisable in connection with the Loans and other extensions of credit hereunder and the continuing operations of the Company and its Subsidiaries; all such consents and approvals shall be in full force and effect and all applicable appeal and waiting periods shall have expired without any governmental or judicial action being taken or threatened that has had or would be reasonably likely to have a Material Adverse Effect. (o) FEES. The Administrative Agent shall have received all fees and other amounts due and payable on or prior to the Closing Date, including, to the extent invoiced a reasonable time prior to the Closing Date, reimbursement or payment of all out-of-pocket expenses required to be reimbursed or paid by the Company and its Subsidiaries hereunder or under any other Credit Document. 12.2 CONDITIONS TO EACH LOAN. The agreement of each Lender to make any Loan or other extension of credit requested to be made by it on any date (including, without limitation, any Loan or other extension of credit to be made on the Closing Date) is subject to the satisfaction of the following conditions precedent: (a) REPRESENTATIONS AND WARRANTIES. Each of the representations and warranties made by the Borrowers requesting such Loan or other extension of credit in or pursuant 88 to the Credit Documents shall be true and correct in all material respects on and as of such date as if made on and as of such date. (b) NO DEFAULT. No Default or Event of Default shall have occurred and be continuing on such date or after giving effect to the Loans and other extensions of credit requested to be made on such date. (c) NO MATERIAL ADVERSE CHANGE. No event shall have occurred since December 31, 1997, which has or is reasonably likely, in the opinion of the Majority Lenders, to have a material adverse effect on the business, condition (financial or otherwise), performance, properties or prospects of the Borrower requesting such Loan or other extension of credit; PROVIDED that the condition precedent contained in this clause (c) need not be satisfied with respect to any borrowing made on the Closing Date or with respect to any other borrowing made within 30 days following the Closing Date in order to finance the purchase of all or any portion of the Capital Stock or assets of the Acquired Businesses (including, without limitation, the Initial Interglas Transaction and, to the extent it occurs within 30 days of the Closing Date, the Subsequent Interglas Transaction). (d) ADDITIONAL MATTERS. All corporate and other proceedings, and all documents, instruments and other legal matters in connection with the transactions contemplated by this Agreement and the other Credit Documents shall be satisfactory in form and substance to the Administrative Agent, and the Administrative Agent shall have received such other documents and legal opinions in respect of any aspect or consequence of the transactions contemplated hereby or thereby as it shall reasonably request. Each borrowing by a Borrower hereunder shall constitute a representation and warranty by such Borrower as of the date thereof that the conditions contained in this subsection have been satisfied. SECTION 13. AFFIRMATIVE COVENANTS The Company hereby agrees that, so long as the Aggregate Commitment or the European Overdraft Commitment remains in effect or any amount is owing to any Lender, the Documentation Agent or the Administrative Agent hereunder or under any other Credit Document, it shall and (except in the case of delivery of financial information, reports and notices) shall cause each of its Subsidiaries to: 13.1 FINANCIAL STATEMENTS. Furnish to the Administrative Agent (who shall promptly forward such documents to the Lenders): (a) as soon as available, but in any event within 90 days after the end of each fiscal year of the Company after the Closing Date, a copy of the consolidated balance sheet of the Company and its consolidated Subsidiaries as at the end of such year and the 89 related consolidated statements of income and cash flows for such year, setting forth in each case in comparative form the figures for the previous year, reported on without a "going concern" or like qualification or exception, or qualification arising out of the scope of the audit, by Price Waterhouse or other independent certified public accountants of nationally recognized standing; (b) as soon as available, but in any event not later than 45 days after the end of each of the first three quarterly periods of each fiscal year of the Company, the unaudited consolidated balance sheets of the Company and its consolidated Subsidiaries as at the end of such quarter and the related unaudited consolidated statements of income and cash flows of the Company and its consolidated Subsidiaries for such quarter and the portion of the fiscal year through the end of such quarter, setting forth in each case in comparative form the figures for the previous year, certified by a Responsible Officer as being fairly stated in all material respects (subject to normal year-end audit adjustments); and (c) not later than 30 days (or, in the case of the first fiscal month following the Closing Date, 45 days) after the end of each fiscal month of the Company (not already provided for in 10.1(a) or (b)), a copy of the unaudited consolidated balance sheet of the Company and its consolidated Subsidiaries as at the end of such month and the related unaudited consolidated statements of income and cash flows of the Company and its consolidated Subsidiaries for such month, certified by a Responsible Officer as being fairly stated in all material respects (subject to normal year-end audit adjustments); all such financial statements shall be complete and correct in all material respects and shall be prepared in reasonable detail and in accordance with GAAP applied consistently throughout the periods reflected therein and with prior periods (except as approved by such accountants or officer, as the case may be, and disclosed therein). 13.2 CERTIFICATES; OTHER INFORMATION. Furnish to the Administrative Agent (who shall promptly forward such documents to the Lenders): (a) concurrently with the delivery of the financial statements referred to in subsection 13.1(a), a letter from the independent certified public accountants reporting on such financial statements stating that in making the examination necessary therefor no knowledge was obtained of any Default or Event of Default, except as specified in such letter; (b) concurrently with the delivery of the financial statements referred to in subsections 13.1(a) and (b), a certificate of a Responsible Officer, substantially in the form of Exhibit F; (c) concurrently with the delivery of the financial statements referred to in subsections 13.1(a), (b) and (c), a certificate of a Responsible Officer identifying the aggregate amount of Reserved Proceeds then outstanding and specifying amounts which 90 are to be applied to reduce the Available Revolving Credit Commitment and the Available European Loan Commitment; (d) not later than thirty days after the end of each fiscal year of the Company, a combined annual budget (in the format customarily utilized by the Company for making financial projections) of (i) the Company and its Domestic Subsidiaries, (ii) each Foreign Borrower and (iii) the Company and its Subsidiaries for the succeeding fiscal year of the Company, displaying on a quarterly basis the anticipated balance sheets as at the end of such period and the related statements of income and cash flow of each of the Persons described in clauses (i) through (iii) above; (e) during the month of March in each calendar year, the Company shall submit to the Administrative Agent and the Lenders a report prepared by the appropriate officers of the Company summarizing the status of any material environmental, health or safety non-compliance, hazard or liability issues, and identifying the cash expenditures for Liabilities and Costs arising out of or relating to such environmental health or safety matters made by the Company and its Subsidiaries during the previous calendar year; and (f) within five days after the same are sent, copies of all financial statements and reports which the Company sends to its stockholders or debtholders generally, and within five days after the same are filed, copies of all financial statements and reports which the Company may make to, or file with, the Securities and Exchange Commission or any successor or analogous Governmental Authority; (g) promptly, copies of all amendments, supplements and other modifications of the Lease Agreement; and (h) promptly, such additional financial and other information as any Lender (acting through the Administrative Agent) may from time to time reasonably request. 13.3 PAYMENT OF OBLIGATIONS. Pay, discharge or otherwise satisfy at or before maturity or before they become delinquent, as the case may be, all its obligations of whatever nature, except where the amount or validity thereof is currently being contested in good faith by appropriate proceedings and reserves in conformity with GAAP with respect thereto have been provided on the books of the Company or its Subsidiaries, as the case may be. 13.4 CONDUCT OF BUSINESS AND MAINTENANCE OF EXISTENCE. (a) Continue to engage in business of the same general type as now conducted by it and preserve, renew and keep in full force and effect its corporate existence and take all reasonable action to maintain all rights, privileges and franchises necessary or desirable in the normal conduct of its business, except (i) as otherwise permitted pursuant to subsection 14.5 and (ii) to the extent that the failure to maintain or preserve such rights, privileges and franchises would not reasonable be expected to have a Material Adverse Effect. 91 (b) Comply with all Contractual Obligations and Requirements of Law except to the extent that failure to comply therewith could not, in the aggregate, be reasonably expected to have a Material Adverse Effect. 13.5 MAINTENANCE OF PROPERTY; INSURANCE. (a) Keep all property useful and necessary in its business in good working order and condition; PROVIDED that nothing contained in this subsection 13.5 shall be deemed to prohibit the Company or any of its Subsidiaries from discontinuing the operation or maintenance of any such property if such discontinuance (i) is, in the reasonable judgment of the Company or such Subsidiary, necessary or appropriate in the conduct of its business, (ii) is otherwise permitted by this Agreement and (iii) would not be reasonably likely to have a Material Adverse Effect. (b) Maintain with financially sound and reputable insurance companies insurance on all its property in at least such amounts and against at least such risks as are usually insured against in the same general area by companies engaged in the same or a similar business; and furnish to each Lender, upon written request, full information as to the insurance carried. 13.6 INSPECTION OF PROPERTY; BOOKS AND RECORDS; DISCUSSIONS. Keep proper books of records and account in which full, true and correct entries in conformity with GAAP and all Requirements of Law shall be made of all dealings and transactions in relation to its business and activities; and (subject to applicable Requirements of Law concerning classified information and to the rights of any tenants or licensees of such properties) permit representatives of the Administrative Agent (or, after the occurrence and during the continuance of any Event of Default under Section 15(a), any Lender) to visit and inspect any of its properties and examine and make abstracts from any of its books and records at any reasonable time and as often as may reasonably be desired (upon reasonable written notice) and to discuss the business, operations, properties and financial and other condition of the Company and its Subsidiaries with officers and employees of the Company and its Subsidiaries and with its independent certified public accountants. All reasonable costs and expenses incurred by the Administrative Agent as a result of any inspections, audits and examinations conducted pursuant to this subsection 13.6 shall be paid by the Company. 13.7 NOTICES. Promptly give notice to the Administrative Agent and each Lender of: (a) the occurrence of any Default or Event of Default; (b) any (i) default or event of default under any Contractual Obligation of the Company or any of its Subsidiaries or (ii) litigation, investigation or proceeding which may exist at any time between the Company or any of its Subsidiaries and any Governmental Authority, which in either case, if not cured or if adversely determined, as the case may be, could reasonably be expected to have a Material Adverse Effect; 92 (c) any litigation or proceeding affecting the Company or any of its Subsidiaries which (after giving effect to any applicable insurance coverage) would be reasonably likely to have (in the Company's reasonable judgment) a Material Adverse Effect; (d) the following events, as soon as possible and in any event within 30 days after the Company knows or has reason to know thereof: (i) the occurrence or expected occurrence of any Reportable Event with respect to any Plan, a failure to make any required contribution to a Plan, the creation of any Lien in favor of the PBGC or a Plan or any withdrawal from, or the termination, Reorganization or Insolvency of, any Multiemployer Plan or (ii) the institution of proceedings or the taking of any other action by the PBGC or the Company or any Commonly Controlled Entity or any Multiemployer Plan with respect to the withdrawal from, or the terminating, Reorganization or Insolvency of, any Plan; (e) any loss or threatened loss of the security clearances necessary for the operation of the Company's "government contracts business" unless disclosure thereof is prohibited by any Requirement of Law; and (f) any development or event which has had or could reasonably be expected to have (i) a Material Adverse Effect or (ii) a material adverse effect on the value of, or the Documentation Agent's interest in, the Collateral. Each notice pursuant to this subsection 13.7 shall be accompanied by a statement of a Responsible Officer setting forth details of the occurrence referred to therein and stating what action the Company proposes to take with respect thereto. 13.8 FURTHER ASSURANCES. Upon the request of the Administrative Agent, promptly perform or cause to be performed any and all acts and execute or cause to be executed any and all documents (including, without limitation, financing statements and continuation statements) for filing under the provisions of the Uniform Commercial Code or any other Requirement of Law which are necessary or advisable to maintain in favor of the Documentation Agent, for the benefit of the Lenders, Liens on the Collateral that are duly perfected in accordance with all applicable Requirements of Law. 13.9 ADDITIONAL COLLATERAL. (a) With respect to any Person (other than a Domestic Subsidiary formed for the sole purpose of holding the Capital Stock of one or more of the Company's Foreign Subsidiaries) that, subsequent to the Closing Date, becomes a Domestic Subsidiary which is a Material Subsidiary, promptly upon the request of the Administrative Agent: (i) execute and deliver to the Documentation Agent, for the benefit of the Lenders, such supplements to the Collateral Agreement as the Administrative Agent shall deem necessary or advisable to (A) cause such Subsidiary to become a Subsidiary Guarantor and (B) grant to the Documentation Agent, for the benefit of the Lenders, a Lien on the Capital Stock of such Subsidiary which is owned by the Company or any of its Subsidiaries, (ii) deliver to the Documentation Agent the certificates representing such Capital Stock, together with undated stock powers executed and delivered in blank by a duly authorized officer of the Company or 93 such Subsidiary, as the case may be, (iii) cause such new Subsidiary to take all actions necessary or advisable to cause the Lien created by the Collateral Agreement to be duly perfected in accordance with all applicable Requirements of Law and (iv) if requested by the Administrative Agent, deliver to the Administrative Agent legal opinions relating to the matters described in clauses (i), (ii) and (iii) immediately preceding, which opinions shall be in form and substance, and from counsel, reasonably satisfactory to the Administrative Agent. (b) With respect to any Person that, subsequent to the Closing Date, becomes a Foreign Subsidiary and which has Capital Stock which is owned directly by the Company or a Domestic Subsidiary which is a Material Subsidiary, promptly upon the request of the Administrative Agent: (i) execute and deliver to the Documentation Agent a new Foreign Pledge Agreement or such amendments to the relevant Foreign Pledge Agreement as the Administrative Agent shall deem necessary or advisable to grant to the Documentation Agent, for the benefit of the Lenders, a Lien on the Capital Stock of such Subsidiary which is owned directly by the Company or any of its Domestic Subsidiaries (PROVIDED that in no event shall more than 65% of the Capital Stock of any such Subsidiary be required to be so pledged if the pledge of more than such amount would be reasonably likely to cause adverse tax consequences), (ii) to the extent reasonably deemed advisable by the Administrative Agent, deliver to the Administrative Agent any certificates representing such Capital Stock, together with undated stock powers executed and delivered in blank by a duly authorized officer of the Company or such Subsidiary, as the case may be, (iii) take or cause to be taken all such other actions under the law of the jurisdiction of organization of such Foreign Subsidiary as may be necessary or advisable to perfect such Lien on such Capital Stock and (iv) if requested by the Administrative Agent, deliver to the Administrative Agent legal opinions relating to the matters described in clauses (i) through (iii) immediately preceding, which opinions shall be in form and substance, and from counsel, reasonably satisfactory to the Administrative Agent. Each Foreign Borrower hereby covenants and agrees that it shall not take any action or fail to take any action which would constitute a Default or Event of Default hereunder. SECTION 14. NEGATIVE COVENANTS The Company hereby agrees that, so long as the Aggregate Commitment or the European Overdraft Commitment remains in effect or any amount is owing to any Lender, the Documentation Agent or the Administrative Agent hereunder or under any other Credit Document, it shall not and (except in the case of subsection 14.1) shall not permit any of its Subsidiaries to, directly or indirectly: 14.1 FINANCIAL CONDITION COVENANTS. (a) MINIMUM INTEREST COVERAGE RATIO. Permit the Interest Coverage Ratio of the Company and its Subsidiaries on the last day of any fiscal quarter of the Company occurring during a period set forth below to be less than the ratio set forth opposite such period: 94
--------------------------------------------------- --------------------------------------------------- Period Ratio ----------------------------------- ----------- Closing Date - December 31, 1999 2.50 to 1.0 January 1, 2000 - December 31, 2000 2.75 to 1.0 January 1, 2001 - thereafter 3.00 to 1.0 --------------------------------------------------- ---------------------------------------------------
(b) MAXIMUM LEVERAGE RATIO. Permit the Leverage Ratio of the Company and its Subsidiaries on the last day of any fiscal quarter of the Company occurring during a period set forth below to be greater than the ratio set forth opposite such period:
--------------------------------------------------- --------------------------------------------------- Period Ratio ----------------------------------- ----------- Closing Date - March 31, 1999 4.50 to 1.0 April 1, 1999 - June 30, 1999 4.25 to 1.0 July 1, 1999 - September 30, 1999 4.00 to 1.0 October 1, 1999 - December 31, 1999 3.50 to 1.0 January 1, 2000 - March 31, 2000 3.25 to 1.0 April 1, 2000 - thereafter 3.00 to 1.0 --------------------------------------------------- ---------------------------------------------------
(c) MINIMUM FIXED CHARGE COVERAGE RATIO. Permit the Fixed Charge Coverage Ratio of the Company and its Subsidiaries on the last day of any fiscal quarter of the Company to be less than 1.25 to 1.0. 14.2 LIMITATION ON INDEBTEDNESS. Create, incur, assume or suffer to exist any Indebtedness (including, in any event, any preferred stock), except: (a) Indebtedness of the Borrowers and their Subsidiaries under this Agreement and the other Credit Documents, and other Indebtedness of the Borrowers arising pursuant to Interest Rate Agreements, currency hedging agreements and foreign exchange contracts to which any Lender or Affiliate or Subsidiary thereof is a party; (b) Indebtedness listed on Schedule 14.2 and any refinancings, refundings, renewals or extensions thereof; PROVIDED that (x) the aggregate principal amount of replacement Indebtedness is not greater than the principal amount of the Indebtedness being so replaced and (y) the terms of such replacement Indebtedness are, in the aggregate, no less favorable to the Company or such Subsidiary than the terms of the Indebtedness being so replaced; (c) (i) Permitted Lease Indebtedness and (ii) Financing Leases and purchase money Indebtedness incurred by the Company or any of its Subsidiaries to finance the acquisition of tangible or intangible assets, and Indebtedness incurred by the Company or any of its Subsidiaries to refinance such Financing 95 Leases and purchase money Indebtedness, in an aggregate principal amount not to exceed $20,000,000 (or the Local Equivalent thereof) at any one time outstanding; (d) Indebtedness of the Company owing to any Subsidiary and of any Subsidiary owing to the Company or any other Subsidiary; (e) Indebtedness of a Person which becomes a Subsidiary after the Closing Date; PROVIDED that (i) such Indebtedness existed at the time such Person became a Subsidiary and was not created in anticipation thereof and (ii) immediately after giving effect to the acquisition of such Person by the Borrower no Default or Event of Default shall have occurred and be continuing, and any refinancings, refundings, of renewals or extensions thereof; PROVIDED that the amount of such Indebtedness is not increased at the time of such refinancing, refunding, renewal or extension; (f) Permitted Subordinated Indebtedness of the Company and any refinancings, refundings, renewals or extensions thereof; PROVIDED that (x) the aggregate principal amount of replacement Indebtedness is not greater than the principal amount of the Indebtedness being so replaced, except to the extent any such excess replacement Indebtedness complies with the provisions of subsection 14.2(k) with respect thereto and (y) the terms of such replacement Indebtedness are, in the aggregate, no less favorable to the Company than the terms of the Indebtedness being so replaced; (g) Indebtedness incurred for the working capital purposes of the Foreign Borrowers in an aggregate principal amount not to exceed $125,000,000 (or the Local Equivalent thereof) at any one time outstanding; PROVIDED that (x) the Aggregate European Loan Commitment shall be temporarily reduced (except for the purpose of calculating the facility fee payable pursuant to subsection 10.2) by the amount of any Indebtedness incurred pursuant to this subsection 14.2(g) and (y) during such time as a Foreign Borrower has any Indebtedness under this subsection 14.2(g), it shall have no outstanding European Revolving Loans hereunder; (h) foreign currency cap agreements, foreign currency rate swap agreements and other similar agreements and arrangements entered into by the Company or any Subsidiary to provide protection against fluctuations in foreign currency rates; PROVIDED that such agreements are entered into by the Company or any Subsidiary in the ordinary course of business; (i) Indebtedness of the Company in respect of unsecured standby and commercial letters of credit issued by a Lender in an aggregate face amount (including, without limitation, any reimbursement obligations owing in respect thereof) not to exceed $10,000,000 (or the Local Equivalent thereof) at any one time outstanding; (j) Indebtedness of the Company owing to employees of the Company and its Subsidiaries on account of employee contributions to a non-qualified benefit plan; 96 (k) Preferred stock of Subsidiaries of the Company and subordinated Indebtedness of the Company or any of its Domestic Subsidiaries which is upon terms reasonably satisfactory to the Majority Lenders; PROVIDED that the Company and its Subsidiaries are in compliance on a PRO FORMA basis (based upon the EBITDA of the Company and its Subsidiaries for the period of four consecutive fiscal quarters most recently ended and the Indebtedness of the Company and its Subsidiaries on the date of, and after giving effect to, the incurrence of such Indebtedness) with the provisions of subsection 14.1; and (l) additional Indebtedness in an aggregate principal amount not to exceed $20,000,000 (or the Local Equivalent thereof) at any time outstanding. Notwithstanding anything to the contrary contained in this subsection 14.2, AcquisitionCo and its Subsidiaries shall not incur Indebtedness prior to the Term Loan Repayment Date (x) to Persons other than the Company and its Subsidiaries, other than (i) Permitted Lease Indebtedness, (ii) Indebtedness of Interglas existing on the date it becomes a Subsidiary of the Company (and any refinancings thereof) and (iii) any such Indebtedness which does not exceed $15,000,000 in aggregate principal amount at any one time outstanding (excluding Indebtedness of Interglas (if any) incurred as a Borrower and permitted by Section 14.2(a)) or (y) to the Company and its Subsidiaries (other than AcquisitionCo and Subsidiaries of AcquisitionCo), other than Indebtedness incurred (i) as a result of the lending by the Company to AcquisitionCo or any of AcquisitionCo's Domestic Subsidiaries which is a Subsidiary Guarantor of the proceeds of the Tranche A Loans and/or the Tranche B Loans and any portion of the Revolving Loans and the European Loans used to finance the Acquisition; PROVIDED, that any such loans are evidenced by a promissory note in form and substance satisfactory to the Administrative Agent which is a Pledged Note (as defined in the Collateral Agreement) and (ii) to finance the working capital needs of AcquisitionCo and its Subsidiaries in the ordinary course of business. 14.3 LIMITATION ON LIENS. Create, incur, assume or suffer to exist any Lien upon any of its property, assets or revenues, whether now owned or hereafter acquired, except for: (a) Liens for taxes, assessments and governmental charges not yet due or which are being contested in good faith by appropriate proceedings, PROVIDED that adequate reserves with respect thereto are maintained on the books of the Company or its Subsidiaries, as the case may be, in conformity with GAAP (or, in the case of Foreign Subsidiaries, generally accepted accounting principles in effect from time to time in their respective jurisdictions of incorporation); (b) carriers', warehousemen's, mechanics', materialmen's, repairmen's or other like Liens arising in the ordinary course of business which are not overdue for a period of more than 60 days or which are being contested in good faith by appropriate proceedings; (c) pledges or deposits in connection with workers' compensation, unemployment insurance and other social security legislation and deposits securing liability to insurance carriers under insurance or self-insurance arrangements; 97 (d) deposits to secure the performance of bids, trade contracts (other than for borrowed money), leases, statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature incurred in the ordinary course of business; (e) easements, rights-of-way, restrictions and other similar encumbrances incurred in the ordinary course of business which, in the aggregate, are not substantial in amount and which do not in any case materially detract from the value of the property subject thereto or materially interfere with the ordinary conduct of the business of the Company or any Subsidiary; (f) Liens arising from precautionary Uniform Commercial Code financing statement filings regarding operating leases entered into by the Company and its Subsidiaries in the ordinary course of business; (g) Liens in favor of banking institutions arising as a matter of law and encumbering the deposits (including the right of setoff) held by such banking institutions in the ordinary course of business and which are within the general parameters customary in the banking industry; (h) Liens in favor of customs and revenue authorities arising as a matter of law to secure the payment of customs duties in connection with the importation of goods; and (i) Liens created pursuant to the Security Documents and the Assignment Agreement; (j) Liens listed on Schedule 14.3, securing Indebtedness permitted by subsection 14.2(b), PROVIDED that no such Lien is spread to cover any additional property after the Closing Date and that the amount of Indebtedness secured thereby is not increased; (k) (i) purchase money Liens (including the interest of a lessor under a Financing Lease), (ii) Liens to which any Property is subject at the time of the acquisition thereof securing Indebtedness permitted by subsection 14.2(c) and (iii) Liens securing the obligations of Hexcel CS Corporation (to be renamed Clark-Schwebel Corporation) under the Lease Agreement, limited in each case to the property purchased or subject to such lease; (l) any attachment or judgment Lien the existence of which does not constitute an Event of Default under Section 15(h); (m) Liens securing Indebtedness permitted by subsection 14.2(g); PROVIDED that such Lien shall encumber only assets of the Foreign Borrower who is the primary obligor in respect of such Indebtedness and shall encumber only assets which are located outside of the United States of America; 98 (n) Liens on the property or assets of a Person which becomes a Subsidiary after the Closing Date securing Indebtedness permitted by Section 14.2(e); PROVIDED that (i) such Liens existed at the time such Person became a Subsidiary and were not created in anticipation thereof, (ii) any such Lien is not spread to cover any property or assets of such Person after the time such corporation becomes a Subsidiary, and (iii) the amount of Indebtedness secured thereby is not increased; and (o) additional Liens securing Indebtedness which, in the aggregate with the amount guaranteed pursuant to any Guarantee Obligation created in reliance upon the provisions of subsection 14.4(i), does not exceed 5% of the consolidated net assets of the Company and its Subsidiaries; PROVIDED that (x) no Default or Event of Default has occurred and is continuing at the time that such Indebtedness is incurred, (y) until the Term Loan Repayment Date, the Liens incurred in reliance upon the provisions of this clause (o) which encumber the assets of AcquisitionCo and its Subsidiaries shall not secure Indebtedness which, (in the aggregate with the amount guaranteed pursuant to any Guarantee Obligations made by AcquisitionCo and its Subsidiaries in reliance upon the provisions of subsection 14.4(i)), exceeds 5% of the consolidated net assets of AcquisitionCo and its Subsidiaries and (z) until the Term Loan Repayment Date, AcquisitionCo and its Subsidiaries shall not incur any Liens encumbering their respective assets pursuant to clause (y) of this proviso which secure or support Indebtedness or Guarantee Obligations of any affiliate of AcquisitionCo other than AcquisitionCo's Subsidiaries and joint ventures of AcquisitionCo or AcquisitionCo's Subsidiaries. 14.4 LIMITATION ON GUARANTEE OBLIGATIONS. Create, incur, assume or suffer to exist any Guarantee Obligation except: (a) Guarantee Obligations listed on Schedule 14.4; (b) Guarantee Obligations arising under the Credit Documents; (c) Guarantee Obligations arising on account of obligations, warranties and indemnities which (i) are not with respect to Indebtedness of any Person, (ii) have been or are undertaken or made in the ordinary course of business or in connection with the sale of assets permitted by subsection 14.6(f) and (iii) are not for the benefit of or in favor of an Affiliate of the Company; (d) Guarantee Obligations of (i) (x) the Company in respect of obligations of any of its Wholly-owned Subsidiaries and (y) any Subsidiary of the Company (other than, until the Term Loan Repayment Date, AcquisitionCo or any of its Subsidiaries) in respect of obligations of the Company or any Wholly-owned Subsidiary of the Company or (ii) (x) AcquisitionCo in respect of obligations of any of its Wholly-owned Subsidiaries and (y) any Subsidiary of AcquisitionCo in respect of obligations of AcquisitionCo or any Wholly-owned Subsidiary of AcquisitionCo; 99 (e) Guarantee Obligations with respect to obligations, warranties and indemnities (other than with respect to Indebtedness) arising (i) in the ordinary course of business, (ii) under the Existing Transaction Documents or (iii) with respect to customary representations, warranties and indemnities entered into in connection with the sale or other disposition of assets; (f) Guarantee Obligations in respect of payments made by the Company to Dainippon Ink & Chemical, Inc. in an aggregate amount not to exceed at any time $10,500,000; (g) Guarantee Obligations in respect of Indebtedness of Subsidiaries of the Company which was incurred in reliance upon the provisions of subsection 14.2(g); PROVIDED that, until the Term Loan Repayment Date, AcquisitionCo and its Subsidiaries shall not incur any Guarantee Obligations in reliance upon the provisions of this clause (g) in respect of any Affiliate of AcquisitionCo other than Subsidiaries of AcquisitionCo; (h) Guarantee Obligations constituting Investments pursuant to subsection 14.8(k); and (i) additional Guarantee Obligations of the Company and its Subsidiaries in respect of obligations which, in the aggregate with the aggregate amount of Indebtedness secured by Liens incurred in reliance upon the provisions of subsection 14.3(o), does not exceed 5% of the consolidated net assets of the Company and its Subsidiaries; PROVIDED that (x) no Default or Event of Default has occurred and is continuing at the time that such Guarantee Obligation is incurred, (y) until the Term Loan Repayment Date, the Guarantee Obligations incurred by AcquisitionCo and its Subsidiaries in reliance upon the provisions of this clause (i), in the aggregate with the aggregate amount of Indebtedness secured by Liens encumbering assets of AcquisitionCo and its Subsidiaries in reliance upon the provisions of subsection 14.3(o), does not exceed 5% of the consolidated net assets of AcquisitionCo and its Subsidiaries and (z) until the Term Loan Repayment Date, AcquisitionCo and its Subsidiaries shall not incur any Guarantee Obligations pursuant to clause (y) of this proviso which secure or support Indebtedness or Guarantee Obligations of any affiliate of AcquisitionCo other than AcquisitionCo's Subsidiaries and joint ventures of AcquisitionCo or AcquisitionCo's Subsidiaries. 14.5 LIMITATION ON FUNDAMENTAL CHANGES. Enter into any merger, consolidation or amalgamation, or liquidate, wind up or dissolve itself (or suffer any liquidation or dissolution), or convey, sell, lease, assign, transfer or otherwise dispose of, all or substantially all of its property, business or assets, or make any material change in its present method of conducting business, except: (a) any Subsidiary of the Company (other than (x) a Borrower or (y) prior to the Term Loan Repayment Date, AcquisitionCo or any of its Subsidiaries) may be merged or consolidated with or into the Company (PROVIDED that the Company shall be the continuing or surviving corporation) or with or into any one or more Wholly-owned 100 Subsidiaries of the Company (PROVIDED that the Wholly-owned Subsidiary or Subsidiaries shall be the continuing or surviving corporation); (b) any Wholly-owned Subsidiary (other than, prior to the Term Loan Repayment Date, AcquisitionCo or any of its Subsidiaries) may sell, lease, transfer or otherwise dispose of any or all of its assets (upon voluntary liquidation or otherwise) to the Company or any other Wholly-owned Subsidiary of the Company; and (c) any Subsidiary of AcquisitionCo (other than a Borrower) may (i) be merged or consolidated with or into AcquisitionCo (PROVIDED that AcquisitionCo shall be the continuing or surviving corporation) or with or into any one or more Wholly-owned Subsidiaries of AcquisitionCo (PROVIDED that the Wholly-owned Subsidiary or Subsidiaries shall be the continuing or surviving corporation) and (ii) sell, lease, transfer or otherwise dispose of any or all of its assets (upon voluntary liquidation or otherwise) to AcquisitionCo or any other Wholly-owned Subsidiary of AcquisitionCo. 14.6 LIMITATION ON SALE OF ASSETS. Convey, sell, lease, assign, transfer or otherwise dispose of any of its property, business or assets (including, without limitation, receivables and leasehold interests), whether now owned or hereafter acquired, or, in the case of any Subsidiary, issue or sell any shares of such Subsidiary's Capital Stock to any Person other than the Company or any Wholly-owned Subsidiary, except: (a) the sale of inventory in the ordinary course of business; (b) the sale or other disposition of obsolete or worn out property in the ordinary course of business; (c) the sale or discount without recourse of accounts receivable arising in the ordinary course of business in connection with the compromise or collection thereof; (d) assignments and licenses of intellectual property of the Company and its Subsidiaries (i) to joint ventures, (ii) in the ordinary course of business or (iii) pursuant to the Strategic Alliance Agreement; (e) leases of owned real property and subleases of leased real property, to the extent such leases and subleases have anticipated annual rentals of less than $1,000,000 each; PROVIDED, HOWEVER, leases and subleases of real property among the Company and its subsidiaries or among such subsidiaries shall be permitted without regard to anticipated annual rentals; (f) the sale by the Company and its Subsidiaries of all or any part of the property referred to on Schedule 10.5; PROVIDED, that (i) the Administrative Agent shall have received the documentation evidencing such sales, (ii) such sales shall not be made for less than the fair market value of such Property and for consideration other than at least 101 85% cash and (iii) the Net Proceeds arising from such sales shall not be substantially less than the amount specified with respect to such Property listed on Schedule 10.5; (g) sales permitted by subsection 14.5 or 14.9; and (h) the sale, transfer or other disposition of all or substantially all of the Capital Stock or assets of Salver for fair market value; PROVIDED that (i) Salver shall not be a Borrower hereunder after giving effect to such sale, transfer or other disposition and (ii) the Net Proceeds from such sale, transfer or other disposition are applied in accordance with the provisions of subsection 10.5(g); and (i) additional sales of assets for consideration having a fair market value which is not in excess of $20,000,000 (or the Local Equivalent thereof) in any fiscal year; PROVIDED that the Company and its Subsidiaries shall not convey, sell, lease, assign, transfer or otherwise dispose of all or any portion of the Capital Stock of AcquisitionCo. Any Collateral which is sold, transferred or otherwise conveyed pursuant to this subsection 14.6 to a Person other than the Company and its Subsidiaries shall, upon the consummation of such sale in accordance with the terms of this Agreement and the other Credit Documents, be released from the Liens granted pursuant to the Security Documents and each Lender hereby authorizes and instructs each of the Administrative Agent and the Documentation Agent to take such action as the Company reasonably may request to evidence such release. 14.7 LIMITATION ON RESTRICTED PAYMENTS. Declare or pay any dividend (other than dividends payable solely in common stock of the Borrower) on, or make any payment on account of, or set apart assets for a sinking or other analogous fund for, the purchase, redemption, defeasance, retirement or other acquisition of, any shares of any class of Capital Stock of the Company or (until the Term Loan Repayment Date) AcquisitionCo, or any warrants or options to purchase any such Capital Stock, whether now or hereafter outstanding, or make any other distribution in respect thereof, either directly or indirectly, whether in cash or property or in obligations of the Company or any Subsidiary (such declarations, payments, setting apart, purchases, redemptions, defeasances, retirements, acquisitions and distributions being herein called "RESTRICTED PAYMENTS"), except that, during such time as no Default or Event of Default has occurred and is continuing or would result therefrom: (a) the Company may make Restricted Payments with respect to (i) employee or director stock options, stock incentive plans or restricted stock plans of the Company, (ii) the purchase from time to time by the Company of its common stock (for not more than market price) with the proceeds of the exercise by grantees under any equity-based incentive plan, (iii) other purchases from time to time by the Company of its common stock not to exceed $40,000,000 in the aggregate since the date hereof and (iv) transactions otherwise permitted pursuant to subsection 14.14; and (b) AcquisitionCo may make cash Restricted Payments to its shareholders. 102 14.8 LIMITATION ON INVESTMENTS. Make any Investment in any Person after the Closing Date, except: (a) Investments in cash and Cash Equivalents; (b) Investments received in connection with the bankruptcy or reorganization of suppliers and customers and in settlement of delinquent obligations of, and other disputes with, customers and suppliers arising in the ordinary course of business; (c) Investments on account of (i) intercompany loans which are permitted by subsection 14.2(d), (ii) the purchase of equity interests of, and the making of capital contributions to, Wholly-owned Subsidiaries and (iii) Permitted Belgian Capital; (d) cash contributions to Hexcel Foundation not to exceed $500,000 in the aggregate in any fiscal year; PROVIDED, that the unused portion of such amount may be used in the next succeeding year; (e) Investments specifically contemplated by any Existing Transaction Document and Investments on account of the Interglas Transaction; (f) promissory notes and other Investments received as consideration pursuant to transactions permitted by subsection 14.6(f); (g) extensions of trade credit in the ordinary course of business; (h) loans and advances to employees of the Company and its Subsidiaries for travel, entertainment and relocation expenses in the ordinary course of business; (i) during such time as no Default or Event of Default is continuing or would result therefrom, Investments on account of the Interglas Transaction; (j) Investments on account of the acquisition by the Company and its Subsidiaries of all or substantially all of the Capital Stock or assets of any Person (or business units thereof); PROVIDED that, after giving effect to the consummation of such Investment, the Company and its Subsidiaries are in compliance on a PRO FORMA basis (based upon the EBITDA of the Company, its Subsidiaries and the acquired entity for the period of four consecutive fiscal quarters most recently ended and the Indebtedness of the Company, its Subsidiaries and the acquired entity on the date of, and after giving effect to, the consummation of such Investment) with the provisions of subsection 14.1; and (k) additional Investments by the Company and its Subsidiaries; PROVIDED that, after giving effect to the consummation of such Investment, (i) the aggregate amount of all Investments (with the amount of any Guarantee Obligations being deemed to be the amount so guaranteed) made by the Company and its Subsidiaries in reliance upon the 103 provisions of this subsection 14.8(k) does not exceed the greater of (A) $75,000,000 and (B) the amount then equal to 15% of the consolidated tangible net assets of the Company and its Subsidiaries and (ii) the Company and its Subsidiaries are in compliance on a PRO FORMA basis (based upon the EBITDA of the Company and its Subsidiaries for the period of four consecutive fiscal quarters most recently ended and the Indebtedness of the Company and its Subsidiaries on the date of, and after giving effect to, the consummation of such Investment) with the provisions of subsection 14.1. 14.9 LIMITATION ON TRANSACTIONS WITH AFFILIATES. Enter into any transaction, including, without limitation, any purchase, sale, lease or exchange of property or the rendering of any service, with any Affiliate unless such transaction is (a) otherwise permitted under this Agreement, (b) in the ordinary course of the Borrower's or such Subsidiary's business and (c) upon fair and reasonable terms no less favorable to the Company or such Subsidiary, as the case may be, than it would obtain in a comparable arm's length transaction with a Person which is not an Affiliate; PROVIDED, HOWEVER, that nothing contained herein shall be deemed to prohibit (i) employment or compensation agreements or other arrangements with officers or directors of the Company or any of its Subsidiaries which have been approved by the Board of Directors of the Company or any committee of the disinterested directors of the Company, (ii) existing management agreements, (iii) stock options and awards granted to employees and directors of the Company or any of its Subsidiaries under plans or other employee benefit plans, and (iv) any contract or transaction providing for indemnification of officers or directors of the Company or any of its Subsidiaries from liability, or providing or maintaining insurance or other arrangements on behalf of any such officer or director against any liability asserted against such person and incurred in or arising out of such capacity, (v) the transactions set forth on Schedule 14.9 or permitted by subsection 14.5, (vi) transactions which are expressly contemplated by the Existing Transaction Documents and (vii) the Interglas Transaction. 14.10 LIMITATION ON SALES AND LEASEBACKS. Enter into any arrangement with any Person providing for the leasing by the Company or any Subsidiary of real or personal property which has been or is to be sold or transferred by the Company or such Subsidiary to such Person or to any other Person to whom funds have been or are to be advanced by such Person on the security of such property or rental obligations of the Company or such Subsidiary, other than any such transactions relating to the sale and lease of equipment upon terms and subject to conditions satisfactory to the Administrative Agent to the extent that the aggregate fair market value of all equipment sold from and after the date hereof does not exceed $20,000,000 (or the Local Equivalent thereof); PROVIDED that, until the Term Loan Repayment Date, AcquisitionCo and its Subsidiaries shall not enter into any such arrangement providing for the lease by AcquisitionCo or any of its Subsidiaries of any such property which has been or is to be sold or transferred by the AcquisitionCo or such Subsidiary to the Company or any of its Subsidiaries. 14.11 LIMITATION ON CHANGES IN FISCAL YEAR OR ACCOUNTING TREATMENT. (a) Permit the fiscal year of the Company to end on a day other than December 31. 104 (b) Make any material change in accounting treatment and reporting practices or tax reporting treatment, except as required by GAAP and disclosed to the Lenders and the Administrative Agent. 14.12 LIMITATION ON NEGATIVE PLEDGE CLAUSES. Enter into with any Person any agreement, other than (a) the Credit Documents and (b) any industrial revenue bonds, purchase money mortgages or Financing Leases permitted by this Agreement (in which cases, any prohibition or limitation shall only be effective against the assets financed thereby), which prohibits or limits the ability of the Company or any of its Subsidiaries to create, incur, assume or suffer to exist any Lien upon any of its property, assets or revenues, whether now owned or hereafter acquired. 14.13 LIMITATION ON LINES OF BUSINESS. Enter into any business, either directly or through any Subsidiary, which would not reasonably be considered to be related to (or an extension of) the businesses in which the Company and its Subsidiaries (including, without limitation, the Acquired Businesses) are engaged on the date hereof. 14.14 LIMITATION ON MODIFICATION OF AGREEMENTS AND PAYMENTS ON ACCOUNT OF DEBT. (a) Prepay, redeem, purchase, repurchase, defease or retire any long-term Indebtedness, other than: (i) the Indebtedness hereunder; (ii) any intercompany Indebtedness permitted by subsection 14.2 if an Event of Default is not existing and would not result from giving effect to such prepayment; (iii) other scheduled payments in respect of Indebtedness; (iv) regularly scheduled payments on the Permitted Subordinated Indebtedness and repurchases and prepayments of the Subordinated Ciba Notes; (v) payments of equity or cash made upon the conversion of any Permitted Subordinated Indebtedness into equity in accordance with the relevant indenture governing such Indebtedness, PROVIDED that (A) such payments are permitted to be made under the terms of the Permitted Subordinated Indebtedness, (B) no Default or Event of Default has occurred and is continuing and (C) payments of cash do not exceed $10,000,000 in the aggregate; (vi) payments of Indebtedness made in connection with (A) the Existing Transaction Documents (including, without limitation, payments under the Lease Agreement) or (B) as set forth on Schedule 14.14; and (vii) payments of Indebtedness and profit participation capital of Interglas made pursuant to the Interglas Transaction; 105 PROVIDED that nothing contained herein shall be deemed to prohibit (x) the Company from converting into equity any intercompany Indebtedness which is owing to it from any of its Subsidiaries, (y) any Subsidiary of the Company from converting into equity any Indebtedness which is owing to it from any other Subsidiary or (z) the conversion of the Permitted Subordinated Indebtedness into common stock of the Company in a manner not inconsistent with the terms thereof (and the payment of (i) cash adjustments by the Company in lieu of issuing fractional shares of common stock upon the conversion of the Subordinated Convertible Notes or the Subordinated Debentures and (ii) accrued interest thereon). (b) Amend, supplement or otherwise modify the terms of any Existing Transaction Document, the Subordinated Debentures, the Subordinated Debenture Indenture, the Subordinated Convertible Notes, the Subordinated Convertible Notes Indenture or the Lease Agreement in any material respect, other than amendments to any non-material Existing Transaction Document in a manner which could not reasonably be expected to be adverse to the Lenders. (c) Amend, supplement or otherwise modify the terms of (i) its articles/certificate of incorporation (or the equivalent organizational documents), (ii) its by-laws (or the equivalent governing documents, if any) or (iii) any document setting forth the designation, amount and/or relative rights, limitations and preferences of any class or series of its Capital Stock, except for any such amendments, supplements and other modifications which could not reasonably be expected to adversely affect the rights or interests of the Administrative Agent or the Lenders. 14.15 NO NEW RESTRICTIONS ON SUBSIDIARY DIVIDENDS. Agree to create or otherwise permit to become effective any consensual encumbrance or restriction of any kind on the ability of any Subsidiary to: (a) pay, directly or indirectly, dividends or make any other distributions in respect of its Capital Stock; (b) make any other distribution or transfer of funds or assets to the Company; or (c) make loans or advances to or other Investments in, or pay any Indebtedness or other obligation owing to, the Company; except to the extent required by (x) any applicable Requirements of Law, (y) the Credit Documents or the Subordinated Ciba Notes Indenture or (z) to the extent permitted (including, without limitation, by waiver of applicable restrictions contained therein) by the Subordinated Ciba Notes Indenture, any document or agreement governing Indebtedness which is incurred in reliance upon the provisions of subsection 14.2(g) (PROVIDED that any such restriction permitted by this clause (z) shall apply only to the Subsidiary which is the borrower of such Indebtedness). Each Foreign Borrower hereby covenants and agrees that it shall not take any action or fail to take any action which would constitute a Default or Event of Default hereunder. 106 SECTION 15. EVENTS OF DEFAULT If any of the following events shall occur and be continuing: (a) Any Borrower shall fail to pay any principal of any Loan or pay any Reimbursement Obligation when due in accordance with the terms thereof or hereof; or any Borrower shall fail to pay any interest on any Loan, or any other amount payable hereunder, within five days after any such interest or other amount becomes due in accordance with the terms thereof or hereof; or (b) Any representation or warranty made or deemed made by the Company or any other Credit Party herein or in any other Credit Document or which is contained in any certificate, document or financial or other statement furnished by it at any time under or in connection with this Agreement or any such other Credit Document shall prove to have been incorrect in any material respect on or as of the date made or deemed made; or (c) The Company or any other Credit Party shall default in the observance or performance of any agreement contained in Section 14 or any negative covenant contained in any of the other Credit Documents; or (d) The Company or any other Credit Party shall default in the observance or performance of any other agreement contained in this Agreement or any other Credit Document (other than as provided in paragraphs (a) through (c) of this Section), and such default (to the extent that it is susceptible to remedy) shall continue unremedied for a period of 30 days; or (e) The Company or any of its Subsidiaries shall (i) default in any payment of principal of or interest of any Indebtedness (other than the Loans) or in the payment of any Guarantee Obligation, beyond the period of grace (not to exceed 30 days), if any, provided in the instrument or agreement under which such Indebtedness or Guarantee Obligation was created; or (ii) default in the observance or performance of any other agreement or condition relating to any such Indebtedness or Guarantee Obligation or contained in any instrument or agreement evidencing, securing or relating thereto, or any other event shall occur or condition exist, the effect of which default or other event or condition is to cause, or to permit the holder or holders of such Indebtedness or beneficiary or beneficiaries of such Guarantee Obligation (or a trustee or agent on behalf of such holder or holders or beneficiary or beneficiaries) to cause, with the giving of notice if required, such Indebtedness to become due prior to its stated maturity or such Guarantee Obligation to become payable (or, if such Indebtedness is a Financing Lease, to cause such Financing Lease to be terminated as a result of an event of default thereunder); PROVIDED, HOWEVER, that no Default or Event of Default shall exist under this paragraph unless the aggregate amount of Indebtedness and/or Guarantee Obligations in respect of which any default or other event or condition referred to in this paragraph shall have occurred shall be equal to at least $10,000,000 (or the Local Equivalent thereof); or 107 (f) (i) The Company or any of its Material Subsidiaries shall commence any case, proceeding or other action (A) under any existing or future law of any jurisdiction, domestic or foreign, relating to bankruptcy, insolvency, reorganization or relief of debtors, seeking to have an order for relief entered with respect to it, or seeking to adjudicate it a bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, winding-up, liquidation, dissolution, composition or other relief with respect to it or its debts, or (B) seeking appointment of a receiver, trustee, custodian, conservator or other similar official for it or for all or any substantial part of its assets, or the Company or any of its Material Subsidiaries shall make a general assignment for the benefit of its creditors; or (ii) there shall be commenced against the Company or any of its Material Subsidiaries any case, proceeding or other action of a nature referred to in clause (i) above which (A) results in the entry of an order for relief or any such adjudication or appointment or (B) remains undismissed, undischarged or unbonded for a period of 60 days; or (iii) there shall be commenced against the Company or any of its Material Subsidiaries any case, proceeding or other action seeking issuance of a warrant of attachment, execution, distraint or similar process against all or any substantial part of its assets which results in the entry of an order for any such relief which shall not have been vacated, discharged, or stayed or bonded pending appeal within 60 days from the entry thereof; or (iv) the Company or any of its Material Subsidiaries shall take any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any of the acts set forth in clause (i), (ii), or (iii) above; or (v) the Company or any of its Material Subsidiaries shall generally not, or shall be unable to, or shall admit in writing its inability to, pay its debts as they become due; or (g) (i) Any Person shall engage in any "prohibited transaction" (as defined in Section 406 of ERISA or Section 4975 of the Code) involving any Plan, (ii) any "accumulated funding deficiency" (as defined in Section 302 of ERISA), whether or not waived, shall exist with respect to any Plan or any Lien in favor of the PBGC or a Plan shall arise on the assets of the Company or any Commonly Controlled Entity, (iii) a Reportable Event shall occur with respect to, or proceedings shall commence to have a trustee appointed, or a trustee shall be appointed, to administer or to terminate, any Single Employer Plan, which Reportable Event or commencement of proceedings or appointment of a trustee is, in the reasonable opinion of the Required Lenders, likely to result in the termination of such Plan for purposes of Title IV of ERISA, (iv) any Single Employer Plan shall terminate for purposes of Title IV of ERISA, (v) the Company or any Commonly Controlled Entity shall, or in the reasonable opinion of the Required Lenders is likely to, incur any liability in connection with a withdrawal from, or the Insolvency or Reorganization of, a Multiemployer Plan or (vi) any other event or condition shall occur or exist with respect to a Plan; and in each case in clauses (i) through (vi) above, such event or condition, together with all other such events or conditions, if any, involve an aggregate amount in excess of $3,000,000; or (h) One or more judgments or decrees shall be entered against the Company or any of its Subsidiaries involving in the aggregate a net liability (after reduction for the amount of any applicable insurance coverage) of $10,000,000 (or the Local Equivalent 108 thereof) or more, and all such judgments or decrees shall not have been vacated, discharged, stayed or bonded pending appeal within 60 days from the entry thereof; or (i) (i) Any of the Security Documents or the Assignment Agreement (or any material provision of any thereof) shall cease, for any reason, to be in full force and effect, or the Company or any other Credit Party which is a party to any of the Security Documents or the Assignment Agreement shall so assert or (ii) the Lien created by any of the Security Documents or the Assignment Agreement shall cease to be enforceable and of the same effect and priority purported to be created thereby, except, in each case, to the extent such cessation is (A) in accordance with the terms of the Credit Documents or (B) a result of (x) the failure of the Documentation Agent to maintain possession of the securities representing the Collateral or (y) the gross negligence, bad faith or willful misconduct of any of the Administrative Agent, the Documentation Agent or the Lenders; or (j) Any Change of Control shall occur; or (k) Any Foreign Borrower shall cease to be (or shall not be) a Wholly-owned Subsidiary of the Company; then, and in any such event, (A) if such event is a Bankruptcy Event with respect to any Borrower, automatically each of the Aggregate Commitment shall immediately terminate and the Loans hereunder (with accrued interest thereon) and all other amounts owing under this Agreement (including, without limitation, all amounts of Domestic L/C Obligations and European L/C Obligations, whether or not the beneficiaries of the then outstanding Letters of Credit shall have presented the documents required thereunder) shall immediately become due and payable, and (B) if such event is any other Event of Default, either or both of the following actions may be taken: (i) with the consent of the Required Lenders, the Administrative Agent may, or upon the request of the Required Lenders, the Administrative Agent shall, by notice to the Company declare the Aggregate Tranche A Loan Commitment, the Aggregate Tranche B Loan Commitment, Aggregate Revolving Credit Commitment, the Aggregate European Loan Commitment and/or the European Overdraft Commitment to be terminated forthwith, whereupon such Commitment(s) shall immediately terminate; and (ii) with the consent of the Required Lenders, the Administrative Agent may, or upon the request of the Required Lenders, the Administrative Agent shall, by notice to the Company, declare the Loans hereunder (with accrued interest thereon) and all other amounts owing under this Agreement (including, without limitation, all amounts of Domestic L/C Obligations and European L/C Obligations, whether or not the beneficiaries of the then outstanding Letters of Credit shall have presented the documents required thereunder) to be due and payable forthwith, whereupon the same shall immediately become due and payable. With respect to all Letters of Credit with respect to which presentment for honor shall not have occurred at the time of an acceleration pursuant to the preceding paragraph, the relevant Borrower shall at such time deposit in one or more cash collateral accounts opened by the Administrative Agent (or, with the consent of the Administrative Agent, by the relevant 109 Issuing Lender) an amount equal to the aggregate then undrawn and unexpired amount of such Letters of Credit. Each Borrower hereby grants to the Administrative Agent, for the benefit of the Issuing Lenders and the L/C Participants, a security interest in such cash collateral to secure all obligations of such Borrower under this Agreement and the other Credit Documents. Any amounts held in such cash collateral account shall be applied by the Administrative Agent to the payment of drafts drawn under such Letters of Credit issued for the account of such Borrower, and the unused portion thereof after all such Letters of Credit shall have expired or been fully drawn upon, if any, shall be applied to repay other obligations of the Borrowers hereunder and under the Notes. After all such Letters of Credit shall have expired or been fully drawn upon, all Reimbursement Obligations shall have been satisfied and all other obligations of the Borrowers hereunder and under the Notes shall have been paid in full, the balance, if any, in such cash collateral account shall be returned to the relevant Borrower. Each Borrower shall execute and deliver to the Administrative Agent, for the account of the relevant Issuing Lenders and the L/C Participants, such further documents and instruments as the Administrative Agent may request to evidence the creation and perfection of the within security interest in such cash collateral account. Except as expressly provided above in this Section 15, presentment, demand, protest and all other notices of any kind are hereby expressly waived. SECTION 16. THE ADMINISTRATIVE AGENT AND THE DOCUMENTATION AGENT 16.1 APPOINTMENT. Each Lender hereby irrevocably designates and appoints (a) the Administrative Agent as the administrative agent of such Lender under this Agreement and the other Credit Documents and (b) the Documentation Agent as the documentation agent hereunder and under the other Credit Documents. Each such Lender hereby further irrevocably authorizes the Administrative Agent and the Documentation Agent, in its respective capacity as such, to take such action on its behalf under the provisions of this Agreement and the other Credit Documents and to exercise such powers and perform such duties as are expressly delegated to the Administrative Agent or the Documentation Agent (as the case may be) by the terms of this Agreement and the other Credit Documents, together with such other powers as are reasonably incidental thereto (including, without limitation, acting on behalf of and for the account of each Lender in the creation, execution, perfection, delivery and enforcement of the Foreign Pledge Agreements). Notwithstanding any provision to the contrary elsewhere in this Agreement, neither the Administrative Agent not the Documentation Agent shall have any duties or responsibilities, except those expressly set forth with respect to it herein, or any fiduciary relationship with any Lender, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or any other Credit Document or otherwise exist against the Administrative Agent or the Documentation Agent. 16.2 DELEGATION OF DUTIES. Each of the Administrative Agent and the Documentation Agent may execute any of its duties under this Agreement and the other Credit Documents by or through agents or attorneys-in-fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. Neither the Administrative Agent nor the 110 Documentation Agent shall be responsible for the negligence or misconduct of any agent or attorneys in-fact selected by it with reasonable care. 16.3 EXCULPATORY PROVISIONS. None of the Administrative Agent, the Documentation Agent nor any of their respective officers, directors, employees, agents, attorneys-in-fact, Subsidiaries or Affiliates shall be (i) liable for any action lawfully taken or omitted to be taken by it or such Person under or in connection with this Agreement or any other Credit Document (except for its or such Person's own gross negligence, bad faith or willful misconduct) or (ii) responsible in any manner to any of the Lenders for any recitals, statements, representations or warranties made by any Borrower or any officer thereof contained in this Agreement or any other Credit Document or in any certificate, report, statement or other document referred to or provided for in, or received by the Administrative Agent or the Documentation Agent under or in connection with, this Agreement or any other Credit Document or for the value, validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or any other Credit Document or for any failure of any Borrower to perform its obligations hereunder or thereunder. Neither the Administrative Agent nor the Documentation Agent shall be under any obligation to any Lender to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, this Agreement or any other Credit Document, or to inspect the properties, books or records of any Borrower. 16.4 RELIANCE BY ADMINISTRATIVE AGENT AND DOCUMENTATION AGENT. Each of the Administrative Agent and the Documentation Agent shall be entitled to rely, and shall be fully protected in relying, upon any Note, writing, resolution, notice, consent, certificate, affidavit, letter, telecopy, telex or teletype message, statement, order or other document or conversation believed by it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons and upon advice and statements of legal counsel (including, without limitation, counsel to any Borrower), independent accountants and other experts selected by the Administrative Agent or the Documentation Agent (as the case may be). Each of the Administrative Agent and the Documentation Agent may deem and treat the payee of any Note as the owner thereof for all purposes unless a written notice of assignment, negotiation or transfer thereof shall have been filed with the Administrative Agent or the Documentation Agent (as the case may be). Each of the Administrative Agent and the Documentation Agent shall be fully justified in failing or refusing to take any action under this Agreement or any other Credit Document unless it shall first receive such advice or concurrence of the Majority Lenders as it deems appropriate or it shall first be indemnified to its satisfaction by the Lenders against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. Each of the Administrative Agent and the Documentation Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement and the other Credit Documents in accordance with a request of the Majority Lenders (or such larger number of Lenders as may be explicitly required hereunder), and such request and any action taken or failure to act pursuant thereto shall be binding upon all the Lenders and all future holders of the Loans. 16.5 NOTICE OF DEFAULT. Neither the Administrative Agent nor the Documentation Agent shall be deemed to have knowledge or notice of the occurrence of any Default or Event of 111 Default hereunder unless it has received notice from the Documentation Agent, a Lender or a Borrower referring to this Agreement, describing such Default or Event of Default and stating that such notice is a "notice of default". In the event that the Documentation Agent receives such a notice, it shall promptly give notice thereof to the Administrative Agent. In the event that the Administrative Agent receives such a notice from the Documentation Agent, any Lender or a Borrower, the Administrative Agent shall give notice thereof to the Lenders. Each of the Administrative Agent and the Documentation Agent shall take such action with respect to such Default or Event of Default as shall be reasonably directed by the Required Lenders or (in the case of the Documentation Agent) as shall be reasonably directed by the Administrative Agent; PROVIDED that unless and until the Administrative Agent or the Documentation Agent (as the case may be) shall have received such directions, it may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default or Event of Default as it shall deem advisable in the best interests of the Lenders. 16.6 NON-RELIANCE ON ADMINISTRATIVE AGENT, DOCUMENTATION AGENT AND OTHER LENDERS. Each Lender expressly acknowledges that none of the Administrative Agent, the Documentation Agent nor any of their respective officers, directors, employees, agents, attorneys-in-fact, Subsidiaries or Affiliates has made any representations or warranties to it and that no act by the Administrative Agent or the Documentation Agent hereinafter taken, including any review of the affairs of any Borrower, shall be deemed to constitute any representation or warranty by the Administrative Agent or the Documentation Agent (as the case may be) to any Lender. Each Lender represents to the Administrative Agent and the Documentation Agent that such Lender has, independently and without reliance upon the Administrative Agent, the Documentation Agent or any other Lender, and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, operations, property, financial and other condition and creditworthiness of each Borrower and made its own decision to make its Loans and other extensions of credit hereunder and enter into this Agreement. Each Lender also represents that it will, independently and without reliance upon the Administrative Agent, the Documentation Agent or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under this Agreement and the other Credit Documents, and to make such investigation as it deems necessary to inform itself as to the business, operations, property, financial and other condition and creditworthiness of the Borrowers. Except for notices, reports and other documents expressly required to be furnished to the Lenders by the Administrative Agent or the Documentation Agent hereunder, neither the Administrative Agent nor the Documentation Agent (as the case may be) shall have any duty or responsibility to provide any Lender with any credit or other information concerning the business, operations, property, condition (financial or otherwise), prospects or creditworthiness of any Borrower which may come into the possession of the Administrative Agent or the Documentation Agent (as the case may be) or any of their respective officers, directors, employees, agents, attorneys-in-fact, Subsidiaries or Affiliates. 16.7 INDEMNIFICATION. The Lenders agree to indemnify each of the Administrative Agent and the Documentation Agent, in its capacity as such (to the extent not reimbursed by the Borrowers and without limiting the obligation of the Borrowers to do so), 112 ratably (according to the percentage which the Commitments of such Lender constitutes of the Aggregate Commitment on the date on which indemnification is sought or, if the Aggregate Commitment has then terminated, such percentage immediately prior to such termination), from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind whatsoever which may at any time (including, without limitation, at any time following the payment of the Loans) be imposed on, incurred by or asserted against the Administrative Agent or the Documentation Agent in any way relating to or arising out of, the Aggregate Commitment (or any component thereof), this Agreement, any of the other Credit Documents or any documents contemplated by or referred to herein or therein or the transactions contemplated hereby or thereby or any action taken or omitted by the Administrative Agent or the Documentation Agent under or in connection with any of the foregoing; PROVIDED that no Lender shall be liable for the payment of any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from the gross negligence, bad faith or willful misconduct of the Administrative Agent or the Documentation Agent (as the case may be). The agreements in this subsection 16.7 shall survive the payment of the Loans and all other amounts payable hereunder. 16.8 AGENTS IN THEIR INDIVIDUAL CAPACITIES. Each of the Administrative Agent, the Documentation Agent and their respective Affiliates and Subsidiaries may make loans to, accept deposits from and generally engage in any kind of business with any Borrower as though the Administrative Agent or the Documentation Agent (as the case may be) were not the Administrative Agent or the Documentation Agent hereunder and under the other Credit Documents. With respect to the Loans and other extensions of credit made by it, each of the Administrative Agent and the Documentation Agent shall have the same rights and powers under this Agreement and the other Credit Documents as any Lender and may exercise the same as though it were not the Administrative Agent or the Documentation Agent (as the case may be), and the terms "Lender" and "Lenders" shall include each of the Administrative Agent and the Documentation Agent, in its respective individual capacity. 16.9 SUCCESSOR AGENTS. Each of the Administrative Agent and the Documentation Agent may resign as such upon 30 days' notice to the Lenders. If the Administrative Agent shall resign as "Administrative Agent" or the Documentation Agent shall resign as "Documentation Agent" under this Agreement and the other Credit Documents, then the Majority Lenders shall appoint from among the Lenders a successor Administrative Agent or Documentation Agent (as the case may be) for the Lenders, which successor Administrative Agent or Documentation Agent (PROVIDED that, to the extent that no Default or Event of Default is continuing at the time of such appointment, such Administrative Agent or Documentation Agent, as the case may be, shall have been approved by the Company, with such approval not to be unreasonably withheld), shall succeed to the rights, powers and duties of the Administrative Agent or the Documentation Agent (as the case may be) hereunder. Effective upon such appointment and approval, the term "Administrative Agent" or "Documentation Agent" (as the case may be) shall mean such successor Administrative Agent or Documentation Agent, and the rights, powers and duties of the former Administrative Agent as Administrative Agent or of the former Documentation Agent as Documentation Agent (as the case may be) shall be terminated, without any other or further act or deed on the part of such former Administrative Agent or 113 Documentation Agent (as the case may be) or any of the parties to this Agreement or any holders of the Loans. After any resignation of the retiring Administrative Agent as Administrative Agent or of the retiring Documentation Agent as Documentation Agent, the provisions of this Section 16 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Administrative Agent or Documentation Agent (as the case may be) under this Agreement and the other Credit Documents. Notwithstanding anything to the contrary contained herein, during such time as shares of Capital Stock of Hexcel Pottsville Corporation are pledged to the Documentation Agent pursuant to the terms hereof, any successor Documentation Agent shall be a Person who is acceptable to the Defense Investigative Service. SECTION 17. MISCELLANEOUS 17.1 AMENDMENTS AND WAIVERS. Neither this Agreement nor any other Credit Document, nor any terms hereof or thereof may be amended, supplemented or modified except in accordance with the provisions of this subsection. The Majority Lenders may, or, with the written consent of the Majority Lenders, the Administrative Agent (and/or, to the extent applicable, the Documentation Agent) may, from time to time, (a) enter into with each Borrower directly affected thereby written amendments, supplements or modifications hereto and to the other Credit Documents for the purpose of adding any provisions to this Agreement or the other Credit Documents or changing in any manner the rights of the Lenders or of such Borrowers hereunder or thereunder or (b) waive, on such terms and conditions as the Majority Lenders or the Administrative Agent (and/or, to the extent applicable, the Documentation Agent), as the case may be, may specify in such instrument, any of the requirements of this Agreement or the other Credit Documents or any Default or Event of Default and its consequences; PROVIDED, HOWEVER, that no such waiver and no such amendment, supplement or modification shall: (i) without the consent of each Lender directly affected thereby, (A) reduce the amount or extend the scheduled date of maturity of any Loan or of any installment thereof, (B) reduce the stated rate of any interest or fee payable hereunder or extend the scheduled date of any payment thereof or (C) increase the amount or extend the expiration date of any Lender's Commitment; (ii) without the written consent of all the Lenders (other than the Swing Line Lender, the Issuing Lenders and the European Overdraft Lenders), (A) amend, modify or waive any provision of this subsection, (B) reduce the percentage specified in the definition of Required Lenders, Majority Facility Lenders or Majority Lenders, (C) consent to the assignment or transfer by any Borrower of any of its rights and obligations under this Agreement and the other Credit Documents or (D) release all or substantially all of the Collateral; (iii) without the prior written consent of the Issuing Lender with respect thereto, amend, supplement or otherwise modify any provisions of or directly applicable to any Letter of Credit; 114 (iv) amend, modify or waive any provision of Section 6 or any other provision of this Agreement governing the rights or obligations of the Swing Line Lender without the written consent of the Swing Line Lender; (v) amend, modify or waive any provision of Section 7 or any other provision of this Agreement directly governing the rights or obligations of any Local European Lender without the written consent of such Local European Lender; (vi) amend, modify or waive any provision of Section 9 or any other provision of this Agreement governing the rights or obligations of the European Overdraft Lender without the written consent of the European Overdraft Lender; or (vii) amend, modify or waive any provision of Section 16 without the written consent of the then Administrative Agent and, to the extent affected thereby, the Documentation Agent. Notwithstanding the foregoing, (a) if any such amendment, modification or waiver of any provision of this Agreement or any other Credit Document affects solely one or more particular Facilities (it being understood that any amendment, modification or waiver of any provision of Section 12.2 subsequent to the initial extension of credit on the Closing Date affects solely the European Loan Facility, the Revolving Credit Facility and, during such time as any amount remains available under the Aggregate Tranche A Loan Commitment, the Tranche A Loan Facility), such amendment, modification or waiver shall only require the written consent of the Majority Facility Lenders in respect of each such affected Facility and (b) any such amendment, modification or waiver of subsection 10.5(g) which causes amounts payable to a particular Facility (the "Affected Facility") pursuant to subsection 10.5(g) to be applied to a different Facility shall require the consent of the Majority Facility Lenders under the Affected Facility. Any such waiver and any such amendment, supplement or modification shall apply equally to each of the Lenders and shall be binding upon the Borrowers, the Lenders, the Documentation Agent, the Administrative Agent and all future holders of the Loans. In the case of any waiver, the Borrowers, the Lenders, the Documentation Agent and the Administrative Agent shall be restored to their former positions and rights hereunder and under the other Credit Documents, and any Default or Event of Default waived shall be deemed to be cured and not continuing; no such waiver shall extend to any subsequent or other Default or Event of Default or impair any right consequent thereon. 17.2 RELEASE OF COLLATERAL. (a) Notwithstanding anything to the contrary contained herein (other than the provisions of subsection 17.2(b)) or in any Security Document, the Documentation Agent shall (upon request of the Company, but without any notice to or vote or consent of any Lender) take action having the effect of releasing: (i) any collateral and/or guarantee obligations provided for in any Credit Document to the extent necessary to permit the consummation of any Net Proceeds Event or any asset dispositions permitted by subsection 14.6 by the Company or any of its 115 Subsidiaries in accordance with the provisions of this Agreement and the Credit Documents; PROVIDED that the Net Proceeds of any Net Proceeds Events are applied in the manner contemplated by subsections 10.5 (if so required); (ii) all collateral and guarantee obligations provided for in the Credit Documents upon the termination of the Aggregate Commitment, payment in full of all Loans and Reimbursement Obligations owing hereunder and termination of all Domestic L/C Obligations and European L/C Obligations; and (iii) all collateral (but not any guarantee obligations) provided for in the Credit Documents on the date upon which the senior, unsecured, long-term debt of the Company receives a credit rating of BBB- or better from S&P and Baa3 or better from Moody's. In furtherance of the foregoing, each Lender hereby authorizes and instructs the Documentation Agent to execute and deliver or file such termination and partial release statements and do such other things as the Company reasonably may request to evidence and effect any release contemplated hereby. (b) Notwithstanding the provisions of subsection 17.2(a), the Documentation Agent shall not be required to execute any release document which, in the Documentation Agent's opinion, would expose the Documentation Agent to liability or impose additional obligations upon the Documentation Agent. 17.3 NOTICES. All notices, requests and demands to or upon the respective parties hereto to be effective shall be in writing (including by facsimile transmission) and, unless otherwise expressly provided herein, shall be deemed to have been duly given or made (a) in the case of delivery by hand, when delivered, (b) in the case of delivery by mail, three days after being deposited in the mails, postage prepaid, or (c) in the case of delivery by facsimile transmission, when sent and receipt has been confirmed, addressed as follows in the case of the Borrowers, the Documentation Agent and the Administrative Agent, and as set forth in Schedule II in the case of the other parties hereto, or to such other address as may be hereafter notified by the respective parties hereto: The Company: Hexcel Corporation Two Stamford Plaza 281 Tresser Boulevard Stamford, Connecticut 06901 Attention: Treasurer Fax: 203/358-3993 116 Foreign Borrowers: c/o Hexcel Corporation Two Stamford Plaza 281 Tresser Boulevard Stamford, Connecticut 06901 Attention: Treasurer Fax: 203/358-3993 The Documentation Agent: Citibank, N.A. 399 Park Avenue New York, New York 10022 Attention: Jordan Schweon Fax: 212/793-7460 The Administrative Agent: Credit Suisse First Boston 11 Madison Avenue New York, New York 10010 Attention: Karl Studer Fax: 212-325-8326 PROVIDED that any notice, request or demand to or upon the Administrative Agent or the Lenders pursuant to subsection 2.2, 3.2, 4.2, 5.2, 6.2, 7.2, 7.3, 8.2, 9.2, 10.3, 10.4 or 10.11(b) shall not be effective until received. 17.4 NO WAIVER; CUMULATIVE REMEDIES. No failure to exercise and no delay in exercising, on the part of the Administrative Agent, the Documentation Agent or any Lender, any right, remedy, power or privilege hereunder or under the other Credit Documents shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. The rights, remedies, powers and privileges herein provided are cumulative and not exclusive of any rights, remedies, powers and privileges provided by law. 17.5 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and warranties made hereunder, in the other Credit Documents and in any document, certificate or statement delivered pursuant hereto or in connection herewith shall survive the execution and delivery of this Agreement and the making of the Loans hereunder. 17.6 PAYMENT OF EXPENSES AND TAXES. The Borrowers agree (a) to pay or reimburse the Administrative Agent and the Documentation Agent for all its respective reasonable out-of-pocket costs and expenses incurred in connection with the development, preparation and execution of, and any amendment, supplement or modification to, this Agreement and the other Credit Documents and any other documents prepared in connection herewith or therewith, and the consummation and administration of the transactions contemplated hereby and thereby, including, without limitation, the reasonable fees and disbursements of the several counsel to the Administrative Agent and the Documentation Agent, (b) to pay or reimburse each Lender, the Documentation Agent and the Administrative Agent for 117 all its reasonable costs and expenses incurred in connection with the enforcement or preservation of any rights under this Agreement, the other Credit Documents and any such other documents, including, without limitation, the fees and disbursements of the several counsel to the Lenders, the Documentation Agent and the Administrative Agent, (c) to pay, indemnify, and hold each Lender, the Documentation Agent and the Administrative Agent harmless from, any and all recording and filing fees and any and all liabilities with respect to, or resulting from any delay in paying, stamp, excise and other similar taxes, if any, which may be payable or determined to be payable in connection with the execution and delivery of, or consummation or administration of any of the transactions contemplated by, or any amendment, supplement or modification of, or any waiver or consent under or in respect of, this Agreement, the other Credit Documents and any such other documents and (d) to pay, indemnify, and hold each Lender, the Documentation Agent and the Administrative Agent and their respective officers, directors, employees, agents, investment advisors which are under common institutional control with a Lender and trustees harmless from and against any and all other liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever with respect to the execution, delivery, enforcement, performance and administration of this Agreement, the other Credit Documents and the other transactions contemplated hereby, or the use of the proceeds of the Loans and other extensions of credit hereunder and any such other documents, including, without limitation, any of the foregoing relating to the violation of, noncompliance with or liability under, any Environmental, Health or Safety Requirements of Law applicable to the operations of the Company, any of its Subsidiaries or any Property (all the foregoing in this clause (d), collectively, the "INDEMNIFIED LIABILITIES"), PROVIDED that (x) no Borrower shall be obligated hereunder to the Administrative Agent, the Documentation Agent or any Lender with respect to indemnified liabilities arising from the gross negligence, bad faith or willful misconduct of the Administrative Agent, the Documentation Agent or any such Lender (as the case may be), (y) neither of Composites-UK or Hexcel-Spain shall be liable for any indemnified liabilities to the extent such indemnified liabilities relate to or are associated with its own acquisition by the Company or any of its Subsidiaries and (z) none of the Foreign Borrowers shall have any obligation to the Administrative Agent, the Documentation Agent or any Lender hereunder with respect to indemnified liabilities relating to the Loans made to, or the Letters of Credit issued for the account of, any Borrower other than such Foreign Borrower. The agreements in this subsection 17.6 shall survive repayment of the Loans and all other amounts payable hereunder. 17.7 SUCCESSORS AND ASSIGNS; PARTICIPATIONS AND ASSIGNMENTS. (a) This Agreement shall be binding upon and inure to the benefit of the Borrowers, the Lenders, the Documentation Agent, the Administrative Agent and their respective successors and assigns, except that no Borrower may assign or transfer any of its rights or obligations under this Agreement other than in accordance with the provisions of subsection 17.1. (b) Any Lender may, in the ordinary course of its commercial lending business and in accordance with applicable law, at any time sell to one or more banks or other entities ("PARTICIPANTS") participating interests in any Loan owing to such Lender, any Commitment of such Lender or any other interest of such Lender hereunder and under the other Credit Documents. In the event of any such sale by a Lender of a participating interest to a Participant, 118 such Lender's obligations under this Agreement to the other parties to this Agreement shall remain unchanged, such Lender shall remain solely responsible for the performance thereof, such Lender shall remain the holder of any such Loan or other extension of credit for all purposes under this Agreement and the other Credit Documents, and the relevant Borrowers, the Documentation Agent and the Administrative Agent shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement and the other Credit Documents. No Lender shall be entitled to create in favor of any Participant, in the participation agreement pursuant to which such Participant's participating interest shall be created or otherwise, any right to vote on, consent to or approve any matter relating to this Agreement or any other Credit Document except for those specified in clause (ii) of the proviso to subsection 17.1 or, to the extent that such Lender would have the right to vote on any matter specified therein, clause (i) of such proviso. The Borrowers agree that if amounts outstanding under this Agreement are due or unpaid, or shall have been declared or shall have become due and payable upon the occurrence of an Event of Default, each Participant shall, to the maximum extent permitted by applicable law, be deemed to have the right of setoff in respect of its participating interest in amounts owing under this Agreement to the same extent as if the amount of its participating interest were owing directly to it as a Lender under this Agreement, PROVIDED that, in purchasing such participating interest, such Participant shall be deemed to have agreed to share with the Lenders the proceeds thereof as provided in subsection 17.8(a) as fully as if it were a Lender hereunder. The Borrowers also agree that each Participant shall be entitled to the benefits of subsections 10.13, 10.14 and 10.15 with respect to its participation in the Commitments, Loans and other extensions of credit outstanding from time to time as if it was a Lender; PROVIDED that, in the case of subsection 10.14, such Participant shall have complied with the requirements of said subsection and PROVIDED, FURTHER, that no Participant shall be entitled to receive any greater amount pursuant to any such subsection than the transferor Lender would have been entitled to receive in respect of the amount of the participation transferred by such transferor Lender to such Participant had no such transfer occurred. (c) Any Lender may, in the ordinary course of its commercial lending business and in accordance with applicable law, at any time and from time to time assign to (i) any Lender or any Affiliate, Approved Fund or Subsidiary thereof which would reasonably be expected to be able to perform the obligations hereunder which have been assigned to it, (ii) with the consent of the Administrative Agent (which shall not be unreasonably withheld), to any Eligible Assignee or (iii) with the consent of the Administrative Agent and the Company (which, in each case, shall not be unreasonably withheld or delayed), to any additional bank or financial institution or other entity which is regularly engaged in making, purchasing or investing in loans (any assignee described in clause (i), (ii) or (iii), an "ASSIGNEE") all or any part of its rights and obligations under this Agreement and the other Credit Documents pursuant to an Assignment and Acceptance, substantially in the form of Exhibit E, executed by such Assignee, such assigning Lender (and, in the case of an Assignee that is not then a Lender or an Affiliate or Subsidiary thereof, by the Administrative Agent and, to the extent required pursuant to clause (iii) above, by the Company) and delivered to the Administrative Agent for its acceptance and recording in the Register, PROVIDED that, in the case of any such assignment to an additional bank or financial institution, the sum of the aggregate principal amount of the Tranche A Loans, Tranche B Loans, Aggregate Revolving Credit Commitment and/or Aggregate European Loan Commitment being 119 assigned (it being understood that assignments to an Assignee by one or more Tranche B Lenders which are Approved Funds with respect to each other shall be aggregated for purposes of this proviso and treated as if they were assigned by a single Lender to such Assignee) is not less than $5,000,000 or such lesser amount as may be agreed to by the Company (such agreement not to be unreasonably withheld) and the Administrative Agent. Upon such execution, delivery, acceptance and recording, from and after the effective date determined pursuant to such Assignment and Acceptance, (x) the Assignee thereunder shall be a party hereto and, to the extent provided in such Assignment and Acceptance, have the rights and obligations of a Lender hereunder with Tranche A Loans, Tranche B Loans or a Commitment (as the case may be) as set forth therein, and (y) the assigning Lender thereunder shall, to the extent provided in such Assignment and Acceptance, be released from its obligations under this Agreement (and, in the case of an Assignment and Acceptance covering all or the remaining portion of an assigning Lender's rights and obligations under this Agreement, such assigning Lender shall cease to be a party hereto). Notwithstanding any provision of this paragraph (c) and paragraph (e) of this subsection 17.7, the consent of the Company shall not be required, and, unless requested by the Assignee and/or the assigning Lender, new Notes shall not be required to be executed and delivered by the relevant Borrower, for any assignment which occurs at any time when any of the events described in Section 15(f) shall have occurred and be continuing. (d) The Administrative Agent, on behalf of each Borrower, shall maintain at the address of the Administrative Agent referred to in subsection 17.3 a copy of each Assignment and Acceptance delivered to it and a register (the "REGISTER") for the recordation of the names and addresses of the Lenders and the Commitments of, and principal amounts of the Loans (other than the European Overdraft Loans, which the Administrative Agent shall have no obligation to record in the Register) owing to, each Lender from time to time. The entries in the Register shall be conclusive, in the absence of manifest error, and the Borrowers, the Administrative Agent, the Documentation Agent and the Lenders may (and, in the case of any Loan or other obligation hereunder not evidenced by a Note, shall) treat each Person whose name is recorded in the Register as the owner of a Loan or other obligation hereunder as the owner thereof for all purposes of this Agreement and the other Credit Documents, notwithstanding any notice to the contrary. Any assignment of any Loan or other obligation hereunder not evidenced by a Note shall be effective only upon appropriate entries with respect thereto being made in the Register. (e) Upon its receipt of an Assignment and Acceptance executed by an assigning Lender and an Assignee (and, in the case of an Assignee that is not then a Lender or an Affiliate or Subsidiary thereof, the Administrative Agent and, when none of the events described in Section 15(f) shall have occurred and be continuing, the Company), together with payment to the Administrative Agent of a registration and processing fee of $3,500, the Administrative Agent shall (i) promptly accept such Assignment and Acceptance and (ii) on the effective date determined pursuant thereto record the information contained therein in the Register and give notice of such acceptance and recordation to the Lenders, the Company and (if not the Company) the relevant Borrower. (f) Each Borrower authorizes each Lender to disclose to any Participant or Assignee (each, a "TRANSFEREE") and any prospective Transferee any and all financial information 120 in such Lender's possession concerning such Borrower and its Affiliates and Subsidiaries which has been delivered to such Lender by or on behalf of such Borrower pursuant to this Agreement or which has been delivered to such Lender by or on behalf of such Borrower in connection with such Lender's credit evaluation of such Borrower and its Affiliates and Subsidiaries prior to becoming a party to this Agreement. (g) For avoidance of doubt, the parties to this Agreement acknowledge that the provisions of this subsection 17.7 concerning assignments of Loans and Notes relate only to absolute assignments and that such provisions do not prohibit assignments creating security interests, including, without limitation, any pledge or assignment by a Lender of any Loan or Note to any Federal Reserve Bank in accordance with applicable law. (g) Notwithstanding anything to the contrary contained herein, any Lender (a "GRANTING BANK") may grant to a special purpose funding vehicle (an "SPC") of such Granting Bank (but not more than one such SPC, unless the Company shall otherwise agree), identified as such in writing from time to time by the Granting Bank to the Administrative Agent and the Company, the option to provide to the Borrowers all or any part of any Loan that such Granting Bank would otherwise be obligated to make to the Borrowers pursuant to subsection 2.2, 3.2, 4.2 or 7.2; PROVIDED that (i) nothing contained herein shall constitute a commitment by any SPC to make any Loan, (ii) if an SPC elects not to exercise such option or otherwise fails to provide all or any part of such Loan, the Granting Bank shall be obligated to make such Loan pursuant to the terms hereof and (iii) the funding of such Loan by the SPC would not (at the time of such funding) reasonably be expected to subject any Borrower to any cost, expense or indemnity pursuant to subsection 10.12, 10.13, or 10.14 hereof which is in excess of the amount for which such Borrower would have been liable if such Loan had been funded by the relevant Granting Bank; and PROVIDED, FURTHER, that no SPC or Granting Bank shall be entitled to receive any greater amount pursuant to subsection 10.12, 10.13, or 10.14 than the Granting Bank wold have been entitled to received had the Granting Bank not otherwise granted such SPC the option to provide any Loan to the Borrowers. The making of a Loan by an SPC hereunder shall be deemed to utilize the Commitments of all Lenders to the same extent, and as if, such Loan were made by the Granting Bank. Each party hereto hereby agrees that no SPC shall be liable for any payment under this Agreement for which a Lender would otherwise be liable for so long as, and to the extent that, the related Granting Bank makes such payment. In furtherance of the foregoing, each party hereto hereby agrees that, prior to the date that is one year and one day after the payment in full of all outstanding senior indebtedness of any SPC, it will not institute against, or join any other Person in instituting against, such SPC any bankruptcy, reorganization arrangement, insolvency or liquidation proceedings or similar proceedings under the laws of the United States or any state thereof. Notwithstanding the foregoing, the Granting Bank unconditionally agrees to indemnify the Borrowers, the Administrative Agent, the Documentation Agent and each Lender against all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever which may be incurred by or asserted against such Borrower, the Administrative Agent, the Documentation Agent or such Lender, as the case may be, in any way relating to or arising as a consequence of any such forbearance or delay in the initiation of any such proceeding against its SPC. Each party hereto hereby acknowledges and agrees that no SPC 121 shall have any voting rights hereunder and that the voting rights attributable to any extensions of credit made by an SPC shall be exercised only by the relevant Granting Bank. The Borrowers, the Administrative Agent, the Documentation Agent and the Lenders may, at their option, pursue remedies against any Granting Bank which arise out of any failure of its SPC to perform such SPC's obligations under this Agreement or any other Credit Document. Each Granting Bank shall serve as the administrative agent and attorney in fact for its SPC and shall on behalf of its SPC: (i) receive any and all payments made for the benefit of such SPC and (ii) give and receive all communications and notices and take all actions hereunder and the other Credit Documents to the extent, if any, such SPC shall have any rights hereunder or thereunder. To the extent a SPC shall have the right to receive or give any such notice or take any such action in writing, it shall be signed by its Granting Bank as administrative agent and attorney in fact for such SPC and need not be signed by such SPC on its own behalf. The Borrowers, the Administrative Agent, the Documentation Agent and the Lenders may rely thereon without any requirement that the SPC sign or acknowledge the same. Notwithstanding anything to the contrary contained herein, no SPC may assign or transfer all or any portion of its interest hereunder or under any other Credit Document, other than via an assignment to its Granting Bank. 17.8 ADJUSTMENTS; SET-OFF. (a) If any Lender (other than a Local European Lender)(a "BENEFITTED LENDER") shall at any time receive any payment of all or part of any of its Loans or Reimbursement Obligations owing to it under any Commitment, or interest thereon, pursuant to a guarantee or otherwise, or receive any collateral in respect thereof (whether voluntarily or involuntarily, by set-off or otherwise), in a greater proportion than any such payment to and collateral received by any other Lender, if any, in respect of such other Lender's Loans or Reimbursement Obligations, as the case may be, owing to it under such Commitment or interest thereon, such benefitted Lender shall purchase for cash from the other Lenders such portion of each such other Lender's similar Loans or Reimbursement Obligations, or shall provide such other Lenders with the benefits of any such collateral, or the proceeds thereof, as shall be necessary to cause such benefitted Lender to share the excess payment or benefits of such collateral or proceeds ratably with each of the Lenders which hold such Commitment; PROVIDED, HOWEVER, that if all or any portion of such excess payment or benefits is thereafter recovered from such benefitted Lender, such purchase shall be rescinded, and the purchase price and benefits returned, to the extent of such recovery, but without interest. Each Borrower agrees that each Lender so purchasing a portion of another Lender's Loans or Reimbursement Obligations may exercise all rights of payment (including, without limitation, rights of set-off) with respect to such portion as fully as if such purchasing Lender were the direct holder of such portion. (b) In addition to any rights and remedies of the Lenders provided by law, each Lender shall have the right, without prior notice to the relevant Borrower, any such notice being expressly waived by such Borrower to the extent permitted by applicable law, upon any amount becoming due and payable by a Borrower hereunder (whether at the stated maturity, by acceleration or otherwise) to set-off and appropriate and apply against such amount any and all deposits (general or special, time or demand, provisional or final), in any currency, and any other credits, indebtedness or claims, in any currency, in each case whether direct or indirect, absolute or contingent, matured or unmatured, at any time held or owing by such Lender or any branch or 122 agency thereof to or for the credit or the account of such Borrower. Each Lender agrees promptly to notify the relevant Borrower and the Administrative Agent after any such set-off and application made by such Lender, PROVIDED that the failure to give such notice shall not affect the validity of such set-off and application. 17.9 COUNTERPARTS. This Agreement may be executed by one or more of the parties to this Agreement on any number of separate counterparts (including by facsimile transmission), and all of said counterparts taken together shall be deemed to constitute one and the same instrument. A set of the copies of this Agreement signed by all the parties shall be lodged with the Company and the Administrative Agent. 17.10 CERTAIN WAIVERS. (a) Each Lender hereby acknowledges that certain of the Foreign Pledge Agreements and related documentation (including, without limitation, amendments and/or releases of the Foreign Pledge Agreements under, and as defined in, the Existing Agreement) may not be executed and delivered prior to or on the Closing Date. Each Lender hereby waives compliance with the provision of Section 12 of this Agreement to the extent and only to the extent necessary to permit the Borrowers to borrow under this Agreement without the delivery of such Foreign Pledge Agreements and other documentation. The Company hereby covenants that it shall, and shall cause its Subsidiaries to, deliver to the Administrative Agent all such Foreign Pledge Agreements and related documentation within 45 days following the Closing Date and that the failure to deliver any such Foreign Pledge Agreement or related documentation within such 45-day period shall constitute an Event of Default hereunder; PROVIDED that the Administrative Agent may (in its sole discretion) elect to extend such 45-day period by not more than an additional 45 days. (b) This Agreement shall be effective (other than with respect to Composites-France) notwithstanding the failure of Composites-France to execute this Agreement on the Closing Date. Upon receipt by the Administrative Agent from Composites-France of its executed counterpart to this Agreement, an opinion of foreign counsel to Composites-France, documents evidencing corporate authorization of Composites-France and other related documents required under Section 12 of this Agreement on or prior to December 31, 1998, this Agreement shall be effective with respect to Composites-France and Composites-France shall have all the rights and obligations of, and shall become, a Foreign Borrower and a Credit Party hereunder at such time. (c) The Company hereby agrees, and each Lender which is both a party to this Agreement and the Existing Agreement hereby agrees (in its capacity as a "Lender" under the Existing Agreement), that the Existing Agreement hereby is superseded by this Agreement, except that (i) the Company and its Subsidiaries shall remain obligated to pay any amounts owing thereunder and (ii) any provision of the Existing Agreement which is expressly stated therein to survive the termination thereof shall be deemed to be incorporated in this Agreement for the benefit of the Lenders under (and as defined in) the Existing Agreement. 17.11 SEVERABILITY. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such 123 prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 17.12 INTEGRATION. This Agreement and the other Credit Documents represent the agreement of the Borrowers, the Administrative Agent, the Documentation Agent and the Lenders with respect to the subject matter hereof, and there are no promises, undertakings, representations or warranties by the Administrative Agent, the Documentation Agent or any Lender relative to subject matter hereof not expressly set forth or referred to herein or in the other Credit Documents. 17.13 GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK. 17.14 SUBMISSION TO JURISDICTION; WAIVERS. Each Borrower hereby irrevocably and unconditionally: (a) submits for itself and for its property to the non-exclusive jurisdiction of any New York State or Federal court sitting in The City of New York and any competent court of the jurisdiction of organization of such Borrower (a "LOCAL COURT"), and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement or the Notes; (b) agrees that all claims in respect of such action or proceeding may be heard and determined in such New York State or local court or, to the extent permitted by law, in such Federal court and waives, to the fullest extent it may effectively do so, any defense of an inconvenient forum to the maintenance of such action or proceeding in any such court and any right of jurisdiction on account of the place of residence or domicile of such Borrower; (c) appoints United States Corporation Services Company (the "NEW YORK PROCESS AGENT"), with an office on the date hereof at 80 State Street, Albany, New York 12207, as its agent to receive on behalf of such Borrower and its respective property service of copies of the summons and complaint and any other process which may be served in any such action or proceeding in any such New York State or Federal court and agrees promptly to appoint a successor New York Process Agent in The City of New York (which successor Process Agent shall accept such appointment in a writing prior to the termination for any reason of the appointment of the initial New York Process Agent); (d) agrees that, in any such action or proceeding in such New York State or Federal court sitting in The City of New York, such service may be made on such Borrower by delivering a copy of such process to such Borrower in care of the appropriate Process Agent at such Process Agent's above address and by depositing a 124 copy of such process in the mails by certified or registered air mail, addressed to such Borrower (such service to be effective upon such receipt by the appropriate Process Agent and the depositing of such process in the mails as aforesaid); (e) authorizes and directs such Process Agent to accept such service on its behalf. (f) agrees that nothing herein shall affect the right to effect service of process in any other manner permitted by law (including, without limitation, by the mailing of copies of such process to such Borrower by certified or registered air mail at its address referred to in subsection 17.3 or shall limit the right to sue in any other jurisdiction; (g) agrees that, to the fullest extent permitted by applicable law, a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law; and (h) waives, to the maximum extent not prohibited by law, any right it may have to claim or recover in any legal action or proceeding referred to in this subsection 17.14 any special, exemplary, punitive or consequential damages. 17.15 ACKNOWLEDGEMENTS. Each Borrower hereby acknowledges that: (a) it has been advised by counsel in the negotiation, execution and delivery of this Agreement and the other Credit Documents; (b) none of the Administrative Agent, the Documentation Agent or any Lender has any fiduciary relationship with or duty to such Borrower arising out of or in connection with this Agreement or any of the other Credit Documents, and the relationship between Administrative Agent, the Documentation Agent and the Lenders, on one hand, and such Borrower, on the other hand, in connection herewith or therewith is solely that of debtor and creditor; and (c) no joint venture is created hereby or by the other Credit Documents or otherwise exists by virtue of the transactions contemplated hereby among the Lenders or among such Borrower and the Lenders. 17.16 WAIVERS OF JURY TRIAL. EACH BORROWER, THE ADMINISTRATIVE AGENT, THE DOCUMENTATION AGENT AND THE LENDERS HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER CREDIT DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN. 17.17 CONFIDENTIALITY. Subject to subsection 17.7(f), the Administrative Agent, the Documentation Agent and the Lenders shall hold all nonpublic information obtained pursuant to the requirements hereof and identified as such by any Borrower in accordance with such Person's customary procedures for handling confidential information of this nature and in 125 accordance with safe and sound lending practices and in any event may make disclosure reasonably required by a bona fide offeree, assignee or participant in connection with the contemplated transfer or participation, or as required or requested by any Governmental Authority or representative thereof, or pursuant to legal process or any applicable Requirement of Law, or to its accountants, lawyers and other advisors, and shall require any such offeree, assignee or participant to agree (and require any of its offerees, assignees or participants to agree) to comply with this subsection 17.17. In no event shall the Administrative Agent, the Documentation Agent or any Lender be obligated or required to return any materials furnished by the Borrowers; PROVIDED, that each offeree shall be required to agree that if it does not become an assignee or participant it shall return all materials furnished to it by the Borrowers in connection herewith. 17.18 JUDGMENT CURRENCY. (a) If for the purposes of obtaining judgment in any court it is necessary to convert a sum due hereunder or under the Notes in any currency (the "ORIGINAL CURRENCY") into another currency (the "OTHER CURRENCY") the parties hereto agree, to the fullest extent that they may effectively do so, that the rate of exchange used shall be that at which in accordance with normal banking procedures the Administrative Agent could purchase the Original Currency with the Other Currency at 11:00 a.m. in New York, New York on the second Business Day preceding that on which final judgment is given. (b) The obligation of any Borrower in respect of any sum due in the Original Currency from it to any Lender, the Documentation Agent or the Administrative Agent hereunder or under the Note held by such Lender shall, notwithstanding any judgment in any Other Currency, be discharged only to the extent that on the Business Day following receipt by such Lender, the Documentation Agent or the Administrative Agent (as the case may be) of any sum adjudged to be so due in such Other Currency such Lender, the Documentation Agent or the Administrative Agent (as the case may be) may in accordance with normal banking procedures purchase Dollars with such Other Currency; if the amount of the Original Currency so purchased is less than the sum originally due to such Lender, the Documentation Agent or the Administrative Agent (as the case may be) in the Original Currency, such Borrower agrees, as a separate obligation and notwithstanding any such judgment, to indemnify such Lender, the Documentation Agent or the Administrative Agent (as the case may be) against such loss, and if the amount of the Original Currency so purchased exceeds the sum originally due to any Lender or the Administrative Agent (as the case may be) in the Original Currency, such Lender, the Documentation Agent or the Administrative Agent (as the case may be) agrees to remit to such Borrower such excess. 17.19 DELAYED FUNDING OF EUROPEAN REVOLVING LOANS. (a) The Borrowers hereby agree, and each Lender which is a party to this Agreement and to the Existing Agreement hereby agrees (in its capacity as a "Lender" under the Existing Agreement) that, from and after the Closing Date, (i) the Existing Agreement shall be superseded by this Agreement, (ii) the Borrowers shall have no further right to borrow thereunder, (iii) any provision of the Existing Agreement which is expressly stated therein to survive the termination of the Existing Agreement shall survive the Closing Date hereunder and (iv) any Default or Event of Default under (and as defined in) the Existing Agreement which occurs solely as a result of the 126 transactions contemplated hereby and compliance with the terms, conditions and provisions of the Existing Agreement to the extent such terms, conditions and provisions would be breached as a result of the transactions contemplated hereby shall be deemed to be waived through and including the European Repayment Date. (b) The Borrowers hereby agree, and each Lender which is a party to this Agreement and to the Existing Agreement hereby agrees (in its capacity as a "Lender" under the Existing Agreement) that, notwithstanding anything to the contrary contained in this Agreement: (i) the Borrowers need not repay the European Revolving Loans under (and as defined in) the Existing Agreement (the "EXISTING EUROPEAN LOANS") until the fourth Business Day following the Closing Date (the "EUROPEAN REPAYMENT DATE"); and (ii) the Borrowers shall not be entitled to borrow European Revolving Loans hereunder until the later of (A) the European Repayment Date and (B) the date upon which all principal and interest owing on account of the Existing European Loans has been paid in full; PROVIDED that (x) the restriction contained in clause (ii) above shall not impair the obligation of the Borrowers to pay facility fees pursuant to subsection 10.2(a)(ii) hereof on the Aggregate European Loan Commitment as if European Revolving Loans were available to the Borrowers (but undrawn) during such period and (y) the provisions of clause (i) above shall be effective only to the extent that the Borrowers have submitted Notices of Borrowing on or prior to the Closing Date which request sufficient European Revolving Loans under this Agreement to repay in full the principal of the Existing European Loans. (c) The parties hereto hereby agree that any credit support and collateral security granted pursuant to the Existing Agreement shall continue to secure and support the Existing European Loans until all principal and interest on account thereof has been paid in full. For purposes of the Security Documents delivered pursuant to this Agreement, the Existing European Loans and other amounts owing in respect thereof shall be deemed to be outstanding hereunder. (d) The parties hereto hereby agree that any failure by the Borrowers to have paid on or prior to the European Repayment Date all principal, interest and any other amounts which are then due and payable by the Borrowers under the Existing Agreement shall constitute an Event of Default hereunder. (e) The Company hereby represents and warrants that, as of the Closing Date, the aggregate outstanding principal amounts of Existing European Loans are as set forth below: 127
---------------------------------------------- ---------------------------------------------- Borrower Principal Amount --------------- ------------------- Hexcel-France FF 42,000,000 Hexcel-UK Stg. 14,000,000 Salver ItL 6,500,000,000 Hexcel-Spain Ptas. 1,255,000,000 ---------------------------------------------- ----------------------------------------------
128 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by their proper and duly authorized officers as of the day and year first above written. HEXCEL CORPORATION HEXCEL (U.K.) LIMITED HEXCEL COMPOSITES LIMITED HEXCEL S.A. (France) HEXCEL FABRICS S.A. HEXCEL COMPOSITES S.A. (Belgium) SALVER S.R.L. HEXCEL COMPOSITES GMBH (Austria) HEXCEL COMPOSITES S.A. (Spain) HEXCEL COMPOSITES GMBH (Germany) By:/s/ S.C. Forsyth -------------------------------------- Title: Attorney-In-Fact HEXCEL COMPOSITES S.A. By: -------------------------------------- Title: CREDIT SUISSE FIRST BOSTON, as Administrative Agent and Arranger By: /s/ Richard B. Carey -------------------------------------- Title: Director By: /s/ Julia P. Kingsbury -------------------------------------- Title: Vice President CITIBANK, N.A., as Documentation Agent and as a Lender By: /s/ Willaim Clark -------------------------------------- Title: Attorney-In-Fact By: -------------------------------------- Title: CREDIT SUISSE FIRST BOSTON, as a Lender By: /s/ Karl M. Studer -------------------------------------- Title: Director By: /s/ Richard B. Carey -------------------------------------- Title: Director CREDIT SUISSE FIRST BOSTON, as a Local Lender By: /s/ Ian Piddock -------------------------------------- Title: Director By: /s/ Jasmine Channer -------------------------------------- Title: Associate CREDIT SUISSE FIRST BOSTON AKTIENGESELLSCHAFT, as a Local Lender By: /s/ Hans-Joachim Franke -------------------------------------- Title: Director By: /s/ Manfred Sommer -------------------------------------- Title: Vice President BALANCED HIGH-YIELD FUND II LTD. By: BHF Bank Aktiengesellshaft, acting through its New York Branch, as attorney-in-fact By: /s/ Anthony Heyman -------------------------------------- Title: Assistant Vice President By: /s/ Hans J. Scholz -------------------------------------- Title: Assistant Vice President THE BANK OF NEW YORK By: /s/ Elizabeth T. Ying -------------------------------------- Title: Vice President BANQUE NATIONALE DE PARIS By: /s/ P. Nicholas Rogers -------------------------------------- Title: Senior Vice President By: /s/ Mark McElwain -------------------------------------- Title: Assistant Vice President CHANCELLOR/TRITON CBO, LIMITED By: INVESCO Senior Secured Management, Inc. as Collateral Manager By: /s/ Kathleen A. Lenarcic -------------------------------------- Title: Authorized Signatory THE CHASE MANHATTAN BANK By: /s/ Robert T. Sacks -------------------------------------- Title: Managing Director CREDIT AGRICOLE INDOSUEZ By: /s/ Craig Welch -------------------------------------- Title: First Vice President By: /s/ John McCloskey -------------------------------------- Title: Vice President CREDIT LYONNAIS NEW YORK BRANCH By: /s/ Olivier Perrain -------------------------------------- Title: First Vice President CYPRESSTREE SENIOR FLOATING RATE FUND By: CypressTree Investment Management Company, Inc. as Portfolio Manager By: /s/ Catherine C. McDermott -------------------------------------- Title: Principal KZH CYPRESSTREE - 1 LLC By: /s/ Virginia Conway -------------------------------------- Title: Authorized Agent CYPRESSTREE BOSTON PARTNERS By: /s/ Todd Dahlstrom -------------------------------------- Title: Partner CYPRESSTREE INVESTMENT FUND, LLC By: CypressTree Investment Management Company, Inc. its Managing Member By: /s/ Catherine C. McDermott -------------------------------------- Title: Principal CYPRESSTREE INSTITUTIONAL FUND, LLC By: CypressTree Investment Management Company, Inc. its Managing Member By: /s/ Catherine C. McDermott -------------------------------------- Title: Principal DEUTSCHE BANK AG NEW YORK BRANCH AND/OR CAYMAN ISLANDS BRANCH By: /s/ Joel Makowsky -------------------------------------- Title: Vice President By: /s/ Andreas Neumeier -------------------------------------- Title: Vice President ERSTE BANK DER OESTERREICHISCHEN SPARKASSEN AG By: /s/ David Manheim /s/ Rima Terradista ------------------------------------------ Title: Assistant Vice Vice President President THE FIRST NATIONAL BANK OF CHICAGO By: /s/ Juan J. Duarte -------------------------------------- Title: Vice President FIRST UNION NATIONAL BANK By: /s/ David Silander -------------------------------------- Title: Vice President GENERAL ELECTRIC CAPITAL CORPORATION By: /s/ Janet K. Williams -------------------------------------- Title: Duly Authorized Signatory INDUSTRIAL BANK OF JAPAN LIMITED, NEW YORK BRANCH By: /s/ J. Kenneth Biegen -------------------------------------- Title: Senior Vice President KEYBANK NATIONAL ASSOCIATION By: /s/ Richard A. Pohle -------------------------------------- Title: Senior Vice President KZH ING - 2 LLC By: /s/ Virginia Conway -------------------------------------- Title: Authorized Agent KZH ING - 3 LLC By: /s/ Virginia Conway -------------------------------------- Title: Authorized Agent CIBC INC. By: /s/ Frank Fiorito -------------------------------------- Title: Authorized Signatory KZH Soleil - 2 LLC By: /s/ Virginia Conway -------------------------------------- Title: Authorized Agent KZH III LLC By: /s/ Virginia Conway -------------------------------------- Title: Authorized Signatory MERITA BANK Plc By: /s/ Frank Maffei -------------------------------------- Title: Vice President By: /s/ Paul Brooks -------------------------------------- Title: Vice President DEBT STRATEGIES FUND II, INC. By: /s/ Colleen M. Cunniffe -------------------------------------- Title: Authorized Signatory MERRILL LYNCH SENIOR FLOATING RATE FUND, INC. By: /s/ Colleen M. Cunniffe -------------------------------------- Title: Authorized Signatory METROPOLITAN LIFE INSURANCE COMPANY By: /s/ Scott W. Isley -------------------------------------- Title: Director ML CLO XIX STERLING (CAYMAN) LTD. By: Sterling Asset Manager, L.L.C., as its Investment Advisor By: /s/ Louis A. Pistecchia -------------------------------------- Title: Executive Vice President MORGAN STANLEY DEAN WITTER PRIME INCOME TRUST By: /s/ Peter Gewirtz -------------------------------------- Title: Authorized Signatory SOCIETE GENERALE By: /s/ Georg L. Peters -------------------------------------- Title: Vice President WACHOVIA BANK, N.A. By: /s/ James Barwis -------------------------------------- Title: Vice President EX-10.2 3 EXHIBIT 10.2 Exhibit 10.2 LEASE AGREEMENT Dated as of September 15, 1998 by and between To the extent that the leased premises are located in Anderson County, South Carolina and Iredell County, North Carolina, CSI LEASING TRUST, a Delaware business trust, as Lessor, and to the extent that the leased premises are located in Wilkes County, Georgia, WILLIAM J. WADE, not in his individual capacity, but solely as co-trustee for CSI Leasing Trust, and HEXCEL CS CORPORATION (to be renamed Clark-Schwebel Corporation), as Lessee Premises located in: Anderson County, South Carolina, Iredell County, North Carolina, and Wilkes County, Georgia CERTAIN RIGHTS OF THE LESSOR UNDER THIS LEASE AGREEMENT HAVE BEEN ASSIGNED TO, AND ARE SUBJECT TO A SECURITY INTEREST IN FAVOR OF CREDIT SUISSE FIRST BOSTON, AS AGENT UNDER THE CREDIT AND SECURITY AGREEMENT DATED AS OF SEPTEMBER ___, 1998 BETWEEN THE LESSOR AND THE AGENT, AS SUCH CREDIT AND SECURITY AGREEMENT MAY BE AMENDED, MODIFIED OR SUPPLEMENTED FROM TIME TO TIME IN ACCORDANCE WITH THE PROVISIONS THEREOF. THIS LEASE AGREEMENT HAS BEEN EXECUTED IN SEVERAL COUNTERPARTS AND OF THE OTHER OPERATIVE DOCUMENTS. TO THE EXTENT, IF ANY, THAT THIS LEASE AGREEMENT CONSTITUTES CHATTEL PAPER (AS SUCH TERM IS DEFINED IN THE UNIFORM COMMERCIAL CODE AS IN EFFECT IN ANY APPLICABLE JURISDICTION), NO SECURITY INTEREST IN THIS LEASE AGREEMENT MAY BE CREATED THROUGH THE TRANSFER OR POSSESSION OF ANY COUNTERPART HEREOF OTHER THAN THE "ORIGINAL EXECUTED COUNTERPART NO. 1". SEE PARAGRAPH 39 FOR FURTHER INFORMATION CONCERNING THE RESPECTIVE RIGHTS OF THE SEVERAL HOLDERS OF COUNTERPARTS HEREOF. [THIS COUNTERPART IS THE ORIGINAL EXECUTED COUNTERPART NO. 1] [THIS COUNTERPART IS EXECUTED COUNTERPART NO. ___ AND NOT THE ORIGINAL EXECUTED COUNTERPART] TABLE OF CONTENTS 1. Demise of Premises -1- 2. Definitions -1- 3. Title and Condition -1- 4. Use of Leased Premises; Quiet Enjoyment. -3- 5. Term. -3- 6. Rent. -4- 7. Net Lease; Non-Terminability. -5- 8. Payment of Impositions; Compliance with Legal Requirements; Utilities. -5- 9. Liens. -6- 10. [RESERVED] -6- 11. Maintenance and Repair and Substitution of Equipment -6- 12. Alterations -8- 13. Event of Loss. -9- 14. Insurance. -12- 15. Restoration. -14- 16. Assignment and Subletting -15- 17. Permitted Contests. -15- 18. Default Provision. -16- 19. Non-Waiver. -20- 20. Attorneys' Fees. -21- 21. Notices. -21- 22. Estoppel Certificate. -22- 23. Surrender. -22- 24. No Merger of Title. -22- 25. Obsolescence, Uneconomic or Surplus Termination; Burdensome Buyout -22- 26. Holding Over. -26- 27. Showing of the Leased Premises by Lessor. -26- 28. Right to Perform for Lessee -26- 29. Force Majeure -26- 30. Broker's Commissions. -27- 31. Inurement -27- 32. Negation of Lien for Rent -27- 33. Purchase Option. -27- 34. Memorandum of Lease -29- 36. Lessor's Covenants -29- 37. Miscellaneous -30- 38. True Lease -32- 39. Original Lease -32-
Attachments: Exhibit A-1 Legal Description, Anderson County, SC Exhibit A-2 Legal Description, Iredell County, NC Exhibit A-3 Legal Description, Wilkes County, GA Exhibit B Permitted Encumbrances Schedule 1 Schedule of Lease Amortization Schedule 2 Schedule of Fixed Basic Rent Schedule 3 Schedule of Lease Termination Values LEASE AGREEMENT This LEASE AGREEMENT (this "Lease") is made as of this 15 day of September, 1998, by and between, to the extent that the leased premises are located in Anderson County, South Carolina and Iredell County, North Carolina, CSI LEASING TRUST, a Delaware business trust ("Lessor") with an address c/o Wilmington Trust Company, Rodney Square North, 1100 North Market Street, Wilmington, Delaware 19890-0001, and, to the extent that the leased premises are located in Wilkes County, Georgia, WILLIAM J. WADE, an individual residing in the State of Delaware, not in his individual capacity, but solely as co-trustee for CSI Leasing Trust under Business Trust Agreement dated as of September 14, 1998 (in such capacity, the "Trustee") and HEXCEL CS CORPORATION (to be renamed Clark-Schwebel Corporation) ("Lessee"), a Delaware corporation and a wholly owned subsidiary of Hexcel Corporation with an address at Two Stamford Plaza, 281 Tresser Boulevard, Stamford, CT 06901. In consideration of the rents and provisions herein stipulated to be paid and performed, Lessor and Lessee hereby covenant and agree as follows: 1. DEMISE OF PREMISES. Lessor hereby demises and lets to Lessee, and Lessee hereby takes and leases from Lessor, for the term and upon the provisions hereinafter specified, the following described property (collectively, the "Leased Premises"): (i) the premises described in EXHIBITS A-1 to A-3 attached hereto and made a part hereof, together with the easements, rights and appurtenances thereunto belonging or appertaining (collectively, the "Land"); (ii) the buildings, structures and other improvements constructed and which may be constructed title to which is, may or has vested in Lessor pursuant to the provisions hereof) on the Land (collectively, the "Improvements"); and (iii) the machinery and equipment (except the Additional Equipment and Severable Alterations (other than Mandatory Alterations)), installed in and upon the Improvements, including, without limitation the heating, ventilating, lighting, plumbing, electrical and sprinkler systems, escalators, elevators and all equipment and fixtures located on the Land and used in connection with the operation of the business therein, together with (except as otherwise provided in this Lease) all additions and accessions thereto, substitutions therefor and replacements thereof permitted by this Lease (collectively, the "Equipment"). 1. DEFINITIONS. Capitalized terms used herein and not defined herein shall have the meanings given to such terms in Appendix A to the Participation Agreement dated as of the date hereof among Lessee, Lessor and the other parties thereto. 1. TITLE AND CONDITION. (a) The Leased Premises are demised and let subject to (i) the Permitted Liens, (ii) all Legal Requirements, and (iii) the condition of the Leased Premises as of the commencement of the Term, without representation or warranty by Lessor; it being understood and agreed, however, that the recital of the Permitted Encumbrances herein shall not be construed as a revival of any thereof which for any reason may have expired. (a) LESSOR HAS NOT MADE AND WILL NOT MAKE ANY INSPECTION OF ANY OF THE LEASED PREMISES, AND LESSOR LEASES AND WILL LEASE AND LESSEE TAKES AND WILL TAKE THE LEASED PREMISES "AS IS," AND LESSEE ACKNOWLEDGES THAT EXCEPT AS PROVIDED IN THIS LEASE LESSOR (WHETHER ACTING AS LESSOR HEREUNDER OR IN ANY OTHER CAPACITY) HAS NOT MADE AND WILL NOT MAKE, NOR SHALL LESSOR BE DEEMED TO HAVE MADE, ANY WARRANTY OR REPRESENTATION, EXPRESS OR IMPLIED, WITH RESPECT TO ANY OF THE LEASED PREMISES, INCLUDING ANY WARRANTY OR REPRESENTATION AS TO ITS FITNESS FOR USE OR PURPOSE, DESIGN OR CONDITION FOR ANY PARTICULAR USE OR PURPOSE, AS TO THE QUALITY OF THE MATERIAL OR WORKMANSHIP THEREIN, LATENT OR PATENT, OR AS TO VALUE, COMPLIANCE WITH SPECIFICATIONS, LOCATION, USE, CONDITION, MERCHANTABILITY, QUALITY, DESCRIPTION, DURABILITY OR OPERATION, IT BEING AGREED THAT ALL RISKS INCIDENT THERETO ARE TO BE BORNE BY LESSEE. Lessee acknowledges that the Leased Premises have been inspected by Lessee and are satisfactory to it. In the event of any defect or deficiency in any of the Leased Premises of any nature, whether patent or latent, Lessor shall not have any responsibility or liability with respect thereto or for any incidental or consequential damages (including strict liability in tort). The provisions of this Paragraph 3(b) have been negotiated, and the foregoing provisions are intended to be a complete exclusion and negation of any warranties by Lessor, express or implied, with respect to any of the Leased Premises (other than those expressly provided in this Lease), arising pursuant to the Uniform Commercial Code or any other law now or hereafter in effect or otherwise. (a) Lessor hereby assigns, without recourse or warranty whatsoever, to Lessee all warranties, guaranties and indemnities, express or implied, and similar rights which Lessor may have against any manufacturer, seller, engineer, contractor or builder in respect of any of the Leased Premises, including, but not limited to, any rights and remedies existing under contract or pursuant to the Uniform Commercial Code (collectively, the "Guaranties"). Such assignment shall remain in effect until the earlier of (i) termination of this Lease or (ii) the dispossession from Lessee of the Leased Premises as the result of the exercise of remedies hereunder upon the occurrence of an Event of Default hereunder. Lessor shall also retain the right to enforce any Guaranties assigned in the name of Lessee upon the occurrence of an Event of Default. Lessor hereby agrees to execute and deliver at Lessee's expense such further documents, including powers of attorney, as Lessee may reasonably request in order that Lessee may have the full benefit of the assignment effected or intended to be effected by this Paragraph 3(c). The foregoing provision of reversion shall be self-operative and no further instrument of reassignment shall be required. In confirmation of such reassignment Lessee shall execute and deliver promptly any certificate or other instrument which Lessor may request. Any monies collected by Lessee under any of the Guaranties after the occurrence of and during the continuation of an Event of Default shall be held in trust by Lessee and promptly paid over to Lessor. (a) Subject to prior written consent of any Lender, Lessor agrees to enter into, at Lessee's expense, such easements, covenants, waivers, approvals or restrictions for utilities, parking or other matters as desirable for operation of the Leased Premises or properties adjacent thereto (collectively, "Easements") as reasonably requested by Lessee, subject to Lessor's approval of the form thereof, not to be unreasonably withheld or delayed; provided, however, that no such Easement shall result in any diminution in the value or utility of the Leased Premises for use by Lessee and further provided that no such Easement shall render the use of the Leased Premises dependent upon any other property or condition, each of which Lessee shall certify to Lessor in writing delivered with Lessee's request with respect to such Easement. Lessee's request shall also include Lessee's written undertaking acknowledging that Lessee shall remain liable hereunder as principal and not merely as a surety or guarantor notwithstanding the establishment of any Easement. If Lessor shall fail to approve the form of any such Easement or obtain the written consent of, so long as the Lien of the Credit Agreement shall not have been discharged in accordance with the terms thereof, the Agent within a period of thirty (30) days from its receipt of same, then Lessor shall be deemed to have disapproved the form of such Easement. 1. USE OF LEASED PREMISES; QUIET ENJOYMENT. (a) Lessee may occupy and use the Leased Premises for the purpose of manufacturing industrial fabric products and/or for any other purpose related to, or in furtherance of, the Hexcel Business, provided that no Alterations may be made except in accordance with Paragraph 12, no Equipment may be removed from the Leased Premises except in accordance with Paragraphs 11(b), 14(g) and 23, and such use will not otherwise violate any provision of this Paragraph 4. Lessee shall not permit any unlawful occupation, business or trade to be conducted on any of the Leased Premises or any use to be made thereof contrary to any applicable Legal Requirements. Lessee shall not use or occupy or permit any of the Leased Premises to be used or occupied, nor do or permit anything to be done in or on any of the Leased Premises, in a manner which (i) violates any certificate of occupancy or Permitted Liens affecting any of the Leased Premises, (ii) makes void or voidable any insurance required pursuant to Paragraph 14 then in force with respect to any of the Leased Premises, (iii) makes it impossible to obtain fire or other insurance which Lessee is required to furnish hereunder, (iv) constitutes a public or private nuisance or waste, or (v) would create a materially increased risk of an unindemnified environmental liability to the Lessor and, so long as the Lien of the Credit Agreement shall not have been discharged in accordance with the terms thereof, the Lenders or the Agent. Lessee shall pay, or cause to be paid, all charges and costs required in connection with the use of the Leased Premises. (a) Lessor covenants and agrees that, so long as no Event of Default hereunder shall have occurred and be continuing, it shall not (i) or permit any other Person claiming rights by, through or under it to, disturb or interfere with Lessee's (or any permitted assignee's or sublessee's) quiet possession, use and enjoyment of the Leased Premises, or (ii) take any action or cause any action to be taken (other than actions required by the Operative Documents) contrary to Lessee's (or any permitted assignee's or sublessee's) rights and interests under the Lease, including, the right to quiet possession, use and enjoyment of the Leased Premises. 1. TERM. Subject to the provisions hereof, Lessee shall have and hold the Leased Premises for a term equal to the Initial Term and the Basic Term (collectively, the "Term"). 1. RENT. (a) (i) During the Initial Term, Lessee shall pay rent in advance for the Leased Premises on the Commencement Date in an amount equal to the Initial Rent payable on such date. (ii) During the Basic Term, Lessee shall pay monthly rent in arrears for the Leased Premises on each Basic Rent Payment Date in an amount equal to the Basic Rent payable on such date. So long as the obligations of Lessor to Lender shall remain outstanding pursuant to the Credit Agreement, Basic Rent (but not Initial Rent) shall be paid to Agent at Agent's address set forth in the Credit Agreement, or at such other place as Agent from time to time may designate to Lessor in writing and upon satisfaction by Lessor of all its obligations under the Credit Agreement, shall be paid to Lessor at Lessor's address set forth above, or at such other place as Lessor from time to time may designate to Lessee in writing, in Federal or other immediately available funds which at the time of such payment shall be legal tender for the payment of public or private debts in the United States of America. (b) Subject to the provisions of Paragraph 17 hereof and Sections 7.1 and 7.2 of the Participation Agreement, Lessee shall pay to Lessor or to whomever shall be entitled thereto subject to the terms of the Operative Documents, any and all Supplemental Rent (including Premium, except as set forth below) as and when the same shall become due and payable thereunder, PROVIDED, however, that if no due date is specified, the same shall be payable on demand; PROVIDED, FURTHER, that notwithstanding anything to the contrary contained herein or in any other Operative Document, Lessee shall have no obligation to pay Premium payable as a result of a Loan Event of Default which is not a Lease Event of Default, it being agreed that the payment of Premium in any such event shall be the sole obligation, to the exclusion of Lessee, of Lessor. (c) If any installment of Rent is not paid when due (excluding any applicable grace period), Lessee shall pay to Lessor on demand interest on such overdue installment of Rent at the rate per annum equal to the lesser of (i) the Default Rate or (ii) the maximum contract interest rate permitted by law. (d) Basic Rent and Termination Values may be adjusted from time to time as required pursuant to the terms of this Lease. (e) Notwithstanding anything to the contrary contained in this Lease or any other Operative Document, but taking into account the adjustments to each installment of Basic Rent pursuant to Paragraph 6(d), (i) each installment of Basic Rent, (both before and after any adjustment pursuant to Paragraph 6(d)) shall be an amount at least sufficient to pay in full, after giving effect to any payment due or required to be made under the Cap Agreements on such date, whether or not actually paid, the principal and interest, if any, on the Loan then due and (ii) the amounts of Termination Value or the Purchase Option Price payable on any date pursuant hereto shall be an amount at least sufficient to pay in full, as of the date of payment thereof, together with any installment of Rent payable as of the date of payment hereof, after giving effect to any payment due or required to be made under the Cap Agreements on such date, whether or not actually paid, the aggregate unpaid principal of, Premium, if any, and all unpaid interest on the Loan accrued to the date on which such amounts are paid in accordance with the terms of the Credit Agreement. The foregoing shall not constitute a guarantee of the payment of the Loan. 1. NET LEASE; NON-TERMINABILITY. (a) This Lease shall constitute a net lease and notwithstanding any other provisions of this Lease, it is intended that Basic Rent shall be paid without counterclaim, set-off, deduction or defense of any kind, and without abatement, suspension, deferment, diminution or reduction of any kind, and Lessee's obligation to pay all such amounts, throughout the Term, is absolute and unconditional. (a) Lessee agrees that it shall remain obligated under this Lease in accordance with its provisions and that, except as otherwise expressly provided herein, it shall not take any action to terminate, rescind or avoid this Lease, notwithstanding (i) the bankruptcy, insolvency, reorganization, composition, readjustment, liquidation, dissolution, winding-up or other proceeding affecting Lessor, (ii) the exercise of any remedy, including foreclosure, under any deed of trust or mortgage affecting the Leased Premises, (iii) any action with respect to this Lease (including the disaffirmance hereof) which may be taken by any trustee, receiver or liquidator of Lessor or by any court, (iv) any defect in the condition, merchantability, design, construction, quality or fitness for use of any portion of the Leased Premises, or any failure of the Leased Premises to comply with all Legal Requirements including any inability to occupy or use the Leased Premises by reason of such noncompliance, (v) any defect in title to or the rights to the Leased Premises or any lien on such title or rights or on the Leased Premises, (vi) any restriction, prevention or curtailment of or interference with any use of the Leased Premises or any part thereof, including eviction, or (vii) any other occurrence whatsoever, whether similar or dissimilar to the foregoing, whether or not Lessee shall have notice or knowledge of any of the foregoing. Except as specifically set forth in this Lease, this Lease shall be non-cancellable by Lessee for any reason whatsoever, and Lessee, to the extent permitted by applicable laws, waives all rights now or hereafter confirmed by statute or otherwise to quit, terminate or surrender this Lease, or to any diminution, abatement or reduction of Rent payable by Lessee hereunder by operation of Applicable Laws. 1. PAYMENT OF IMPOSITIONS; COMPLIANCE WITH LEGAL REQUIREMENTS; UTILITIES. (a) Subject to the provisions of Paragraph 17, before interest or penalties are due thereon, Lessee shall pay and discharge all charges for any easement or agreement maintained for the benefit of any of the Leased Premises, permits, inspection and license fees, and all other public utility charges whether of a like or different nature, even if unforeseen or extraordinary, imposed upon or assessed against Lessor, Lessee or any of the Leased Premises or arising in respect of the occupancy, use or possession thereof (collectively, the "Impositions"). Lessee shall pay all such Impositions directly to the appropriate authority. In the event an assessment against any of the Leased Premises may be paid in installments, Lessee shall have the option to pay such assessment in installments; and in such event, Lessee shall be liable for those installments which become due and payable during the Term and any such installment (or portion thereof prorated on a daily basis) which relates to a period during the Term. Lessee shall prepare and file all tax reports required by Government Authorities which relate to the Impositions. Lessee shall deliver to Lessor, within twenty (20) days of receipt thereof, copies of all settlements, notices and receipts pertaining to the Impositions and the payment thereof, which may be issued by any Government Authority. Subject to the provisions of Paragraph 17, Lessee may contest the validity or amount of any Impositions without the prior written consent of Lessor (and Lessor hereby assigns such right to Lessee). (a) Subject to the provisions of Paragraph 17, Lessee shall comply with and conform to all of the Legal Requirements. (a) Subject to the provisions of Paragraph 17, Lessee shall be obligated to pay directly to the applicable service provider on or prior to the date due all charges for electricity, water, gas, telephone services, trash and garbage removal, sewerage services and other utilities furnished to the Leased Premises during the Term. 1. LIENS. (a) Subject to the provisions of Paragraph 17, Lessee shall not, directly or indirectly, create or permit to be created or to remain, and shall promptly discharge, any lien on Lessor's interest in any of the Leased Premises other than the Permitted Liens. Notice is hereby given that Lessor shall not be liable for any labor, services or materials furnished or to be furnished to Lessee, or to anyone holding any of the Leased Premises through or under Lessee, and that no mechanics' or other liens for any such labor, services or materials shall attach to or affect the interest of Lessor in and to any of the Leased Premises. (a) Nothing in this Lease and no action or inaction by Lessor shall be deemed or construed to mean that Lessor has granted to Lessee any right, power or permission to do any act or to make any agreement which may create, give rise to, or be the foundation for, any right, title, interest or lien in or upon the estate of Lessor in any of the Leased Premises. 1. [RESERVED] 1. MAINTENANCE AND REPAIR AND SUBSTITUTION OF EQUIPMENT (a) Lessee, at its own expense, shall at all times (i) maintain the Leased Premises in good repair and condition, and in the case of the Equipment, in good mechanical condition, except for ordinary wear and tear, (ii) operate and maintain the Leased Premises in accordance with all applicable laws and regulations, whether or not such maintenance requires structural modifications, (iii) comply in all material respects with the standards imposed by any insurance policies required to be maintained hereunder which are in effect at any time during the Term with respect to the Leased Premises or any part thereof, and (iv) conduct maintenance and repair subject to the same standards as Lessee or its' Affiliates shall maintain and repair other similar facilities owned, leased or operated by Lessee or its' Affiliates. Lessee waives any right that it may have or hereafter acquire to (x) require Lessor to maintain, repair, replace, alter remove or rebuild all or any part of the Leased Premises or (y) make repairs or capital expenditures at the expense of Lessor pursuant to any applicable law, regulations or other Legal Requirements and shall promptly make all Alterations of every kind and nature, whether foreseen or unforeseen, which may be reasonably required to be made upon any of the Leased Premises in order to keep and maintain the Land and Improvements in as good repair and appearance as they were on the Commencement Date (subject to Alterations Lessee is permitted to make) except for ordinary wear and tear. (a) (i) Lessee shall, from time to time, replace equipment or parts of any of the Equipment (the "Replaced Equipment") which shall have (A) become worn out, obsolete or unusable for the purpose for which it is intended, or (B) been lost, damaged or destroyed. All equipment substituted for Replaced Equipment (the "Replacement Equipment") shall (1) be in good operating condition, and (2) be suitable for a use which is the same or similar to that of the Replaced Equipment and have a value and utility and remaining economic useful life at least equal to the Replaced Equipment and all such Replacement Equipment shall become part of the Leased Premises. Upon such replacement, title to the Replaced Equipment shall be transferred to Lessee and such Replaced Equipment shall become property of Lessee. If so requested by Lessor in writing, Lessee shall cause to be executed and delivered to Lessor, effective as of the expiration or termination of this Lease (subject to Paragraphs 13 and 33 of this Lease), an invoice, bill of sale or other appropriate instrument evidencing the transfer or assignment to Lessor of all right, title and interest of Lessee or any other party in and to such Replacement Equipment. Thereafter, the Replaced Equipment shall cease to be Equipment and the Replacement Equipment shall, for all purposes hereof, be Equipment. (ii) Lessee shall have the right, at any time and from time to time at its sole cost and expense, to install or place additional equipment (so long as the same can be removed without causing damage to the Leased Premises (or portion thereof) in which it is located) in the Leased Premises (such Equipment, together with Lessee Equipment, collectively, "Additional Equipment"). All Additional Equipment shall at all times be and remain the property of Lessee and may be removed from the Leased Premises by Lessee at or prior to the expiration of the Term. Lessee shall on or prior to the Expiration Date repair all damage caused to the Leased Premises (or portion thereof) resulting from the removal of Additional Equipment. At the expiration or termination of this Lease, the Equipment (other than the Additional Equipment) shall be in good operating condition, ordinary wear and tear excepted. (a) [RESERVED] (a) Provided that the provisions of Section 6.15 of the Participation Agreement shall have been complied with, Lessee shall have the right, at any time and from time to time, to remove any Equipment from the Leased Premises (the "Removed Equipment"), provided the fair market value of the Removed Equipment does not, in the aggregate, exceed One Million and 00/100 Dollars ($1,000,000) and such Removed Equipment shall remain subject to this Lease and shall remain in the United States. (a) In addition to, and without limiting in any way, Lessee's removal rights set forth in Paragraph 11(d), Lessee may at any time, upon prior written notice to Lessor and so long as the Lien of the Credit Agreement shall not have been discharged in accordance with the terms thereof, the Agent, Lessee may at any time remove Equipment from any Property and place such Equipment at a Permitted Location; PROVIDED, that the removal of such Equipment from any Property shall not reduce the value, utility or remaining useful life of such Property at the expiration of the Term assuming that such removed Equipment will be returned to such Property at the expiration of the Term; PROVIDED, FURTHER, that with respect to Equipment to be placed at the Permitted Location described in clause (ii) of the definition thereof, such removal shall be in accordance with Section 6.15 of the Participation Agreement. Upon termination of this Lease and return of the Leased Premises to Lessor, Lessee will cause any such Equipment located at a Permitted Location which is not a Property to be located on either (i) the original Property from which such Equipment was removed, or (ii) if the failure to locate such Equipment on the original Property shall not reduce the value, utility or remaining useful life of such Property, on any other Property. 1. ALTERATIONS (a) Lessee, at its expense (except to the extent otherwise provided in Paragraph 17, shall make any Alteration whether or not severable required by any Legal Requirements (a "Mandatory Alteration"). In addition, Lessee, at its expense, may from time to time make any Alterations that Lessee may, in its sole discretion, deem necessary or desirable in the conduct of its business; PROVIDED, HOWEVER, that Lessee will give notification to Lessor prior to making any Non-Severable Alterations in excess of four million dollars ($4,000,000). All Alterations made pursuant to either of the first two sentences of this Paragraph 12(a) shall be completed in a good and workmanlike manner and in a manner that does not decrease the fair market value, utility, residual value or remaining useful life of the Leased Premises; PROVIDED that Alterations required by Legal Requirements or insurance requirements shall in all cases be deemed to have satisfied the requirements of this sentence. Lessee agrees that (i) such Alterations, construction and installations shall be performed in a good and workmanlike manner, (ii) all such Alterations, construction and installations shall be expeditiously completed in compliance with all Legal Requirements, (iii) all work done in connection with any such Alteration, construction or installation shall comply with the requirements of any insurance policy required to be maintained by Lessee hereunder, (iv) Lessee shall promptly pay all costs and expenses of any such Alteration, construction or installation and shall discharge all liens filed against any of the Leased Premises arising out of the same (subject to Paragraph 17), (v) Lessee shall procure and pay for all permits and licenses required in connection with any such Alterations, construction or installation, and (vi) all such Alterations, construction or installations shall be part of the Leased Premises, provided that Alterations which are separate buildings or improvements constructed by Lessee at its sole cost and expense shall be the property of Lessee and provision shall be made for an equitable allocation to Lessee of the proceeds of any disposition or lease of the Leased Premises by Lessor to reflect the value of such buildings and improvements. (a) Title to each Alteration shall vest as follows: (i) in the case of each Non-Severable Alteration and Mandatory Alteration whether or not Lessor shall have provided financing of the cost of such Alteration, Lessor shall, without further act, effective on the date such Alteration shall have been incorporated into the Facility, acquire title to such Alteration; (ii) in the case of each Severable Alteration Lessee shall retain title to such Alteration; and (iii) title to all Severable Alterations, title to which was vested in Lessee at the Expiration Date but which remain in or on the Leased Premises (or any Property) on the Expiration Date, except if due to a delay in determining the purchase price under the last sentence of this Paragraph 12(b), shall vest automatically in Lessor as of such date without the payment of any sum. Immediately upon title to an Alteration vesting in Lessor pursuant to this Paragraph 12(b), such Alteration shall, without further act, become subject to this Lease and be deemed part of the Leased Premises (and the applicable Property) for all purposes hereof provision shall be made for an equitable allocation to Lessee to reflect the value of such Alterations. Alterations, title to which remains in Lessee pursuant to of this Paragraph 12(b), shall not be, or be deemed to be, a part of the Leased Premises or any Property. At least ninety (90) days prior to, but not more than one hundred and eighty (180) days prior to, the Expiration Date, Lessee shall provide Lessor in writing with a list of each Severable Alteration (other than Mandatory Alterations) to which Lessee has retained title and which Lessee intends to remove from the Facility. Lessor must give Lessee notice of its election to exercise its option to purchase or lease the Severable Alterations, if at all, by written notice to Lessee within thirty (30) days after receipt of Lessee's notice specifying such Severable Alterations. On the Expiration Date, if Lessee shall not have exercised its purchase option under Paragraph 33 hereof, Lessor will have the option to lease or purchase any Severable Alteration (other than Mandatory Alterations) to which Lessee has retained title at the then fair market value for such Severable Alteration (determined by an appraisal by an appraiser mutually acceptable to both Lessee and Lessor in the absence of agreement of the parties) (a) Subject to compliance with Legal Requirements, Lessee may remove from time to time any Severable Alteration (other than Mandatory Alterations) to which Lessee has title in accordance with Paragraph 12(b); and any other property to which Lessee shall have title described in Paragraph 12(d); PROVIDED that Lessee, at its expense and in any event prior to the Expiration Date, shall promptly repair any damage to the Leased Premises caused by such removal. (a) The trade or other fixtures, personal property, machinery, equipment and the like in the Leased Premises which are owned by Lessee and placed or installed in the Leased Premises in accordance with Paragraph 11(b)(ii) are acknowledged by Lessor to be Lessee's property (and do not constitute part of the Leased Premises) (collectively, "Lessee Equipment") and, without Lessor's prior written approval, Lessee may make such improvements and alterations thereto and to Additional Equipment as it may desire, at its own expense. Subject to Paragraph 12(c), any such trade or other fixtures and any trade or other fixture of Lessee hereafter made or installed by or for Lessee (and not constituting a Non-Severable Alteration or Mandatory Alteration), and any Severable Alteration which is not a Mandatory Alteration made or installed by or for Lessee to which Lessee has title in accordance with Paragraph 12(b), shall remain the property of Lessee and in case of damage or destruction thereto by fire or other causes, Lessee shall have the right to recover the value thereof as its own loss from any insurance company with which it has insured the same, or to claim an award in the event of condemnation. Lessee may remove all or any of such things, at any time during the Term or, at its option, Lessee may abandon the same, in whole or in part, to Lessor at the expiration or earlier termination of the Lease by vacating the Leased Premises without removing the same, in which case title to such property shall vest in Lessor and such property shall become part of the Leased Premises; PROVIDED that in the case of any such removal by Lessee, Lessee shall repair any damage to the Leased Premises caused by such removal; and PROVIDED, FURTHER, that Lessee shall pay, or reimburse Lessor for, any reasonable costs incurred by Lessor in connection with the removal or disposal by it of such abandoned property. Effective from and after the Commencement Date, Lessor waives any Lien or other similar right to which it may be entitled by statute (or any similar Lien at common law in favor of landlords) which it might now or hereafter otherwise have in or with respect to the property of Lessee or any part thereof as against Lessee. 1. EVENT OF LOSS. (a) If an Event of Loss shall occur, or if any substantial part of any Property shall suffer damage, loss, condemnation, confiscation, theft or seizure that does not constitute an Event of Loss, Lessee shall promptly, and in any case within thirty (30) days after such event so notify Lessor and, so long as the Lien of the Credit Agreement shall not have been discharged in accordance with the terms thereof, the Agent and shall pursue collection of insurance or condemnation proceeds; PROVIDED that Lessor will cooperate with (and join with as necessary) Lessee to pursue such collections. (a) If any Property or any part thereof shall suffer damage that does not constitute a Casualty or an Event of Loss, Lessee shall make or cause to be made such repairs as are necessary to ensure that such Property is maintained in the condition and state of repair required under Paragraph 11(a). Lessee shall promptly commence the reconstruction of such Property and the repair or replacement of the affected Equipment and shall complete the reconstruction, repair and/or replacement by the end of the Term. (a) If any Property or any part thereof shall be subject to an Event of Loss, Lessee shall pay to Lessor on the applicable Termination Date, an amount equal to the sum of (i) the Termination Value multiplied by the applicable Property Percentage (for the Property suffering an Event of Loss) for such Termination Date plus (ii) Premium, if any, plus (iii) any other Supplemental Rent, if any, then due and payable (such amounts collectively, the "Termination Purchase Price"). Concurrently with payment of the Termination Purchase Price, Lessor, at Lessee's expense, shall deliver to Lessee a duly executed special warranty deed and bill of sale warranting only against matters claimed by, through or under Lessor with respect to claims which relate to Lessor's (or its agents' or employees') actions after the date hereof (or local equivalent) conveying the Property (including, without limitation, the Equipment related thereto) subject to the Event of Loss and all other required documents including an assignment of any award or insurance proceeds in connection with the Event of Loss with respect to such Property. The special warranty deed and bill of sale warranting only against matters claimed by, through or under Lessor with respect to claims which relate to Lessor's (or its agents' or employees') actions or failure to act after the date hereof (or local equivalent) shall convey title, free from encumbrances other than (A) Permitted Liens (other than Lessor Liens attributable to Lessor or the Owner Participant), (B) liens or encumbrances created or suffered by Lessee or arising by reason of the failure of Lessee to observe or perform any of the terms, covenants or agreements herein provided to be observed and performed by Lessee, and (C) any installments of Impositions for which Lessee is responsible pursuant to Paragraph 8 hereof then affecting such Property (any such deed and bill of sale, a "Special Warranty Deed"). Thereupon, this Lease shall terminate solely with respect to such Property suffering the Event of Loss. Thereupon, (x) all remaining amounts of Basic Rent shall be adjusted by reducing pro rata by an amount equal to the applicable Property Percentage of such Basic Rent amounts immediately prior to the payment of the Termination Purchase Price, (y) all remaining Termination Values shall be adjusted by reducing pro rata by an amount equal to the applicable Property Percentage of such Termination Values immediately prior to the payment of the Termination Purchase Price, and (z) the Property Percentage applicable to each of the Properties remaining subject to the Lease shall be recomputed pursuant to the definition thereof. (a) Payments received by Lessor, Lessee or, so long as the Lien of the Credit Agreement shall not have been discharged in accordance with the terms thereof, the Agent from any Governmental Authority, insurer or other Person, as a result of an Event of Loss shall be applied as follows (with any proceeds received prior to payment by Lessee pursuant to Paragraph 13(c) being held by, so long as the Lien of the Credit Agreement shall not have been discharged in accordance with the terms thereof, the Agent, and thereafter, Lessor), and invested at the direction of Lessee, until the applicable Termination Date): (x) so much of such payments as shall not exceed the amount of Termination Purchase Price required to be paid by Lessee pursuant to Paragraph 13(c) shall be applied in reduction of Lessee's obligation to pay such amounts if not already paid by Lessee or, if already paid by Lessee, shall be applied to reimburse Lessee for its payment of such amounts, and (y) in the case of amounts received with respect to any Requisi- tion of title be divided between Lessor and Lessee as their respective interest may appear and Requisition of use shall be paid to Lessee. (a) Payments or proceeds received by Lessor, Lessee or, so long as the Lien of the Credit Agreement shall not have been discharged in accordance with the terms thereof, the Agent from any Governmental Authority, insurer or other Person, plus the amount of any payments which would have been due from an insurer or with respect to any destruction, damage, loss, condemnation, confiscation, theft, seizure of or requisition of title to the Property or any part thereof, in each case not constituting an Event of Loss, shall be applied as follows: (i) all such payments or proceeds paid by insurers or other Persons, including Governmental Authorities, shall be held by Agent or after release of the Lien of the Credit Agreement in accordance with its terms, by Lessor as security for the obligations of Lessee under Paragraph 13(b) of this Lease, PROVIDED, that all such payments or proceeds less than Two Million Dollars ($2,000,000) (such payments and proceeds, collectively, the "Lessee Retention Amount") shall be held by the Lessee and any such payments and proceeds so held by Agent or Lessor shall be subject to Paragraph 15 and shall be released and paid over to Lessee from time to time in an amount equal to expenditures made or incurred by Lessee for repair, rebuilding and restoration of the Property; (ii) the balance, if any, remaining after completion of such repair, rebuilding and restoration and payment therefor, of such payments representing proceeds of such insurance shall be paid over to, or retained by, and shall become the unencumbered property of, Lessee; and (iii) the balance, if any, remaining after completion of such repair, rebuilding and restoration and payment therefor, of such payments representing condemnation proceeds or like proceeds shall be paid to Lessor and Lessee as their respective interests may appear. Lessee shall first fund its repair and restoration expenses with the Lessee Retention Amount and thereafter upon disbursement of the entire Lessee Retention Amount, Lessee may request reimbursement of its repair and restoration expenditures from funds held by the Agent or Lessor, as the case may be, in accordance with Paragraph 15. (a) Notwithstanding anything to the contrary in any Operative Document, Lessee shall be entitled to assert any separate claims for Severable Alterations to which it retains title and for trade and other fixtures of Lessee described in Paragraph 12(d) so long as such claims do not reduce the amount of the proceeds to be received pursuant to this Section 13 with respect to the Property (PROVIDED, that in the event of a single award, settlement or payment with respect to both the Property and Lessee's interest in any such Severable Alterations, trade and other fixtures, such proceeds shall not be considered reduced for purposes hereof by any allocation of such proceeds to the parties in accordance with their interests). Any proceeds received by Lessee in respect of such Severable Alterations, trade and other fixtures as a result of the foregoing shall be retained by Lessee free of any right, title or interest of Lessor. (a) Until this Lease shall have been terminated with respect to any Property as provided in this Paragraph 13, the Term shall continue and there shall be no abatement or reduction of Basic Rent or any other sums payable by Lessee hereunder. 1. INSURANCE. (a) Lessee shall maintain the following insurance on the Lease Premises: (i) Insurance against loss or damage to the Improvements and Equipment by fire and other risks from time to time included under standard "all risk" coverage policies (naming, so long as the Lien of the Credit Agreement shall not have been discharged in accordance with the terms thereof, the Agent, and thereafter, Lessor, as loss payee) in amounts not less than the greater of (A) the actual replacement value of the Improvements and Equipment, excluding footings and foundations and other parts of the Improvements which are not insurable, and (B) the applicable Termination Value from time to time, with deductibles not to exceed $500,000 per occurrence. Such insurance policies may contain reasonable exclusions and deductible amounts. (i) Commercial general liability insurance (naming Lessor and, so long as the Lien of the Credit Agreement shall not have been discharged in accordance with the terms thereof, the Agent as additional insureds) against claims for bodily injury, death or property damage occurring on, in or about any of the Leased Premises in an amount not less than Three Million and 00/100 Dollars ($3,000,000) for bodily injury or death to any one (1) person, not less than Three Million and 00/100 Dollars ($3,000,000) for any one (1) accident and not less than Three Million and 00/100 Dollars ($3,000,000) for property damage, with deductibles not to exceed $1,000,000 per occurrence. (i) Statutory workmen's compensation insurance covering all persons employed in connection with any work done on or about any of the Leased Premises for which claims for death or bodily injury could be asserted against Lessor or Lessee or in lieu of such workmen's compensation insurance, a program of self-insurance complying with the rules, regulations and requirements of the appropriate agency of the State. (i) Boiler and pressure vessel insurance on any of the Equipment which by reason of its use or existence, is capable of bursting, erupting, collapsing or exploding (naming, so long as the Lien of the Credit Agreement shall not have been discharged in accordance with the terms thereof, the Agent and thereafter, Lessor as loss payee), in an amount not less than Five Hundred Thousand and 00/100 Dollars ($500,000) for damage to property resulting from such perils, with deductibles not to exceed $500,000 per occurrence. (a) The insurance required by Paragraph 14(a) above shall include such commercially reasonable additional coverages or increased coverages as Lessor or, so long as the Lien of the Credit Agreement shall not have been discharged in accordance with the terms thereof, the Agent, may reasonably require and shall be written by companies of recognized financial standing which are authorized to do insurance business in the State. The insurance policies in Paragraph 14(a) shall require the issuer thereof to give Lessee, Guarantor, Lessor and, so long as the Lien of the Credit Agreement shall not have been discharged in accordance with the terms thereof, the Agent and the Administrative Agent at least thirty (30) days prior written notice before canceling the policy for any reason or materially amending it. If said insurance or any part thereof shall expire, be withdrawn, become void by breach of any condition thereof by Lessee or become void or unsafe by reason of the failure or impairment of the capital of any insurer, Lessee shall immediately obtain new or additional insurance and provide proof thereof with fifteen (15) days after such insurance is obtained. (a) Each insurance policy referred to in clauses (i) and (iv) of Paragraph 14(a) shall contain a standard non-contributory mortgagee endorsement in favor of and acceptable to the holder of any mortgage now or hereafter affecting the Leased Premises. Each such policy shall provide that the respective interests of any additional insureds required hereunder with respect to any loss otherwise payable thereunder shall not be invalidated by any act or neglect by Lessee, including, breach of any warranty contained in such policies. (a) Lessee shall pay as they become due all premiums for the insurance required by Paragraph 14(a) and shall renew or replace each policy prior to or upon expiration thereof. (a) Anything in this Paragraph 14 to the contrary notwithstanding, any insurance which Lessee is required to obtain pursuant to Paragraph 14(a) may be carried under a "blanket" policy or policies covering other properties or liabilities of Lessee, provided that such "blanket" policy or policies otherwise comply with the provisions of this Paragraph 14. (a) Lessee shall promptly comply with and conform to (i) all provisions of each insurance policy and (ii) all requirements of the insurers thereunder, applicable to Lessee or any of the Leased Premises or to the use, manner of use, occupancy, possession, operations, maintenance, alteration or repair of any of the Leased Premises. (a) In the event of any property loss in excess of Two Hundred Fifty Thousand and 00/100 Dollars ($250,000), Lessee shall give Lessor and, so long as the Lien of the Credit Agreement shall not have been discharged in accordance with the terms thereof, the Agent immediate notice thereof. Lessee shall adjust, collect and compromise any and all claims under any of the insurance policies required by Paragraph 14(a)(i) and (iv) subject to Lessor's and Agent's approval (which approvals shall not be unreasonably withheld) of final settlement of estimated losses of Three Million and 00/100 Dollars ($3,000,000) or more. If the estimated cost of restoration or repair shall be the Lessee Retention Amount or less, all proceeds of any insurance required under clauses (i) and (iv) of Paragraph 14(a) shall be payable to Lessee to be used by Lessee to restore the Improvements, and in all other events to Agent (so long as the obligations of Lessor to Agent shall remain outstanding pursuant to the Credit Agreement) and thereafter to a trustee which shall be a federally insured bank or other financial institution selected by Lessor and Lessee (upon satisfaction by Lessor of all its obligations to Agent under the Credit Agreement) (the "Trustee") for application pursuant to Paragraph 13. Each insurer is hereby authorized and directed to make payment under said policies directly to Agent or Trustee, as applicable, and in the event such payments are to be made to Trustee instead of to Lessor and Lessee jointly, Lessee and Lessor each hereby appoints such Trustee as its attorney-in-fact to endorse any draft therefor for the purposes set forth in this Lease after approval by Lessee of such Trustee, if Trustee is other than Agent. In the event of any loss (whether or not insured against) resulting in damage to any of the Land or Improvements, the Term shall nevertheless continue and there shall be no abatement or reduction of Basic Rent or any other sums payable by Lessee hereunder. Subject to Paragraph 14(g) above, the Net Proceeds of such loss shall be retained by, so long as the Lien of the Credit Agreement shall not have been discharged in accordance with the terms thereof, Agent and thereafter, Lessor and, promptly after such loss, Lessee, as required in Paragraph 11(a), shall commence and diligently continue to restore the Land and Improvements as nearly as possible to their value, condition and character immediately prior to such damage, in accordance with the provisions of Paragraph 15. Lessee shall, whether or not the Net Proceeds are sufficient for the purpose, promptly repair or replace the Improvements and Equipment in accordance with the provisions of Paragraph 11(a) and the Net Proceeds of such loss shall be payable to Lessee, subject to the provisions of Paragraph 15 hereof. In the event of any loss of any of the Equipment, the Term shall nevertheless continue and there shall be no abatement or reduction of Basic Rent or any other sums payable by Lessee hereunder. Lessee shall, to the extent the Net Proceeds are sufficient for the purpose, promptly repair or replace such Equipment, in accordance with the provisions of Paragraph 11(b). 1. RESTORATION. The Net Proceeds, the Net Award and the Lessee Payment (collectively, the "Restoration Fund") shall be disbursed by the Agent or the Trustee, as applicable, for the restoration of any of the Land or Improvements subject to the following conditions: (i) prior to commencement of restoration, to the extent plans and specification are deemed necessary by Lessee, the plans and specifications for the restoration shall have been approved by Lessor (which approval shall not be unreasonably withheld); (i) at the time of any disbursement, no Event of Default shall be continuing; (i) disbursements shall be made from time to time in an amount not exceeding the hard and soft cost of the work completed and other costs incurred since the last disbursement, upon receipt of (1) reasonably satisfactory evidence of the stage of completion, of the estimated cost of completion and of performance of the work to date in a good and workmanlike manner in accordance with the plans and specifications and Legal Requirements, and (2) other evidence of cost and payment so that Lessor can verify that the amounts disbursed from time to time are represented by work that is completed, in place; (i) each request for disbursement shall be accompanied by a certificate of Lessee, signed by an officer thereof, describing the work for which payment is requested, stating the cost incurred in connection therewith and stating that Lessee has not previously received payment for such work; the certificate to be delivered by Lessee upon completion of the work shall, in addition, state that the work has been completed and complies with the applicable requirements of this Lease; (i) except as otherwise provided in the Credit Agreement, the Restoration Fund shall be kept in a separate interest bearing federally insured account and may not be commingled with Lessor's other funds or the funds of any other person; and (i) in addition, prior to commencement of restoration and at any time during restoration, if the estimated cost of restoration as reasonably determined by Lessor exceeds the Restoration Fund, then Lessee shall first fund at its own expense such excess costs of the restoration and then the remaining Restoration Fund shall be utilized for the completion of the restoration. Any sum in the Restoration Fund which remains in the Restoration Fund upon the completion of restoration shall be paid to Lessee. 1. ASSIGNMENT AND SUBLETTING. (a) Lessee may not, without Lessor's and any Agent's consent, which may be given or withheld in their sole discretion, assign, or sublet any of the Leased Premises at any time to any other party and any such assignment, sublease entered into without Lessor's and any Agent's consent shall be null and void; provided, however, Lessor's and any Agent's consent shall not be required for any assignment of this Lease or subletting to an Affiliate of Lessee. (a) Each sublease of any of the Leased Premises shall be subject and subordinate to the provisions of this Lease. If Lessee assigns all its rights and interest under this Lease as permitted hereunder, the assignee under such assignment shall expressly assume all the obligations of Lessee hereunder, from and after the date of such assignment, by a written instrument delivered to Lessor at the time of such assignment. No assignment or sublease made as permitted by this Paragraph 16 shall affect or reduce any of the obligations of Lessee hereunder, and all such obligations shall continue in full force and effect as obligations of a principal and not as obligations of a guarantor, as if no assignment or sublease had been made. No assignment or sublease made as permitted by this Paragraph 16 shall impose any obligations on Lessor under this Lease. Lessee shall, within ten (10) days after the execution and delivery of any such assignment or sublease, deliver a duplicate original copy thereof in recordable form to Agent (so long as the Lien of the Credit Agreement shall not have been discharged in accordance with the terms thereof) and thereafter, Lessor. (a) Upon the occurrence of an Event of Default under this Lease, Lessor shall have the right to collect and enjoy all rents and other sums of money payable under any sublease of any of the Leased Premises, and Lessee hereby irrevocably and unconditionally assigns such rents and money to Lessor, which assignment may be exercised upon and after (but not before) the occurrence of an Event of Default. 1. PERMITTED CONTESTS. Lessee shall not be required to pay any Imposition, comply with any Legal Requirements, discharge or remove any lien referred to in Paragraph 9 or 12, or pay any other sums to any third party, so long as Lessee shall contest, in good faith and at its expense, the existence, the amount or the validity thereof, the amount of the damages caused thereby, or the extent of its or Lessor's liability therefor, by appropriate proceedings (a "Permitted Contest") so long as the proceedings do not involve any risk of criminal or material unindemnified liability on the part of Agent or any Lender or of the loss of priority of liens securing the Collateral and do not (i) pose a material risk of sale, forfeiture or loss of any interest in the Leased Premises, (ii) interfere in any material manner with the use or operation of the Leased Premises or (iii) pose any risk of interference with the payment of Rent or principal or interest or any other payments, to or for the account of the Agent or the Lenders. While any such proceedings are pending, Lessor shall not have the right to pay, remove or cause to be discharged the Imposition or lien thereby being contested. Lessee further agrees that each such contest shall be promptly and diligently prosecuted to a final conclusion, except that Lessee shall, so long as the conditions of the first sentence of this Paragraph are at all times complied with, have the right to attempt to settle or compromise such contest through negotiations. Lessee shall, promptly after the final determination of such contest, to the extent required by Paragraph 8 hereof, fully pay and discharge the amounts which shall be levied, assessed, charged or imposed, together with all penalties, fines, interest, costs and expenses thereof or in connection therewith, and perform all acts the performance of which shall be ordered or decreed as a result thereof. 1. DEFAULT PROVISION. (a) The occurrence of any one (1) or more of the following shall constitute an "Event of Default" under this Lease: (i) a failure by Lessee to make any payment of Basic Rent, the Purchase Price or Termination Value when due and such failure continues for five (5) days or any payment of other Supplemental Rent when due and such failure continues for ten (10) days; (i) a failure by Lessee to duly perform and observe, or a violation or breach of, any other material provision hereof or of any other Operative Document to which it is a party (other than as provided in clause (vi) below) and such failure shall continue for a period of thirty (30) days after notice from Lessor of such breach PROVIDED, that if Lessee is diligently proceeding to cure such failure, violation or breach, Lessee shall have an additional one hundred twenty (120) day period to cure such failure, violation or breach before such failure, violation or breach becomes an Event of Default hereunder; (i) a failure to maintain insurance required by Section 14 hereof; (i) Lessee or Guarantor shall (1) voluntarily be adjudicated a bankrupt or insolvent, (2) seek or consent to the appointment of a receiver or trustee for itself or for all or substantially all of its property and assets, (3) file a petition seeking relief under the bankruptcy or other similar laws of the United States, any state or any jurisdiction, or (4) make a general assignment for the benefit of creditors; (i) a court shall enter an order, judgment or decree appointing, with the consent of Lessee or Guarantor, as applicable, a receiver or trustee for it or for all or substantially all of its property and assets or approving a petition filed against Lessee or Guarantor, as applicable, which seeks relief under the bankruptcy or other similar laws of the United States, any state or any jurisdiction, and such order, judgment or decree shall remain in force, undischarged or unstayed, sixty (60) days after it is entered; (i) a failure by Lessee to perform and observe its covenants under Paragraph 9, subject to Lessee's rights under Paragraph 17; or (i) any representation or warranty made by Lessee herein or in any other Operative Document to which it is a party shall prove to have been incorrect in any material respect on or as of the date made and such incorrect representation or warranty shall not have been remedied, cured or made correct with thirty (30) days after notice from Lessor of such incorrect representation or warranty. (a) If an Event of Default shall have occurred and shall not have been cured within any applicable notice and grace period, Lessor shall have the right at its option, then or at any time thereafter when such Event of Default is continuing, to do any one or more of the following without further demand upon or notice to Lessee: (i) proceed by appropriate court action or actions, either at law or in equity, to enforce performance by Lessee of the applicable covenants of this Lease or the other Operative Documents or to recover damages for the breach thereof; (i) by notice in writing to Lessee, Lessor may (i) terminate the Lease as to the Leased Premises; and/or (ii) demand of Lessee, and Lessee shall, upon written demand of Lessor and at Lessee's expense, forthwith surrender the Leased Premises to Lessor or its order in the manner and condition required by, and otherwise in accordance with all of the provisions of, this Lease; or Lessor with or without notice or judicial process, and without the necessity for first instituting any proceedings, or by summary proceedings or otherwise, to the extent permitted by, and in accordance with, applicable laws, may by its agents enter upon any Property or other premises where any of the Equipment or Improvements may be located, or are believed to be located, and take immediate possession of the Leased Premises (to the exclusion of Lessee) and thenceforth hold, possess and enjoy the same free from any right of Lessee, or its successor or assigns, to use such Leased Premises for any purpose whatever all without liability of Lessor or its agents for or by reason of such entry or taking of possession, whether for the restoration of damage to property caused by such action or otherwise; (i) with or without taking possession thereof, sell or otherwise dispose of any of the Leased Premises at public or private sale, to the extent permitted by, and in accordance with, applicable laws, with or without advertisement or notice to Lessee, as Lessor may determine, free and clear of any rights of Lessee and without any duty to account to Lessee with respect to such sale or for the proceeds thereof (except to the extent required by Paragraphs 18(b)(v) or (vi) if Lessor elects to exercise its rights under either of those Paragraphs), and Lessor may hold Lessee liable for any installment of Basic Rent due on or before the date of such sale or disposition (and, if payable in arrears, the pro rata portion of the installment of Basic Rent due on the next succeeding Basic Rent Payment Date in respect of any period beginning on the immediately preceding Basic Rent Payment Date to the date of such sale or disposition, in which event Lessee's obligation to pay Basic Rent with respect to such Leased Premises hereunder due for any periods after the date of such sale shall terminate (except to the extent that Basic Rent is to be included in computations under 18(b)(v) or (vi) if Lessor elects to exercise its rights under either of said Paragraphs)); (i) repossess and hold, use, operate or lease to others the Leased Premises as Lessor in its sole discretion may determine, free and clear of any rights of Lessee and without any duty to account to Lessee with respect to such action or inaction or for any proceeds with respect thereto, except that Lessee's obligation to pay Basic Rent with respect to such Leased Premises due for any periods after the date upon which Lessee shall have been deprived of possession and use of such Leased Premises pursuant to this PARAGRAPH 18 shall be reduced by the net proceeds, if any, received by Lessor from the repossesion, use, operation or leasing of such Leased Premises to any Person other than Lessee; (i) whether or not Lessor at any time exercises any of its rights under PARAGRAPHS 18(B)(I), (II), (III), (IV) OR (VII) with respect to the Leased Premises, Lessor, by written notice to Lessee specifying a payment date (for purposes of this 18(b)(v) and (vi)(f), the "Default Payment Date") which shall be a Basic Rent Payment Date not earlier than ten days after the date of such notice, may demand that Lessee pay to Lessor, and Lessee shall pay to Lessor, on account of the Leased Premises on the Default Payment Date, as damages and not as a penalty (in lieu of the Basic Rent for the Leased Premises due after the Default Payment Date), the sum of: (w) any unpaid Basic Rent on account of the Leased Premises due before, amounts Lessor, in its sole discretion, shall specify in such notice: (i) an amount equal to the excess, if any, of (a) the Termination Value for the Leased Premises determined as of the Basic Rent Payment Date next preceding the Default Payment Date over (b) the fair market value as of the Default Payment Date of such Leased Premises (and if such Leased Premises have been sold, the net sales proceeds after deduction of all of Lessor's costs and expenses of such sale, including sales or transfer taxes, overhaul, maintenance, preparation and transportation of the Leased Premises and brokers' and attorneys' fees shall be deemed for the purpose of this Paragraph 18(b)(v) to be equal to fair market value); or (ii) an amount equal to the excess, if any, of (a) the present value as of the Default Payment Date of all installments of Basic Rent on account of the Leased Premises until the end of the Basic Term for such Leased Premises discounted at a rate per annum equal to the Assumed Debt Rate over (b) the present value as of the Default Payment Date of the fair market rental value of the Leased Premises until the end of the Term for the Leased Premises discounted at a rate per annum equal to the Assumed Debt Rate; PLUS (y) an amount equal to the Premium, if any, in respect of the principal amount of the Loan that has become due pursuant to Section 8.2 of the Credit Agreement; PLUS (z) interest on such sum of (w), (x) and (y) at the Default Rate from the Default Payment Date to the date of actual payment; and upon payment in full of such amount, together with payment of any other Supplemental Rent then due, the Term for the Leased Premises, if not theretofore ended, shall end and Lessee's obligations under the Operation Documents shall terminate; (i) unless Lessor at any time exercises any of its rights under Paragraph 18(b)(v) with respect to the Leased Premises, Lessor, by written notice to Lessee specifying a Default Payment Date, may require that Lessee pay to Lessor, and Lessee shall pay to Lessor, on account of the Leased Premises on the Default Payment Date as damages and not as a penalty (in lieu of scheduled Basic Rent due after the Default Payment Date), the sum of: (w) any unpaid Basic Rent on account of such Leased Premises due before, but not on, the Default Payment Date; PLUS (x) the Termination Value for the Leased Premises, computed as of the Basic Rent Payment Date next preceding the Default Payment Date; PLUS (y) an amount equal to Premium, if any, in respect of the principal amount of the Loan that has become due pursuant to Section 8 of the Credit Agreement; PLUS (z) interest on such sum of (w), (x) and (y) at the Default Rate from the Default Payment Date to the date of actual payment; and upon payment in full of such amount, together with any other Supplemental Rent then due, Lessor shall transfer "as is", "where is", without recourse or warranty all right, title, and interest of Lessor to the Leased Premises to Lessee or as it may direct, and the Term for the Leased Premises, if not theretofore ended, shall end and Lessee's obligations under the Operative Documents shall terminate; or (i) Lessor may exercise any other right or remedy that may be available to it under Applicable Law, whether at law, in equity or by statute. In addition, Lessee shall be liable, except as otherwise provided above, for any and all unpaid Rent due hereunder before, during and after the exercise of any of the foregoing remedies (together with interest thereon at the Late Rate from the due date thereof until paid), for all amounts payable by Lessee under the Participation Agreement and the other Operative Documents before and after any termination thereof, and for legal fees and other out-of-pocket expenses incurred by Lessor by reason of the occurrence of any Event of Default or the exercise of Lessor's remedies with respect thereto, including all costs and expenses incurred in connection with the surrender of such Leased Premises in accordance with the terms of this Lease or in placing such Leased Premises in the condition required by this Lease or in connection with any use, operation, maintenance, storage or leasing carried out as part of such exercise of remedies. (a) Except as otherwise provided in this PARAGRAPH 18, each right, power and remedy in this Lease provided in favor of Lessor shall not be deemed exclusive, but shall be cumulative and shall be in addition to all other rights, powers and remedies in its favor existing at law, in equity or by statute; and the exercise or beginning of exercise by Lessor of any one or more of such remedies shall not preclude the simultaneous or later exercise by Lessor of any or all other remedies. Lessee hereby waives any and all existing or future claims of any right to assert any offset or counterclaim against the Rent payments due hereunder, and agrees to make the Rent payments regardless of any offset or counterclaim or claim which may be asserted by Lessee on its behalf in connection with the lease of the Leased Premises. (a) No delay or omission to exercise any right, power or remedy accruing to Lessor upon any breach or default by Lessee under this Lease shall impair any such right, power or remedy of Lessor, nor shall any such delay or omission be construed as a waiver of any breach or default, or of any similar breach or default, thereafter occurring; nor shall any express or implied waiver of a single breach or default be deemed a waiver of any subsequent breach or default. (a) Lessee agrees to furnish to Lessor, Agent and each Lender, promptly upon becoming aware of any condition which constituted or constitutes a Lease Default or Lease Event of Default, an officer's certificate of Lessee specifying such condition or event and the nature, period of existence and status thereof and what action Lessee has taken or proposes to take with respect thereto. (a) To the extent permitted by Applicable Law, Lessee hereby waives any rights now or in the future conferred by statute or otherwise which may require Lessor to sell, lease or otherwise use the Equipment and Improvements in mitigation of Lessor's damages or which may otherwise limit or modify any remedy of damages measured by reference to liquidated damages. (a) The surrender of possession of the Leased Premises as provided in Paragraph 18 is of the essence of this Lease and shall not be impaired, and upon application to any court of competent jurisdiction in the premises, Lessor shall be entitled to a decree against Lessee requiring specific performance of the covenants of Lessee so to surrender possession of the Leased Premises. Without in any way limiting the obligation of Lessee under Paragraph 18, Lessee hereby irrevocably appoints Lessor as the agent and attorney of Lessee, with full power and authority, at any time while Lessee is obligated to surrender possession of any Equipment or Improvements to Lessor pursuant to this Paragraph 18, to demand and take possession of such Leased Premises in the name and on behalf of Lessee from whosoever shall be at the time in possession of such Leased Premises. (a) [RESERVED] (a) Lessee hereby agrees to be and remain liable for all sums aforesaid, and Lessor may recover such damages from Lessee and institute and maintain successive actions or legal proceedings against Lessee for the recovery of such damages. Nothing herein contained shall be deemed to require Lessor to wait to begin such action or other legal proceedings until the date when the Term would have expired by limitation had there been no such Event of Default. (a) If any Legal Requirement shall validly limit the amount of any damages provided for herein to an amount which is less than the amount agreed to herein, Lessor shall be entitled to the maximum amount available under such Legal Requirement. 1. NON-WAIVER. Lessor and Lessee acknowledge that time is of the essence in the performance of their respective obligations under this Lease. No failure of either party (i) to insist at any time upon strict performance of any provision of this Lease or (ii) to exercise any option, right, power or remedy contained in this Lease shall be construed as a waiver, modification or relinquishment thereof. A receipt by Lessor of any Basic Rent or other sum due hereunder with knowledge of the breach of any provision contained in this Lease shall not be deemed a waiver of such breach. No waiver by either party of any provision of this Lease shall be deemed to have been made unless expressed in a writing signed by such party. In addition to the other remedies provided in this Lease, each party shall be entitled, to the extent permitted by applicable Law, to injunctive relief in case of the violation, or attempted or threatened violation, of any of the provisions of this Lease. 1. ATTORNEYS' FEES. In the event Lessee or Lessor defaults in the performance of any of the terms, covenants, agreements or conditions contained in this Lease and the nondefaulting party places the enforcement of this Lease, or any part thereof, or the collection of any sums due, or to become due hereunder, or recovery of the possession of the Leased Premises, in the hands of an attorney, or files suit upon the same, the defaulting party agrees, to the extent permitted by applicable law, to pay the nondefaulting party all reasonable attorneys' fees incurred by the nondefaulting party if such suit is successful. 1. NOTICES. All notices, demands, consents and approvals which may or are required to be given by either party to the other hereunder shall be in writing and shall be given by personal delivery, by an overnight courier, or by deposit in the United States mail, certified, postage prepaid and addressed to the party to be notified at the address for such party specified below, or to such other place as the party to be notified may from time to time designate by at least fifteen (15) days' notice to the notifying party. Notice deposited in the mail in the manner hereinabove described shall be deemed to have been fully given and received (unless otherwise stated in the Lease) on the third (3rd) day after it is so deposited whether or not actually received. Notice given in any other manner shall be deemed given and received only if and when received by the party to be notified. If to Lessor: Wilmington Trust Company 1100 North Market Street Rodney Square North Wilmington, Delaware 19890 Attention: Corporate Trust Administration Facsimile: (302) 651-8882 If to Lessee: Hexcel CS Corporation c/o Hexcel Corporation Two Stamford Plaza 281 Tresser Boulevard Stamford, CT 06901. Attn: Treasurer Fax: (203) 358-3977 With a copy to: Hexcel Corporation Two Stamford Plaza 281 Tresser Boulevard Stamford, CT 06901. Attn: General Counsel Fax: (203) 358-3972 With a copy to: Credit Suisse First Boston, as Administrative Agent 11 Madison Avenue New York, New York 10010 Attn: Director, Lease Finance Group Fax: 212-325-9138 Additionally, each of Lessor and Lessee may designate up to three (3) additional addresses to which copies of all notices shall be sent. Furthermore, Lessee agrees to send copies of all notices required or permitted to be given to Agent provided such Agent notifies Lessee in writing of its interest and the address to which notices are to be sent. 1. ESTOPPEL CERTIFICATE. At the request of either Lessor or Lessee, the other party will execute, from time to time, either an estoppel certificate or a three-party agreement among Lessor, Lessee and any third party certifying, to the best of such party's knowledge and belief, to such facts (if true) as Lessor or Lessee, as the case may be, or such third party, may reasonably require in connection with the business dealings of the parties. 1. SURRENDER. Upon the expiration or earlier termination of this Lease, Lessee shall peaceably leave and surrender the Leased Premises to Lessor in the same condition in which the Leased Premises were originally received from Lessor at the Commencement Date, except as repaired, rebuilt, restored, altered, replaced or added to as permitted or required by any provision of this Lease, and except for ordinary wear and tear. Subject to the provisions of Paragraph 12 hereof, Lessee may remove from the Land and Improvements on or prior to such expiration or earlier termination all Lessee's personal property and Additional Equipment and, at its expense, shall, on or prior to such expiration or earlier termination, repair any damage caused by such removal. Property not so removed shall become the property of Lessor, and Lessor may thereafter cause such property to be removed from the Leased Premises. Lessor shall not in any manner or to any extent be obligated to reimburse Lessee for any property which becomes the property of Lessor as a result of such expiration or earlier termination. 1. NO MERGER OF TITLE. There shall be no merger of this Lease nor of the leasehold estate created by this Lease with the fee estate in or ownership of any of the Leased Premises by reason of the fact that the same person, corporation, firm or other entity may acquire or hold or own, directly or indirectly, this Lease or the leasehold estate created by this Lease or any interest in this Lease or in such leasehold estate, and the fee estate or ownership of any of the Leased Premises or any interest in such fee estate or ownership; and no such merger shall occur unless and until all persons, corporations, firms and other entities having any interest in this Lease or the leasehold estate created by this Lease and the fee estate in or ownership of the Leased Premises or any part thereof sought to be merged shall join in a written instrument effecting such merger and shall duly record the same. 1. OBSOLESCENCE, UNECONOMIC OR SURPLUS TERMINATION; BURDENSOME BUYOUT. (a) OBSOLESCENCE, UNECONOMIC OR SURPLUS TERMINATION. (i) Lessee shall have the right at its option at any time on or after the first (1st) anniversary of the Commencement Date, on at least sixty (60) days, but no more than one hundred and eighty (180) days, prior revocable notice (the "OBSOLESCENCE TERMINATION NOTICE") to Lessor and, so long as the Lien of the Credit Agreement shall not have been discharged in accordance with the terms thereof, the Agent specifying a proposed date of termination which shall be a Basic Rent Payment Date (such Basic Rent Payment Date as provided for below being the "OBSOLESCENCE TERMINATION DATE"), to terminate this Lease with respect to any Property, which notice shall be accompanied by a officer's certificate of Lessee to the effect that such Property is either obsolete, uneconomic or surplus to the needs of Lessee ("OBSOLESCENCE TERMINATION CERTIFICATE"). During the period following the giving of the Obsolescence Termination Notice until the Obsolescence Termination Date, Lessee, as agent for Lessor, shall use best efforts, at its sole cost and expense, to sell, to any Person (other than Lessee or an Affiliate of Lessee), such Property for an all cash purchase price. In the event that Lessee receives a cash offer to purchase such Property, Lessee shall immediately certify in writing to Lessor the amount and terms of such offer, the proposed date of such purchase and the name and address of the Person making such offer. Lessor shall have the right to make a cash bid for such Property. Unless Lessor shall have previously elected to take possession of such Property as provided in Paragraph 25(a)(ii) below, on the Obsolescence Termination Date, Lessee shall deliver to Lessor the net cash proceeds (with no deductions in respect of brokerage commissions payable to Lessee or any Affiliate of Lessee) realized at such sale, together with all other amounts required under Paragraph 25(a)(iii) below, and deliver such Property, or cause such Property to be delivered, to the applicable Person having submitted the highest cash bid (net of any reasonable brokerage commissions payable to third parties) certified by Lessee to Lessor which shall have prior to such date agreed to purchase such Property. Lessor shall be under no duty to solicit bids, to inquire into the efforts of Lessee to obtain bids or otherwise take any action in connection with any such sale other than to transfer to the Person submitting the highest bid certified by Lessee to Lessor without recourse or warranty by Lessor (except as to the absence of any Lessor's Lien attributable to the Trust, the Owner Trustee or the Owner Participant) such Property against receipt of the payments provided for herein. (i) Notwithstanding the foregoing provisions of Paragraph 25(a)(i), and provided that Lessee has not previously revoked the Obsolescence Termination Notice in accordance with this Paragraph 25(a)(ii), Lessor may, within fifteen (15) days of receipt by Lessor of Lessee's Termination Notice, notify Lessee in writing of its election to take possession of such Property. Upon receipt of any notice from Lessor pursuant to the foregoing sentence of this Paragraph 25(a)(ii), Lessee shall cease efforts to sell such Property and shall reject all bids theretofore or thereafter received, if any. Lessee shall surrender, or cause to be surrendered, such Property to Lessor on the applicable Obsolescence Termination Date and shall pay on the applicable Obsolescence Termination Date to Lessor (or in the case of Supplemental Rent payable to any Indemnified Person, to such Indemnified Person) all unpaid Supplemental Rent to any Person through and including such Obsolescence Termination Date then accrued and for which a notice of demand shall have been given to Lessor pursuant to the Operative Documents, other than the outstanding principal amount of the Loan together with all unpaid interest accrued thereon since the last Basic Rent Payment Date. It shall be a condition precedent to Lessor's right under this Paragraph 25(a)(ii) that Lessor pay to the Agent sufficient funds to repay the aggregate unpaid principal amount of the Loan together with all unpaid interest accrued thereon and any Premium. (i) The net cash proceeds realized at any sale pursuant to Paragraph 25(a)(i) shall be paid over to Lessor and, in addition, on the Obsolescence Termination Date, Lessee shall pay in immediately available funds, (A) to Lessor an amount equal to the excess, if any, of (1) the Property Percentage (applicable to the Property subject to the Obsolescence Termination Notice) of the Termination Value as of the Obsolescence Termination Date over (2) such net proceeds plus (B) to Lessor (or in the case of Supplemental Rent payable to any Indemnified Person, to such Indemnified Person) all unpaid Supplemental Rent for any Person through and including such Obsolescence Termination Date, plus Premium, if any (such amounts collectively, the "Obsolescence Termination Purchase Price"). Concurrently with payment of the Obsolescence Purchase Price, Lessor shall deliver to Lessee a duly executed special warranty deed warranting only against matters claimed by, through or under Lessor with respect to claims which relate to Lessor's (or its agents' or employees') actions after the date hereof (or local equivalent) conveying such Property. The special warranty deed warranting only against matters claimed by, through or under Lessor with respect to claims which relate to Lessor's (or its agents' or employees') actions or failure to act after the date hereof (or local equivalent) shall convey title, free from encumbrances other than (A) Permitted Liens (other than Lessor Liens attributable to Lessor), (B) liens or encumbrances created or suffered by Lessee or arising by reason of the failure of Lessee to observe or perform any of the terms, covenants or agreements herein provided to be observed and performed by Lessee, and (C) any installments of Impositions for which Lessee is responsible pursuant to Paragraph 8 hereof then affecting such Property. Thereupon, this Lease shall terminate solely with respect to such Property. Thereupon, (x) all remaining amounts of Basic Rent shall be adjusted by reducing pro rata by an amount equal to the applicable Property Percentage of such Basic Rent amounts immediately prior to the payment of the Obsolescence Termination Purchase Price, (y) all remaining Termination Values shall be adjusted by reducing pro rata by an amount equal to the applicable Property Percentage of such Termination Values immediately prior to the payment of the Termination Purchase Price, and (z) the Property Percentage applicable to each of the Properties remaining subject to the Lease shall be adjusted pursuant to the definition thereof. (i) If Lessor has not notified Lessee of its election to take possession of such Property or if no bids were received to purchase such Property within thirty (30) days prior to the Obsolescence Termination Date, then Lessee shall have the right at any time up to ten (10) days prior to the Obsolescence Termination Date to revoke the Obsolescence Termination Notice by giving written notice of such revocation to Lessor and the Agent; PROVIDED, HOWEVER, that such right to revoke the Obsolescence Termination Notice may only be exercised by Lessee up to two (2) times during the Term. Upon the delivery of such notice or a failure of a third party to purchase such Property, the Obsolescence Termination Certificate shall be deemed to be withdrawn as of such date and this Lease shall continue in full force and effect with respect to such Property. (a) BURDENSOME BUYOUT. (i) In the event of a Burdensome Buyout Event, then the Lessee shall have and is hereby granted the right and option to purchase the Leased Premises on any Basic Rent Payment Date that is specified by the Lessee in a notice to the Lessor given at least forty-five (45) days prior to the Basic Rent Payment Date so specified, and no later than one hundred and eighty (180) days after notice to the Lessee of the Burdensome Buyout Event (such date, the "Burdensome Buyout Date"), at the applicable Termination Value for such date. (i) The applicable Termination Value for such date, together with all Basic Rent due and payable on such date, shall be payable on the applicable Burdensome Buyout Date in Federal or other immediately available funds which at the time of such payment shall be legal tender for the payment of public or private debt in the United States of America. At closing, (A) Lessee shall pay all survey costs, title insurance premiums and other similar costs which it incurs, (B) Lessee shall pay all recording fees and escrow fees, (C) Lessor and Lessee shall each pay their respective attorney's fees, (D) there shall be no proration of taxes, rents or operating expenses since Lessee is responsible for such items under this Lease, (E) Lessor shall execute and deliver to Lessee a Special Warranty Deed and other documentation reasonable necessary to convey fee title to the Leased Premises to Lessee with only such title and Lien exceptions set forth in the Special Warranty Deed, (F) on the Burdensome Buyout Date, Lessor shall furnish to Lessee, at Lessee's expense, an ALTA standard coverage owner's policy of title and insurance ("Title Policy") covering the Leased Premises, which Title Policy will be issued by a company mutually agreeable to Lessor and Lessee, in the amount of the Purchase Price and will insure Lessee's fee simple title to the Leased Premises subject only to the Permitted Liens and the lien for real estate taxes for the year in which the applicable Option Date occurs, (G) except as provided in clause (E) above, the conveyance by Lessor to Lessee shall be on as "as is" basis, with no warranties or representations, express or implied, except a representation by Lessor that Lessor has the authority to convey the Leased Premises to Lessee, and (H) Lessor shall deliver to Lessee an assignment of (x) the Equipment and the Replacement Equipment conveying to Lessee all of the Lessor's interest in the Equipment and the Replacement Equipment, and (y) any and all funds prepaid by Lessee under this Lease which do not represent funds actually owed by Lessee to Lessor for obligations actually incurred during time periods prior to the Burdensome Buyout Date. (i) At closing, Lessee shall deliver to Lessor an amount, in cash, equal to the sum of the amounts described in the first sentence of Paragraph 25(b)(ii). At Closing, Lessee and Lessor shall also each deliver such other documents or instruments as may be deemed reasonable necessary by Lessee's counsel and Lessor's counsel to properly consummate the transaction contemplated by this Paragraph 25(b). (i) Upon the consummation of any purchase by Lessee of the Leased Premises pursuant to this Paragraph 25(b), this Lease shall terminate. 1. HOLDING OVER. If Lessee remains in possession of the Leased Premises after the expiration of the Term and without the execution of a new lease, it is deemed to be occupying the Leased Premises as a Lessee from month-to-month at two hundred percent (200%) of the Basic Rent reserved herein, subject to all the conditions, provisions and obligations of this Lease insofar as the same are applicable to a month-to-month tenancy. Acceptance by Lessor of said rent does not constitute Lessor's consent to Lessee's holding over, and Lessor expressly reserves all rights available to it under this Lease, at law or in equity to retake possession of the Leased Premises. 1. SHOWING OF THE LEASED PREMISES BY LESSOR. Lessor may, at any time within twelve (12) months before the expiration of the Term (unless Lessee properly exercises its renewal option), enter the Leased Premises at all reasonable hours for the purpose of offering the Leased Premises for rent. 1. RIGHT TO PERFORM FOR LESSEE. Subject to the provisions of the Credit Agreement, if Lessee shall fail to make any payment to be made by it hereunder or shall fail to perform or comply with any of its other agreements contained herein and such failure can be cured by the payment of moneys, and Lessee shall not be diligently curing such failure, then unless and until Lessee shall make such payment or perform or comply with such agreement, Owner Participant or Lessor may, to the extent not prohibited by Legal Requirements and upon ten (10) Business Days prior written notice to Lessee, but shall not be obligated to, itself make any such payment, and the amount of such payment, together with interest thereon at the Default Rate, shall be deemed Supplemental Rent, payable upon demand. 1. FORCE MAJEURE. If either party hereto is delayed or prevented from the performance of any act required hereunder by reason of acts of God, strikes, lockouts, labor troubles, inability to secure materials, restrictive governmental laws or regulations or other cause without fault and beyond the control of the party obligated (financial inability excepted), performance of such acts are excused for the period of the delay and the period for the performance of any such acts are extended for a period equivalent to the period of such delay; provided, however, nothing in this Paragraph 29 contained excuses Lessee from the prompt and timely payment of any rental or other charge required of Lessee hereunder except as may be expressly provided elsewhere in this Lease. 1. BROKER'S COMMISSIONS. Each party hereto represents and warrants unto the other that there are no claims for brokerage, commissions or finder's fees in connection with the negotiation or execution of this Lease, and each of said parties agrees to indemnify and save the other harmless against all liabilities arising from any such claim (including, without limitation, cost of attorneys' fees in connection therewith). 1. INUREMENT. This Lease is binding upon, and inures to the benefit of the parties hereto, their heirs, executors, administrators, successors, and assigns. 1. NEGATION OF LIEN FOR RENT. Lessor hereby expressly waives and negates any and all contractual liens and security interests, statutory liens and security interests or constitutional liens and security interests arising by operation of law to which Lessor might now or hereafter be entitled on all property of Lessee now or hereafter placed in or upon the Leased Premises (except for judgment liens that may hereafter arise in favor of Lessor). The waiver and negation contained herein shall not waive, negate or otherwise affect any unsecured claim Lessor may have. 1. PURCHASE OPTION. (a) Upon the terms and conditions hereinafter stated, and for and in consideration of the mutual covenants and conditions stated in this Lease, Lessor hereby grants to Lessee the exclusive right and option (the "Purchase Option") to purchase Lessor's right, title and interest (including without limitation fee simple interest) in, to and under the Leased Premises, exercisable on thirty (30) days prior notice to Lessor (or such shorter period agreed to by Lessor and Lessee) on either the First Purchase Option Date, the Second Purchase Option Date, or the Expiration Date. Lessor and Lessee agree that if the Purchase Option is so exercised by Lessee, Lessor shall thereafter assign, sell and convey the Leased Premises free and clear of any mortgage or other lien (except the lien for accrued taxes which are not yet due and payable) to Lessee and Lessee will thereafter purchase and take the Leased Premises from Lessor on and subject to the terms and conditions hereinafter set forth. (a) The Purchase Price, together with all Basic Rent due and payable on the applicable Option Date and all other Supplemental Rent then accrued and owing, shall be payable on the applicable Option Date in immediately available funds. At closing, (i) Lessee shall pay all survey costs, title insurance premiums and other similar costs which it incurs, (ii) Lessee shall pay all recording fees and escrow fees, (iii) Lessor and Lessee shall each pay their respective attorney's fees, (iv) there shall be no proration of taxes, rents or operating expenses since Lessee is responsible for such items under this Lease, (v) Lessor shall execute and deliver to Lessee a Special Warranty Deed and other documentation reasonable necessary to convey fee title to the Leased Premises to Lessee with only such title and Lien exceptions set forth in the Special Warranty Deed, (vi) on the Option Date, Lessor shall furnish to Lessee, at Lessee's expense, an ALTA standard coverage owner's policy of title and insurance ("Title Policy") covering the Leased Premises, which Title Policy will be issued by a company mutually agreeable to Lessor and Lessee, in the amount of the Purchase Price and will insure Lessee's fee simple title to the Leased Premises subject only to the Permitted Liens and the lien for real estate taxes for the year in which the applicable Option Date occurs, (vii) except as provided in clause (v) above, the conveyance by Lessor to Lessee shall be on as "as is" basis, with no warranties or representations, express or implied, except a representation by Lessor that Lessor has the authority to convey the Leased Premises to Lessee, and (vii) Lessor shall deliver to Lessee an assignment of (x) the Equipment and the Replacement Equipment conveying to Lessee all of the Lessor's interest in the Equipment and the Replacement Equipment, and (y) any and all funds prepaid by Lessee under this Lease which do not represent funds actually owed by Lessee to Lessor for obligations actually incurred during time periods prior to the Option Date. (a) At closing, Lessee shall deliver to Lessor an amount, in cash, equal to the Purchase Price, together with all Basic Rent due and payable on the applicable Option Date and all other Supplemental Rent then accrued and owing. At closing, Lessee and Lessor shall also each deliver such other documents or instruments as may be deemed reasonable necessary by Lessee's counsel and Lessor's counsel to properly consummate the transaction contemplated by this Paragraph 33. (a) If Lessee exercises the Purchase Option but Lessor fails to consummate the transaction contemplated by this Paragraph 33 for any reason other than Lessee's default, Lessee may rescind its election to exercise the Purchase Option, enforce specific performance of the Purchase Option, or pursue its other remedies available under this Lease, the Lessee Mortgage or at law or in equity as the result of Lessor's default. If Lessee exercises the Purchase Option but fails to purchase the Leased Premises for any reason other than Lessor's default, then Lessor may terminate the Purchase Option or enforce specific performance of Lessee's obligation to purchase the Leased Premises. Additionally, should Lessee elect to exercise the Purchase Option and should Lessee's default prevent the consummation of the transaction contemplated by this Paragraph 33, then at Lessor's election such default by Lessee under this Paragraph 33 shall constitute an Event of Default by Lessee under this Lease. (a) On the Expiration Date, upon not less than thirty (30) days prior written notice, Lessee shall have the option to purchase the Leased Premises as set forth in Paragraph 33(b) hereof (other than the first sentence thereof), except that references to applicable Option Date shall be deemed to be references to the Expiration Date. In such case, Lessee shall pay on the Expiration Date the sum of the following: (i) Basic Rent due and payable on the Expiration Date, PLUS (ii) the greater of (A) the fair market value of the Leased Premises as determined by an appraiser mutually acceptable to Lessee and Lessor within no less than six (6) months of the Expiration Date, and (B) the Estimated Term FMV. (a) Upon the consummation of any purchase by Lessee of the Leased Premises pursuant to this Paragraph 33 and payment of all amounts due and owing by Lessee under the Operative Documents, this Lease shall terminate. 1. MEMORANDUM OF LEASE. Simultaneously herewith, Lessor and Lessee shall execute, acknowledge and deliver to the other a written Memorandum of this Lease to be recorded in the appropriate land records of the jurisdiction in which the Leased Premises is located, in order to give the public notice and protect the validity of this Lease. In the event of any discrepancy between the provisions of said recorded Memorandum of this Lease and the provisions of this Lease, the provisions of this Lease shall prevail. 1. [RESERVED] 1. LESSOR'S COVENANTS. (1) Lessor covenants and agrees that during the Term Lessor shall not: (a) engage in any business or activity other than the ownership of title to the Leased Premises and the leasing thereof under this Lease and the mortgaging thereof under the Mortgages and activities incidental thereto; (a) acquire or own any assets other than (i) fee title to the Land and Improvements, and (ii) the Equipment; (a) merge into or consolidate with any person or entity or dissolve, terminate or liquidate in whole or in part, transfer or otherwise dispose of all or substantially all of its assets or change its legal structure; (a) fail to preserve its existence as an entity duly organized, validly existing and in good standing (if applicable) under the laws of the jurisdiction of its organization or formation, and qualification to do business in the State, if applicable, or amend, modify, terminate or fail to comply with the provisions of its organizational documents; (a) own any subsidiary or make any investment in, any person or entity; (a) commingle its assets with the assets of any other person or entity; (a) incur any debt, secured or unsecured, direct or contingent (including guaranteeing any obligation), other than the Loan; (a) become insolvent and fail to pay its debts and liabilities as the same shall become due; (a) fail to maintain its records, books of account and bank accounts separate and apart from those of any other person or entity; (a) seek the dissolution or winding up in whole, or in part, of Lessor or the Investor; (a) fail to correct any known misunderstandings regarding the separate identity of Lessor; (a) hold itself out to be responsible for the debts of another person; (a) make any loans or advances to any third party; (a) [RESERVED]; (a) fail either to hold itself out to the public as a legal entity separate and distinct from any other entity or person or to conduct its business solely in its own name in order not (i) to mislead others as to the identity with which such other party is transacting business, or (ii) to suggest that Lessor or the Investor is responsible for the debts of any third party; (a) file or consent to the filing of any petition, either voluntary or involuntary, to take advantage of any applicable insolvency, bankruptcy, liquidation or reorganization statute, or make an assignment for the benefit of creditors; (a) hold itself out as or be considered as a department or division of any other person or entity; (a) transfer title to the Leased Premises to (i) an entity which is not a single purpose, bankruptcy remote entity or (ii) to a single purpose, bankruptcy remote entity except pursuant to a written instrument of assumption which is in form and substance reasonably satisfactory to Lessee; (a) renew, modify or extend the Loan; or (a) amend, modify, restate or supplement in any manner that is adverse to Lessee, Guarantor or any of their respective interests, (i) any of the Operative Documents, (ii) the Trust Agreement or (iii) any other document or instrument to which Lessor is a party or to which the Leased Premises or any part thereof is subject or bound, in each case, without the prior written consent of Lessee and Guarantor. (2) Lessor covenants and agrees that during the Term Lessor shall make all payments of principal and interest under the Loan when due and shall ensure that the unamortized principal amount of the Loan is not, at any time, greater than those amounts set forth on SCHEDULE 1 attached hereto and incorporated herein by reference. 1. MISCELLANEOUS. (a) The paragraph headings in this Lease are used only for convenience in finding the subject matters and are not part of this Lease or to be used in determining the intent of the parties or otherwise interpreting this Lease. As used in this Lease the singular shall include the plural as the context requires the following words and phrases shall have the following meanings: (i) "including" shall mean "including but not limited to"; (i) "provisions" shall mean "provisions, terms, agreements, covenants and/or conditions"; (i) "lien" shall mean "lien, charge, encumbrance, title retention agreement, pledge, security interest, mortgage and/or deed of trust"; and (i) "obligation" shall mean "obligation, duty, agreement, liability, covenant and/or condition." (a) This Lease may be modified, amended, discharged or waived only by an agreement in writing signed by the party against whom enforcement of any such modification, amendment, discharge or waiver is sought. (a) In the event that any one (1) or more of the provisions contained in this Lease shall for any reason be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision of this Lease, but this Lease shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein. (a) Lessor shall in no event be construed for any purpose to be a partner, joint venture or associate of Lessee or of any sublessee, operator, concessionaire or licensee of Lessee with respect to any of the Leased Premises or otherwise in the conduct of their respective businesses. (a) This Lease constitutes the entire agreement between the parties with respect to the Leased Premises and supersedes all prior understandings and agreements, whether written or oral, between the parties hereto relating to the Leased Premises and the transactions provided for herein unless specifically referenced herein. (a) Lessor and Lessee are business entities having substantial experience with the subject matter of this Lease and have each fully participated in the negotiation and drafting of this Lease. Accordingly, this Lease shall be construed without regard to the rule that ambiguities in a document are to be construed against the drafter. (a) All Exhibits attached hereto are incorporated herein as if fully set forth. (a) This Lease shall be governed by and construed in accordance with the internal laws of the state of New York (including, without limitation, Sections 5-1401 and 5-1402 of the New York General Obligations Law), except as to matters relating to the creation of the leasehold and subleasehold estates hereunder and the exercise of the rights and remedies with respect to such leasehold or subleasehold estates, which shall be governed by and construed in accordance with the internal laws of the State in which the applicable Leased Premises is located. (a) Wherever Lessee requests the consent or approval of Lessor, Lessor agrees that it will not unreasonably withhold, delay or condition such consent or approval. 1. TRUE LEASE. This Lease is intended as, and shall constitute, an agreement of lease, and nothing herein shall be construed as conveying to Lessee any right, title or interest in or to the Leased Premises, except as a lessee. It is the intention of Lessee, the Owner Participant and Lessor for income tax purposes to treat the Owner Participant as the owner and lessor of the Leased Premises and that the Lease be characterized as a "true lease" for income tax purposes. 1. ORIGINAL LEASE. The single executed original of this Lease marked "THIS COUNTERPART IS THE ORIGINAL EXECUTED COUNTERPART NO. 1" on the front cover, which shall be delivered to the Agent, shall be the Original of the Lease. To the extent that this Lease constitutes chattel paper, as such term is defined in the Uniform Commercial Code as in effect in any applicable jurisdiction, no security interest in this Lease may be created through the transfer or possession of any counterpart other than the Original of the Lease. IN WITNESS WHEREOF, Lessor and Lessee have caused this Lease to be duly executed under seal of the day and year above written LESSOR: To the extent that the Leased Premises are located in Anderson County, South Carolina and Iredell County, North Carolina: CSI LEASING TRUST By: Wilmington Trust Company, not in its individual capacity but solely as Owner Trustee By:__________________________________ Name:________________________________ Title:_______________________________ To the extent that the Leased Premises are located in Wilkes County, Georgia: WILLIAM J. WADE, not in his individual capacity, but solely as co-trustee for CSI Leasing Trust, a Delaware business trust, under Business Trust Agreement dated as of September 14, 1998 _________________________________ William J. Wade, as trustee LESSEE: HEXCEL CS CORPORATION By:__________________________________ Name:________________________________ Title:_______________________________ EXHIBIT A-1 Anderson, South Carolina Legal Description EXHIBIT A-2 Iredell, North Carolina Legal Description EXHIBIT A-3 Wilkes County, Georgia Legal Description EXHIBIT B Permitted Encumbrances SCHEDULE 1 Schedule of Lease Amortization
LEASE AMORTIZATION PAYMENT DATE AMOUNT ------------ ------ September 30, 1998 - October 30, 1998 348,756.76 November 30, 1998 350,834.77 December 30, 1998 352,925.16 January 30, 1999 355,028.00 February 28, 1999 357,143.38 March 30, 1999 359,271.36 April 30, 1999 361,412.02 May 30, 1999 363,565.43 June 30, 1999 365,731.67 July 30, 1999 367,910.82 August 30, 1999 370,102.96 September 30, 1999 372,308.16 October 30, 1999 374,526.49 November 30, 1999 376,758.05 December 30, 1999 379,002.90 January 30, 2000 381,261.12 February 29, 2000 383,532.80 March 30, 2000 385,818.02 April 30, 2000 388,116.85 May 30, 2000 390,429.38 June 30, 2000 392,755.69 July 30, 2000 395,095.86 August 30, 2000 397,449.97 September 30, 2000 399,818.11 October 30, 2000 402,200.36 November 30, 2000 404,596.80 December 30, 2000 407,007.53 January 30, 2001 409,432.61 February 28, 2001 411,872.15 March 30, 2001 414,326.22 April 30, 2001 416,794.91 May 30, 2001 419,278.32 June 30, 2001 421,776.52 July 30, 2001 424,289.60 August 30, 2001 426,817.66 September 30, 2001 429,360.78 October 30, 2001 431,919.06 November 30, 2001 434,492.58 December 30, 2001 437,081.43 January 30, 2002 439,685.70 February 28, 2002 442,305.50 March 30, 2002 444,940.90 April 30, 2002 447,592.01 May 30, 2002 450,258.91 June 30, 2002 452,941.70 July 30, 2002 455,640.48 August 30, 2002 458,355.34 September 30, 2002 461,086.37 October 30, 2002 463,833.68 November 30, 2002 466,597.35 December 30, 2002 469,377.50 January 30, 2003 472,174.20 February 28, 2003 474,987.58 March 30, 2003 477,817.71 April 30, 2003 480,664.71 May 30, 2003 483,528.67 June 30, 2003 486,409.69 July 30, 2003 489,307.88 August 30, 2003 492,223.34 September 30, 2003 495,156.17 October 30, 2003 498,106.48 November 30, 2003 501,074.36 December 30, 2003 504,059.93 January 30, 2004 507,063.29 February 29, 2004 510,084.54 March 30, 2004 513,123.79 April 30, 2004 516,181.16 May 30, 2004 519,256.74 June 30, 2004 522,350.64 July 30, 2004 525,462.98 August 30, 2004 528,593.86 September 30, 2004 531,743.40 October 30, 2004 534,911.71 November 30, 2004 538,098.89 December 30, 2004 541,305.06 January 30, 2005 544,530.34 February 28, 2005 547,774.83 March 30, 2005 551,038.66 April 30, 2005 554,321.93 May 30, 2005 557,624.76 June 30, 2005 560,947.28 July 30, 2005 564,289.59 August 30, 2005 567,651.81 September 30, 2005 571,034.07 October 30, 2005 574,436.48 November 30, 2005 577,859.17 December 30, 2005 581,302.25 January 30, 2006 584,765.84 February 28, 2006 588,250.07 March 30, 2006 591,755.06 April 30, 2006 595,280.93 May 30, 2006 598,827.81 June 30, 2006 602,395.83 July 30, 2006 605,985.10 August 30, 2006 609,595.77 September 30, 2006 613,227.94
SCHEDULE 2 Schedule of Fixed Basic Rent (EXPRESSED IN U.S. DOLLARS)
FIXED BASIC PAYMENT DATE RENT ------------- ---- September 30, 1998 - October 30, 1998 813,958.33 November 30, 1998 665,000.00 December 30, 1998 665,000.00 January 30, 1999 665,000.00 February 28, 1999 665,000.00 March 30, 1999 665,000.00 April 30, 1999 665,000.00 May 30, 1999 665,000.00 June 30, 1999 665,000.00 July 30, 1999 665,000.00 August 30, 1999 665,000.00 September 30, 1999 665,000.00 October 30, 1999 665,000.00 November 30, 1999 665,000.00 December 30, 1999 665,000.00 January 30, 2000 665,000.00 February 29, 2000 665,000.00 March 30, 2000 665,000.00 April 30, 2000 665,000.00 May 30, 2000 665,000.00 June 30, 2000 665,000.00 July 30, 2000 665,000.00 August 30, 2000 665,000.00 September 30, 2000 665,000.00 October 30, 2000 665,000.00 November 30, 2000 665,000.00 December 30, 2000 665,000.00 January 30, 2001 665,000.00 February 28, 2001 665,000.00 March 30, 2001 665,000.00 April 30, 2001 665,000.00 May 30, 2001 665,000.00 June 30, 2001 665,000.00 July 30, 2001 665,000.00 August 30, 2001 665,000.00 September 30, 2001 665,000.00 October 30, 2001 665,000.00 November 30, 2001 665,000.00 December 30, 2001 665,000.00 January 30, 2002 665,000.00 February 28, 2002 665,000.00 March 30, 2002 665,000.00 April 30, 2002 665,000.00 May 30, 2002 665,000.00 June 30, 2002 665,000.00 July 30, 2002 665,000.00 August 30, 2002 665,000.00 September 30, 2002 665,000.00 October 30, 2002 665,000.00 November 30, 2002 665,000.00 December 30, 2002 665,000.00 January 30, 2003 665,000.00 February 28, 2003 665,000.00 March 30, 2003 665,000.00 April 30, 2003 665,000.00 May 30, 2003 665,000.00 June 30, 2003 665,000.00 July 30, 2003 665,000.00 August 30, 2003 665,000.00 September 30, 2003 665,000.00 October 30, 2003 498,106.48 November 30, 2003 501,074.36 December 30, 2003 504,059.93 January 30, 2004 507,063.29 February 29, 2004 510,084.54 March 30, 2004 513,123.79 April 30, 2004 516,181.16 May 30, 2004 519,256.74 June 30, 2004 522,350.64 July 30, 2004 525,462.98 August 30, 2004 528,593.86 September 30, 2004 531,743.40 October 30, 2004 534,911.71 November 30, 2004 538,098.89 December 30, 2004 541,305.06 January 30, 2005 544,530.34 February 28, 2005 547,774.83 March 30, 2005 551,038.66 April 30, 2005 554,321.93 May 30, 2005 557,624.76 June 30, 2005 560,947.28 July 30, 2005 564,289.59 August 30, 2005 567,651.81 September 30, 2005 571,034.07 October 30, 2005 574,436.48 November 30, 2005 577,859.17 December 30, 2005 581,302.25 January 30, 2006 584,765.84 February 28, 2006 588,250.07 March 30, 2006 591,755.06 April 30, 2006 595,280.93 May 30, 2006 598,827.81 June 30, 2006 602,395.83 July 30, 2006 605,985.10 August 30, 2006 609,595.77 September 30, 2006 613,227.94
SCHEDULE 3 SCHEDULE OF LEASE TERMINATION VALUES (EXPRESSED IN U.S. DOLLARS)
TERMINATION VALUE AFTER APPLICATION PAYMENT DATE OF BASIC RENT ------------ ------------- September 30, 1998 50,000,000.00 October 30, 1998 49,651,243.24 November 30, 1998 49,300,408.48 December 30, 1998 48,947,483.32 January 30, 1999 48,592,455.32 February 28, 1999 48,235,311.94 March 30, 1999 47,876,040.58 April 30, 1999 47,514,628.57 May 30, 1999 47,151,063.14 June 30, 1999 46,785,331.47 July 30, 1999 46,417,420.64 August 30, 1999 46,047,317.68 September 30, 1999 45,675,009.53 October 30, 1999 45,300,483.03 November 30, 1999 44,923,724.99 December 30, 1999 44,544,722.09 January 30, 2000 44,163,460.97 February 29, 2000 43,779,928.17 March 30, 2000 43,394,110.15 April 30, 2000 43,005,993.30 May 30, 2000 42,615,563.92 June 30, 2000 42,222,808.23 July 30, 2000 41,827,712.37 August 30, 2000 41,430,262.40 September 30, 2000 41,030,444.29 October 30, 2000 40,628,243.93 November 30, 2000 40,223,647.13 December 30, 2000 39,816,639.60 January 30, 2001 39,407,206.99 February 28, 2001 38,995,334.84 March 30, 2001 38,581,008.62 April 30, 2001 38,164,213.70 May 30, 2001 37,744,935.39 June 30, 2001 37,323,158.87 July 30, 2001 36,898,869.27 August 30, 2001 36,472,051.61 September 30, 2001 36,042,690.82 October 30, 2001 35,610,771.76 November 30, 2001 35,176,279.19 December 30, 2001 34,739,197.76 January 30, 2002 34,299,512.06 February 28, 2002 33,857,206.56 March 30, 2002 33,412,265.66 April 30, 2002 32,964,673.65 May 30, 2002 32,514,414.74 June 30, 2002 32,061,473.04 July 30, 2002 31,605,832.56 August 30, 2002 31,147,477.22 September 30, 2002 30,686,390.85 October 30, 2002 30,222,557.17 November 30, 2002 29,755,959.81 December 30, 2002 29,286,582.32 January 30, 2003 28,814,408.11 February 28, 2003 28,339,420.54 March 30, 2003 27,861,602.83 April 30, 2003 27,380,938.12 May 30, 2003 26,897,409.45 June 30, 2003 26,410,999.76 July 30, 2003 25,921,691.88 August 30, 2003 25,429,468.53 September 30, 2003 24,934,312.36 October 30, 2003 24,436,205.88 November 30, 2003 23,935,131.52 December 30, 2003 23,431,071.59 January 30, 2004 22,924,008.30 February 29, 2004 22,413,923.76 March 30, 2004 21,900,799.96 April 30, 2004 21,384,618.80 May 30, 2004 20,865,362.07 June 30, 2004 20,343,011.42 July 30, 2004 19,817,548.44 August 30, 2004 19,288,954.58 September 30, 2004 18,757,211.18 October 30, 2004 18,222,299.47 November 30, 2004 17,684,200.58 December 30, 2004 17,142,895.52 January 30, 2005 16,598,365.18 February 28, 2005 16,050,590.35 March 30, 2005 15,499,551.69 April 30, 2005 14,945,229.76 May 30, 2005 14,387,605.00 June 30, 2005 13,826,657.72 July 30, 2005 13,262,368.13 August 30, 2005 12,694,716.32 September 30, 2005 12,123,682.25 October 30, 2005 11,549,245.76 November 30, 2005 10,971,386.60 December 30, 2005 10,390,084.35 January 30, 2006 9,805,318.51 February 28, 2006 9,217,068.44 March 30, 2006 8,625,313.39 April 30, 2006 8,030,032.45 May 30, 2006 7,431,204.64 June 30, 2006 6,828,808.81 July 30, 2006 6,222,823.71 August 30, 2006 5,613,227.94 September 30, 2006 5,000,000.00
EX-10.3 4 EXHIBIT 10.3 Exhibit 10.3 FORM OF EXCHANGE PERFORMANCE ACCELERATED STOCK OPTION AGREEMENT For Employee EMPLOYEE OPTION AGREEMENT, dated as of the Grant Date [October 30, 1998], 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 offer the Optionee the opportunity to exchange all (but not less than all) of the Optionee's existing Performance Accelerated Stock Options (regardless of when granted) for the number of Option Shares set forth in the Notice of Grant attached hereto as Annex A and incorporated by reference herein; NOW, THEREFORE, the parties agree as follows: 1. NOTICE OF GRANT; INCORPORATION OF PLAN. 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 [$12.00]. 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 a share of Company Common Stock as reported on the New York Stock Exchange Consolidated Transactions Tape shall have equalled or exceeded the greater of $16 or twice the Purchase Price [$24] 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 Term of the Option). The Option, to the extent not then vested, shall immediately expire upon such termination. 3 (ii) In the event of a Change in Control (as defined inthe 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. 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 4 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 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, 5 that the cost of the arbitration, including without limitation, reasonable attorneys' fees of the Optionee, shall be borne by the Corporation in the event the Optionee is the prevailing party in the arbitration. Anything to the contrary notwithstanding, each party hereto has the right to proceed with a court action for injunctive relief or relief from violations of law not within the jurisdiction of an arbitrator. 12 . NOTICES. Any notice required or permitted under this Employee Option Agreement shall be deemed given when delivered personally, or when deposited in a United States Post Office, postage prepaid, addressed, as appropriate, to the Optionee at the last address specified in Optionee's employment records, or such other address as the Optionee may designate in writing to the Corporation, or to the Corporation, Attention: Corporate Secretary, or such other address as the Corporation may designate in writing to the Optionee. 13 . FAILURE TO ENFORCE NOT A WAIVER. The failure of either party hereto to enforce at any time any provision of this Employee Option Agreement shall in no way be construed to be a waiver of such provision or of any other provision hereof. 14 . COUNTERPARTS. This Employee Option Agreement may be executed in two or more counterparts, each of which shall be an original but all of which together shall represent one and the same agreement. 15 . MISCELLANEOUS. This Employee Option Agreement cannot be changed or terminated orally. This Employee Option Agreement and the Plan contain the entire agreement between the parties relating to the subject matter hereof. The section headings herein are intended for reference only and shall not affect the interpretation hereof. 16 . CANCELLATION OF EXISTING PERFORMANCE ACCELERATED STOCK OPTIONS. Upon full execution of this Employee Option Agreement, all Performance Accelerated Stock Options previously issued to the Optionee (regardless of when granted) shall be deemed cancelled in exchange for the Option Shares granted hereunder. 17. OPTIONEE REPRESENTATION. The Optionee represents that Optionee has not transferred or purported to transfer to any Person any previously issued Performance Accelerated Stock Options. 6 18. 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 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 7 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; (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; 8 (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 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; 9 (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 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); 10 (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; (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. Exhibit 10.3 NOTICE OF GRANT EXCHANGE PASO 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 October 30, 1998 - ------------------------------------------------------------------------------- Purchase Price 110% of the closing price of a share of Hexcel Common Stock on the Grant Date [$12.00] - ------------------------------------------------------------------------------- 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-10.4 5 EXHIBIT 10.4 Exhibit 10.4 1998 EMPLOYEE OPTION AGREEMENT (October Grant) 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, 2 (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 3 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 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, 4 Attention: Corporate Secretary, or such other address as the Corporation may designate in writing to the Optionee. 13. FAILURE TO ENFORCE NOT A WAIVER. The failure of either party hereto to enforce at any time any provision of this Employee Option Agreement shall in no way be construed to be a waiver of such provision or of any other provision hereof. 14. COUNTERPARTS. This Employee Option Agreement may be executed in two or more counterparts, each of which shall be an original but all of which together shall represent one and the same agreement. 15. MISCELLANEOUS. This Employee Option Agreement cannot be changed or terminated orally. This Employee Option Agreement and the Plan contain the entire agreement between the parties relating to the subject matter hereof. The section headings herein are intended for reference only and shall not affect the interpretation hereof. 16. DEFINITIONS. For purposes of this Employee Option Agreement: (I) the term "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 5 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 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 6 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 Specialty Chemicals Holding Inc., a Swiss corporation, together with its 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 7 extent substantially consistent with the Optionee's present business travel obligations; (4) the failure by the Corporation to pay to the Optionee any portion of the Optionee's current compensation, or to pay to the Optionee any portion of an installment of deferred compensation under any deferred compensation program of the Corporation, within seven (7) days of the date such compensation is due; (5) the failure by the Corporation to continue in effect any compensation plan in which the Optionee participates immediately prior to the Change in Control which is material to the Optionee's total compensation, or any substitute plans adopted prior to the Change in Control, unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan, or the failure by the Corporation to continue the Optionee's participation therein (or in such substitute or alternative plan) on a basis not materially less favorable, both in terms of the amount or timing of payment of benefits provided and the level of the Optionee's participation relative to other participants, as existed immediately prior to the Change in Control; or (6) the failure by the Corporation to continue to provide the Optionee with benefits substantially similar to those enjoyed by the Optionee under any of the Corporation's pension, savings, life insurance, medical, health 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. 8 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 (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, and any of their respective permitted successors or assigns thereunder. 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 October 13, 1998 - ----------------------------------------------------------------------------- Purchase Price $8.75 - ----------------------------------------------------------------------------- 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 EXHIBIT 10.5 Exhibit 10.5 SUMMARY TERMS OF EMPLOYMENT WITH HAROLD E. KINNE (EFFECTIVE AS OF JULY 15, 1998) 1. Title - President and Chief Operating Officer. 2. Annual base salary of $300,000, payable bi-weekly. 3. Participation in the Company's Management Incentive Compensation Plan at a target cash incentive equal to 60% of annual base salary. The award payable in respect of 1998 will be prorated for the portion of the year that the Company employs Mr. Kinne. 4. A one-time grant of 5,000 non-qualified options ("NQO") for the purchase of the Company's common stock at an exercise price equal to the closing price per share on the date employment commences. These NQOs will vest at the rate of one-third of the options granted on each of the first three anniversaries of the date of grant. The NQOs will be issued under the Company's Incentive Stock Plan, and will include such other terms and conditions as are contained in the NQO grants to other executive officers. 5. A one-time grant of 25,000 performance accelerated non-qualified stock options ("PASO") for the purchase of the Company's common stock at an exercise price equal to the closing price per share on the date employment commences. These PASOs will vest at the rate of 20% of the options granted on each of the first five anniversaries of the date of grant. However, the PASOs will vest and become exercisable if, on or before February 3, 2000, the closing price of Hexcel stock equals or exceeds $35 per share for ten or more consecutive trading days. The PASOs will be issued under the Company's Incentive Stock Plan, and will include such other terms and conditions as are contained in the PASO grants to other executive officers. 6. A grant of 2,500 performance accelerated restricted stock units ("PARS"), each convertible into one share of the Company's common stock. The PARS will be issued under the Company's Incentive Stock Plan, will vest on the earlier of the achievement of acceleration targets or seven years from the date of grant, and will include such other terms and conditions as are contained in the PARS grants to other executive officers. 7. A grant of 10,000 short-term options for the purchase of the Company's common stock at the closing price on the date of purchase during the 90 days from the date employment commences. For each short-term option exercised, Mr. Kinne will receive a grant of two reload options on the same date. These reload options are non-qualified options for the purchase of the Company's common stock at the closing price per share on the date of the grant. The reload options will vest at the rate of one-third of the options granted on each of the first three anniversaries of the date of grant and are not exercisable for four years. 8. Participation in the Company's Management Stock Purchase Plan (MSPP). MSPP provides for the purchase of restricted stock units at eighty percent of the fair market value of the Company's common stock with up to fifty percent of Mr. Kinne's annual bonus award. 9. Monthly car allowance of $1,000 in accordance with the Company's auto policy and annual club dues for 2 clubs. 10. Mr. Kinne is eligible to participate in the Company's other benefit plans upon meeting customary requirements for eligibility thereunder, which currently include its (i) qualified pension plan, (ii) supplemental executive retirement plan, (iii) qualified 401(k) plan, (iv) 401(k) restoration plan for executives, (v) annual executive medical examination and (vi) medical, dental, vision, disability, life insurance and vacation plans (except that Mr. Kinne will be eligible for six weeks paid vacation per year and Company paid life insurance in the face value of two times annual base salary). 11. If Mr. Kinne's employment is terminated by the Company without cause, the Company will pay a severance benefit equal to twelve months of salary plus target bonus in effect at the time of severance. However, if such termination occurs during the first 18 months of employment, the Company will provide an additional monthly severance benefit of $15,000 for each month remaining until the eighteenth month from the date of commencement of employment. 12. In accordance with the Company's requirement for executive ownership of Company stock, Mr. Kinne will acquire 3 years base salary in Company stock over 3 years from the date employment commences. EX-10.6 7 EXHIBIT 10.6 Exhibit 10.6 HEXCEL CORPORATION EMPLOYMENT AGREEMENT THIS AGREEMENT is effective as of July 25, 1998, between HEXCEL CORPORATION, a Delaware corporation (the "COMPANY"), and Richard C. Wolfe ("EXECUTIVE") and shall become effective on the Effective Date (as defined below). WHEREAS, the execution and delivery of this Agreement by the Company and Executive is made to ensure the continued dedication and loyalty of Executive to the Company to set forth certain terms and conditions of the Executives employment with the Company. In consideration of the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. EMPLOYMENT. The Company shall employ Executive, and Executive hereby agrees to accept employment with the Company, upon the terms and conditions set forth in this Agreement for the period beginning on the date (the "EFFECTIVE DATE") of the consummation of the acquisition of substantially all the assets of Clark-Schwebel, Inc. by the Company and ending on the Expiration Date (as defined below) unless terminated earlier in accordance with the provisions of Section 4 hereof (the "EMPLOYMENT PERIOD"). 2. POSITION AND DUTIES. (a) During the Employment Period, Executive shall serve as the Executive Vice President of Manufacturing of the Company's Clark-Schwebel Corporation subsidiary (to be formed) and shall have the normal duties, responsibilities and authority of his position, subject to the power of the board of directors of the Company (the "BOARD") or the Chief Executive Officer ("CEO") or Chief Operating Officer ("COO") of the Company to expand or limit such duties, responsibilities and authority and to override or direct Executive's actions. (b) During the Employment Period, Executive shall report to his immediate supervisor, or the Board, CEO or COO, as applicable, and Executive shall devote his best efforts and his full business time and attention (except for permitted vacation periods and reasonable periods of illness or other incapacity) to the business and affairs of the Company and its subsidiaries. Executive shall perform his duties and responsibilities to the best of his abilities in a diligent, trustworthy, businesslike and efficient manner. 1 3. BASE SALARY AND BENEFITS. During the Employment Period, Executive shall be entitled to the following: (a) BASE SALARY. Executive's base salary shall be $185,000.00 per annum or such higher (but not lower) amount as the Board, CEO or COO may designate from time to time (the "BASE SALARY"), which salary shall be payable in regular installments in accordance with the Company's general payroll practices and shall be subject to customary withholding. (b) ANNUAL BONUS. Executive shall participate in the Company's Management Incentive Compensation Plan ("MICP") (a copy of which is attached hereto as Exhibit A) at a Target Incentive Award (as defined in the MICP) equal to 40% of Base Salary. Any award payable to the Executive under the MICP shall be calculated and paid in accordance with the terms and conditions of the MICP. Any MICP award made in respect of 1998 shall be prorated to the period commencing July 1, 1998. (c) STOCK INCENTIVES. Executive shall receive an annual grant of incentive stock awards under the Company's Incentive Stock Plan which, in the aggregate on the date of grant, shall be equal in value to 65% of Executive's Base Salary (such value to be determined by the Compensation Committee of the Board in its sole discretion, but in a manner consistent with the valuation of similar awards for other executives of the Company). The timing, terms and conditions of such awards shall be substantially identical to those granted to other executives of the Company who are at a comparable executive level to that of Executive. (d) BENEFITS. In addition to the Base Salary, Annual Bonus and Stock Incentives payable to Executive pursuant to this Section 3, Executive will be entitled to participate in any pension benefit plan, welfare benefit plan (including without limitation any medical, prescription, dental, disability and life insurance plan), tax-deferred savings plan and other benefit arrangement offered by the Company to its executive employees who are at a comparable executive level to that of Executive. In addition, each Executive will be entitled to the number of vacation days determined in accordance with the Company's vacation policy. Executive shall also be entitled to (i) prompt reimbursement for all reasonable expenses incurred by Executive in the performance of his duties in accordance with the Company's business expense reimbursement policy and (ii) an office of a size and with furnishings and other appointments and to support personnel substantially equal to those made available to other executives of the Company who are at a comparable executive level to that of Executive. 2 4. TERMINATION. (a) Unless renewed by the mutual agreement of the Company and Executive, the Employment Period shall end on the third anniversary of the Effective Date (the "EXPIRATION DATE"); PROVIDED, THAT the Employment Period (i) shall terminate prior to the Expiration Date upon Executive's resignation, death or Disability (as defined below), (ii) may be terminated by the Company at any time prior to the Expiration Date for Cause (as defined below) or without Cause, and (iii) may be terminated by Executive at any time prior to the Expiration Date for Good Reason (as defined below) or without Good Reason. (b) If the Employment Period is terminated due to Executive's death or Disability prior to the Expiration Date, Executive shall be entitled to only such benefits as are customarily provided in such circumstances by the Company (which benefits shall be no less favorable than the benefits provided by the Company in such circumstances to other executive employees of the Company who are at a comparable executive level to that of Executive). For purposes of this Agreement, "DISABILITY" shall mean the absence of the Executive from the Executive's duties with the Company on a full-time basis for 180 consecutive days as a result of incapacity due to mental or physical illness; PROVIDED, THAT a return to work for less than thirty consecutive days during any period of Disability shall not be deemed to interrupt the running of (and shall be included in) the aforementioned 180 day period. (c) If the Employment Period is terminated by the Company without Cause or by Executive for Good Reason prior to the Expiration Date, Executive shall be entitled to receive the following benefits: (i) the Base Salary (as in effect on the date of termination) that would have been payable to Executive from the date of termination to the end of the Employment Period had such termination not occurred, payable in regular installments in accordance with the Company's general payroll practices and subject to customary withholding, (ii) cash payments equal to the amount that the Company would have contributed, in respect to Executive, to its defined contribution plans in which the Executive participated for the period from the date of termination to the end of the Employment Period had such termination not occurred and (iii) an amount equal to the Target Bonus for the year in which termination occurs for each bonus period that would have occurred from the date of termination to the end of the Employment Period had such termination not occurred, which amount shall be payable on or before February 28 of the succeeding fiscal year. In addition, (1) Executive and his family shall be entitled to participate in the medical and dental plans offered by the Company from the date of termination through the end of the Employment Period as if such termination had not occurred, and thereafter, Executive shall be entitled to participate in such medical and dental plans pursuant to the provisions of Part 6 of Subtitle B of Title I of the Employee Retirement Income Security Act of 1974, as amended and (2) the Company shall continue to pay the premiums on life and long-term disability insurance policies 3 for the benefit of Executive from the date of termination through the end of the Employment Period as if such termination had not occurred. During the one year period following the date of termination, the Company shall pay the reasonable costs and expenses of one executive outplacement firm to help the Executive secure other employment. Notwithstanding the foregoing, the Company shall not be obligated to pay or provide any benefit or amount set forth in this paragraph (c) if Executive has breached in any material respect the provisions of paragraph 6 hereof. (d) If the Employment Period is terminated prior to the Expiration Date by the Company for Cause or by Executive other than for Good Reason, Executive shall only be entitled to receive his Base Salary through the date of termination. (e) For purposes of this Agreement, "CAUSE" shall mean (a) a material breach of this Agreement by Executive which is not cured within thirty (30) days of receipt of written notice from the Board, the CEO or the COO specifying such breach, (b) Executive's willful and repeated failure (except by reason of Disability) to comply with the lawful directives of the Board or his superior officer(s) consistent with the terms of this Agreement after a written demand for such compliance is delivered to Executive by the Board or such officer identifying specifically the nature of such noncompliance, (c) gross negligence or willful misconduct in the performance of Executive's duties under this Agreement, (d) fraud committed by Executive with respect to the Company or any of its subsidiaries, or (e) the commission of a felony or a crime involving moral turpitude; PROVIDED, THAT Executive will not be deemed to have been terminated for Cause unless (i) the Company notifies Executive of the facts and circumstances providing the basis for termination for Cause, (ii) Executive has had the opportunity to be heard before the Board, and (iii) three-quarters of the Board determines that the Company may terminate Executive for Cause under the Agreement. (f) For purposes of this Agreement, "GOOD REASON" shall mean (a) a material breach of the Agreement by the Company which is not cured within thirty (30) days of receipt of written notice from Executive specifying such breach, (b) the assignment to Executive of duties inconsistent with his position, authority or responsibility or a material reduction or a material adverse alteration of such duties, authority or responsibility or (c) a material relocation of the offices of the Company where the Executive performs his duties under this Agreement on the Effective Date. Executive's continued employment by the Company for a period of not more than ninety (90) days after the occurrence of the event giving rise to Executive's right to terminate this Agreement for Good Reason shall not be deemed a waiver of such right. 5. CONFIDENTIAL INFORMATION. Executive acknowledges that the secret or confidential information, observations and data obtained by him while 4 employed by the Company and its subsidiaries concerning the business or affairs of the Company and its subsidiaries ("CONFIDENTIAL INFORMATION") are the property of the Company or such subsidiaries. Therefore, Executive agrees that, except as may be required by law or legal process, he shall not disclose to any unauthorized person or use for his own purposes any Confidential Information without the prior written consent of the Board, CEO or COO, unless and to the extent that the aforementioned matters become generally known to and available for use by the public other than as a result of Executive's acts or omissions. Executive shall deliver to the Company at the termination of the Employment Period, or at any other time the Company may request, all memoranda, notes, plans, records, reports, computer tapes, printouts and software and other documents and data (and copies thereof) relating to the Confidential Information or the business of the Company or any subsidiary which he may then possess or have under his control. 6. NON-COMPETE, NON-SOLICITATION. (a) In further consideration of the compensation to be paid to Executive hereunder, Executive acknowledges that in the course of his employment with the Company he has and shall become familiar with the Company's trade secrets and with other Confidential Information concerning the Company and its subsidiaries and that his services have been and shall be of special, unique and extraordinary value to the Company and its subsidiaries. Therefore, Executive agrees that during the Noncompete Period (as defined below), he shall not directly or indirectly own any interest in, manage, control, participate in, consult with, render services for, or in any manner engage in any business competing with the businesses of the Company or its subsidiaries, as such businesses exist or are in process on the date of the termination of Executive's employment, within any geographical area in which the Company or its subsidiaries engage or plan to engage in such businesses. Nothing herein shall prohibit Executive from being a passive owner of not more than 2% of the outstanding stock of any class of a corporation which is publicly traded, so long as Executive has no active participation in the business of such corporation. (b) During the Noncompete Period, Executive shall not directly or indirectly through another entity (i) induce or attempt to induce any employee of the Company or any subsidiary to leave the employ of the Company or such subsidiary, or in any way interfere with the relationship between the Company or any subsidiary and any employee thereof, (ii) hire any person who was a key employee of the Company or any subsidiary at any time during the Employment Period or (iii) induce or attempt to induce any customer, supplier, licensee, licensor, franchisee or other business relation of the Company or any subsidiary to cease doing business with the Company or such subsidiary, or in any way interfere with the relationship between any such customer, supplier, licensee or business relation and the Company or any subsidiary. 5 (c) If, at the time of enforcement of this Section 6, a court shall hold that the duration, scope or area restrictions stated herein are unreasonable under circumstances then existing, the parties agree that the maximum duration, scope or area reasonable under such circumstances shall be substituted for the stated duration, scope or area and that the court shall be allowed to revise the restrictions contained herein to cover the maximum period, scope and area permitted by law. Executive agrees that the restrictions contained in this Section 6 are reasonable. (d) In the event of the breach or a threatened breach by Executive of any of the provisions of this Section 6, the Company, in addition and supplementary to other rights and remedies existing in its favor, may apply to any court of law or equity of competent jurisdiction for specific performance and/or injunctive or other relief in order to enforce or prevent any violations of the provisions hereof (without posting a bond or other security). In addition, in the event of an alleged breach or violation by Executive of this Section 6, the Noncompete Period shall be tolled until such breach or violation has been duly cured. (e) For the purposes of this Agreement, "Noncompete Period" shall mean (i) if Executive's employment is terminated during the Employment Period by the Company other than for Cause or by Executive with Good Reason, a period continuing until the Expiration Date, or (ii) if Executive's employment is terminated during the Employment Period by the Company for Cause or by Executive without Good Reason, a period continuing until the second anniversary of the Expiration Date. 7. EXECUTIVE'S REPRESENTATIONS. Executive hereby represents and warrants to the Company that (i) the execution, delivery and performance of this Agreement by Executive do not and shall not conflict with, breach, violate or cause a default under any contract, agreement, instrument, order, judgment or decree to which Executive is a party or by which he is bound, (ii) Except for the Existing Employment Agreement (as defined below), Executive is not a party to or bound by any employment agreement, noncompete agreement or confidentiality agreement with any other person or entity other than the Company, and (iii) upon the execution and delivery of this Agreement by the Company, this Agreement shall be the valid and binding obligation of Executive, enforceable in accordance with its terms. Executive hereby acknowledges and represents that he has consulted with independent legal counsel regarding his rights and obligations under this Agreement and that he fully understands the terms and conditions contained herein. 8. SURVIVAL. Paragraphs 4 through 6 and paragraphs 9 through 17 and Sections 19 through 21 shall survive and continue in full force in accordance with their terms notwithstanding any termination of the Employment Period. 6 9. NOTICES. Any notice provided for in this Agreement shall be in writing and shall be either personally delivered, or mailed by first class mail, certified or registered, return receipt requested, postage prepaid, to the recipient at the address below indicated: NOTICES TO EXECUTIVE: Richard C. Wolfe 205 Fox Creek Road Anderson, SC 29261 NOTICES TO THE COMPANY: Hexcel Corporation Two Stamford Plaza 281 Tresser Boulevard 16th Floor Stamford, CT 06901-3238 Attn: President or such other address or to the attention of such other person as the recipient party shall have specified by prior written notice to the sending party. Any notice under this Agreement shall be deemed to have been given when so delivered or mailed. 10. SEVERABILITY. Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability shall not affect any other provision or any other jurisdiction, but this Agreement shall be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision had never been contained herein. 11. COMPLETE AGREEMENT. This Agreement embodies the complete agreement and understanding among the parties and supersede and preempt any prior understandings, agreements or representations by or among the parties, written or oral, which may have related to the subject matter hereof in any way. The captions of this Agreement are for convenience of reference only, are not part of this Agreement and shall not be used to interpret this Agreement. As of the Effective Date, and without any further act or written waiver by Executive, that certain Employment Agreement ("Existing Employment Agreement") between Executive and Clark-Schwebel, Inc. dated as of June 1, 1998 shall be deemed terminated and of no further force and effect and Executive hereby waives and releases any and all rights and claims existing or 7 arising under or pursuant to the Existing Employment Agreement. The provisions contained in the preceding sentence are for the benefit of the Company, its successors and assigns, and Clark-Schwebel, Inc. and its affiliates, and their respective successors and assigns, officers, directors, representatives and agents. 12. NO STRICT CONSTRUCTION. The language used in this Agreement shall be deemed to be the language chosen by the parties hereto to express their mutual intent, and no rule of strict construction shall be applied against any party as the supposed drafter of the language. 13. COUNTERPARTS. This Agreement may be executed in separate counterparts, each of which is deemed to be an original and all of which taken together constitute one and the same agreement. 14. SUCCESSORS AND ASSIGNS. (a) This Agreement is intended to bind and inure to the benefit of and be enforceable by Executive, the Company and their respective heirs, personal representatives, successors and assigns, except that Executive may not assign his rights or delegate his obligations hereunder without the prior written consent of the Company otherwise than by will or the laws of descent and distribution. (b) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, "Company" shall mean the Company as herein defined and any successor to its business and/or assets as aforesaid that assumes and agrees to perform this Agreement by operation of law or otherwise. (c) Pursuant to the Asset Purchase Agreement by and among Stamford CS Acquisition Corp., Clark-Schwebel Holdings, Inc., Clark-Schwebel, Inc. and the Company dated July __, 1998 (the "Asset Agreement"), the Company, effective as of the Closing (as defined in the Asset Agreement), shall assume certain indemnity obligations under Section 11.6 of that certain Merger Agreement among Stamford CS Acquisition Corp., Clark-Schwebel Holdings, Inc. (and other parties thereto) dated July __, 1998, and hereby acknowledges that, effective as of the Closing, Executive shall be a third party beneficiary under Section 11.6 to the extent that Section 11.6 is applicable to Executive. 15. DISPUTE RESOLUTION. 8 (a) If any dispute, claim or difference arises out of this Agreement or the employment relationship thereby created, or as to the rights and liabilities of the parties hereunder or as to the breach or invalidity hereof, or in connection with the construction of this Agreement including any dispute, claim or difference as to whether an issue is arbitrable (each such event being hereinafter called a "DISPUTE"), the parties will settle such Dispute exclusively by binding arbitration in accordance with the Commercial Arbitration rules of the American Arbitration Association in effect as of the date of commencement of the arbitration. (b) Either party may demand that any Dispute be submitted to binding arbitration. The demand for arbitration shall be in writing, shall be served on the other party in the manner prescribed in this Agreement for the giving of notices, and shall set forth a short statement of the factual basis for the claim, specifying the matter or matters to be arbitrated. (c) The arbitration will be held in the City of Atlanta unless the parties mutually agree to have the arbitration held elsewhere, and judgment upon the award made therein may be entered by any court having jurisdiction thereof; PROVIDED, FURTHER, THAT nothing contained in this Section 15 will be construed to limit or preclude a party from bringing any action in any court of competent jurisdiction in the United States for injunctive or other provisional relief to compel another party hereto to comply with its obligations under this Agreement or any other agreement between or among the parties during the pendency of the arbitration proceedings. (d) The arbitration shall be conducted by an arbitrator appointed by the American Arbitration Association (the "ARBITRATOR") who shall conduct such evidentiary or other hearings as he deems necessary or appropriate and thereafter shall make a final determination as soon as practicable after the conclusion of the hearings. Any arbitration pursuant hereto shall be conducted by the Arbitrator as the parties may mutually agree or if the parties do not so agree under the guidance of the Federal Rules of Civil Procedure and the Federal Rules of Evidence, but the Arbitrator shall not be required to comply strictly with such rules in conducting any such arbitration. (e) The Company shall bear its own fees and expenses incurred in connection with the arbitration, the fees and expenses of the Arbitrator incurred in connection with the arbitration, and shall pay the reasonable fees and expenses (including the legal fees of one law firm) incurred by Executive in connection with the arbitration. (f) The Arbitrator shall have the authority to award any remedy or relief that a Court of the State of New York could order or grant, including 9 without limitation, specific performance of any obligation under this Agreement, the awarding of punitive damages, the issuance of an injunction, or the imposition of sanctions for abuse or frustration of the arbitration process. The decision and award of the Arbitrator shall be in writing and counterpart copies thereof shall be delivered to each party. The decision and award of the Arbitrator shall be binding on all parties. In rendering such decision and award, the Arbitrator shall not add to, subtract from or otherwise modify the provisions of this Agreement. Either party to the arbitration may seek to have the ruling of the Arbitrator entered in any court having jurisdiction thereof. (g) Each party agrees that it will not file suit, motion, petition or otherwise commence any legal action or proceeding for any matter which is required to be submitted to arbitration as contemplated herein except in connection with the enforcement of an award rendered by the Arbitrator and except to seek the issuance of an injunction or temporary restraining order pending a final determination by the Arbitrator. Upon the entry of any order dismissing or staying any action or proceeding filed contrary to the preceding sentence, the party which filed such action or proceeding shall promptly pay to the other party the reasonable attorney's fees, costs and expenses incurred by such other party prior to the entry of such order. (h) All aspects of the arbitration shall be considered confidential and shall not be disseminated by any party with the exception of the ability and opportunity to prosecute its claim or assert its defense to any such claim. The Arbitrator shall be required to issue prescriptive orders as may be required to enforce and maintain this covenant of confidentiality during the course of the arbitration and after the conclusion of same so that the result and underlying data, information, materials and other evidence are forever withheld from public dissemination with the exception of its subpoena by a court of competence jurisdiction in an unrelated proceeding brought by a third party. 16. AMENDMENT AND WAIVER. The provisions of this Agreement may be amended or waived only with the prior written consent of the Company and Executive (or their respective successors and legal representatives), and no course of conduct or failure or delay in enforcing the provisions of this Agreement shall affect the validity, binding effect or enforceability of this Agreement or be deemed a waiver of such provisions. 17. CHOICE OF LAW. ALL ISSUES AND QUESTIONS CONCERNING THE CONSTRUCTION, VALIDITY, ENFORCEMENT AND INTERPRETATION OF THIS AGREEMENT AND THE EXHIBITS AND SCHEDULES HERETO SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO ANY CHOICE OF LAW OR CONFLICT OF LAW RULES OR PROVISIONS (WHETHER OF THE STATE OF NEW YORK OR ANY OTHER JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF THE LAWS OF ANY JURISDICTION OTHER THAN THE STATE OF NEW YORK. IN FURTHERANCE OF THE FOREGOING, THE INTERNAL LAW OF THE STATE OF NEW YORK 10 SHALL CONTROL THE INTERPRETATION AND CONSTRUCTION OF THIS AGREEMENT (AND ALL SCHEDULES AND EXHIBITS HERETO), EVEN THOUGH UNDER THAT JURISDICTION'S CHOICE OF LAW OR CONFLICT OF LAW ANALYSIS, THE SUBSTANTIVE LAW OF SOME OTHER JURISDICTION WOULD ORDINARILY APPLY. 18. AT-WILL EMPLOYMENT. Executive shall be employed by the Company on an "at will" basis and the employment relationship between the Company and Executive may be terminated at any time by either the Company or Executive for any reason whatsoever, with or without cause, but subject to this Agreement. 19. NON-EXCLUSIVITY OF RIGHTS. Nothing in this Agreement shall prevent or limit Executive's continuing or future participation in any plan, program, policy or practice provided by the Company or any of its affiliated companies and for which Executive at the Company's sole discretion may qualify. Amounts that are vested benefits or that Executive is otherwise entitled to receive under any plan, policy, practice or program or any contract or agreement with the company or any of its affiliated companies at or subsequent to the termination of the Employment Period shall be payable in accordance with such plan, policy, practice or program or contract or agreement except as explicitly modified by this Agreement. No such amounts shall reduce any amounts payable under this Agreement. 20. NO DUTY TO MITIGATE. In no event shall Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to Executive under any of the provisions of this Agreement and such amounts shall not be reduced whether or not Executive obtains other employment. 21. INTEREST. If any payment to Executive required by this Agreement is not made within the time for such payment specified herein, the Company shall pay to Executive interest on such payment at the legal rate payable from time to time upon judgments in the state courts in the State of South Carolina from the date such payment is payable under the terms hereof until paid. 22. WITHHOLDING. All payments and benefits paid or payable under this Agreement shall be made net of any withholding for taxes as required by applicable law. * * * * * 11 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first written above. HEXCEL CORPORATION By_______________________ Name: Title: ________________________ Richard C. Wolfe 12 EX-10.7 8 EXHIBIT 10.7 Exhibit 10.7 HEXCEL CORPORATION EMPLOYMENT AGREEMENT THIS AGREEMENT is effective as of July 25, 1998, between HEXCEL CORPORATION, a Delaware corporation (the "COMPANY"), and Jack P. Schwebel ("EXECUTIVE") and shall become effective on the Effective Date (as defined below). WHEREAS, the execution and delivery of this Agreement by the Company and Executive is made to ensure the continued dedication and loyalty of Executive to the Company to set forth certain terms and conditions of the Executives employment with the Company. In consideration of the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. EMPLOYMENT. The Company shall employ Executive, and Executive hereby agrees to accept employment with the Company, upon the terms and conditions set forth in this Agreement for the period beginning on the date (the "EFFECTIVE DATE") of the consummation of the acquisition of substantially all the assets of Clark-Schwebel, Inc. by the Company and ending on the Expiration Date (as defined below) unless terminated earlier in accordance with the provisions of Section 4 hereof (the "EMPLOYMENT PERIOD"). 2. POSITION AND DUTIES. (a) During the Employment Period, Executive shall serve as the Chairman of the Company's Clark-Schwebel Corporation subsidiary (to be formed) and shall have the normal duties, responsibilities and authority of his position, subject to the power of the board of directors of the Company (the "BOARD") or the Chief Executive Officer ("CEO") or Chief Operating Officer ("COO") of the Company to expand or limit such duties, responsibilities and authority and to override or direct Executive's actions. (b) During the Employment Period, Executive shall report to the Board, CEO or COO, as applicable, and Executive shall devote his best efforts and his full business time and attention (except for permitted vacation periods and reasonable periods of illness or other incapacity) to the business and affairs of the Company and its subsidiaries. Executive shall perform his duties and responsibilities to the best of his abilities in a diligent, trustworthy, businesslike and efficient manner. 1 3. BASE SALARY AND BENEFITS. During the Employment Period, Executive shall be entitled to the following: (a) BASE SALARY. Executive's base salary shall be $260,000.00 per annum or such higher (but not lower) amount as the Board, CEO or COO may designate from time to time (the "BASE SALARY"), which salary shall be payable in regular installments in accordance with the Company's general payroll practices and shall be subject to customary withholding. (b) ANNUAL BONUS. Executive shall participate in the Company's Management Incentive Compensation Plan ("MICP") (a copy of which is attached hereto as Exhibit A) at a Target Incentive Award level (as defined in the MICP) equal to 45% of Base Salary. Any award payable to the Executive under the MICP shall be calculated and paid in accordance with the terms and conditions of the MICP. Any MICP award made in respect of 1998 shall be prorated to the period commencing July 1, 1998. (c) STOCK INCENTIVES. Executive shall receive an annual grant of incentive stock awards under the Company's Incentive Stock Plan which, in the aggregate on the date of grant, shall be equal in value to 75% of Executive's Base Salary (such value to be determined by the Compensation Committee of the Board in its sole discretion, but in a manner consistent with the valuation of similar awards for other executives of the Company). The timing, terms and conditions of such awards shall be substantially identical to those granted to other executives of the Company who are at a comparable executive level to that of Executive. (d) BENEFITS. In addition to the Base Salary, Annual Bonus and Stock Incentives payable to Executive pursuant to this Section 3, Executive will be entitled to participate in any pension benefit plan, welfare benefit plan (including without limitation any medical, prescription, dental, disability and life insurance plan), tax-deferred savings plan and other benefit arrangement offered by the Company to its executive employees who are at a comparable executive level to that of Executive. In addition, each Executive will be entitled to the number of vacation days determined in accordance with the Company's vacation policy. Executive shall also be entitled to (i) prompt reimbursement for all reasonable expenses incurred by Executive in the performance of his duties in accordance with the Company's business expense reimbursement policy and (ii) an office of a size and with furnishings and other appointments and to support personnel substantially equal to those made available to other executives of the Company who are at a comparable executive level to that of Executive. 2 4. TERMINATION. (a) Unless renewed by the mutual agreement of the Company and Executive, the Employment Period shall end on the third anniversary of the Effective Date (the "EXPIRATION DATE"); PROVIDED, THAT the Employment Period (i) shall terminate prior to the Expiration Date upon Executive's resignation, death or Disability (as defined below), (ii) may be terminated by the Company at any time prior to the Expiration Date for Cause (as defined below) or without Cause, and (iii) may be terminated by Executive at any time prior to the Expiration Date for Good Reason (as defined below) or without Good Reason. (b) If the Employment Period is terminated due to Executive's death or Disability prior to the Expiration Date, Executive shall be entitled to only such benefits as are customarily provided in such circumstances by the Company (which benefits shall be no less favorable than the benefits provided by the Company in such circumstances to other executive employees of the Company who are at a comparable executive level to that of Executive). For purposes of this Agreement, "DISABILITY" shall mean the absence of the Executive from the Executive's duties with the Company on a full-time basis for 180 consecutive days as a result of incapacity due to mental or physical illness; PROVIDED, THAT a return to work for less than thirty consecutive days during any period of Disability shall not be deemed to interrupt the running of (and shall be included in) the aforementioned 180 day period. (c) If the Employment Period is terminated by the Company without Cause or by Executive for Good Reason prior to the Expiration Date, Executive shall be entitled to receive the following benefits: (i) the Base Salary (as in effect on the date of termination) that would have been payable to Executive from the date of termination to the end of the Employment Period had such termination not occurred, payable in regular installments in accordance with the Company's general payroll practices and subject to customary withholding, (ii) cash payments equal to the amount that the Company would have contributed, in respect to Executive, to its defined contribution plans in which the Executive participated for the period from the date of termination to the end of the Employment Period had such termination not occurred and (iii) an amount equal to the Target Bonus for the year in which termination occurs for each bonus period that would have occurred from the date of termination to the end of the Employment Period had such termination not occurred, which amount shall be payable on or before February 28 of the succeeding fiscal year. In addition, (1) Executive and his family shall be entitled to participate in the medical and dental plans offered by the Company from the date of termination through the end of the Employment Period as if such termination had not occurred, and thereafter, Executive shall be entitled to participate in such medical and dental plans pursuant to the provisions of Part 6 of Subtitle B of Title I of the Employee Retirement Income Security Act of 1974, as amended and (2) the Company shall continue to pay the premiums on life and long-term disability insurance policies 3 for the benefit of Executive from the date of termination through the end of the Employment Period as if such termination had not occurred. During the one year period following the date of termination, the Company shall pay the reasonable costs and expenses of one executive outplacement firm to help the Executive secure other employment. Notwithstanding the foregoing, the Company shall not be obligated to pay or provide any benefit or amount set forth in this paragraph (c) if Executive has breached in any material respect the provisions of paragraph 6 hereof. (d) If the Employment Period is terminated prior to the Expiration Date by the Company for Cause or by Executive other than for Good Reason, Executive shall only be entitled to receive his Base Salary through the date of termination. (e) For purposes of this Agreement, "CAUSE" shall mean (a) a material breach of this Agreement by Executive which is not cured within thirty (30) days of receipt of written notice from the Board, the CEO or the COO specifying such breach, (b) Executive's willful and repeated failure (except by reason of Disability) to comply with the lawful directives of the Board or his superior officer(s) consistent with the terms of this Agreement after a written demand for such compliance is delivered to Executive by the Board or such officer identifying specifically the nature of such noncompliance, (c) gross negligence or willful misconduct in the performance of Executive's duties under this Agreement, (d) fraud committed by Executive with respect to the Company or any of its subsidiaries, or (e) the commission of a felony or a crime involving moral turpitude; PROVIDED, THAT Executive will not be deemed to have been terminated for Cause unless (i) the Company notifies Executive of the facts and circumstances providing the basis for termination for Cause, (ii) Executive has had the opportunity to be heard before the Board, and (iii) three-quarters of the Board determines that the Company may terminate Executive for Cause under the Agreement. (f) For purposes of this Agreement, "GOOD REASON" shall mean (a) a material breach of the Agreement by the Company which is not cured within thirty (30) days of receipt of written notice from Executive specifying such breach, (b) the assignment to Executive of duties inconsistent with his position, authority or responsibility or a material reduction or a material adverse alteration of such duties, authority or responsibility or (c) a material relocation of the offices of the Company where the Executive performs his duties under this Agreement on the Effective Date. Executive's continued employment by the Company for a period of not more than ninety (90) days after the occurrence of the event giving rise to Executive's right to terminate this Agreement for Good Reason shall not be deemed a waiver of such right. 5. CONFIDENTIAL INFORMATION. Executive acknowledges that the secret or confidential information, observations and data obtained by him while 4 employed by the Company and its subsidiaries concerning the business or affairs of the Company and its subsidiaries ("CONFIDENTIAL INFORMATION") are the property of the Company or such subsidiaries. Therefore, Executive agrees that, except as may be required by law or legal process, he shall not disclose to any unauthorized person or use for his own purposes any Confidential Information without the prior written consent of the Board, CEO or COO, unless and to the extent that the aforementioned matters become generally known to and available for use by the public other than as a result of Executive's acts or omissions. Executive shall deliver to the Company at the termination of the Employment Period, or at any other time the Company may request, all memoranda, notes, plans, records, reports, computer tapes, printouts and software and other documents and data (and copies thereof) relating to the Confidential Information or the business of the Company or any subsidiary which he may then possess or have under his control. 6. NON-COMPETE, NON-SOLICITATION. (a) In further consideration of the compensation to be paid to Executive hereunder, Executive acknowledges that in the course of his employment with the Company he has and shall become familiar with the Company's trade secrets and with other Confidential Information concerning the Company and its subsidiaries and that his services have been and shall be of special, unique and extraordinary value to the Company and its subsidiaries. Therefore, Executive agrees that during the Noncompete Period (as defined below), he shall not directly or indirectly own any interest in, manage, control, participate in, consult with, render services for, or in any manner engage in any business competing with the businesses of the Company or its subsidiaries, as such businesses exist or are in process on the date of the termination of Executive's employment, within any geographical area in which the Company or its subsidiaries engage or plan to engage in such businesses. Nothing herein shall prohibit Executive from being a passive owner of not more than 2% of the outstanding stock of any class of a corporation which is publicly traded, so long as Executive has no active participation in the business of such corporation. (b) During the Noncompete Period, Executive shall not directly or indirectly through another entity (i) induce or attempt to induce any employee of the Company or any subsidiary to leave the employ of the Company or such subsidiary, or in any way interfere with the relationship between the Company or any subsidiary and any employee thereof, (ii) hire any person who was a key employee of the Company or any subsidiary at any time during the Employment Period or (iii) induce or attempt to induce any customer, supplier, licensee, licensor, franchisee or other business relation of the Company or any subsidiary to cease doing business with the Company or such subsidiary, or in any way interfere with the relationship between any such customer, supplier, licensee or business relation and the Company or any subsidiary. 5 (c) If, at the time of enforcement of this Section 6, a court shall hold that the duration, scope or area restrictions stated herein are unreasonable under circumstances then existing, the parties agree that the maximum duration, scope or area reasonable under such circumstances shall be substituted for the stated duration, scope or area and that the court shall be allowed to revise the restrictions contained herein to cover the maximum period, scope and area permitted by law. Executive agrees that the restrictions contained in this Section 6 are reasonable. (d) In the event of the breach or a threatened breach by Executive of any of the provisions of this Section 6, the Company, in addition and supplementary to other rights and remedies existing in its favor, may apply to any court of law or equity of competent jurisdiction for specific performance and/or injunctive or other relief in order to enforce or prevent any violations of the provisions hereof (without posting a bond or other security). In addition, in the event of an alleged breach or violation by Executive of this Section 6, the Noncompete Period shall be tolled until such breach or violation has been duly cured. (e) For the purposes of this Agreement, "Noncompete Period" shall mean (i) if Executive's employment is terminated during the Employment Period by the Company other than for Cause or by Executive with Good Reason, a period continuing until the Expiration Date, or (ii) if Executive's employment is terminated during the Employment Period by the Company for Cause or by Executive without Good Reason, a period continuing until the second anniversary of the Expiration Date. 7. EXECUTIVE'S REPRESENTATIONS. Executive hereby represents and warrants to the Company that (i) the execution, delivery and performance of this Agreement by Executive do not and shall not conflict with, breach, violate or cause a default under any contract, agreement, instrument, order, judgment or decree to which Executive is a party or by which he is bound, (ii) Except for the Existing Employment Agreement (as defined below), Executive is not a party to or bound by any employment agreement, noncompete agreement or confidentiality agreement with any other person or entity other than the Company, and (iii) upon the execution and delivery of this Agreement by the Company, this Agreement shall be the valid and binding obligation of Executive, enforceable in accordance with its terms. Executive hereby acknowledges and represents that he has consulted with independent legal counsel regarding his rights and obligations under this Agreement and that he fully understands the terms and conditions contained herein. 8. SURVIVAL. Paragraphs 4 through 6 and paragraphs 9 through 17 and Sections 19 through 21 shall survive and continue in full force in accordance with their terms notwithstanding any termination of the Employment Period. 6 9. NOTICES. Any notice provided for in this Agreement shall be in writing and shall be either personally delivered, or mailed by first class mail, certified or registered, return receipt requested, postage prepaid, to the recipient at the address below indicated: NOTICES TO EXECUTIVE: Jack P. Schwebel 10 Dogwood Hills Pound Ridge, NY 10576 NOTICES TO THE COMPANY: Hexcel Corporation Two Stamford Plaza 281 Tresser Boulevard 16th Floor Stamford, CT 06901-3238 Attn: President or such other address or to the attention of such other person as the recipient party shall have specified by prior written notice to the sending party. Any notice under this Agreement shall be deemed to have been given when so delivered or mailed. 10. SEVERABILITY. Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability shall not affect any other provision or any other jurisdiction, but this Agreement shall be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision had never been contained herein. 11. COMPLETE AGREEMENT. This Agreement embodies the complete agreement and understanding among the parties and supersede and preempt any prior understandings, agreements or representations by or among the parties, written or oral, which may have related to the subject matter hereof in any way. The captions of this Agreement are for convenience of reference only, are not part of this Agreement and shall not be used to interpret this Agreement. As of the Effective Date, and without any further act or written waiver by Executive, that certain Employment Agreement ("Existing Employment Agreement") between Executive and Clark-Schwebel, Inc. dated as of June 1, 7 1998 shall be deemed terminated and of no further force and effect and Executive hereby waives and releases any and all rights and claims existing or arising under or pursuant to the Existing Employment Agreement. The provisions contained in the preceding sentence are for the benefit of the Company, its successors and assigns, and Clark-Schwebel, Inc. and its affiliates, and their respective successors and assigns, officers, directors, representatives and agents. 12. NO STRICT CONSTRUCTION. The language used in this Agreement shall be deemed to be the language chosen by the parties hereto to express their mutual intent, and no rule of strict construction shall be applied against any party as the supposed drafter of the language. 13. COUNTERPARTS. This Agreement may be executed in separate counterparts, each of which is deemed to be an original and all of which taken together constitute one and the same agreement. 14. SUCCESSORS AND ASSIGNS. (a) This Agreement is intended to bind and inure to the benefit of and be enforceable by Executive, the Company and their respective heirs, personal representatives, successors and assigns, except that Executive may not assign his rights or delegate his obligations hereunder without the prior written consent of the Company otherwise than by will or the laws of descent and distribution. (b) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, "Company" shall mean the Company as herein defined and any successor to its business and/or assets as aforesaid that assumes and agrees to perform this Agreement by operation of law or otherwise. (c) Pursuant to the Asset Purchase Agreement by and among Stamford CS Acquisition Corp., Clark-Schwebel Holdings, Inc., Clark-Schwebel, Inc. and the Company dated July __, 1998 (the "Asset Agreement"), the Company, effective as of the Closing (as defined in the Asset Agreement), shall assume certain indemnity obligations under Section 11.6 of that certain Merger Agreement among Stamford CS Acquisition Corp., Clark-Schwebel Holdings, Inc. (and other parties thereto) dated July __, 1998, and hereby acknowledges that, effective as of the Closing, Executive shall be a third party beneficiary under Section 11.6 to the extent that Section 11.6 is applicable to Executive. 8 15. DISPUTE RESOLUTION. (a) If any dispute, claim or difference arises out of this Agreement or the employment relationship thereby created, or as to the rights and liabilities of the parties hereunder or as to the breach or invalidity hereof, or in connection with the construction of this Agreement including any dispute, claim or difference as to whether an issue is arbitrable (each such event being hereinafter called a "DISPUTE"), the parties will settle such Dispute exclusively by binding arbitration in accordance with the Commercial Arbitration rules of the American Arbitration Association in effect as of the date of commencement of the arbitration. (b) Either party may demand that any Dispute be submitted to binding arbitration. The demand for arbitration shall be in writing, shall be served on the other party in the manner prescribed in this Agreement for the giving of notices, and shall set forth a short statement of the factual basis for the claim, specifying the matter or matters to be arbitrated. (c) The arbitration will be held in the City of New York unless the parties mutually agree to have the arbitration held elsewhere, and judgment upon the award made therein may be entered by any court having jurisdiction thereof; PROVIDED, FURTHER, THAT nothing contained in this Section 15 will be construed to limit or preclude a party from bringing any action in any court of competent jurisdiction in the United States for injunctive or other provisional relief to compel another party hereto to comply with its obligations under this Agreement or any other agreement between or among the parties during the pendency of the arbitration proceedings. (d) The arbitration shall be conducted by an arbitrator appointed by the American Arbitration Association (the "ARBITRATOR") who shall conduct such evidentiary or other hearings as he deems necessary or appropriate and thereafter shall make a final determination as soon as practicable after the conclusion of the hearings. Any arbitration pursuant hereto shall be conducted by the Arbitrator as the parties may mutually agree or if the parties do not so agree under the guidance of the Federal Rules of Civil Procedure and the Federal Rules of Evidence, but the Arbitrator shall not be required to comply strictly with such rules in conducting any such arbitration. (e) The Company shall bear its own fees and expenses incurred in connection with the arbitration, the fees and expenses of the Arbitrator incurred in connection with the arbitration, and shall pay the reasonable fees and expenses (including the legal fees of one law firm) incurred by Executive in connection with the arbitration. 9 (f) The Arbitrator shall have the authority to award any remedy or relief that a Court of the State of New York could order or grant, including without limitation, specific performance of any obligation under this Agreement, the awarding of punitive damages, the issuance of an injunction, or the imposition of sanctions for abuse or frustration of the arbitration process. The decision and award of the Arbitrator shall be in writing and counterpart copies thereof shall be delivered to each party. The decision and award of the Arbitrator shall be binding on all parties. In rendering such decision and award, the Arbitrator shall not add to, subtract from or otherwise modify the provisions of this Agreement. Either party to the arbitration may seek to have the ruling of the Arbitrator entered in any court having jurisdiction thereof. (g) Each party agrees that it will not file suit, motion, petition or otherwise commence any legal action or proceeding for any matter which is required to be submitted to arbitration as contemplated herein except in connection with the enforcement of an award rendered by the Arbitrator and except to seek the issuance of an injunction or temporary restraining order pending a final determination by the Arbitrator. Upon the entry of any order dismissing or staying any action or proceeding filed contrary to the preceding sentence, the party which filed such action or proceeding shall promptly pay to the other party the reasonable attorney's fees, costs and expenses incurred by such other party prior to the entry of such order. (h) All aspects of the arbitration shall be considered confidential and shall not be disseminated by any party with the exception of the ability and opportunity to prosecute its claim or assert its defense to any such claim. The Arbitrator shall be required to issue prescriptive orders as may be required to enforce and maintain this covenant of confidentiality during the course of the arbitration and after the conclusion of same so that the result and underlying data, information, materials and other evidence are forever withheld from public dissemination with the exception of its subpoena by a court of competence jurisdiction in an unrelated proceeding brought by a third party. 16. AMENDMENT AND WAIVER. The provisions of this Agreement may be amended or waived only with the prior written consent of the Company and Executive (or their respective successors and legal representatives), and no course of conduct or failure or delay in enforcing the provisions of this Agreement shall affect the validity, binding effect or enforceability of this Agreement or be deemed a waiver of such provisions. 17. CHOICE OF LAW. ALL ISSUES AND QUESTIONS CONCERNING THE CONSTRUCTION, VALIDITY, ENFORCEMENT AND INTERPRETATION OF THIS AGREEMENT AND THE EXHIBITS AND SCHEDULES HERETO SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO ANY CHOICE OF LAW OR CONFLICT OF LAW RULES OR PROVISIONS (WHETHER OF THE STATE OF NEW YORK OR ANY OTHER JURISDICTION) THAT WOULD CAUSE THE 10 APPLICATION OF THE LAWS OF ANY JURISDICTION OTHER THAN THE STATE OF NEW YORK. IN FURTHERANCE OF THE FOREGOING, THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL CONTROL THE INTERPRETATION AND CONSTRUCTION OF THIS AGREEMENT (AND ALL SCHEDULES AND EXHIBITS HERETO), EVEN THOUGH UNDER THAT JURISDICTION'S CHOICE OF LAW OR CONFLICT OF LAW ANALYSIS, THE SUBSTANTIVE LAW OF SOME OTHER JURISDICTION WOULD ORDINARILY APPLY. 18. AT-WILL EMPLOYMENT. Executive shall be employed by the Company on an "at will" basis and the employment relationship between the Company and Executive may be terminated at any time by either the Company or Executive for any reason whatsoever, with or without cause, but subject to this Agreement. 19. NON-EXCLUSIVITY OF RIGHTS. Nothing in this Agreement shall prevent or limit Executive's continuing or future participation in any plan, program, policy or practice provided by the Company or any of its affiliated companies and for which Executive at the Company's sole discretion may qualify. Amounts that are vested benefits or that Executive is otherwise entitled to receive under any plan, policy, practice or program or any contract or agreement with the company or any of its affiliated companies at or subsequent to the termination of the Employment Period shall be payable in accordance with such plan, policy, practice or program or contract or agreement except as explicitly modified by this Agreement. No such amounts shall reduce any amounts payable under this Agreement. 20. NO DUTY TO MITIGATE. In no event shall Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to Executive under any of the provisions of this Agreement and such amounts shall not be reduced whether or not Executive obtains other employment. 21. INTEREST. If any payment to Executive required by this Agreement is not made within the time for such payment specified herein, the Company shall pay to Executive interest on such payment at the legal rate payable from time to time upon judgments in the state courts in the State of South Carolina from the date such payment is payable under the terms hereof until paid. 22. WITHHOLDING. All payments and benefits paid or payable under this Agreement shall be made net of any withholding for taxes as required by applicable law. * * * * * 11 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first written above. HEXCEL CORPORATION By ----------------------- Name: Title: ------------------------ Jack P. Schwebel 12 EX-10.8 9 EXHIBIT 10.8 Exhibit 10.8 HEXCEL CORPORATION EMPLOYMENT AGREEMENT THIS AGREEMENT is effective as of July 25, 1998, between HEXCEL CORPORATION, a Delaware corporation (the "COMPANY"), and William D. Bennison ("EXECUTIVE") and shall become effective on the Effective Date (as defined below). WHEREAS, the execution and delivery of this Agreement by the Company and Executive is made to ensure the continued dedication and loyalty of Executive to the Company to set forth certain terms and conditions of the Executives employment with the Company. In consideration of the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. EMPLOYMENT. The Company shall employ Executive, and Executive hereby agrees to accept employment with the Company, upon the terms and conditions set forth in this Agreement for the period beginning on the date (the "EFFECTIVE DATE") of the consummation of the acquisition of substantially all the assets of Clark-Schwebel, Inc. by the Company and ending on the Expiration Date (as defined below) unless terminated earlier in accordance with the provisions of Section 4 hereof (the "EMPLOYMENT PERIOD"). 2. POSITION AND DUTIES. (a) During the Employment Period, Executive shall serve as the President of the Company's Clark-Schwebel Corporation subsidiary (to be formed) and shall have the normal duties, responsibilities and authority of his position, subject to the power of the board of directors of the Company (the "BOARD") or the Chief Executive Officer ("CEO") or Chief Operating Officer ("COO") of the Company to expand or limit such duties, responsibilities and authority and to override or direct Executive's actions. (b) During the Employment Period, Executive shall report to the Board, CEO or COO, as applicable, and Executive shall devote his best efforts and his full business time and attention (except for permitted vacation periods and reasonable periods of illness or other incapacity) to the business and affairs of the Company and its subsidiaries. Executive shall perform his duties and responsibilities to the best of his abilities in a diligent, trustworthy, businesslike and 1 efficient manner. 3. BASE SALARY AND BENEFITS. During the Employment Period, Executive shall be entitled to the following: (a) BASE SALARY. Executive's base salary shall be $218,000.00 per annum or such higher (but not lower) amount as the Board, CEO or COO may designate from time to time (the "BASE SALARY"), which salary shall be payable in regular installments in accordance with the Company's general payroll practices and shall be subject to customary withholding. (b) ANNUAL BONUS. Executive shall participate in the Company's Management Incentive Compensation Plan ("MICP") (a copy of which is attached hereto as Exhibit A) at a Target Incentive Level (as defined in the MICP) equal to 45% of Base Salary. Any award payable to the Executive under the MICP shall be calculated and paid in accordance with the terms and conditions of the MICP. Any MICP award made in respect of 1998 shall be prorated to the period commencing July 1, 1998. (c) STOCK INCENTIVES. Executive shall receive an annual grant of incentive stock awards under the Company's Incentive Stock Plan which, in the aggregate on the date of grant, shall be equal in value to 70% of Executive's Base Salary (such value to be determined by the Compensation Committee of the Board in its sole discretion, but in a manner consistent with the valuation of similar awards for other executives of the Company). The timing, terms and conditions of such awards shall be substantially identical to those granted to other executives of the Company who are at a comparable executive level to that of Executive. (d) BENEFITS. In addition to the Base Salary, Annual Bonus and Stock Incentives payable to Executive pursuant to this Section 3, Executive will be entitled to participate in any pension benefit plan, welfare benefit plan (including without limitation any medical, prescription, dental, disability and life insurance plan), tax-deferred savings plan and other benefit arrangement offered by the Company to its executive employees who are at a comparable executive level to that of Executive. In addition, each Executive will be entitled to the number of vacation days determined in accordance with the Company's vacation policy. Executive shall also be entitled to (i) prompt reimbursement for all reasonable expenses incurred by Executive in the performance of his duties in accordance with the Company's business expense reimbursement policy and (ii) an office of a size and with furnishings and other appointments and to support personnel substantially equal to those made available to other executives of the Company who are at a comparable executive level to that of Executive. 2 4. TERMINATION. (a) Unless renewed by the mutual agreement of the Company and Executive, the Employment Period shall end on the third anniversary of the Effective Date (the "EXPIRATION DATE"); PROVIDED, THAT the Employment Period (i) shall terminate prior to the Expiration Date upon Executive's resignation, death or Disability (as defined below), (ii) may be terminated by the Company at any time prior to the Expiration Date for Cause (as defined below) or without Cause, and (iii) may be terminated by Executive at any time prior to the Expiration Date for Good Reason (as defined below) or without Good Reason. (b) If the Employment Period is terminated due to Executive's death or Disability prior to the Expiration Date, Executive shall be entitled to only such benefits as are customarily provided in such circumstances by the Company (which benefits shall be no less favorable than the benefits provided by the Company in such circumstances to other executive employees of the Company who are at a comparable executive level to that of Executive). For purposes of this Agreement, "DISABILITY" shall mean the absence of the Executive from the Executive's duties with the Company on a full-time basis for 180 consecutive days as a result of incapacity due to mental or physical illness; PROVIDED, THAT a return to work for less than thirty consecutive days during any period of Disability shall not be deemed to interrupt the running of (and shall be included in) the aforementioned 180 day period. (c) If the Employment Period is terminated by the Company without Cause or by Executive for Good Reason prior to the Expiration Date, Executive shall be entitled to receive the following benefits: (i) the Base Salary (as in effect on the date of termination) that would have been payable to Executive from the date of termination to the end of the Employment Period had such termination not occurred, payable in regular installments in accordance with the Company's general payroll practices and subject to customary withholding, (ii) cash payments equal to the amount that the Company would have contributed, in respect to Executive, to its defined contribution plans in which the Executive participated for the period from the date of termination to the end of the Employment Period had such termination not occurred and (iii) an amount equal to the Target Bonus for the year in which termination occurs for each bonus period that would have occurred from the date of termination to the end of the Employment Period had such termination not occurred, which amount shall be payable on or before February 28 of the succeeding fiscal year. In addition, (1) Executive and his family shall be entitled to participate in the medical and dental plans offered by the Company from the date of termination through the end of the Employment Period as if such termination had not occurred, and thereafter, Executive shall be entitled to participate in such medical and dental plans pursuant to the provisions of Part 6 of Subtitle B of Title I of the Employee 3 Retirement Income Security Act of 1974, as amended and (2) the Company shall continue to pay the premiums on life and long-term disability insurance policies for the benefit of Executive from the date of termination through the end of the Employment Period as if such termination had not occurred. During the one year period following the date of termination, the Company shall pay the reasonable costs and expenses of one executive outplacement firm to help the Executive secure other employment. Notwithstanding the foregoing, the Company shall not be obligated to pay or provide any benefit or amount set forth in this paragraph (c) if Executive has breached in any material respect the provisions of paragraph 6 hereof. (d) If the Employment Period is terminated prior to the Expiration Date by the Company for Cause or by Executive other than for Good Reason, Executive shall only be entitled to receive his Base Salary through the date of termination. (e) For purposes of this Agreement, "CAUSE" shall mean (a) a material breach of this Agreement by Executive which is not cured within thirty (30) days of receipt of written notice from the Board, the CEO or the COO specifying such breach, (b) Executive's willful and repeated failure (except by reason of Disability) to comply with the lawful directives of the Board or his superior officer(s) consistent with the terms of this Agreement after a written demand for such compliance is delivered to Executive by the Board or such officer identifying specifically the nature of such noncompliance, (c) gross negligence or willful misconduct in the performance of Executive's duties under this Agreement, (d) fraud committed by Executive with respect to the Company or any of its subsidiaries, or (e) the commission of a felony or a crime involving moral turpitude; PROVIDED, THAT Executive will not be deemed to have been terminated for Cause unless (i) the Company notifies Executive of the facts and circumstances providing the basis for termination for Cause, (ii) Executive has had the opportunity to be heard before the Board, and (iii) three-quarters of the Board determines that the Company may terminate Executive for Cause under the Agreement. (f) For purposes of this Agreement, "GOOD REASON" shall mean (a) a material breach of the Agreement by the Company which is not cured within thirty (30) days of receipt of written notice from Executive specifying such breach, (b) the assignment to Executive of duties inconsistent with his position, authority or responsibility or a material reduction or a material adverse alteration of such duties, authority or responsibility or (c) a material relocation of the offices of the Company where the Executive performs his duties under this Agreement on the Effective Date. Executive's continued employment by the Company for a period of not more than ninety (90) days after the occurrence of the event giving rise to Executive's right to terminate this Agreement for Good Reason shall not be deemed a waiver of such right. 4 5. CONFIDENTIAL INFORMATION. Executive acknowledges that the secret or confidential information, observations and data obtained by him while employed by the Company and its subsidiaries concerning the business or affairs of the Company and its subsidiaries ("CONFIDENTIAL INFORMATION") are the property of the Company or such subsidiaries. Therefore, Executive agrees that, except as may be required by law or legal process, he shall not disclose to any unauthorized person or use for his own purposes any Confidential Information without the prior written consent of the Board, CEO or COO, unless and to the extent that the aforementioned matters become generally known to and available for use by the public other than as a result of Executive's acts or omissions. Executive shall deliver to the Company at the termination of the Employment Period, or at any other time the Company may request, all memoranda, notes, plans, records, reports, computer tapes, printouts and software and other documents and data (and copies thereof) relating to the Confidential Information or the business of the Company or any subsidiary which he may then possess or have under his control. 6. NON-COMPETE, NON-SOLICITATION. (a) In further consideration of the compensation to be paid to Executive hereunder, Executive acknowledges that in the course of his employment with the Company he has and shall become familiar with the Company's trade secrets and with other Confidential Information concerning the Company and its subsidiaries and that his services have been and shall be of special, unique and extraordinary value to the Company and its subsidiaries. Therefore, Executive agrees that during the Noncompete Period (as defined below), he shall not directly or indirectly own any interest in, manage, control, participate in, consult with, render services for, or in any manner engage in any business competing with the businesses of the Company or its subsidiaries, as such businesses exist or are in process on the date of the termination of Executive's employment, within any geographical area in which the Company or its subsidiaries engage or plan to engage in such businesses. Nothing herein shall prohibit Executive from being a passive owner of not more than 2% of the outstanding stock of any class of a corporation which is publicly traded, so long as Executive has no active participation in the business of such corporation. (b) During the Noncompete Period, Executive shall not directly or indirectly through another entity (i) induce or attempt to induce any employee of the Company or any subsidiary to leave the employ of the Company or such subsidiary, or in any way interfere with the relationship between the Company or any subsidiary and any employee thereof, (ii) hire any person who was a key employee of the Company or any subsidiary at any time during the Employment Period or (iii) induce or attempt to induce any customer, supplier, licensee, licensor, franchisee or other business relation of the Company or any subsidiary to cease doing business with the Company or such subsidiary, or in any way 5 interfere with the relationship between any such customer, supplier, licensee or business relation and the Company or any subsidiary. (c) If, at the time of enforcement of this Section 6, a court shall hold that the duration, scope or area restrictions stated herein are unreasonable under circumstances then existing, the parties agree that the maximum duration, scope or area reasonable under such circumstances shall be substituted for the stated duration, scope or area and that the court shall be allowed to revise the restrictions contained herein to cover the maximum period, scope and area permitted by law. Executive agrees that the restrictions contained in this Section 6 are reasonable. (d) In the event of the breach or a threatened breach by Executive of any of the provisions of this Section 6, the Company, in addition and supplementary to other rights and remedies existing in its favor, may apply to any court of law or equity of competent jurisdiction for specific performance and/or injunctive or other relief in order to enforce or prevent any violations of the provisions hereof (without posting a bond or other security). In addition, in the event of an alleged breach or violation by Executive of this Section 6, the Noncompete Period shall be tolled until such breach or violation has been duly cured. (e) For the purposes of this Agreement, "Noncompete Period" shall mean (i) if Executive's employment is terminated during the Employment Period by the Company other than for Cause or by Executive with Good Reason, a period continuing until the Expiration Date, or (ii) if Executive's employment is terminated during the Employment Period by the Company for Cause or by Executive without Good Reason, a period continuing until the second anniversary of the Expiration Date. 7. EXECUTIVE'S REPRESENTATIONS. Executive hereby represents and warrants to the Company that (i) the execution, delivery and performance of this Agreement by Executive do not and shall not conflict with, breach, violate or cause a default under any contract, agreement, instrument, order, judgment or decree to which Executive is a party or by which he is bound, (ii) Except for the Existing Employment Agreement (as defined below), Executive is not a party to or bound by any employment agreement, noncompete agreement or confidentiality agreement with any other person or entity other than the Company, and (iii) upon the execution and delivery of this Agreement by the Company, this Agreement shall be the valid and binding obligation of Executive, enforceable in accordance with its terms. Executive hereby acknowledges and represents that he has consulted with independent legal counsel regarding his rights and obligations under this Agreement and that he fully understands the terms and conditions contained herein. 6 8. SURVIVAL. Paragraphs 4 through 6 and paragraphs 9 through 17 and Sections 19 through 21 shall survive and continue in full force in accordance with their terms notwithstanding any termination of the Employment Period. 9. NOTICES. Any notice provided for in this Agreement shall be in writing and shall be either personally delivered, or mailed by first class mail, certified or registered, return receipt requested, postage prepaid, to the recipient at the address below indicated: NOTICES TO EXECUTIVE: William D. Bennison 12 Belfrey Drive Greer, SC 29650 NOTICES TO THE COMPANY: Hexcel Corporation Two Stamford Plaza 281 Tresser Boulevard 16th Floor Stamford, CT 06901-3238 Attn: President or such other address or to the attention of such other person as the recipient party shall have specified by prior written notice to the sending party. Any notice under this Agreement shall be deemed to have been given when so delivered or mailed. 10. SEVERABILITY. Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability shall not affect any other provision or any other jurisdiction, but this Agreement shall be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision had never been contained herein. 11. COMPLETE AGREEMENT. This Agreement embodies the complete agreement and understanding among the parties and supersede and preempt any prior understandings, agreements or representations by or among the parties, written or oral, which may have related to the subject matter hereof in any way. The captions of this Agreement are for convenience of reference only, are not part of this Agreement and shall not be used to interpret this Agreement. As of the Effective Date, and without any further act or written waiver by 7 Executive, that certain Employment Agreement ("Existing Employment Agreement") between Executive and Clark-Schwebel, Inc. dated as of June 1, 1998 shall be deemed terminated and of no further force and effect and Executive hereby waives and releases any and all rights and claims existing or arising under or pursuant to the Existing Employment Agreement. The provisions contained in the preceding sentence are for the benefit of the Company, its successors and assigns, and Clark-Schwebel, Inc. and its affiliates, and their respective successors and assigns, officers, directors, representatives and agents. 12. NO STRICT CONSTRUCTION. The language used in this Agreement shall be deemed to be the language chosen by the parties hereto to express their mutual intent, and no rule of strict construction shall be applied against any party as the supposed drafter of the language. 13. COUNTERPARTS. This Agreement may be executed in separate counterparts, each of which is deemed to be an original and all of which taken together constitute one and the same agreement. 14. SUCCESSORS AND ASSIGNS. (a) This Agreement is intended to bind and inure to the benefit of and be enforceable by Executive, the Company and their respective heirs, personal representatives, successors and assigns, except that Executive may not assign his rights or delegate his obligations hereunder without the prior written consent of the Company otherwise than by will or the laws of descent and distribution. (b) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, "Company" shall mean the Company as herein defined and any successor to its business and/or assets as aforesaid that assumes and agrees to perform this Agreement by operation of law or otherwise. (c) Pursuant to the Asset Purchase Agreement by and among Stamford CS Acquisition Corp., Clark-Schwebel Holdings, Inc., Clark-Schwebel, Inc. and the Company dated July __, 1998 (the "Asset Agreement"), the Company, effective as of the Closing (as defined in the Asset Agreement), shall assume certain indemnity obligations under Section 11.6 of that certain Merger Agreement among Stamford CS Acquisition Corp., Clark-Schwebel Holdings, Inc. (and other parties thereto) dated July __, 1998, and hereby acknowledges 8 that, effective as of the Closing, Executive shall be a third party beneficiary under Section 11.6 to the extent that Section 11.6 is applicable to Executive. 15. DISPUTE RESOLUTION. (a) If any dispute, claim or difference arises out of this Agreement or the employment relationship thereby created, or as to the rights and liabilities of the parties hereunder or as to the breach or invalidity hereof, or in connection with the construction of this Agreement including any dispute, claim or difference as to whether an issue is arbitrable (each such event being hereinafter called a "DISPUTE"), the parties will settle such Dispute exclusively by binding arbitration in accordance with the Commercial Arbitration rules of the American Arbitration Association in effect as of the date of commencement of the arbitration. (b) Either party may demand that any Dispute be submitted to binding arbitration. The demand for arbitration shall be in writing, shall be served on the other party in the manner prescribed in this Agreement for the giving of notices, and shall set forth a short statement of the factual basis for the claim, specifying the matter or matters to be arbitrated. (c) The arbitration will be held in the City of Atlanta unless the parties mutually agree to have the arbitration held elsewhere, and judgment upon the award made therein may be entered by any court having jurisdiction thereof; PROVIDED, FURTHER, THAT nothing contained in this Section 15 will be construed to limit or preclude a party from bringing any action in any court of competent jurisdiction in the United States for injunctive or other provisional relief to compel another party hereto to comply with its obligations under this Agreement or any other agreement between or among the parties during the pendency of the arbitration proceedings. (d) The arbitration shall be conducted by an arbitrator appointed by the American Arbitration Association (the "ARBITRATOR") who shall conduct such evidentiary or other hearings as he deems necessary or appropriate and thereafter shall make a final determination as soon as practicable after the conclusion of the hearings. Any arbitration pursuant hereto shall be conducted by the Arbitrator as the parties may mutually agree or if the parties do not so agree under the guidance of the Federal Rules of Civil Procedure and the Federal Rules of Evidence, but the Arbitrator shall not be required to comply strictly with such rules in conducting any such arbitration. (e) The Company shall bear its own fees and expenses incurred in connection with the arbitration, the fees and expenses of the Arbitrator incurred in connection with the arbitration, and shall pay the reasonable fees and 9 expenses (including the legal fees of one law firm) incurred by Executive in connection with the arbitration. (f) The Arbitrator shall have the authority to award any remedy or relief that a Court of the State of New York could order or grant, including without limitation, specific performance of any obligation under this Agreement, the awarding of punitive damages, the issuance of an injunction, or the imposition of sanctions for abuse or frustration of the arbitration process. The decision and award of the Arbitrator shall be in writing and counterpart copies thereof shall be delivered to each party. The decision and award of the Arbitrator shall be binding on all parties. In rendering such decision and award, the Arbitrator shall not add to, subtract from or otherwise modify the provisions of this Agreement. Either party to the arbitration may seek to have the ruling of the Arbitrator entered in any court having jurisdiction thereof. (g) Each party agrees that it will not file suit, motion, petition or otherwise commence any legal action or proceeding for any matter which is required to be submitted to arbitration as contemplated herein except in connection with the enforcement of an award rendered by the Arbitrator and except to seek the issuance of an injunction or temporary restraining order pending a final determination by the Arbitrator. Upon the entry of any order dismissing or staying any action or proceeding filed contrary to the preceding sentence, the party which filed such action or proceeding shall promptly pay to the other party the reasonable attorney's fees, costs and expenses incurred by such other party prior to the entry of such order. (h) All aspects of the arbitration shall be considered confidential and shall not be disseminated by any party with the exception of the ability and opportunity to prosecute its claim or assert its defense to any such claim. The Arbitrator shall be required to issue prescriptive orders as may be required to enforce and maintain this covenant of confidentiality during the course of the arbitration and after the conclusion of same so that the result and underlying data, information, materials and other evidence are forever withheld from public dissemination with the exception of its subpoena by a court of competence jurisdiction in an unrelated proceeding brought by a third party. 16. AMENDMENT AND WAIVER. The provisions of this Agreement may be amended or waived only with the prior written consent of the Company and Executive (or their respective successors and legal representatives), and no course of conduct or failure or delay in enforcing the provisions of this Agreement shall affect the validity, binding effect or enforceability of this Agreement or be deemed a waiver of such provisions. 17. CHOICE OF LAW. ALL ISSUES AND QUESTIONS CONCERNING THE CONSTRUCTION, VALIDITY, ENFORCEMENT AND INTERPRETATION OF THIS AGREEMENT AND THE EXHIBITS AND SCHEDULES HERETO SHALL BE GOVERNED BY, AND CONSTRUED 10 IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO ANY CHOICE OF LAW OR CONFLICT OF LAW RULES OR PROVISIONS (WHETHER OF THE STATE OF NEW YORK OR ANY OTHER JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF THE LAWS OF ANY JURISDICTION OTHER THAN THE STATE OF NEW YORK. IN FURTHERANCE OF THE FOREGOING, THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL CONTROL THE INTERPRETATION AND CONSTRUCTION OF THIS AGREEMENT (AND ALL SCHEDULES AND EXHIBITS HERETO), EVEN THOUGH UNDER THAT JURISDICTION'S CHOICE OF LAW OR CONFLICT OF LAW ANALYSIS, THE SUBSTANTIVE LAW OF SOME OTHER JURISDICTION WOULD ORDINARILY APPLY. 18. AT-WILL EMPLOYMENT. Executive shall be employed by the Company on an "at will" basis and the employment relationship between the Company and Executive may be terminated at any time by either the Company or Executive for any reason whatsoever, with or without cause, but subject to this Agreement. 19. NON-EXCLUSIVITY OF RIGHTS. Nothing in this Agreement shall prevent or limit Executive's continuing or future participation in any plan, program, policy or practice provided by the Company or any of its affiliated companies and for which Executive at the Company's sole discretion may qualify. Amounts that are vested benefits or that Executive is otherwise entitled to receive under any plan, policy, practice or program or any contract or agreement with the company or any of its affiliated companies at or subsequent to the termination of the Employment Period shall be payable in accordance with such plan, policy, practice or program or contract or agreement except as explicitly modified by this Agreement. No such amounts shall reduce any amounts payable under this Agreement. 20. NO DUTY TO MITIGATE. In no event shall Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to Executive under any of the provisions of this Agreement and such amounts shall not be reduced whether or not Executive obtains other employment. 21. INTEREST. If any payment to Executive required by this Agreement is not made within the time for such payment specified herein, the Company shall pay to Executive interest on such payment at the legal rate payable from time to time upon judgments in the state courts in the State of South Carolina from the date such payment is payable under the terms hereof until paid. 22. WITHHOLDING. All payments and benefits paid or payable under this Agreement shall be made net of any withholding for taxes as required by applicable law. * * * * * 11 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first written above. HEXCEL CORPORATION By_______________________ Name: Title: ________________________ William D. Bennison 12 EX-27.1 10 EXHIBIT 27.1
5 1,000 9-MOS DEC-31-1998 JAN-01-1998 SEP-30-1998 3,870 0 214,342 7,751 224,683 459,650 607,546 185,971 1,394,538 209,985 838,762 0 0 371 299,891 1,394,538 785,581 785,581 586,417 99,709 0 0 23,167 76,288 27,742 48,546 0 0 0 48,546 1.32 1.15
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